<PAGE>
As filed with the Securities and Exchange Commission on June 3, 1999
Registration No. 333-75385
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
PRINCETON ECOM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 7374 22-2528267
(Primary standard (I.R.S. employer
(State or other industrial classification identification no.)
jurisdiction of code number)
incorporation or
organization)
165 Wall Street
Princeton, New Jersey 08540
(609) 924-1244
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
-------------------
Donald C. Licciardello
Chairman and Chief Executive Officer
Princeton eCom Corporation
165 Wall Street
Princeton, New Jersey 08540
(609) 924-1244
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-------------------
Copies to
James P. Prenetta, Jr., Esq. Russell U. Schenkman, Esq. Ellen B. Corenswet, Esq.
Kelley Drye & Warren LLP Hale & Schenkman Brian B. Margolis, Esq.
101 Park Avenue 13 Roszel Road Brobeck, Phleger &
New York, New York 10178 Suite C-225 Harrison LLP
(212) 808-7800 Princeton, New Jersey 08540 1633 Broadway
(609) 452-0110 New York, New York 10019
(212) 581-1600
-------------------
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act of 1933, please check the following box. [_]
-------------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any jurisdiction where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 3, 1999
[PRINCETON eCOM LOGO]
3,000,000 Shares
Common Stock
This is Princeton eCom's initial public offering. Princeton eCom has obtained
approval for quotation on the Nasdaq National Market under the symbol "ECOM"
for the shares we are offering. We anticipate that the initial public offering
price will be between $9.00 and $11.00 per share.
--------------
Investing in the common stock involves risks.
See "Risk Factors" beginning on Page 7.
--------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price........................................... $ $
Underwriting Discounts and Commissions.......................... $ $
Proceeds to Princeton eCom...................................... $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
Princeton eCom has granted the underwriters a 30-day option to purchase up to
an additional shares of common stock to cover over-allotments. BancBoston
Robertson Stephens Inc. expects to deliver the shares of common stock to
purchasers on , 1999.
--------------
BancBoston Robertson Stephens Donaldson, Lufkin & Jenrette
--------------
First Union Capital Markets Corp.
--------------
Online distribution by The undersigned is facilitating
Internet distribution
E*TRADE Securities DLJdirect Inc.
The date of this Prospectus is , 1999.
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
Until , 1999, all dealers that buy, sell or trade our common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This requirement is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Financial Data.................................................. 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 19
Business................................................................. 28
Management............................................................... 43
Certain Transactions..................................................... 52
Principal Stockholders................................................... 53
Description of Capital Stock............................................. 54
Shares Eligible for Future Sale.......................................... 56
Underwriting............................................................. 58
Legal Matters............................................................ 60
Experts.................................................................. 60
Additional Information................................................... 60
Index to Financial Statements............................................ F-1
</TABLE>
---------------------
Digital Scanline, els Electronic Lockbox Service and 1-800-PayBill are our
registered trademarks. e-Collect is also a trademark of ours. All other
trademarks or trade names referred to in this prospectus are the property of
their respective owners.
3
<PAGE>
[GRAPHIC insert with the following customer logos: Citibank, Southern California
Edison, Bell Atlantic, Western Union, Discover, Sears, Washington Gas, Sallie
Mae, LA Times, and First USA.
The graphic also contains the following industry quotes:
"PRINCETON (eCom) MAKES THE GRADE PUBLISHING EBILLS."
- - Jim Middlemiss, Bank Technology News
"Today the most important electronic lockbox provider is Princeton (eCom)."
- - Gary Craft, E*OFFERING
WITH AN EMPHASIS ON BILL PRESENTMENT, PRINCETON (eCom) CATCHES A NEW WAVE
- - Report on Home Banking and Financial Services
March 25, 1998
"Princeton (eCom) is the pioneer in electronic bill presentment and payment and
a market leader in the Internet bill presentment and payment industry."
- - Jules F. Street, Vice President, Killen & Associates Research - EBPP - Volume
Study
The graphic also includes the "Princeton eCom" logo and the quotes: "eCom is a
leading provider of outsourced electronic bill publishing and payment
solutions," and "If you are looking for a simple outsourced solution, our model
speaks for itself."
The graphic also includes a tiered depiction of Princeton eCom's Publishing
Model and of the Biller In House EBPP Model.]
<PAGE>
SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus, including "Risk Factors" and the
financial statements, carefully before making an investment decision.
The Company
We provide comprehensive electronic bill publishing services via the
telephone and Internet to large businesses, which generate recurring bills, and
financial institutions. Our bill publishing services are comprised of both the
presentment and payment of bills. We also provide electronic lockbox and credit
card balance transfer services to large businesses and financial institutions.
Our telephone bill publishing service enables consumers to access billing
information and to pay bills in as few as five keystrokes and to set up
automatic payment of recurring bills. Our Internet bill publishing service
eliminates the need for billers to generate and mail paper bills. Both our
telephone and Internet services eliminate the need for consumers to write and
mail paper checks. Our Internet bill publishing service allows billers to
publish bills directly through their own web sites or indirectly through web
sites of financial institutions and Internet portals. An Internet portal is a
high-traffic web site that allows people to search, navigate, retrieve
information and access services via the Internet. Using our service, consumers
have numerous options of how, where and when to access, analyze and pay their
bills. Our electronic lockbox service, which is a stand-alone service as well
as a key component of both our telephone and Internet bill publishing services,
is a clearinghouse for electronic consumer-initiated payments. Our credit card
balance transfer service allows electronic transfers of balances from one
credit card institution to another. As of May 31, 1999, of our more than 250
corporate customers, 45 were utilizing our electronic bill publishing services.
Of these customers, 14 are currently utilizing our Internet bill publishing
service. We have incurred losses in each of the last five years and expect to
continue to incur losses from operations in the forseeable future.
According to Jupiter Communications, in 1998 approximately 15 billion
consumer paper bills were received by approximately 100 million U.S.
households. Creating and presenting a paper bill is a multiple-step process
that is costly and labor intensive for a biller. According to Gartner Group,
the average cost to a biller of creating and delivering a paper bill is $1.00.
The bill payment process is also time consuming for the consumer.
Billers have traditionally mailed their consumers paper bills and, in turn,
consumers have paid their bills by mailing checks. With technology
advancements, billers have begun to use non-paper based billing alternatives
designed to reduce their billing costs and to provide their consumers with
increased convenience. The Internet has provided the opportunity to
dramatically simplify the bill presentment and payment process, to greatly
reduce the cost to billers and to improve the convenience for consumers. As the
Internet gains increased acceptance as a medium for financial services, we
believe that more billers will begin to utilize Internet bill presentment and
payment services.
Most billers lack the expertise to cost-effectively implement and maintain
the hardware and software necessary to present bills and process consumer
payments through the Internet. Billers choosing to use the Internet to
facilitate the billing process must decide whether to develop Internet bill
presentment and payment capabilities internally or to outsource the process.
Our electronic bill publishing services dramatically simplify the bill
presentment and payment process, providing the following key benefits to our
customers:
. comprehensive, cost-effective outsourcing of the entire bill presentment
and payment process;
. broad distribution that provides consumers with numerous options of how,
where and when to access and pay their bills;
. fully customized Internet-based consumer billing interface that allows
billers, financial institutions and Internet portals to preserve the
existing look and feel of their web sites;
4
<PAGE>
. reliable system architecture that is expandable at relatively low cost;
. enhanced network and data security; and
. ease of integration with billers' financial accounting systems.
Although the Internet bill presentment and payment market is in the early
stages of development, we have leveraged our existing services to position
ourselves as a market leader in this emerging industry.
On January 25, 1984, we were incorporated in the State of Delaware under
the name Princeton TeleCom Corporation. On March 24, 1999, we changed our name
to Princeton eCom Corporation. Our principal office is located at 165 Wall
Street, Princeton, New Jersey 08540 and our telephone number is 1-800-PayBill.
Our web site address is www.princetonecom.com. The information on our web site
is not a part of this prospectus.
Prior to completion of this offering, we will effect a 3- for-1 stock split
in the form of a stock dividend. Unless otherwise noted, the information in
this prospectus assumes that the stock split has been effected and that the
underwriters will not exercise their over-allotment option.
5
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by Princeton eCom...... 3,000,000 shares
Common stock to be outstanding after the
offering.................................. 14,344,002 shares
Use of proceeds............................. To invest in the further growth
and expansion of our business and
for working capital and other
general corporate purposes. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol...... ECOM
</TABLE>
Summary Financial Data
(in thousands, except per share data)
The As Adjusted Balance Sheet Data summarized below reflects the
application of the net proceeds from the sale of the 3,000,000 shares of common
stock offered by Princeton eCom at an assumed initial public offering price of
$10.00 per share, after deducting the underwriting discounts and commissions
and our estimated offering expenses.
<TABLE>
<CAPTION>
Three
Months
Ended
Year Ended December 31 March 31
----------------------------------------- --------------
1994 1995 1996 1997 1998 1998 1999
------ ------ ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Total revenues.......... $ 797 $2,235 $ 1,836 $ 3,032 $ 3,822 $ 831 $1,142
Operating loss.......... (764) (556) (2,184) (2,126) (3,341) (520) (1,075)
Net loss................ (546) (629) (2,191) (2,142) (3,355) (524) (1,077)
Basic and diluted net
loss per share........ $(0.07) $(0.08) $ (0.26) $ (0.25) $ (0.36) $(0.06) $(0.10)
Shares used in computing
net loss
per share............. 8,351 8,351 8,454 8,568 9,423 8,615 11,126
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
--------------------
Actual As Adjusted
-------- -----------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.............................. $8,775 $35,475
Working capital (deficit).............................. (823) 25,877
Total assets........................................... 11,686 38,386
Long term debt, less current portion................... 44 44
Total stockholders' equity............................. 189 26,889
</TABLE>
6
<PAGE>
RISK FACTORS
Any investment in our common stock involves a high degree of risk. You
should carefully consider the risks described below, together with the other
information contained in this prospectus, before making an investment decision.
The risks and uncertainties described below are not the only ones faced by our
company. Additional risks and uncertainties not presently known to us or that
we currently deem immaterial may also impair our business operations. If any of
the following risks actually occur, our business, results of operations or
financial condition could be materially and adversely affected. In such case,
the trading price of our common stock could decline, and you may lose all or
part of your investment.
Risks Related To Our Business
We have a history of losses and expect to continue to incur losses
We have incurred net losses in each of the last five years and expect to
continue to incur losses from operations for the foreseeable future. We cannot
assure you that we will ever become profitable. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
We intend to expend significant resources on our sales, marketing and new
customer implementation operations. As a result, we will need to achieve
significant revenue increases to achieve and maintain profitability. We cannot
assure you that we will be able to achieve the necessary revenue growth. Our
number of customers or the number of services which our customers buy from us
may grow more slowly than we anticipate or may decrease in the future.
Our business model is unproven and is evolving
The electronic bill presentment and payment industry, which includes all
non-paper based mediums, is an evolving industry. During the first quarter of
1999, 30% of our service fee revenues were generated from our 14 customers who
use both our telephone and Internet bill publishing services. Although we have
expended and will continue to expend considerable resources in developing our
Internet bill publishing service, we need to achieve critical mass in terms of
number of billers and consumers that use the service in order for it to
succeed. Even with the successful growth of Internet usage, our business model
will not succeed if consumers are not receptive to using the Internet to pay
their bills. If a significant number of billers fail to adopt our Internet bill
publishing service or adopt this service more slowly than we anticipate, or if
we fail to retain new billers or further expand this service to penetrate our
existing non-Internet customer base, our business would be materially and
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and "Business -- The Princeton eCom
Strategy."
Our operating results may fluctuate significantly from quarter to quarter,
which may negatively impact our stock price
Our quarterly operating results may fluctuate significantly in the future
as a result of a variety of factors, many of which are outside of our control.
These factors include:
<TABLE>
<S> <C> . the loss of key employees and the
time and expense needed to
. the rate at which we increase recruit, hire and train new
our customer base and their use personnel, particularly service
of our various services; development personnel;
. the amount and timing of costs . our ability to upgrade, enhance
related to our sales and and maintain our systems and
marketing efforts and other infrastructure and the timing and
initiatives; cost of this;
. sales and implementation cycles . interest rate fluctuations; and
of our customers;
. economic conditions which may
. the loss of a number of existing affect the budgets of billers,
customers; financial institutions and
consumers for technological
expenditures.
</TABLE>
7
<PAGE>
Because of these factors, we believe that comparisons of our quarterly
operating results are not necessarily meaningful. In addition, it is possible
that in some future quarters our operating results will be below the
expectations of research analysts and investors, and in that case, the price of
our common stock is likely to decline.
If we fail to respond to rapid technological change, our business will suffer
The electronic bill presentment and payment industry is characterized by
rapid technological change. As a result, the emergence of new industry
standards and practices could render our existing technologies and systems, and
thus our services, obsolete. The development of our technologies and necessary
service enhancements entails significant technical and business risks and
requires substantial lead-time and expenditures. We may not be able to keep
pace with the latest technological developments, successfully identify and meet
our customer demands, use new technologies effectively or adapt our services to
customer requirements or emerging industry standards. If we cannot adapt or
respond in a cost-effective and timely manner to technological changes, our
business, operating results and financial condition will be materially and
adversely affected.
If we do not develop relationships with significant Internet aggregators of
consumer bills, our business will suffer
We believe that in order to be successful in the Internet bill presentment
and payment industry, we must have relationships with a number of aggregators
that will enable our customers, through our Internet bill publishing service,
to reach a significant portion of their consumer audience. An aggregator is a
company that consolidates bills from different billers and bill publishers and
then distributes the bills to web sites of financial institutions and portals
where consumers can go to pay their bills. We cannot assure you that we will be
able to achieve or maintain this minimum number of relationships and our
failure to do so would have a material and adverse effect on our business,
operating results and financial condition.
Increased competition in the electronic bill presentment and payment markets
could materially and adversely affect our business
Increased competition in the electronic bill presentment and payment market
could have a material and adverse effect on our business, operating results and
financial condition. We believe that the principal competitive factors are:
.ability to identify and respond to customer needs;
.technical expertise;
.quality of the service;
.price of the service;
.breadth of distribution; and
. possible preexisting relationships between companies that process paper
bills or lockbox service providers and our potential customers.
In addition to the foregoing, our Internet bill presentment services also
face competitive pressures from various third-party software vendors, which
provide some of the software necessary for the development of an integrated,
in-house Internet bill publishing service. In addition, these companies could
potentially leverage their existing capabilities and relationships to enter the
outsourced Internet bill presentment and payment market.
Many of our actual and potential competitors have significantly greater
financial, marketing, technical, sales and customer support and other
resources, larger customer bases and longer relationships with customers
8
<PAGE>
than we do. In addition, some of these potential competitors may be able to
devote greater resources to the development, promotion and sale of their
services, adopt more aggressive pricing strategies and devote substantially
more resources to the development of technology and systems development than we
are able.
Increased competition may result in reduced operating margins, loss of
market share and diminished value of our services, as well as different
pricing, service and marketing strategies. We may not be able to compete
successfully against current and future competitors, and competitive pressures
we face could have a material and adverse effect on our business, operating
results and financial condition.
If we fail to successfully expand our sales and marketing activities, our
business will be materially and adversely affected
We intend to expand our sales and marketing activities by hiring additional
sales and marketing personnel. Our ability to expand our sales and marketing
activities involves a number of risks including:
. our ability to successfully integrate future sales and marketing
personnel; and
. our ability to hire, retain, integrate and motivate sales and marketing
personnel in a very competitive environment.
We cannot assure you that we will be successful in expanding our sales and
marketing personnel, and our failure to do so would have a material and adverse
effect on our sales and marketing efforts and on our business, operating
results and financial condition.
A number of members of our management team have little experience working
together, and we depend on a few key employees
Our future success will depend upon the continued service of key management
and technical personnel. Ronald W. Averett, our President and Chief Operating
Officer, joined us in March 1999 and Christopher S. Sugden, our Senior Vice
President and Chief Financial Officer, joined us in February 1999. Three other
members of our senior management team have joined us since April 1999. Given
their limited experience with our business and other members of management, it
is possible that these officers may not integrate well into our business. Their
failure to integrate well would have a material and adverse effect on our
business, operating results and financial condition.
We currently do not maintain key man life insurance policies on any of our
employees. We do not have employment agreements with any of our employees other
than Messrs. Averett and Sugden. The loss of the services of any of our key
employees or our inability to hire and retain additional key employees would
have a material and adverse effect on our business, operating results and
financial condition. See "Management -- Employment Agreements."
If we fail to effectively manage our internal growth, our business will be
materially and adversely affected
We recently began to significantly expand our operations and intend to
continue this expansion. We increased our employee base from 56 at December 31,
1997 to 95 at May 31, 1999. This expansion has placed, and is expected to
continue to place, a significant strain on our managerial, operational and
financial resources. We must hire additional managerial, and sales and
marketing employees. In addition, we cannot assure you that we can successfully
integrate any new management personnel into our existing management team. We
cannot assure you that current and planned personnel, systems, procedures and
controls will be adequate to support our future operations. If we are unable to
manage our growth effectively, the quality of our services, our ability to
train and retain key personnel, and our business, operating results and
financial condition will be materially and adversely affected.
9
<PAGE>
We will be dependent on our relationships with financial institutions to help
market our services and our business would be materially and adversely affected
if we were to lose some of these relationships
We will be dependent on our relationships with financial institutions to
help market our services to more billers. Our ability to increase revenues
depends partially upon our ability to market our services through new and
existing relationships. If we lose some of these relationships or fail to
develop new ones, our business will not meet growth expectations and our
business, operating results and financial condition will be materially and
adversely affected.
If our system security is breached, our business will be materially and
adversely affected
A fundamental requirement for Internet bill presentment and payment
services is the secure transmission of confidential information over public
computer networks. Third parties may attempt to breach our system security or
that of our customers. If they are successful, we may be liable to our billers
or their consumers for any breach in our system security and any breach could
harm our reputation.
Our computer servers are vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions, which could lead to interruptions
or delays in processing transactions, or the manipulation or loss of data. We
may be required to expend significant capital and other resources to license
encryption technology and additional technologies to protect against system
security breaches or to alleviate problems caused by any breach. Our failure to
prevent system security breaches would have a material and adverse effect on
our business, operating results and financial condition.
Our operations are dependent upon systems which are located at a single site
and an interruption of our systems could materially and adversely affect our
business
Our success depends largely upon the efficient and uninterrupted operation
of our operating systems. All of our operating systems are located at a single
facility leased by us in Princeton, New Jersey. Our systems are vulnerable to
damage or interruption from fire, power loss, telecommunications failure,
break-ins and similar events. We cannot assure you that we will not experience
system failures in the future. The occurrence of a system failure or similar
event could have a material and adverse effect on our business, operating
results and financial condition.
A constraint in capacity to process transactions would materially and adversely
affect our business
Capacity constraints in processing transactions, due to a sharp increase in
traffic, may cause unanticipated system disruptions, impair quality and lower
the level of our service. If this were to happen, our business, operating
results and financial condition will be materially and adversely affected.
We do not have any long-term contracts with our billers or aggregators
All of our contracts with our billers and aggregators are short-term and
can be terminated without cause, generally upon 30 to 90 days' notice. Our
future success depends on our ability to retain our current billers and
aggregators and attract new billers and aggregators. The loss of several of our
larger existing billers or aggregators, or our inability to attract new billers
or a major aggregator, would have a material and adverse effect on our
business, operating results and financial condition.
If our services do not function as designed, we may incur significant liability
Our electronic bill publishing services are designed to provide payment
management functions and to limit the billers' risk of fraud or loss in
effecting transactions with their consumers. As our electronic services become
more critical to our billers, there is a potential for significant liability
claims for the processing of fraudulent or erroneous transactions. If a
liability claim were brought against us, even if not
10
<PAGE>
successful, its defense would likely be time consuming and costly and could
injure our reputation. A successful liability claim may have a material and
adverse effect on our business, operating results and financial condition.
Our failure to successfully integrate any future acquisitions would strain our
managerial, operational and financial resources
As part of our business strategy, we intend to pursue strategic
acquisitions that would provide additional technologies, billers, services or
experienced personnel. Acquisitions present a number of potential risks that
would have a material and adverse effect on our business, operating results and
financial condition, including:
. difficulties in assimilating the acquired company's personnel,
operations and technologies;
. the potential loss of key employees of the acquired company;
. the distraction of our management's attention from other business
concerns; and
. potentially dilutive issuances of our common stock or the incurrence of
substantial amounts of debt.
Year 2000 problems would adversely affect our business
In order to accurately provide our services, we must rely on technology
supported by billers, financial institutions, aggregators, presenters and
consumers. Furthermore, our services rely on the transmission of information
over the phone lines and data over the Internet, third party data and voice
communication lines, and data transmission through wire transfer systems,
including the Federal Funds system. Failure by us, our billers, aggregators,
presenters or suppliers to adequately address Year 2000 issues in a timely
manner could impede our ability to provide our services and have a direct
impact on our ability to generate revenue. This, in turn, could have a material
and adverse impact on our business, financial condition and results of
operations.
If we are unable to protect our intellectual property rights, our business will
be materially and adversely affected
We protect our intellectual property rights through a combination of
trademark, copyright and trade secrets laws. We cannot assure you that the
steps we have taken to protect our intellectual property rights, however, will
be adequate to deter misappropriation of those rights. In addition, we cannot
be certain that our services do not infringe valid patents, copyrights and
intellectual property rights held by third parties. See "Business --
Proprietary Rights."
Our revenue could be negatively impacted by decreases in interest earned on
overnight investments
For the three months ended March 31, 1999, approximately 36% of our revenue
was generated from interest paid on amounts deposited overnight with financial
institutions pending payment. The interest earned is based on the prevailing
short-term interest rates. Accordingly, fluctuations in the short-term interest
rates will affect our revenues. Likewise, a decrease in revenue generated by
overnight investment may not be met by a corresponding decrease in any
borrowing costs which we may incur in the future. Thus, either a fall in the
prevailing short-term interest rates or an increase in future borrowing costs
could materially and adversely affect our business, operating results and
financial condition.
11
<PAGE>
Risks Related to Our Industry
Government regulation and the legal uncertainties relating to the services we
provide would cause our business to suffer
Our management believes that we are not required to be licensed by the
Office of the Comptroller of the Currency, the Federal Reserve Board, or other
federal or state agencies that regulate or monitor banks or other types of
providers of electronic commerce services. We cannot assure you that a federal
or state agency will not attempt, either now or in the future, to require that
providers of services like ours be licensed. This would impede our ability to
do business in the areas within the regulator's jurisdiction. In conducting
several aspects of our business, we are subject to various laws and regulations
relating to commercial transactions generally, such as the Uniform Commercial
Code. We are also subject to the electronic funds transfer rules embodied in
Regulation E promulgated by the Federal Reserve Board. Given the expansion of
the electronic commerce market, it is possible that the Federal Reserve might
revise Regulation E or adopt new rules for electronic funds transfer affecting
users other than consumers. It is possible that Congress or individual states
could enact laws regulating the electronic commerce market. If enacted, these
laws, rules and regulations could be imposed on our business and industry and
would have a material and adverse effect on our business, operating results and
financial condition. In addition, any new laws or regulations relating to the
Internet would have a material and adverse effect on our business, operating
results and financial condition. See "Business -- Government Regulations."
We depend on the continued growth in the use of the Internet and the
development of the Internet infrastructure
The growth of our business would be materially and adversely affected if
Internet usage does not continue to grow rapidly. Internet usage may be
inhibited for a number of reasons, including:
. concerns about the security of confidential information;
. lack of reliability and ease of access;
. lack of cost-effective, high-speed service;
. inconsistent quality of service;
. inadequate network infrastructure; or
. adoption of onerous governmental regulations.
In addition, the Internet infrastructure may not be able to support the
demands placed on it by increased Internet usage and its performance and
reliability may decline. Internet web sites have experienced interruptions in
their service as a result of outages and other delays occurring throughout the
Internet network infrastructure. If these outages or delays frequently occur in
the future, Internet usage, as well as the use of our Internet bill publishing
service, could grow more slowly than projected or decline.
We may encounter Internet security concerns that would hinder Internet commerce
The secure transmission of confidential information over the Internet is an
important component of electronic commerce and communications over the
Internet. Because a number of our services involve the transfer of confidential
information, our business, operating results and financial condition could be
materially and adversely affected if Internet users significantly reduce their
use of the Internet because of system security concerns. We may also be
required to expend significant time and resources to protect our services
against the threat of security breaches or to alleviate problems caused by such
breaches.
12
<PAGE>
Risks Relating to this Offering
We are controlled by Donald C. Licciardello, our Chairman and Chief Executive
Officer, whose interests may differ from those of other stockholders
After this offering, Donald C. Licciardello, our Chairman and Chief
Executive Officer, will control, either directly or indirectly through the
Donald Licciardello Family Limited Partnership, approximately 48.8%, or 47.3%
if the underwriters' overallotment option is exercised in full, of our
outstanding common stock. As a result, he will have the ability to control our
management and affairs, and to control substantially all matters submitted to
our stockholders for approval, including the election and removal of directors
and any merger, consolidation or sale of all or substantially all of our
assets. This concentration of control may have the effect of deterring a change
in control of Princeton eCom, including impeding a merger, consolidation,
takeover or other business transaction involving us or discouraging a potential
acquirer from making a tender offer or otherwise attempting to obtain control
of Princeton eCom. Any of the foregoing results could, in turn, materially and
adversely affect the market price for our common stock. See "Principal
Stockholders."
Billing Concepts Corp. has the ability to appoint two members of our Board of
Directors
Pursuant to the terms of a voting agreement, as amended, entered into among
Billing Concepts, Donald C. Licciardello and the Donald Licciardello Family
Limited Partnership, of which Mr. Licciardello is the general partner, in
connection with Billing Concepts' purchase of shares of Princeton eCom in
September 1998, Billing Concepts, Mr. Licciardello and the Donald Licciardello
Family Limited Partnership have agreed to vote all of their respective shares
of common stock to elect to our board two individuals designated by Billing
Concepts and three individuals designated by Mr. Licciardello. As a result,
Billing Concepts, the holder of 18.3% of our common stock after this offering
(17.8% if the underwriters' overallotment option is exercised in full), can
designate 40% of the members of our board. Through this disproportionate voting
power, Billing Concepts may be able to influence the outcome of a decision
which may not be in the best interests of all stockholders. See "Certain
Transactions."
Certain provisions of Delaware law, our certificate of incorporation and our
by-laws may make a takeover of our company more difficult which could
materially and adversely affect the market price for our common stock
We are subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law. Section 203 could delay or prevent a third
party or a significant stockholder from acquiring control of us. In addition,
provisions of our certificate of incorporation and by-laws may have the effect
of discouraging, delaying or preventing a merger, tender offer or proxy contest
involving Princeton eCom, even if such transaction would be beneficial to our
stockholders. See "Description of Capital Stock."
Future sales of our common stock in the public market may depress our stock
price
The market price of our common stock could decline as a result of sales by
our existing stockholders of a large number of shares of common stock in the
market after this offering, or the perception that these sales may occur. These
sales also might make it more difficult for us to sell equity securities in the
future and at a price that we deem appropriate. See "Shares Eligible for Future
Sale."
You will experience an immediate and substantial dilution in the book value of
your investment
Investors purchasing shares in this offering will incur immediate and
substantial dilution in net tangible book value per share. To the extent
outstanding options to purchase common stock are exercised, there will be
further dilution. See "Dilution."
13
<PAGE>
Trading in our common stock could be subject to extreme price and volume
fluctuations and you could have difficulty trading your shares of common stock
We cannot predict the extent to which investor interest in Princeton eCom
will lead to the development of an active trading market or that the market
price of our common stock will not decline below the initial public offering
price. The stock market has experienced significant price and volume
fluctuations and the market prices of securities of technology companies,
particularly Internet-related companies, have been extremely volatile.
Investors may not be able to resell their shares at or above the initial public
offering price.
14
<PAGE>
USE OF PROCEEDS
The net proceeds we receive from this offering are estimated to be
approximately $26.7 million, $30.9 million if the underwriters' over-allotment
option is exercised in full, assuming an initial public offering price of
$10.00 per share, after deducting the underwriting discounts and commissions
and estimated offering expenses payable by us. The principal uses of the net
proceeds will be to invest in the further growth and expansion of our business
and for working capital and other general corporate purposes. In addition, we
may use a portion of the net proceeds from this offering to acquire or invest
in complementary businesses. However, we do not currently have commitments or
agreements to make such investment.
As of the date of this prospectus, we have not identified with certainty
the specific uses for the net proceeds from this offering. Consequently, our
management will have discretion over their use and investment. Pending their
use, the net proceeds will be invested in short-term, investment grade,
interest-bearing instruments, certificates of deposit or direct or guaranteed
obligations of the United States government.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock and
do not intend to pay any cash dividends in the foreseeable future. We currently
anticipate that all future earnings, if any, will be retained to finance the
further expansion and continued growth of our business. Any future
determination regarding the payment of cash dividends will be within the sole
discretion of our board of directors and will depend upon, among other things,
our earnings, operating results, financial condition and current and
anticipated cash needs.
15
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999 on
an actual basis and as adjusted to reflect the sale by us of the shares of
common stock to be sold in this offering at an estimated offering price of
$10.00 per share. The As Adjusted data is calculated after deducting the
estimated underwriting discounts and commissions and offering expenses payable
by us. See "Use of Proceeds." The capitalization information set forth in the
table below is qualified by and should be read in connection with the more
detailed financial statements and related notes thereto included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
March 31, 1999
---------------------
Actual As Adjusted
-------- -----------
(in thousands)
<S> <C> <C>
Long-term debt, less current portion..................... $ 44 $ 44
-------- --------
Stockholders' equity:
Common stock, $0.01 par value; 50,000,000 shares
authorized; 11,284,002 shares issued and outstanding,
actual; and 14,284,002 shares issued and outstanding,
as adjusted.......................................... 113 143
Additional paid-in-capital............................. 14,587 41,257
Accumulated deficit.................................... (11,970) (11,970)
Subscriptions receivable............................... (188) (188)
Deferred compensation.................................. (2,353) (2,353)
-------- --------
Total stockholders' equity............................. 189 26,889
-------- --------
Total capitalization................................. $ 233 $ 26,933
======== ========
</TABLE>
The above capitalization table excludes (1) 2,697,900 shares of common
stock issuable upon the exercise of options outstanding under our stock option
plans, as of March 31, 1999, at a weighted average price of $1.87 per share and
(2) 2,361,150 shares of common stock reserved for issuance, and not
outstanding, under our existing stock option plans as of March 31, 1999.
16
<PAGE>
DILUTION
Our net tangible book value as of March 31, 1999 was $188,611, or $0.02 per
share of common stock. Net tangible book value per share represents the amount
of our total tangible assets less our total liabilities, divided by the number
of shares of our common stock outstanding. After giving effect to our sale of
3,000,000 shares of common stock in this offering at an estimated offering
price of $10.00 per share and the application of the estimated net proceeds of
this offering, our net tangible book value as of March 31, 1999 would have been
approximately $26,888,611, or $1.88 per share of common stock. This represents
an immediate increase in the net tangible book value of $1.86 per share to
existing stockholders and an immediate dilution in the net tangible book value
of $8.12 per share to new investors buying common stock in this offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............. $10.00
Net tangible book value per share as of March 31, 1999..... $0.02
Increase attributable to new investors .................... 1.86
-----
Adjusted net tangible book value per share as of March 31,
1999....................................................... 1.88
------
Dilution per share to new investors.......................... $ 8.12
======
</TABLE>
The following table summarizes, as of March 31, 1999, the total number of
shares of common stock purchased from us, the total consideration paid to us
and the average price per share paid by existing stockholders and by new
investors:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 11,284,002 79% $10,959,000 27% $ 0.97
New investors............. 3,000,000 21 30,000,000 73 $10.00
---------- ----- ----------- -----
Total................... 14,284,002 100.0% $40,959,000 100.0%
========== ===== =========== =====
</TABLE>
The foregoing discussion excludes (1) 2,697,900 shares of common stock
issuable upon the exercise of options outstanding under our stock option plans,
as of March 31, 1999, at a weighted average price of $1.87 per share and (2)
2,361,150 shares of common stock reserved for issuance, and not outstanding,
under our existing stock option plans as of March 31, 1999.
17
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data has been derived from our financial
statements. The selected financial data as of December 31, 1997 and 1998 and
for each of the three years in the period ended December 31, 1998 are derived
from our financial statements that have been audited by Arthur Andersen LLP,
independent public accountants, and are included elsewhere in this prospectus.
The selected financial data as of December 31, 1996 has been derived from our
audited balance sheet which is not included in this prospectus. The selected
financial data as of December 31, 1994 and 1995 and for each of the two years
in the period ended December 31, 1995 are derived from our unaudited financial
statements not included in this prospectus. The selected financial data as of
March 31, 1999 and for the three-month periods ended March 31, 1998 and 1999
have been derived from our unaudited financial statements, which in our
opinion, include all adjustments necessary for a fair presentation of the
information below. The results of operations for the three months ended March
31, 1999 are not necessarily indicative of the results expected for the entire
year. The following financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and the related notes included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31 March 31
------------------------------------------- ----------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- ------- ------ --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Service fees........... $ 792 $ 1,868 $ 1,632 $ 2,333 $ 2,386 $ 583 $ 735
Interest............... 5 367 204 699 1,436 248 407
------- ------- ------- ------- ------- ------ -------
Total revenues........ 797 2,235 1,836 3,032 3,822 831 1,142
------- ------- ------- ------- ------- ------ -------
Operating expenses:
Cost of services....... 476 1,054 1,363 1,801 1,967 430 555
Development costs...... 216 410 834 820 895 216 332
Selling, general and
administrative....... 869 1,327 1,823 2,537 3,283 671 1,100
Amortization of
deferred
compensation......... -- -- -- -- 1,018 34 230
------- ------- ------- ------- ------- ------ -------
Total operating
expenses............ 1,561 2,791 4,020 5,158 7,163 1,351 2,217
------- ------- ------- ------- ------- ------ -------
Operating loss.......... (764) (556) (2,184) (2,126) (3,341) (520) (1,075)
Interest expense........ 84 73 7 16 14 4 2
------- ------- ------- ------- ------- ------ -------
Loss before
extraordinary item.... (848) (629) (2,191) (2,142) (3,355) (524) (1,077)
Extraordinary gain from
debt forgiveness...... 302 -- -- -- -- -- --
------- ------- ------- ------- ------- ------ -------
Net loss................ $ (546) $ (629) $(2,191) $(2,142) $(3,355) $ (524) $(1,077)
======= ======= ======= ======= ======= ====== =======
Basic and diluted net
loss per share........ $ (0.07) $ (0.08) $ (0.26) $ (0.25) $ (0.36) $(0.06) $ (0.10)
======= ======= ======= ======= ======= ====== =======
Shares used in computing
net loss per share.... 8,351 8,351 8,454 8,568 9,423 8,615 11,126
======= ======= ======= ======= ======= ====== =======
<CAPTION>
December 31
------------------------------------------- March 31
1994 1995 1996 1997 1998 1999
------- ------- ------- ------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents........... $ 443 $ 1,408 $ 523 $ 505 $ 6,362 $ 8,775
Working capital
(deficit)............. (2,463) (3,266) (5,635) (7,908) (308) (823)
Total assets............ 1,031 2,748 1,799 2,110 9,344 11,686
Long-term debt, less
current portion....... 20 26 121 75 50 44
Total stockholders'
equity (deficit)........ (2,425) (3,055) (5,244) (7,385) 278 189
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements and the related notes which are included elsewhere in this
prospectus. The following discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ significantly
from those discussed in these forward-looking statements as a result of various
factors, including, but not limited to, those set forth under "Risk Factors"
and elsewhere in this prospectus.
Overview
We provide comprehensive electronic bill publishing services via the
telephone and Internet to large businesses, which generate recurring bills, and
financial institutions. Our bill publishing services are comprised of both the
presentment and payment of bills. We also provide electronic lockbox and credit
card balance transfer services to large businesses and financial institutions.
Our telephone bill publishing service enables consumers to access billing
information and to pay bills in as few as five keystrokes and set up automatic
payment of recurring bills. Our Internet bill publishing service allows billers
to publish bills directly through their own web sites or indirectly through web
sites of financial institutions and Internet portals.
Our revenues are primarily derived from two sources.
. Service Fees. We derive revenue from contractual relationships with
billers and financial institutions. Service fee revenues, which
represent transaction fees charged by us for our services, are
recognized as the services are performed.
. Interest. We also derive revenue through the overnight investment of
funds received pending payment. These funds are invested overnight in
investment grade and government securities while we reconcile consumer
and financial institution payments with our customers' accounting
databases. Interest revenue is recorded as it is earned.
We intend to significantly increase our sales and marketing and new
customer implementation expenditures during 1999. We believe these expenditures
will enable us to grow our biller base and continue to expand our relationships
with aggregators. We also believe that we can increase our share of the
Internet bill presentment and payment market through the establishment or
expansion of strategic relationships with providers of paper-based billing
services and financial institutions that have existing relationships with our
targeted biller customer base.
We incur development costs in connection with developing our services. To
date, we have not capitalized any development costs. We expect to significantly
increase our development costs in the future as we enhance our current services
and develop new service offerings. This increase will primarily relate to the
hiring of additional employees performing technical support and computer
programming functions.
During 1998, we recorded an aggregate deferred compensation expense of
approximately $1.9 million in connection with the grant of stock options to our
employees and directors at exercise prices below the fair market value of our
common stock. We are amortizing this deferred compensation expense over the
vesting periods of the options, which range from immediate vesting to periods
of up to four years. Of the $1.9 million of deferred compensation expense
recorded, approximately $1.0 million was charged to expense during the year
ended December 31, 1998.
We have incurred significant losses since our inception and we expect to
continue to incur significant losses for the foreseeable future. As of December
31, 1998, we had an accumulated deficit of approximately $10.9 million and
approximately $8.6 million of net operating loss carryforwards for federal
income tax purposes. Our net loss carryforwards begin to expire in 2003.
19
<PAGE>
Results of Operations
The following table sets forth financial data as a percentage of revenues
for the periods indicated.
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31 March 31
---------------------- ---------------
1996 1997 1998 1998 1999
------ ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Revenues:
Service fees...................... 88.9% 77.0% 62.4% 70.2% 64.4%
Interest.......................... 11.1 23.0 37.6 29.8 35.6
------ ----- ----- ------ ------
Total revenues................. 100.0 100.0 100.0 100.0 100.0
------ ----- ----- ------ ------
Operating expenses:
Cost of services.................. 74.2 59.4 51.5 51.7 48.6
Development costs................. 45.4 27.0 23.4 26.0 29.0
Selling, general and
administrative.................. 99.3 83.7 85.9 80.8 96.3
Amortization of deferred
compensation.................... 0.0 0.0 26.6 4.1 20.2
------ ----- ----- ------ ------
Total operating expenses....... 218.9 170.1 187.4 162.6 194.1
------ ----- ----- ------ ------
Operating loss...................... (118.9) (70.1) (87.4) (62.6) (94.1)
Interest expense.................... 0.4 0.5 0.4 0.5 0.2
------ ----- ----- ------ ------
Net loss............................ (119.3)% (70.6)% (87.8)% (63.1)% (94.3)%
====== ===== ===== ====== ======
</TABLE>
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Revenues
Total revenues increased by $311,000 to $1.1 million for the three months
ended March 31, 1999 from $831,000 for the three months ended March 31, 1998,
an increase of 37%.
Service Fees. Service fees increased by $152,000 to $735,000 for the three
months ended March 31, 1999 from $583,000 for the three months ended March 31,
1998, an increase of 26%. This increase is primarily attributable to services
provided to new financial institutions implemented in the quarter as well as
increases in revenues from increased volume from current customers of our
Internet bill publishing service and our 1-800-Paybill service. Service fees
represented 64% of total revenues for the three months ended March 31, 1999
compared to 70% for the three months ended March 31, 1998.
Interest. Interest revenue increased by $159,000 to $407,000 for the three
months ended March 31, 1999 from $248,000 for the three months ended March 31,
1998, an increase of 64%. This increase is primarily attributable to an
increase in the number of transactions per existing customer, higher dollar
amounts associated with each transaction and the addition of new customers.
Interest represented 36% of total revenues for the three months ended March 31,
1999 compared to 30% of total revenues for the three months ended March 31,
1998.
Operating Expenses
Total operating expenses increased by $800,000 to $2.2 million for the
three months ended March 31, 1999 from $1.4 million for the three months ended
March 31, 1998.
Cost of Services. Cost of services consists primarily of data processing
costs, new customer implementation, customer service and technical support, as
well as third party transaction fees like automated clearinghouse transaction
charges associated with wiring funds in performing our services. Cost of
services increased by $125,000 to $555,000 for the three months ended March 31,
1999 from $430,000 for the three months ended March 31, 1998, an increase of
29%. This increase was primarily attributable to the corresponding increase in
revenue, as well as an increase in the number of employees in anticipation of
future growth. Cost of services was 49% of total revenues for the three months
ended March 31, 1999 compared to 52% of total revenues for the three months
ended March 31, 1998.
20
<PAGE>
Development Costs. Development costs consist primarily of salaries for
software engineers and programming personnel. Development costs increased by
$116,000 to $332,000 for the three months ended March 31, 1999 from $216,000
for the three months ended March 31, 1998, an increase of 54%. This increase
was primarily attributable to increases in payroll associated with additional
headcount in anticipation of future growth. Development costs represented 29%
of total revenues for the three months ended March 31, 1999 compared to 26% of
total revenues for the three months ended March 31, 1998.
Selling, General and Administrative. Selling, general and administrative
expense consists primarily of salaries for sales and marketing personnel and
accounting and administrative personnel, as well as sales commissions and
public relations expense. Selling, general and administrative expense increased
by $429,000 to $1.1 million for the three months ended March 31, 1999 from
$671,000 for the three months ended March 31, 1998, an increase of 64%. This
increase was primarily attributable to an increase in the number of sales and
marketing and administrative personnel in anticipation of future growth.
Selling, general and administrative expense represented 96% of total revenues
for the three months ended March 31, 1999 compared to 81% of total revenues for
the three months ended March 31, 1998.
Amortization of Deferred Compensation. Amortization of deferred
compensation increased by $196,000 to $230,000 for the three months ended March
31, 1999 from $34,000 for the three months ended March 31, 1998. Deferred
compensation represents the difference between the exercise price of options
granted by us and the fair market value of our common stock on the grant date
of the options in cases where the exercise price was below fair market value on
the grant date. At March 31, 1999, we had $2.4 million of deferred compensation
that will be amortized over the remaining vesting periods of the options, which
range from one to four years.
Interest Expense. Interest expense consists of interest paid on leased
equipment. Interest expense decreased to $2,100 for the three months ended
March 31, 1999 from $3,700 for the three months ended March 31, 1998.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenues
Total revenues increased by $790,000 to $3.8 million in the year ended
December 31, 1998 from $3.0 million in the year ended December 31, 1997, an
increase of 26%.
Service Fees. Service fees were relatively unchanged at $2.4 million for
the year ended December 31, 1998 compared to $2.3 million for the year ended
December 31, 1997. Revenue was relatively flat because the increase in revenues
from our 1-800-PayBill service and Internet bill publishing service was offset
by a decrease in revenue from our payment services resulting from some
financial institutions electing to bring these services in-house. Service fees
represented 62% of total revenues for the year ended December 31, 1998 compared
to 77% of total revenues for the year ended December 31, 1997.
Interest. Interest revenue increased by $737,000 to $1.4 million for the
year ended December 31, 1998 from $699,000 for the year ended December 31,
1997, an increase of 105%. This increase is primarily attributable to an
increase in the use of our Balance Transfer Utility service during 1998 which
generates higher interest revenue because of the higher dollar amounts
associated with this service compared to our other services. Interest revenue
represented 38% of total revenues for the year ended December 31, 1998 compared
to 23% of total revenues for the year ended December 31, 1997.
Operating Expenses
Total operating expenses increased by $2.0 million to $7.2 million for the
year ended December 31, 1998 from $5.2 million for the year ended December 31,
1997, an increase of 38%.
21
<PAGE>
Cost of Services. Cost of services increased by $166,000 to $2.0 million
for the year ended December 31, 1998 from $1.8 million for the year ended
December 31, 1997, an increase of 9%. This increase was due primarily to
incremental costs associated with the increased use of our 1-800-PayBill
service and Internet bill publishing service in 1998 compared to 1997. Cost of
services was 52% of total revenues for the year ended December 31, 1998
compared to 59% of total revenues for the year ended December 31, 1997. This
percentage decrease is due to increased revenues during 1998 from our Balance
Transfer Utility service, which generates higher interest revenue without a
significant increase in cost because of the higher dollar amounts associated
with each transaction compared to our other services.
Development Costs. Development costs increased $75,000 to $895,000 for the
year ended December 31, 1998 from $820,000 for the year ended December 31,
1997, an increase of 9%. This increase was primarily attributable to the
addition of database and software development personnel during the fourth
quarter of 1998. Development costs were 23% of total revenues for the year
ended December 31, 1998 compared to 27% of total revenues for the year ended
December 31, 1997. This percentage decrease resulted from relatively flat
development costs being spread over a larger revenue base in 1998.
Selling, General and Administrative. Selling, general and administrative
expense increased $746,000 to $3.3 million for the year ended December 31, 1998
from $2.5 million for the year ended December 31, 1997, an increase of 30%.
This increase was primarily attributable to an increase in the number of sales
and marketing and administrative personnel in 1998. Selling, general and
administrative expense was 86% of total revenues for the year ended December
31, 1998 compared to 84% of total revenues for the year ended December 31,
1997.
Amortization of Deferred Compensation. Amortization of deferred
compensation expense was $1.0 million in the year ended December 31, 1998.
Deferred compensation is being amortized over the respective vesting periods of
the options. At December 31, 1998, we had $867,000 of deferred compensation
that will be amortized over the remaining vesting periods of the options which
range from one to four years.
Interest Expense. Interest expense consists of interest paid on leased
equipment. Interest expense was relatively unchanged from $16,000 for the year
ended December 31, 1997 to $14,000 for the year ended December 31, 1998.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues
Total revenues increased by $1.2 million to $3.0 million for the year ended
December 31, 1997 from $1.8 million for the year ended December 31, 1996, an
increase of 67%.
Service Fees. Service fees increased by $701,000 to $2.3 million for the
year ended December 31, 1997 from $1.6 million for the year ended December 31,
1996, an increase of 44%. This increase was primarily attributable to increased
use of our 1-800-PayBill service and our Balance Transfer Utility service in
1997. Service fees represented 77% of total revenues for the year ended
December 31, 1997 compared to 89% of total revenues for the year ended December
31, 1996.
Interest. Interest revenue increased by $495,000 to $699,000 for the year
ended December 31, 1997 from $204,000 for the year ended December 31, 1996, an
increase of 243%. This increase is primarily attributable to an increase in the
number of transactions processed in 1997 compared to 1996, in addition to an
increase in the dollar volume of transactions processed due to an increase in
use of our Balance Transfer Utility service. Interest revenue represented 23%
of total revenues for the year ended December 31, 1997 compared to 11% of total
revenues for the year ended December 31, 1996.
Operating Expenses
Total operating expenses increased by $1.1 million to $5.2 million for the
year ended December 31, 1997 from $4.0 million for the year ended December 31,
1996, an increase of 28%.
22
<PAGE>
Cost of Services. Cost of services increased by $438,000 to $1.8 million
for the year ended December 31, 1997 from $1.4 million for the year ended
December 31, 1996, an increase of 31%. This increase corresponds to the
increase in revenues generated from increased transaction processing in 1997.
Cost of services was 59% of total revenues for the year ended December 31, 1997
compared to 74% of total revenues for the year ended December 31, 1996. This
percentage decrease is due to increased revenues from our Balance Transfer
Utility service, which generates higher interest revenue without a significant
increase in cost because of the higher dollar amounts associated with each
transaction compared to our other services.
Development Costs. Development costs remained relatively unchanged at
$820,000 for the year ended December 31, 1997 compared to $834,000 for the year
ended December 31, 1996, due to the consistent number of personnel and payroll
expenses in this department. Development costs were 27% of total revenues for
the year ended December 31, 1997 compared to 45% of total revenues for the year
ended December 31, 1996. The percentage decrease is due to a similar amount of
development costs being spread over a larger revenue base in 1997.
Selling, General and Administrative. Selling, general and administrative
expense increased by $714,000 to $2.5 million for the year ended December 31,
1997 from $1.8 million for the year ended December 31, 1996, an increase of
40%. This increase is primarily attributable to an increase in payroll expense
resulting from headcount increases in several departments including sales,
accounting and system administration. Selling, general and administrative
expense was 84% of total revenues for the year ended December 31, 1997 compared
to 99% of total revenues for the year ended December 31, 1996.
Interest Expense. Interest expense increased by $9,000 to $16,000 for the
year ended December 31, 1997 from $7,000 for the year ended December 31, 1996,
an increase of 129%. This increase is attributable to a capital equipment lease
entered into in early 1997.
23
<PAGE>
Selected Unaudited Quarterly Results of Operations
The following table sets forth our unaudited quarterly results of
operations for each of the five quarters ended March 31, 1999. In management's
opinion, this unaudited information has been prepared on the same basis as our
audited financial statements included elsewhere in this prospectus and includes
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the unaudited quarterly results when read in conjunction with
our audited financial statements and notes thereto included elsewhere in this
prospectus. The results of operations for any quarter are not necessarily
indicative of future results of operations.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1998 1998 1998 1998 1999
-------- -------- --------- -------- --------
Statement of Operations
Data: (in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues:
Service fees........... $ 583 $ 517 $ 623 $ 663 $ 735
Interest............... 248 186 486 516 407
------ ------ ------ ------- -------
Total revenues........ 831 703 1,109 1,179 1,142
------ ------ ------ ------- -------
Operating expenses:
Cost of services....... 430 490 466 580 555
Development costs...... 216 230 188 261 332
Selling, general and
administrative....... 671 768 740 1,104 1,100
Amortization of
deferred
compensation......... 34 14 55 916 230
------ ------ ------ ------- -------
Total operating
expenses............ 1,351 1,502 1,449 2,861 2,217
------ ------ ------ ------- -------
Operating loss.......... (520) (799) (340) (1,682) (1,075)
Interest expense........ 4 4 4 2 2
------ ------ ------ ------- -------
Net loss................ $ (524) $ (803) $ (344) $(1,684) $(1,077)
====== ====== ====== ======= =======
Basic and diluted net
loss per share........ $(0.06) $(0.09) $(0.04) $ (0.15) $ (0.10)
====== ====== ====== ======= =======
Shares used in computing
net loss per share.... 8,615 8,615 9,320 11,116 11,126
====== ====== ====== ======= =======
<CAPTION>
Percentage of Total Revenues
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Service fees........... 70.2% 73.5% 56.2% 56.2% 64.4%
Interest............... 29.8 26.5 43.8 43.8 35.6
------ ------ ------ ------- -------
Total revenues........ 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------- -------
Operating expenses:
Cost of services....... 51.7 69.7 42.0 49.2 48.6
Development costs...... 26.0 32.7 17.0 22.2 29.0
Selling, general and
administrative....... 80.8 109.3 66.7 93.6 96.3
Amortization of
deferred
compensation......... 4.1 2.0 5.0 77.7 20.2
------ ------ ------ ------- -------
Total operating
expenses............ 162.6 213.7 130.7 242.7 194.1
------ ------ ------ ------- -------
Operating loss.......... (62.6) (113.7) (30.7) (142.7) (94.1)
Interest expense........ 0.5 0.5 0.3 0.1 0.2
------ ------ ------ ------- -------
Net loss................ (63.1)% (114.2)% (31.0)% (142.8)% (94.3)%
====== ====== ====== ======= =======
</TABLE>
We have experienced year-to-year revenue growth with some seasonal
fluctuations during the second half of the year. These fluctuations relate
primarily to increases in interest revenue derived from our Balance Transfer
Utility service during the last two quarters of the year. These increases
result from direct marketing programs initiated by credit card issuers which
cause increased demand for our Balance Transfer Utility service. The increased
demand in Balance Transfer Utility services causes interest revenue to increase
because of the higher dollar amounts associated with this service compared to
our other services.
24
<PAGE>
Revenues decreased slightly from the first quarter of 1998 to the second
quarter of 1998 as a result of some financial institutions electing to bring
payment services provided by us in-house. Cost of services as a percentage of
revenue was higher in the second quarter of 1998 than in previous quarters as a
result of increases in payroll expense related to increased headcount during
this quarter. We increased the number of personnel in this quarter in
anticipation of future growth. Selling, general and administrative expense was
also high in this quarter due to increases in sales and marketing expenses
primarily attributable to the addition of personnel and tradeshow expenses
incurred during this quarter.
In addition to seasonal fluctuations, quarterly results of operations may
be subject to significant fluctuations due to several factors, including:
. the rate at which we increase our customer base and their use of our
various services;
. the amount and timing of costs related to our sales and marketing
efforts and other initiatives;
. sales and implementation cycles of our customers;
. the loss of a number of existing customers;
. the loss of key employees and time and expense needed to recruit, hire
and train new personnel, particularly service development personnel;
. our ability to upgrade, enhance and maintain our systems and
infrastructure and the timing and costs of this;
. interest rate fluctuations; and
. economic conditions which may affect the budgets of billers, financial
institutions and consumers for technological expenditures.
We anticipate that our operating expenses will continue to increase
significantly due to development and implementation costs associated with our
Internet bill publishing service. These expenses will relate to personnel
increases and technological expenditures. We expect that revenues will increase
due to biller and consumer adoption of our Internet bill publishing service. If
biller or consumer adoption is slower than expected, revenues may not increase
at the same rate as expenses in the future. If revenues in any quarter do not
increase correspondingly with increases to expenses, our results of operations
for that quarter would be materially and adversely affected. For the foregoing
reasons, we believe that quarter-to-quarter comparisons of our results of
operations are not necessarily meaningful and that our results of operations in
any particular quarter should not be relied upon as necessarily indicative of
future performance.
Liquidity and Capital Resources
Historically, we have experienced significant operating losses and working
capital deficits. Our working capital deficit was $5.6 million at December 31,
1996 and $7.9 million at December 31, 1997. In September 1998, we sold
2,493,870 shares of our common stock to Billing Concepts for $10.0 million. At
December 31, 1998 our working capital deficit was $308,000 and as of March 31,
1999, our working capital deficit was $823,000.
Net cash used in operating activities was $3.4 million for both the year
ended December 31, 1998, and the year ended December 31, 1996 and $414,000 for
the three months ended March 31, 1998. For the year ended December 31, 1997 and
the three months ended March 31, 1999, our operating activities generated cash
of $2.5 million and $2.3 million. Cash provided by operating activities in the
three months ended March 31, 1999 was primarily the result of increases in
customer deposits payable. The cash used in operating activities in 1998 was
primarily the result of our net loss and an increase in other current assets,
partially offset by an
25
<PAGE>
increase in accounts payable. For the year ended December 31, 1997, cash
provided by operating activities was primarily attributable to an increase in
customer deposits payable, in addition to increases in accounts payable and
accrued expenses. During 1996, cash used in operating activities was primarily
attributable to our net loss.
Net cash used in investing activities was $257,000, $373,000 and $298,000
for the years ended December 31, 1998, 1997 and 1996 and $483,000 and $36,000
for the three months ended March 31, 1999 and 1998. This cash was used
primarily for the purchase of computer equipment and software.
Net cash provided by financing activities was $9.5 million in the year
ended December 31, 1998 and $2.9 million in the year ended December 31, 1996.
Net cash used in financing activities was $2.2 million in the year ended
December 31, 1997. Net cash provided by financing activities was $634,000 and
$585,000 for the three months ended March 31, 1999 and 1998. The cash generated
in the three months ended March 31, 1999 resulted from the net proceeds from
the sale of shares of our common stock in March 1999. The cash generated in
1998 resulted from the net proceeds of $10.0 million from the sale of shares of
our common stock in September 1998, partially offset by decreases in bank
overdrafts and payments on long-term debt. The cash used in 1997 was primarily
due to a decrease in the bank overdraft. The cash generated in 1996 was
primarily attributable to an increase in the bank overdraft.
We believe that, based on our current business plan, the net proceeds from
this offering and existing cash and cash equivalents will be sufficient to meet
our operating activities, capital expenditures and other obligations for the
next twelve to eighteen months.
Year 2000 Considerations
Many currently installed computer systems and software products are coded
to accept and recognize only two-digit rather than four-digit entries to define
the applicable year. These systems may recognize a date using "00" as the year
1900 rather than the year 2000. As a result, computer systems and/or software
used by many companies, including our billers and financial institutions upon
which we rely to perform our services, may need to be upgraded to comply with
Year 2000 requirements or risk system failure or miscalculations causing
disruptions of normal business activities.
State of Readiness. We have completed our assessment of our services and
information technology systems. We believe that our mission critical systems
and a majority of our non-mission critical systems are Year 2000 compliant. We
anticipate that our systems will be Year 2000 compliant by October 1999. We
have also completed our initial survey of the information systems of our
principal vendors and service providers. Based on the oral representations of
these vendors and service providers, we believe that the information technology
systems of these third parties, as they relate to us, do not pose significant
operational issues. We have replaced any of our principal vendors that are
unable to certify that their products are Year 2000 compliant. Our assessment
is on-going and will continue with all principal vendors and service providers
with which we do business. In addition, we do not believe our embedded systems
pose Year 2000 concerns because we believe that we have identified all of our
software and hardware that require Year 2000 updates or modifications.
Costs. We currently anticipate that our total expenses for Year 2000
compliance will be less than $300,000. As of March 31,1999, we have spent
approximately $130,000 in personnel and other costs related to our Year 2000
risk assessment and remediation efforts.
Risks. In order to accurately provide our Internet bill publishing service,
we must rely on technology supported by billers, financial institutions,
aggregators, presenters and consumers. Furthermore, our services rely on
transmission of data over the Internet, third party data and voice
communication lines, and data transmission through wire transfer systems,
including the Federal Funds system. Failure by us, our billers, aggregators,
presenters or suppliers to adequately address Year 2000 issues in a timely
manner could impede our ability to provide our services and have a direct
impact on our ability to generate revenue. This, in turn,
26
<PAGE>
could have a material and adverse impact on our business, operating results and
financial condition. Accordingly, we plan to correct our remaining Year 2000
issues by October 1999. We believe that associated costs are adequately
budgeted for in our 1999 business plan. However, if our efforts or the efforts
of billers, aggregators, financial institutions and others with which we engage
in business, fail to adequately address their own Year 2000 issues, the most
likely worst case scenario would be a substantial loss of our revenue for some
period of time.
Contingency Plan. We are currently developing a contingency plan to address
situations that may result if we are unable to achieve complete Year 2000
compliance by October 1999. We cannot provide any assurance that the plan we
develop will be successful in addressing any remaining Year 2000 issues.
New Accounting Pronouncement
In March 1998, the American Institute of Certified Pubic Accountants issued
Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use," or SOP 98-1. SOP 98-1 provides
guidance on accounting for computer software developed or obtained for internal
use, including the requirement to capitalize specified costs and amortization
of such costs. We adopted SOP 98-1 in January 1999. The adoption did not have a
material effect on our financial position or results of operations.
Market Risk
A significant portion of our revenue is generated from interest paid on
amounts deposited overnight with financial institutions pending payment. The
interest earned is based on prevailing short-term interest rates. Accordingly,
fluctuations in short-term interest rates will affect our revenues. Likewise, a
decrease in revenue generated by overnight investment may not be met by a
corresponding decrease in any borrowing costs which we may incur in the future.
Thus, either a fall in prevailing short-term interest rates or an increase in
future borrowing costs could materially and adversely affect our business,
operating results and financial condition. In the future, we may manage our
interest rate risk through interest rate hedging techniques. However, we
currently do not use such techniques and they may not be successful in reducing
or eliminating our interest rate risk in the future.
27
<PAGE>
BUSINESS
Company Overview
The Company
We provide comprehensive electronic bill publishing services via the
telephone and Internet to large businesses, which generate recurring bills, and
financial institutions. Our bill publishing services are comprised of both the
presentment and payment of bills. We also provide electronic lockbox and credit
card balance transfer services to large businesses and financial institutions.
Our telephone bill publishing service enables consumers to access billing
information and to pay bills in as few as five keystrokes and to set up
automatic payment of recurring bills. Our Internet bill publishing service
eliminates the need for billers to generate and mail paper bills. Both our
telephone and Internet services eliminate the need for consumers to write and
mail paper checks. Our Internet bill publishing service allows billers to
publish bills directly through their own web sites or indirectly through web
sites of financial institutions and Internet portals. An Internet portal is a
high-traffic web site that allows people to search, navigate, retrieve
information and access services via the Internet. Using our service, consumers
have numerous options of how, where and when to access, analyze and pay their
bills. Our electronic lockbox service, which is a stand-alone service as well
as a key component of both our telephone and Internet bill publishing services,
is a clearinghouse for electronic consumer-initiated payments. Our credit card
balance transfer service allows electronic transfers of balances from one
credit card institution to another. As of May 31, 1999, of our more than 250
corporate customers, 45 were utilizing our electronic bill publishing services.
Of these customers, 14 are currently utilizing our Internet bill publishing
service.
Industry Background
Traditional Paper-Based Billing and Payment Process
According to Jupiter Communications, in 1998 approximately 15 billion
consumer paper bills were received by approximately 100 million U.S.
households. Most of these are recurring monthly or quarterly bills mailed to
consumers primarily by retailers, utilities and credit card companies. Paper
bills are prepared by either the biller itself or, more often, by an outsourced
bill fulfillment vendor. Creating and distributing a paper bill is a costly
multiple-step process that includes extracting relevant data from the internal
accounts receivable system of the biller, organizing the data into a billing
format, printing and separating the bills, stuffing envelopes, applying postage
and mailing the bill to the consumer. The bill payment process is also costly
and labor intensive. The biller must currently contract with a commercial
lockbox which receives consumer payments. The lockbox vendor opens the payments
and separates checks from the remittance stub. The lockbox vendor also sends
the biller reports which allow the biller to update both its accounts
receivable system and its accounting records. We estimate that the cost to the
biller of preparing and sending a paper bill and receiving and posting a bill
payment ranges from approximately $0.75 to $1.50 per bill. According to Gartner
Group, the average cost to the biller of creating and delivering a paper bill
is $1.00.
28
<PAGE>
Similarly, the paper-based billing and payment process is time-consuming
and can be costly for the consumer. Jupiter Communications currently estimates
that, during each 12-month period, U.S. households will spend an average of 24
hours on bill management, $46 on postage and $144 on check-writing fees to
handle an average of 12 recurring monthly bills. The graph below depicts the
steps involved in the traditional paper-based billing and payment process:
[GRAPHIC DEPICTING THE 11 STEPS INVOLVED IN THE TRADITIONAL PAPER-BASED BILLING
AND PAYMENT PROCESS APPEARS HERE, WITH THE FOLLOWING TEXT:]
Step 1 Biller prepares the paper bill
--In-house
--Out-sourced to bill fulfillment vendors
Step 2 Biller delivers the bill to the post office bulk mail center
Step 3 Post office delivers the bill to the consumer's mailbox
Step 4 Consumer reviews the bill, writes the check, and mails the check and
payment stub back to the biller
Step 5 Post office delivers the check and payment stub to the biller's mailbox
or traditional lockbox service
Step 6 Biller or lockbox service opens the envelope, separates the check and
the payment stub, records the payment and updates the biller's accounts
receivable system.
--In-house
--Out-sourced to traditional lock box service
Step 7 Biller or lockbox service encodes and deposits the check and the bank
forwards the check to the Federal Reserve
Step 8 The Federal Reserve sorts each individual check and forwards them to the
consumer's bank
Step 9 For each check, the Federal Reserve debits the account at the consumer's
bank and credits the reserve account at the biller's bank
Step 10 Consumer's bank account is debited and the biller's bank account is
credited; the consumer's bank receives the check from the Federal
Reserve
Step 11 Consumer's bank prepares a monthly statement and sends it with the
canceled paper checks to the consumer
[END OF GRAPHIC]
29
<PAGE>
Internet Bill Presentment and Payment Process
In the past, consumers were only able to access basic billing information
and process payments through the use of the telephone. With new technology,
consumers are able to obtain detailed billing information and process payments
through the Internet. These recent advances in technology have provided and
will continue to provide opportunities to dramatically simplify the bill
presentment and payment process, to greatly reduce the cost to the biller and
to improve the convenience for the consumer. The biller compiles relevant data
from its internal accounts receivable database and can either make its billing
information available through its own Internet web site, or indirectly through
Internet web sites of financial institutions and Internet portals. Consumers
are able to access their bill and account information whenever they wish and
may pay bills by clicking a payment symbol on the computer screen. Funds are
electronically transferred from the consumer's bank account, through a payment
network like the Federal Reserve System, to a concentration account of an
electronic lockbox service where all payments to a particular biller are
deposited and transferred to the biller's bank account. Bill and account
information is continuously updated to reflect consumer payments. We estimate
that the total cost to the biller and the consumer for our Internet Bill
Publishing Service ranges from $0.35 to $0.50 per transaction. The graph below
depicts the steps involved in the customary Internet bill presentment and
payment services process:
[GRAPHIC DEPICTING THE 4 STEPS INVOLVED IN THE INTERNET BILL PRESENTMENT AND
PAYMENT SERVICE PROCESS APPEARS HERE, WITH THE FOLLOWING TEXT:]
1 The biller creates an electronic bill with interactive bill analysis and
one-on-one marking options. This is, either:
A Created In-house, or
B Out-sourced to internet bill publisher
2 The consumer accesses the bill at a web site and initiates payment
3 The payment funds are electronically transferred from the consumer's bank
account to a concentration account of an electronic lockbox service where all
payments to a particular biller are deposited and transferred to the biller's
account.
4 The consumer's bank prepares a monthly statement and sends it to the consumer
or presents it electronically to the consumer.
All the electronic bills for a particular consumer are aggregated and presented
to web sites
[END OF GRAPHIC]
The Internet bill presentment process can be viewed as analogous to the
process of creating, distributing and selling books. A number of parties are
potentially involved in this process. The parties involved typically include
the following:
. Billers: The principal billers are retailers, utilities and financial
institutions that issue credit cards. Although there are thousands of
billers, we believe that a large portion of total bills generated are
produced by a concentrated number of billers. The biller would be
equivalent to the author in the book publishing analogy.
30
<PAGE>
. Publishers: The publisher compiles, formats and verifies the information
in the accounts receivable data base and then creates a bill for
presentment on the Internet. A publisher may be either the biller itself
or an entity, like us, that provides an outsourced publishing solution
for multiple billers. This publishing role is similar to the role of the
book publisher which takes the content provided by the author and
packages the book for distribution.
. Aggregators: An electronic biller may choose to engage one or more
aggregators which collect consumer bills from numerous publishers and
sort and present these bills to consumers through the Internet. These
aggregators enable, through presenters, a consumer to access account
information regarding multiple billers on a single web site, rather than
having to go to each individual biller's web site to access account
information. The aggregator performs a role similar to that of a book
distributor, which has arrangements with multiple publishers and retail
outlets to facilitate the distribution of the publishers' books to the
retail outlets.
. Presenters: Once an aggregator has received and sorted bills created by
the publishers, these bills can be presented on the web sites of one of
two types of presenters: financial institutions or Internet portals.
These presenters are comparable to the retail outlets and other means by
which consumers directly purchase books.
The following chart shows the players involved in the Internet bill
presentment process.
[GRAPHIC DEPICTING PRINCETON ECOM'S VIEW OF THE FOLLOWING "LAYERS OF PLAYERS"
INVOLVED IN THE INTERNET BILL PRESENTMENT PROCESS APPEARS HERE]
CONSUMERS
PRESENTERS
AGGREGATORS
PUBLISHERS
BILLERS
[END OF GRAPHIC]
31
<PAGE>
Growth of the Internet and Internet-based Financial Services
The Internet has experienced rapid growth and has developed into a
significant tool for global communications and commerce. Advances in online
security and payment mechanisms have encouraged businesses and consumers to
engage in electronic commerce. Forrester Research estimates that sales over the
Internet will increase from $7.8 billion in 1998 to $108 billion in 2003.
Internet-based financial services, like electronic brokerage and banking,
represent a significant portion of the electronic commerce market. The
attractiveness of Internet-based financial services stems in large part from
the speed of conducting financial transactions over the Internet, as well as
the ability of the Internet user to access extensive amounts of information.
Forrester Research estimates that the number of online brokerage accounts will
grow from 3.0 million in 1997 to 14.4 million by the year 2002 and that assets
managed online will reach $688 billion by the year 2002. Similarly, Forrester
Research estimates that online banking will grow from 2.4 million households in
1998 to 18 million in 2002. The Internet is also becoming a more significant
platform for broad consumer-based financial services like insurance, mortgages
and bill presentment and payment.
Outsourcing Opportunity
As the use of electronic bill presentment and payment grows, billers
choosing to accommodate customer demands must decide whether to develop
electronic bill presentment and payment capabilities internally or to outsource
the process entirely. Billers that choose to manage their own electronic bill
presentment and payment process may encounter a number of obstacles. To be in a
position to publish and achieve wide distribution of their bills, billers must
purchase, successfully integrate and maintain:
. software which enables the biller to parse and decode bill data print
streams;
. in-house servers which will update and display bill content;
. automated clearinghouse software which enables the biller to instruct to
electronically debit consumer accounts;
. messaging software which enables the biller to communicate with multiple
aggregators;
. a dedicated interface with a major bank which enables the biller to
receive funds and data through automated clearinghouse transactions; and
. lockbox software which enables the biller to update internal accounts
receivable files.
In addition, once billers are capable of publishing and handling payments,
they must then make arrangements with multiple aggregators or presenters that
present bills for multiple billers.
Many billers lack the expertise to cost-effectively implement, maintain,
scale, enhance and service the hardware and software necessary to provide their
own electronic bill presentment and payment system and to develop and maintain
multiple relationships with aggregators or presenters and financial
institutions. An outsourced solution is attractive to billers because it allows
them to focus on their core competencies and to accelerate the time in which
they can offer electronic bill presentment and payment services to their
customers.
The Princeton eCom Solution
Our electronic bill publishing services provide a comprehensive, cost-
effective, outsourced process for billers desiring to reduce costs and to
provide their consumers with a convenient presentment and payment method. Our
electronic bill publishing services allow billers to publish bills to
consumers, by telephone and through the Internet, either directly through
billers' own web sites or indirectly through web sites of financial
institutions and Internet portals. Our services dramatically simplify the bill
presentment and payment process, providing the following key benefits:
Comprehensive, Cost-Effective Outsourcing. Our comprehensive solution
offers billers the full range of services necessary to outsource their entire
electronic bill presentment and payment process. Our services
32
<PAGE>
reduce the costs to and administrative burden on billers by eliminating the
need to develop and manage an in-house system and by capitalizing on our
economies of scale and implementation expertise.
Broad Distribution and Access. Our relationships with multiple aggregators
enable billers using our Internet bill publishing service to publish their
bills through multiple presenters, thereby providing their consumers with
numerous options of where and when to access and/or pay their bills. In
addition, our technology allows consumers to access their bills through the
telephone, the computer, personal digital assistants and a variety of other
devices.
Branding. In all aspects of our electronic bill publishing services, the
Princeton eCom name is virtually invisible to the consumer. Our fully
customized electronic-based consumer billing interface allows billers,
financial institutions and Internet portals to preserve the existing look and
feel of their web sites.
Reliability and Ease of Expansion. Our system architecture is designed to
ensure reliability through the use of parallel processing and redundant
hardware and software components. Currently, our system supports over 80
million accounts receivable records monthly and can be easily expanded.
Enhanced Security. We have integrated third-party licensed and internally-
developed technology with sophisticated third-party hardware to reduce the
potential for network security breaches. We maintain network and data center
surveillance 24 hours a day, seven days a week.
Ease of Implementation. Our services can be easily integrated with a
biller's existing internal accounts receivable systems. We enable billers to
provide electronic bill presentment and payment to their consumers without
modifications to their existing systems or to their processing and
reconciliation procedures.
The Princeton eCom Strategy
Our goal is to become a leading provider of Internet bill presentment and
payment services. We plan to achieve this goal by implementing the following
key strategies:
Further Penetrate Our Existing Customer Base. We believe that our existing
base of billers and financial institutions which do not currently use our
Internet bill publishing and payment service provides substantial opportunities
for expansion of this service. As of May 31, 1999, of our more than 250
corporate customers using our services, 45 were utilizing our electronic bill
publishing services. Of these customers, 14 are currently utilizing our
Internet bill publishing service. We intend to further penetrate this existing
customer base by substantially expanding our sales and marketing efforts and
service offerings.
Expand Our Sales and Marketing Efforts. We are developing a sales and
marketing plan directed towards the largest billers in the United States that
do not currently use any of our services. To implement this sales and marketing
plan, we are recruiting a number of experienced sales professionals. To date,
we have spent a nominal amount on our sales and marketing efforts. We intend to
substantially increase these expenditures during the next several years. In
addition, we intend to expand our indirect sales channels by establishing
strategic relationships with companies that process paper bills for billers,
which should enable us to gain access to the biller bases of these companies.
Expand Our Distribution Channels. We intend to expand our distribution
channels by developing relationships with additional aggregators. Because
aggregators rely upon bill publishers with significant biller relationships, we
believe that aggregators will find us more attractive as our biller base
expands. To date, we have relationships with a number of aggregators, including
TransPoint, a Microsoft/First Data Corporation/Citicorp joint venture, and
Intuit.
Introduce New Services and Service Enhancements. We seek to remain on the
forefront of the developing Internet bill presentment and payment industry by
continuing to develop more advanced services designed to address our customers'
needs. We use customer feedback, including surveys, to design service
enhancements that meet evolving customer needs. Examples of service
enhancements which we have
33
<PAGE>
previously developed include interactive data capability, which enables
consumer-initiated bill analysis on the Internet, one-to-one marketing direct
from the biller to the consumer and electronic commerce transaction capability.
In some circumstances, we also develop specific applications to meet the needs
of particular customers. For example, we developed a system for Sallie Mae that
electronically updates student loan information.
Pursue Strategic Acquisitions. We intend to pursue strategic acquisitions
that complement our business. We may acquire companies to obtain additional
technologies, billers, services or experienced personnel.
Our Services
Our services are targeted at large billers and financial institutions.
Depending on the services provided and transaction volume, we generally charge
our customers between $0.10 and $0.50 per transaction. Our current services are
as follows:
<TABLE>
<CAPTION>
Service Description Benefits
------- ----------- --------
<C> <C> <C> <S>
. 1-800-PayBill Service for accessing . Permits consumers to
Publishing Service billing information and access billing
paying bills by telephone information and to
make a bill payment in
as few as five
keystrokes
. Provides accurate and
prompt posting of bill
payments
. Enables the consumer
to set up automatic
payment of recurring
bills without
additional consumer
intervention
. Synchronized with
Internet Bill
Publishing: a payment
made through one
device is immediately
reflected on the other
device
. Internet Bill Publishing Service for publishing and . Bills are accessible
paying bills using the through the web sites
Internet of billers, financial
institutions and
Internet portals
. Allows for the
consolidation of
consumer bills from
multiple billers on
one web site
. Provides additional
value-added
capabilities like
real-time billing
information and one-
to-one marketing
. Allows billers to
expand the number of
consumers using the
service without
additional
infrastructure
investment
. Maintains biller or
web site brand name
. Can be modified to
biller specifications
. els Clearinghouse service for . Reduces payment
Electronic Lockbox Service consumer-initiated payments accounting errors
that originate from a through consumer
computer or phone account validation
procedures
. Provides the consumer
real-time access to
data through
dedicated, dial-up
facilities or virtual
private networks
. Enables biller to
provide timely
response to consumer
status inquiries
. Compatible with our
Internet Bill
Publishing, 1-800-
PayBill and similar
services from other
payment originating
vendors
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Service Description Benefits
------- ----------- --------
<C> <C> <C> <S>
. BTU Service that electronically . Processes balance
Balance Transfer Utility transfers balances from one transfers rapidly,
credit card institution to accurately and cost-
another effectively
. Protects the identity
of the new credit card
institution
. Provides the new
credit card
institution with a
report detailing all
transactions which
have been effected
. Remits aggregate
dollar amounts to the
recipient credit card
institution
. e-Collect Service that collects . Facilitates rapid debt
outstanding balances collection
electronically
. Replaces manual
processing and
significantly reduces
collection costs and
human error
. Validates account
number information for
each collected payment
. Enables daily
reconciliation of the
collection process
. RDF Service that produces and . Enables payment
Remote Disbursement Facility disburses paper checks validation through an
electronic checkbook
that we maintain
. Provides consumers
with the information
on the front and back
of all checks,
including all
endorsements stamps
and notations
. Automatically
electronically
confirms addresses
with post office
databases
</TABLE>
Sales and Marketing
Historically, our sales and marketing efforts have involved specific face-
to-face meetings with a limited number of potential billers and financial
institutions and we have spent a nominal amount on these efforts. We are
developing a sales and marketing plan directed towards further penetrating our
existing base of billers that do not currently use our Internet bill publishing
and presentment service, while simultaneously targeting the largest billers in
the United States that do not currently use any of our services. To implement
this sales and marketing plan, we are recruiting a number of experienced sales
professionals. We intend to substantially increase our sales and marketing
efforts and expenditures over the next several years. In addition, we intend to
expand our indirect sales channels by establishing strategic relationships with
various financial institutions in order to enable us to gain access to the
biller bases of these companies. We also intend to further develop
relationships with aggregators in order to make our services more attractive to
billers.
We intend to use a variety of marketing programs to build market awareness
of Princeton eCom and our services and to generate new business. These programs
include:
. market research;
. service and strategy updates with industry analysts;
. public relations activities including press releases and featured news
articles;
. direct mail and relationship marketing;
. trade shows;
. speaking engagements; and
. web site marketing.
35
<PAGE>
Implementation Resources
Concurrent with our expanded sales and marketing efforts, we intend to
invest additional funds to strengthen our implementation resources. Our
implementation staff is responsible for all aspects of bringing a new customer
online and for resolving any technical issues which may arise. To date, this
process has been designed to meet our current sales volume. Additional
investment in implementation will enable us to meet the requirements of the
additional billers and financial institutions which we anticipate will result
from our expanded sales and marketing efforts. Our additional investment in
implementation resources will focus on additional programming and project
management resources and on new project management software.
Service Development
We use customer feedback, including surveys, to develop new services as
well as enhancements to our existing services. These new services and
enhancements are designed to meet the evolving needs of our customers. We also
develop, from time to time, specific services and service enhancements to meet
the needs of particular billers and financial institutions.
Our service development department currently consists of 17 software
developers who have extensive knowledge of, and practical experience with,
systems developed by Sun Microsystems, Microsoft and Oracle. Members of our
development team use hyper-text mark up language (HTML), along with desktop
tools such as Adobe PhotoShop and MicroSoft Image Composer.
We expense development costs as incurred. In 1998, we spent approximately
$895,000 on service development. We expect to significantly increase
expenditures in this area over the next several years.
Customers
As of May 31, 1999, we service over 250 billers and financial institutions.
Although only 14 of our customers use both our telephone and Internet bill
publishing services, we intend to continue to cross-market this service to the
balance of our existing customer base. No individual customer accounted for
more than 7% of our total revenues, or 11% of our service fee revenues, for the
three months ended March 31, 1999. The following is a list of our top 40
customers based on revenue for the three months ended March 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
Telecommunications Financial Services
Bell Atlantic Mobile* Arrow Corporation
Lucent Technologies Consumer Products, L.P.* Allied Bond
Chase Manhattan Bank
Utilities Citibank Universal Card
Debt Control Center
Adelphia Cable Discover Card
Ameren Union Electric* First Union
Boston Gas Company First USA
Eastern Utilities* Ford Motor Credit Corp.
GPU (General Public Utilities) Great Lakes Bureau
Laclede Gas Liberty Mutual Insurance
Los Angeles Department of Water & Power* Merchant Express
Metropolitan St. Louis Sewer District NationsBank
Michigan Consolidated Gas Ohio Savings Bank
NUI (National Utility Investors)* Sallie Mae
Public Service Electric & Gas SPS (Sears Payment Systems)
St. Louis Water Sovereign Bank
Southern California Edison* Stillwater National Bank
Washington Gas* Travellers Express
Vendor Payments (CFI)
Media and Retail Washington Mutual
Western Union
Los Angeles Times
Sears
</TABLE>
- --------
*Customer currently using both our telephone and Internet bill publishing
services.
36
<PAGE>
Technology
We have created a proprietary infrastructure by combining internal
expertise with advanced technology.
We have designed a system which is reliable, flexible, and can be easily
expanded to meet growth demands without significant cost or change. Our system
can handle an increase in transaction volume by simply making additions to the
core components such as data storage, central processing units and other
technological components. As of May 31, 1999, we support over 80 million bills
monthly. Our back-end systems have ample internal redundancy to ensure
reliability 24 hours a day, 7 days a week. Our environment utilizes state-of-
the-art technologies developed by Novell, Oracle, Microsoft, Hewlett Packard
and Sun Microsystems. We employ technology such as mirrored storage devices
and redundant power supplies. As a means of protecting our data we have
employed offsite storage facilities. We recently established a Sungard hot
site in Philadelphia, Pennsylvania where our environment can be mirrored in
the event of an equipment failure or a natural disaster at our Princeton, New
Jersey site.
We implement industry best practices for data security rather than relying
on any single vendor's solution. Our local and wide area networks are
connected via firewall technology which provides several custom security
services.
Our network includes three core systems -- our retail, wholesale and
Digital Scanline systems. These systems are based on open standards and
interface with many consumer input and output devices, financial institutions,
payment mechanisms and billing systems. The graph below outlines our
infrastructure as well as the interfaces with other systems:
[CIRCULAR DIAGRAM APPEARS HERE, SHOWING PRINCETON ECOM'S BILL PUBLISHING AND
PAYMENT INFRASTRUCTURE AND ITS VARIOUS INTERFACES WITH FINANCIAL INSTITUTIONS
AND BILLERS]
37
<PAGE>
Our retail system, which provides for the publishing of bills to consumers
and allows consumers to pay their bills electronically, houses millions of
bills each day from our billers' internal accounting databases. Our real-time
processing engine publishes the data to various devices. We reduce the risk of
technological obsolescence of our system by using device-independent
interfaces. Our retail system interfaces with web servers, interactive
telephony and customer service interfaces.
Web servers act as an open platform for several forms of communication
through:
. Hyper-Text Mark-up Language, or HTML, based Internet bill publishing
service that allows billers to offer Internet bill presentment and
payment directly on their own web sites or indirectly on the web sites
of presenters;
. Open Financial Exchange-based communication, or OFX, that allows access
to Intuit's Quicken and, with some modifications, Microsoft's Money
personal financial manager programs;
. Biller Interface System, BIS, that allows access to aggregators like
TransPoint; and
. Electronic collection systems that allow close integration between us
and our customers through the deployment of extranets across the web
using a dual-certificate secure-sockets layer.
The same technology and data that support our interactive telephony and
customer service systems also support our web servers. This standardization
gives our customers seamless integration across each of our three core systems.
Consequently, a bill paid by any of these methods is immediately reflected on a
bill accessed through any of the other methods.
Our retail system communicates with aggregators through custom interfaces
designed by us. For example, we have customized software created by TransPoint
to allow us to interface with this aggregator. These custom interfaces allow us
to publish bills and accept payment instructions through aggregators.
Our wholesale system disburses payments and funds to the billers' bank
accounts through the Federal Reserve System's Fed-wire or automated
clearinghouse system. Private networks are also used to make payments from a
consumer's checking account or credit card as necessary to complete the payment
process. Through els, our wholesale system also conveys both payments and
payment data information electronically to the respective biller, enabling the
biller to update its billing and accounts receivables systems.
The Digital Scanline system ensures the veracity of data that is
transmitted from the retail system to the wholesale system for payment. Our
technology uses account validation to reduce processing errors and fraud. In
addition, we provide other payment services for financial institutions. These
payments are tested with Digital Scanline before being loaded into our
wholesale database. This process is designed to ensure that every payment
accepted by our wholesale system will post when transmitted to the biller.
Operational Controls
We have developed our own set of operating procedures and proprietary
processing management applications, controls and practices designed to minimize
transmission and processing related errors. We believe that our current
controls provide reasonable assurance that our processing environment:
. is stable;
. processes the data promptly and accurately; and
. reconciles incoming remittance data and funds with all related outgoing
data and funds prior to each transmission.
We use internally developed proprietary reconciliation control applications
that are managed and operated independently from the actual processing
environment. By using this approach we can confirm the accuracy of
38
<PAGE>
the outcome of each transaction on both an aggregate customer level as well as
on an individual transaction basis. Our processes provide us with a real-time
control audit that is independent from any disruptions, disturbances, or
malfunctions of the live processing environment. Trained computer operators are
responsible for ensuring the accuracy of the data input to the system, and for
reconciling the remittance data and monetary transactions to the control
totals. Any reconciliation discrepancies are displayed on monitors and must be
resolved prior to transmission of remittance data and funds to billers and
their banks.
Customer Support
Our customer support program is designed to provide high quality,
personalized customer support on a timely basis. We strive to achieve this
objective through the use of both internally developed monitoring and training
systems as well as customer surveys which have been designed to identify areas
in need of improvement and solicit ideas for future service needs. We have also
implemented internal procedures that are designed to bring unusual customer
support issues to the attention of senior management. We provide customer
service free of charge for our financial institution customers. In addition, we
offer to our billers, on a fee basis, an outsourcing service whereby we act as
their consumer support operation.
Billers. Each of our billers is assigned an account representative who
provides a direct point of contact for general inquiries and service requests.
This representative is responsible for coordinating the availability of
appropriate business and technical resources to respond to that particular
biller's service and support requirements. Escalation procedures are designed
to assure the availability of technical personnel on a 24 hour a day, seven
days a week basis. For fast resolution of payment inquiries, we offer some
billers customized on-line customer service interfaces. These interfaces enable
the biller to access real-time payment information that is stored in our
payment disbursement warehouse.
Financial Institutions. Each of our financial institution customers is
assigned a customer service representative who responds to requests for
information about consumers and payments. This representative provides the
financial institution with documentation regarding payments in sufficient
detail to enable the financial institution to track payment disbursement and
respond to inquiries.
Consumers. We operate a call center that answers all 1-800-PayBill, els and
Internet Bill Publishing related consumer inquiries. Each of our billers is
offered the opportunity to outsource its customer service function to our
experienced customer service staff.
Competition
Increased competition in the electronic bill presentment and payment market
could have a material and adverse effect on our business, operating results and
financial condition. We believe that the principal competitive factors are:
. ability to identify and respond to customer needs;
. technical expertise;
. quality of the service;
. price of the service;
. breadth of distribution; and
. possible preexisting relationships between companies that process paper
bills or lockbox service providers and our potential customers.
In addition to the foregoing, our Internet bill publishing service also
faces competitive pressures from various third-party software vendors, which
provide some of the software necessary for the development of an integrated,
in-house Internet bill presentment and payment service. In addition, these
companies could
39
<PAGE>
potentially leverage their existing capabilities and relationships to enter the
outsourced Internet bill presentment and payment market.
Many of our actual and potential competitors have significantly greater
financial, marketing, technical, sales and customer support and other
resources, larger customer bases and longer relationships with customers than
we do. In addition, some of these potential competitors may be able to devote
greater resources to the development, promotion and sale of their services,
adopt more aggressive pricing strategies and devote substantially more
resources to the development of technology and systems development than we are
able to.
Increased competition may result in reduced operating margins, loss of
market share and diminished value of our services, as well as different
pricing, service and marketing strategies. We may not be able to compete
successfully against current and future competitors, and competitive pressures
we face could have a material adverse effect on our business, operating results
and financial condition.
Proprietary Rights
We have registered the trademarks Digital Scanline, els Electronic Lockbox
Service, and 1-800-PayBill. We have also applied for registration for the
trademark e-Collect. We protect our intellectual property rights through a
combination of trademark, copyright and trade secrets laws. We cannot assure
you that the steps we have taken to protect our intellectual property rights,
however, will be adequate to deter misappropriation of those rights. We may not
be able to detect unauthorized use of and take appropriate steps to enforce our
intellectual property rights. It may also be possible for unauthorized third
parties to copy certain portions of our proprietary information or reverse
engineer the proprietary information utilized in our services.
In order to limit access to and disclosure of our proprietary information,
all of our employees are subject to confidentiality and invention assignment
arrangements, and we enter into nondisclosure agreements with third-parties
with whom we do business. We cannot assure you that these arrangements or other
steps we have taken or will take in the future will be sufficient to protect
our technology from infringement or misappropriation or deter independent
development of similar or superior technologies by others.
Many parties are actively developing Internet billing and telephone
analysis systems technologies. We expect these developers to continue to take
steps to protect these technologies, including seeking patent protection. For
example, we are aware that a number of patents have been issued in the areas of
web-based information indexing and retrieval, online direct marketing and
telephone statistical analysis systems. As a result, we believe that disputes
over the ownership of these technologies are likely to arise in the future. We
anticipate that additional third-party patents will be issued in the future. We
cannot be certain that our services do not infringe valid patents, copyrights
or other intellectual property rights held by third parties.
Furthermore, we cannot assure you that third parties will not claim that we
have infringed upon their patents or other proprietary rights. From time to
time, we expect to be subject to claims by third parties in the ordinary course
of our business, including claims of alleged infringement of trademarks,
copyrights and other intellectual property rights of third parties. Although
there has not been any litigation relating to these claims to date, these
claims and any resultant litigation, should they occur, would subject us to
significant liability for damages and would result in the invalidation of our
proprietary rights. In addition, even if we prevail the litigation could be
time-consuming and expensive to defend and could result in diversion of our
time and attention, any of which would materially and adversely affect our
business, operating results and financial condition. Any claims or litigation
from third parties may also result in limitations on our ability to use the
trademarks and other intellectual property subject to these claims or
litigation, unless we enter into agreements with the third parties. However,
these agreements may be unavailable on commercially reasonable terms, or at
all.
40
<PAGE>
Government Regulation
Our management believes that we are not required to be licensed by the
Office of the Comptroller of the Currency, the Federal Reserve Board, or other
federal or state agencies that regulate or monitor banks or other types of
providers of electronic commerce service. We may, however, be periodically
audited by banking authorities since we are a supplier of services to financial
institutions. We cannot assure you that a federal or state agency will not
attempt, either now or in the future, to require that providers of services
like ours be licensed. This would impede our ability to do business in the
regulator's jurisdiction. A number of states have legislation regulating or
licensing check sellers or money transmitters, which may require us to register
under such legislation in specific instances. Management does not believe that
any state or federal legislation of this type would materially affect our
business. We may be subject to audit or examination under any of the foregoing
requirements. Violations by us of these requirements could limit or restrict
our access to the payment clearance systems or our ability to obtain access to
such systems from banks. Further, the Federal Reserve rules provide that we can
only access the Federal Reserve's automated clearinghouse system through a
bank. If the Federal Reserve rules were to change to further restrict access to
the automated clearinghouse system or limit our ability to provide automated
clearinghouse transaction processing services, our business would be materially
and adversely affected.
In conducting various aspects of our business, we are subject to laws and
regulations relating to commercial transactions generally, such as the Uniform
Commercial Code, and are also subject to the electronic funds transfer rules
embodied in Regulation E issued by the Federal Reserve Board. The Federal
Reserve's Regulation E implements the Electronic Fund Transfer Act, which was
enacted in 1978. Regulation E protects consumers engaging in electronic
transfers, and sets forth basic rights, liabilities and responsibilities of
consumers who use electronic money services and of financial institutions that
offer these services. For us, Regulation E sets forth disclosure and
investigative procedures. For consumers, Regulation E establishes procedures
and time periods for reporting unauthorized use of electronic money transfer
services and limitations on the consumer's liability if the notification
procedures are followed within prescribed periods. Such limitations on the
consumer's liability may result in liability to us.
Given the expansion of the Internet commerce market, it is possible that
the Federal Reserve might revise Regulation E or adopt new rules for electronic
funds transfer affecting users other than consumers. Because of growth in the
Internet commerce market, Congress has held hearings on whether to regulate
providers of services and transactions in the Internet commerce market. It is
possible that Congress or individual states could enact laws regulating the
Internet commerce market. If enacted, these laws, rules, and regulations could
be imposed on our business and industry and could have a material adverse
effect on our business, operating results and financial condition. Federal,
local and state laws and regulations may be adopted in the future to address
issues like:
. user privacy;
. pricing;
. online content regulation;
. taxation; and
. the characteristics and quality of online products and services.
Any new laws or regulations relating to the Internet could have a material
and adverse effect on our business, operating results and financial condition.
Legal Proceedings
We are not involved in any material legal proceeding nor are we aware of
any threatened legal action. We are involved, from time to time, in litigation
incidental to the conduct of our business. We believe that any potential
adverse determination in such litigation will not have a material and adverse
effect on our business, operating results and financial condition.
41
<PAGE>
Employees
As of May 31, 1999, we had 95 employees, employed in implementation, sales
and marketing, service development, finance and administration. We have never
experienced a work stoppage and none of our employees is represented by a labor
union. Except for certain members of management who will execute employment
agreements prior to the closing of this offering, our employees work on an at-
will basis. We consider our relations with our employees to be good.
Facilities
We currently lease approximately 11,000 square feet of space at our
headquarters in Princeton, New Jersey under a lease that expires on August 31,
2002. We believe that our existing facility is adequate for our current needs
and that suitable additional space will be available, on acceptable terms, when
additional space is needed.
42
<PAGE>
MANAGEMENT
Directors and Executive Officers
Our executive officers and directors, their respective ages and their
positions with us as of May 31, 1999 are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- ---------------------------------------------------
<S> <C> <C>
Donald C. Licciardello.. 53 Chairman and Chief Executive Officer
Ronald W. Averett....... 42 President and Chief Operating Officer
C. Richard Corl......... 61 Executive Vice President, Secretary and Director
Christopher S. Sugden... 29 Senior Vice President and Chief Financial Officer
Donald Brenton.......... 43 Senior Vice President and Chief Information Officer
Steven D. Greenwood..... 34 Senior Vice President, Marketing
Jayson A. Goldberg...... 37 Senior Vice President, Sales
Lawrence Greenberg...... 32 Vice President, Relationship Management
Alexander Peterhans..... 40 Vice President and Director of Operations
Parris H. Holmes,
Jr.(1)................ 55 Director
Kelly E. Simmons(1)..... 44 Director
William C. Jennings..... 59 Director Nominee
</TABLE>
- --------
(1)Member of the Compensation Committee.
Within 90 days following the completion of this offering, we intend to
appoint two additional directors to our board who will be independent for
purposes of Nasdaq National Market listing requirements.
Donald C. Licciardello. Mr. Licciardello, one of our founders, has served
as our Chief Executive Officer and Chairman of the Board since our inception in
1984. From 1984 to March 1999, Mr. Licciardello also served as our President.
For seven years prior to our founding, Mr. Licciardello was a professor of
theoretical solid states physics at Princeton University. While at Princeton,
Mr. Licciardello co-authored a paper on two dimensional quantum diffusion which
was selected as one of the seminal works of the past 100 years by the American
Physical Society. From 1977 to 1984, Mr. Licciardello served as a technical
consultant in theoretical physics to IBM, Schlumberger, Bell Laboratories and
RCA Laboratories. From 1974 to 1976, Mr. Licciardello was also a Science
Research Council Fellow at the University of Birmingham, England. Mr.
Licciardello holds Ph.D., M.S. and B.S. degrees in Physics.
Ronald W. Averett. Mr. Averett has served as our President and Chief
Operating Officer since March 1999. Prior to joining us, from April 1998 to
December 1998 Mr. Averett was a Senior Vice President and Credit Card Division
Executive for Chevy Chase Bank's Credit Card Business. Mr. Averett contributed
to the spin-off of this division from Chevy Chase Bank in December 1998. From
January 1988 to April 1998, Mr. Averett held various executive positions in
Operations, Risk Management and Marketing with Advanta Corp, most recently as
the Senior Vice President and member of the Business Policy Committee of its
Credit Card unit. From June 1980 to December 1987, Mr. Averett held various
executive positions with Citibank, most recently as a Vice President and
Operations Consultant.
C. Richard Corl. Mr. Corl has served as our Executive Vice President since
June 1993, Secretary since May 1995, and as one of our directors since
September 1998. For more than 20 years, Mr. Corl held various executive
positions with TeleCheck Services, Inc., including Vice President of Franchise
Relations and Vice President of Marketing and Director of Strategic Planning.
Mr. Corl founded his own business in 1976 with the launch of part of the
TeleCheck Services, Inc. franchise network and served as its President and
Chief Executive Officer. In 1981, Mr. Corl sold this business to Tymshare,
Inc., which is now a part of First Data Corporation.
Christopher S. Sugden. Mr. Sugden has served as our Senior Vice President
since May 1999, and as our Chief Financial Officer since February 1999. Mr.
Sugden also served as one of our Vice Presidents from February 1999 to May
1999. Prior to joining us, from June 1996 to February 1999, Mr. Sugden was the
43
<PAGE>
Director of Finance and Operations of B.Y.O.B. Freedom Ventures, Inc.,
publishers of two magazines. From September 1992 to June 1996, Mr. Sugden held
various positions with Coopers & Lybrand LLP, now known as
PricewaterhouseCoopers LLP, including supervisor. Mr. Sugden is a certified
public accountant and a member of the American Institute of Certified Public
Accountants.
Donald Brenton. Mr. Brenton has served as Senior Vice President and Chief
Information Officer since May 1999. Prior to joining us, from September 1997 to
May 1999, Mr. Brenton was Director of Operations, Business Administration
Services of Towers Perrin. From September 1987 to September 1997, Mr. Brenton
was associated with ADVANTA Corp., most recently as Manager, Network Operations
and Engineering.
Steven D. Greenwood. Mr. Greenwood has served as Senior Vice President,
Marketing since April 1999. Prior to joining us, from October 1993 to April
1999, Mr. Greenwood was Senior Vice President, Marketing, of TeleBank. From
July 1990 to June 1993, Mr. Greenwood was a Financial Analyst, Corporate
Finance and Budgeting, for Bell Atlantic, Inc.
Jayson A. Goldberg. Mr. Goldberg has served as Senior Vice President, Sales
since June 1999. Prior to joining us, from May 1996 to May 1999, Mr. Goldberg
was the Associate Publisher for B.Y.O.B. Freedom Ventures, Inc., publishers of
two magazines. From May 1988 to May 1996, Mr. Goldberg was associated with
Times Mirror Magazines, most recently as Eastern Regional Sales Director for
Field & Stream and Outdoor Life.
Lawrence Greenberg. Mr. Greenberg has served as Vice President,
Relationship Management since April 1999 and served as Chief Information
Officer from October 1992 to April 1999. Prior to joining Princeton eCom, Mr.
Greenberg founded Princeton Business Systems, a systems integration company and
served as its Managing Director. From 1988 to 1992, Mr. Greenberg also served
as the chief consultant on The New Owners, a HarperCollins book containing
detailed analysis of employee stock ownership in America's public companies,
and The Employee Stock Ownership Index published in the Wall Street Journal.
Alexander Peterhans. Mr. Peterhans has served as our Vice President and
Director of Operations since February 1999, and as our Director of Operations
since September 1995. From February 1995 to September 1995, Mr. Peterhans
served as our Marketing Manager. From January 1984 to September 1992, he held
several positions as a research scientist in biotechnology at the Swiss Federal
Institute of Technology, Zurich, Switzerland, and Ciba-Geigy AG, Switzerland,
and at The Rockefeller University, New York. Mr. Peterhans was honored by the
Swiss Federal Institute of Technology with the Silver Medal for achievement in
original research. Mr. Peterhans holds a Ph.D. degree in Biotechnology and a
M.B.A. degree.
Parris H. Holmes, Jr. Mr. Holmes has served as one of our directors since
September 1998. Mr. Holmes is currently Chairman of the Board and Chief
Executive Officer of Billing Concepts Corp., a significant stockholder of
Princeton eCom, which provides billing services to the telecommunications
industry, positions which he has held since May 1996. From September 1986 to
August 1996, Mr. Holmes served as Chief Executive Officer of USLD
Communications Corp., a long distance telecommunications provider, and from
September 1986 to June 1997, also served as its Chairman of the Board. Mr.
Holmes currently serves as Chairman of the Board of Tanisys Technology, Inc., a
developer, manufacturer and marketer of computer peripheral equipment, and as a
director of Sharps Compliance Corp., a provider of mail sharps disposal
services for certain types of medical sharps (needles, syringes and razors)
products. On December 18, 1996, the SEC filed a civil injunctive action in the
United States District Court for the District of Columbia alleging that Mr.
Holmes failed to file timely twelve Section 16(b) reports regarding certain
1991 and 1992 transactions in the stock of USLD Communications Corp. as
required by Section 16(a) of the Securities Exchange Act of 1934. Section 16(a)
requires officers and directors of public companies to file reports with the
SEC regarding their personal transactions in the securities of such public
companies. Mr. Holmes settled this action on December 18, 1996, without
admitting or denying the allegations of the complaint, by consenting to the
entry of an injunction with respect to these requirements and paying a civil
penalty of $50,000. The staff of the SEC also
44
<PAGE>
has notified Mr. Holmes of its decision to terminate its investigation of
trading in the securities of USLD Communications Corp. and the securities of
Value-Added Communications, Inc. (In the Matter of Trading in the Securities of
Value-Added Communications, Inc. (HO-2765)).
Kelly E. Simmons. Mr. Simmons has served as one of our directors since
September 1998. Mr. Simmons is currently Executive Vice President of Billing
Concepts Corp., a position which he has held since October 1998, and Chief
Financial Officer, a position which he has held since May 1996. From May 1996
to September 1998, Mr. Simmons also served as Senior Vice President of Billing
Concepts Corp. and from May 1996 to February 1998, served as its Corporate
Secretary. From May 1996 to September 1997, Mr. Simmons was the Corporate
Treasurer of Billing Concepts Corp. From November 1988 until August 1996, Mr.
Simmons held various executive positions with USLD Communications Corp.,
including Vice President-Finance and Corporate Treasurer, Vice President of
Administration and Senior Vice President of Business Development.
Future Director
William C. Jennings. Mr. Jennings, currently a senior partner with
PricewaterhouseCoopers LLP, will become a director of the Company following his
expected retirement from PricewaterhouseCoopers LLP at the end of June 1999.
Mr. Jennings served as one of our directors from September 1998 until March 15,
1999 at which time he elected to resign as a result of uncertainty as to
PricewaterhouseCoopers LLP's current policy regarding the ability of its
partners to serve as directors of for-profit companies. Mr. Jennings has served
with predecessors of PricewaterhouseCoopers LLP from 1964 to 1985 and from 1992
to the present. He provides risk management and internal control consulting
services for clients. He has been featured on many risk and control forums, as
well as CNN, The New York Times, Forbes, Fortune, Business Week, CFO, American
Banker and many industry-specific publications. Until the recent merger with
Pricewaterhouse, Mr. Jennings led the development of Coopers & Lybrand LLP's
Internal Control Services practice into a $150 million business. During his
career at Coopers & Lybrand LLP, Mr. Jennings was the lead partner for some of
that firm's largest clients, including Philip Morris, Shearson Lehman Brothers,
Midlantic Bank, Lipton and New Jersey Bell. From 1988 to 1991, Mr. Jennings
served as Executive Vice President and Chief Financial Officer of Banker's
Trust. From 1985 to 1988, Mr. Jennings served as Senior Executive Vice
President, Administration of Shearson Lehman Brothers.
Board of Directors and Committees
Our Board is divided into three classes of directors serving staggered
three-year terms. As a result, approximately one-third of our board is elected
each year. Currently, the term of office of Messrs. Corl and Simmons expires at
the annual meeting of stockholders to be held in 2000 and the term of office of
Messrs. Licciardello and Holmes expires at the annual meeting to be held in the
year 2001. The director up for election at the 1999 annual meeting is currently
vacant. Our staggered board, together with advanced notice procedures which
will be added to our by-laws prior to the completion of this offering, may
deter a stockholder from removing incumbent directors and filling vacancies
with the stockholder's own nominees in order to gain control of our board. See
"Description of Capital Stock -- Certificate of Incorporation and By-law
Provisions."
We have established a compensation committee which reviews and approves the
compensation and benefits for our key executive officers, administers our
employee benefit plans and makes recommendations to our board regarding such
matters. The compensation committee currently consists of Messrs. Holmes and
Mr. Simmons.
We will establish an audit committee, consisting of at least two
independent directors, within 90 days following the completion of this
offering. Our audit committee will be responsible for reviewing our audited
financial statements and accounting practices, and considering and recommending
the employment of, and approving the fee arrangements with, independent
accountants for both audit functions and for advisory and other consulting
services.
45
<PAGE>
Compensation Committee Interlocks and Insider Participation
Prior to October 20, 1998, our board did not have a compensation committee
and all compensation decisions were made by the full board. Messrs.
Licciardello and Corl did not participate in board deliberations with respect
to their individual compensation. Subsequent to October 20, 1998, the
compensation committee has made compensation decisions with respect to our key
executive officers, including the Chief Executive Officer and the President.
None of our executive officers serves as a member of the board of directors or
compensation committee of any entity that has one or more of its executive
officers serving as a member of our board or compensation committee. Our
compensation committee currently consists of Messrs. Holmes and Mr. Simmons.
Director Compensation
Employee directors do not receive compensation for their service on our
board. Non-employee directors are awarded 10,000 stock options under our Non-
Employee Director Plan for each year of service on our board. See "--Non-
Employee Director Plan."
Executive Compensation
The following table sets forth the compensation paid, earned or accrued for
all services rendered to us in all capacities during the year ended December
31, 1998 by our Chief Executive Officer and our other most highly compensated
executive officers, other than our Chief Executive Officer, whose aggregate
cash and cash equivalent compensation exceeded $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation Awards
-------------------- ------------
Securities
Other Annual Underlying
Name and Principal Position Year Salary Compensation Options
- --------------------------------------- ---- ------- ------------ ------------
<S> <C> <C> <C> <C>
Donald C. Licciardello,................ 1998 $52,000 $198,000(1) 90,000
President and Chief
Executive Officer
C. Richard Corl,....................... 1998 100,000 -- 60,000
Executive Vice President
and Secretary
Lawrence Greenberg,.................... 1998 100,000 -- 90,000
Vice President and
Chief Information Officer
</TABLE>
- --------
(1)Reflects personal expenses paid on Mr. Licciardello's behalf.
46
<PAGE>
Stock Option Grants
The following table sets forth information regarding stock options granted
to the officers named in the Summary Compensation Table during 1998. No stock
appreciation rights were granted during 1998.
<TABLE>
<CAPTION>
Potential Realizable Value
At Assumed Annual
Rates of Stock Price
Appreciation For
Individual Grants Option Term (2)
------------------------------------------------- --------------------------
Percent
Number of of Market
Securities Total Price
Underlying Options On Date
Options Granted Exercise of
Granted in Price Grant Expiration
Name (#) 1998(1)($/Share) ($/Share) Date (0%) (5%) (10%)
- ------------------------ ---------- ------- -------- --------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Donald C. Licciardello.. 90,000(3) 7.3% $0.03 $4.00 10/20/03 $357,000 $456,461 $576,784
C. Richard Corl......... 60,000(3) 4.9 0.03 4.00 10/20/03 238,000 304,308 384,522
Lawrence Greenberg...... 60,000(4) 4.9 0.03 0.70 03/01/03 40,000 51,604 65,641
30,000(4) 2.4 4.00 4.00 12/21/08 -- 75,467 191,249
</TABLE>
Option Grants in Fiscal 1998
- --------
(1) We granted options to purchase a total of 1,225,500 shares of common stock
during the fiscal year ended December 31, 1998.
(2) Amounts reported in these columns represent amounts that may be realized
upon exercise of options immediately prior to the expiration of their term
assuming the specified compounded rates of appreciation (0%, 5% and 10%) on
our common stock over the term of the options. These assumptions are based
on rules promulgated by the SEC and do not reflect our estimates of future
stock price appreciation. Actual gains, if any, on the stock option
exercises and common stock holdings are dependent on the timing of the
exercise and the future performance of our common stock. We cannot assure
you that the rates of appreciation assumed in this table can be achieved or
that the amounts reflected will be received by the option holder.
(3) Options to purchase 30,000 shares of common stock vested on October 20,
1998 and options to purchase an additional 30,000 shares of common stock
will vest on each anniversary thereafter.
(4) These options vest and become fully exercisable as to 25% on the first
anniversary of the date of grant and as to an additional 25% on each
anniversary thereafter until all these options are fully vested and
exercisable.
Year-End Option Values
The following table sets forth information concerning the number and year
end value of unexercised options held by each of the officers named in the
Summary Compensation Table at December 31, 1998. None of the Named Executive
Officers exercised stock options or stock appreciation rights in the year ended
December 31, 1998.
Fiscal 1998 Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised "In-the-Money" (1)
Options at Fiscal Options at Fiscal
Year-End Year-End
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Donald C. Licciardello..... 30,000 60,000 $119,000 $238,000
C. Richard Corl............ 30,000 30,000 119,000 119,000
Lawrence Greenberg......... 30,000 150,000 119,000 476,000
</TABLE>
- --------
(1) Options are "in-the-money" if the fair market value of the underlying
securities exceeds the exercise price of the options. The amounts set forth
represent the difference between $4.00 per share, the fair market value of
our common stock issuable upon exercise of options at December 31, 1998 (as
determined by our board), and the exercise price of the option, multiplied
by the applicable number of options.
47
<PAGE>
Stock Option Plan
Our Amended 1996 Stock Option Plan, which became effective on July 1, 1996
and was amended in December 1998, provides for the granting of incentive stock
options intended to qualify under Section 422 of the Internal Revenue Code
("incentive stock options"), and stock options not intended to qualify as
incentive stock options ("non-qualified stock options"). All of our officers,
key employees and consultants are eligible to participate in the Stock Option
Plan. The total number of shares of common stock which we may issue under the
Stock Option Plan is 4,500,000. Under present law, incentive stock options may
only be granted to our employees and employees of our subsidiaries.
The Stock Option Plan is administered by our compensation committee which
has the authority to:
. construe and interpret the plan;
. create, amend and rescind rules and regulations for the plan;
. determine the individuals entitled to participate in the plan;
. determine the timing of specific option grants, the number of options to
be granted, the vesting schedule for the options and their exercise
price;
. determine whether the options granted will be incentive stock options or
non-qualified stock options; and
. make all other determinations which may be necessary or advisable for
the administration of the plan.
Our compensation committee may grant options at an exercise price less
than, equal to or greater than the fair market value of our common stock on the
date of grant. Under present law, incentive stock options and options intended
to qualify as performance-based compensation for purposes of Section 162(m) of
the Internal Revenue Code, may not be granted at an exercise price less than
the fair market value of our common stock on the date of grant or less than
110% of the fair market value of our common stock in the case of incentive
stock options granted to optionees holding more than 10% of our voting power.
Incentive stock options may not be assigned or transferred during the lifetime
of the holder except as may be required by law. The maximum term of each stock
option granted under the Stock Option Plan to persons other than 10%
stockholders is ten years from the date of grant.
The Stock Option Plan permits the optionee to determine how they will pay
the exercise price of their options. The plan provides that the option price
may be paid:
. in cash;
. with shares of common stock valued at the fair market value of the
common stock on the date of exercise;
. in cash by a broker-dealer to whom the holder of the option has
submitted an exercise notice consisting of a fully endorsed option;
. through the surrender of options then exercisable valued at the excess
of the aggregate fair market value of the common stock subject to such
option on the date of exercise over the aggregate option price of such
common stock;
. by directing us to withhold such number of shares of common stock
otherwise issuable upon exercise of the option having an aggregate fair
market value on the date of exercise equal to the exercise price of the
option; or
. by some other method of payment as may be authorized by our compensation
committee or any combination of the foregoing payment options as our
compensation committee may permit in its sole discretion.
48
<PAGE>
No incentive stock option awards may be granted under the Stock Option Plan
after June 30, 2006. Our compensation committee may, at any time, terminate,
suspend or modify the Stock Option Plan, except that no amendment or revision
may, unless appropriate stockholder approval is obtained, increase the maximum
number of shares of common stock in the aggregate for which we may grant
options under the Stock Option Plan, change the minimum purchase price of an
incentive stock option, increase the maximum term of an incentive stock option,
or grant options to persons not then currently contemplated by the plan. In
addition, no termination, suspension or modification of the Stock Option Plan
may adversely affect any right acquired by an optionee before the date of any
termination, suspension or modification without the optionee's consent.
The Stock Option Plan provides that outstanding options vest in their
entirety and become exercisable in the event we undergo a change of control. A
change of control will be deemed to occur if:
. a person or group becomes the beneficial owner of more than 50% of the
total voting power of our outstanding stock; or
. there occurs a change in the majority of the members of our board from
one year to the next, except any changes approved by the former board of
directors.
As of May 31, 1999, there were (1) outstanding options under the Stock
Option Plan to purchase an aggregate of 2,442,900 shares of common stock at a
weighted average price of $2.06, (2) outstanding options under the Stock Option
Plan to purchase an aggregate of 350,100 shares of common stock at the initial
public offering price, and (3) 1,636,050 additional shares of common stock
reserved for future option grants.
As soon as practicable following completion of this offering, we intend to
file with the SEC a registration statement on Form S-8 covering the shares of
common stock underlying options granted and reserve for future issuance under
the Stock Option Plan.
Non-Employee Director Plan
Our 1998 Non-Employee Director Plan, which was approved by our board on
October 20, 1998 and became effective on October 20, 1998. It provides for the
grant of non-qualified stock options to our directors. The Director Plan
provides for the issuance of up to 600,000 shares of common stock upon exercise
of options.
Under the terms of the Director Plan, each non-employee director who was a
director on the date the plan went into effect received options to purchase a
number of shares of common stock equal to the product of the number of years he
was elected to serve as a director multiplied by 10,000. These options vest as
to 10,000 shares on the date of grant and on each of the first two
anniversaries of the date of grant, subject to a maximum of two anniversaries.
Further, non-employee directors are also entitled to receive on the first
business day after each of our annual meetings of stockholders at which the
director is re-elected to the board options to purchase an additional number of
shares equal to the number of years he or she is elected to the Board
multiplied by 10,000. These options would vest under the same terms discussed
above. In addition to the automatic grants provided by the plan, non-employee
directors may also receive additional grants of options at the discretion of
our compensation committee. The exercise price of each option under the
Director Plan, other than options granted on October 20, 1998, will be 100% of
the fair market value of our common stock on the date of grant. Each option
will have a term of six years.
The Director Plan provides that outstanding options vest in their entirety
and become exercisable in the event we undergo a change of control. For
purposes of the Director Plan, change in control has the same meaning given
such term in the Stock Option Plan.
The exercise price may be paid in cash or with shares of common stock
valued at the fair market value of the stock on the exercise date.
49
<PAGE>
As of May 31, 1999, there were outstanding options under the Director Plan
to purchase an aggregate of (1) 195,000 shares of common stock at a weighted
average price of $0.03 and (2) 375,000 additional shares of common stock
reserved for future option grants.
As soon as practicable following the completion of this offering, we also
intend to file a Registration Statement on Form S-8 covering the shares of
common stock underlying options granted, or to be granted, under the Director
Plan.
401(k) Plan
Our employees participate in our 401(k) profit sharing plan, a defined
contribution plan intended to qualify under Section 401 of the Internal Revenue
Code. All personnel who have completed one year of service with us are eligible
to participate and may enter the plan as of the first day of January or July.
Participants may make pre-tax contributions to the plan of up to 15% of their
eligible earnings, subject to a statutorily prescribed annual limit. We may
make matching contributions on a discretionary basis to the plan. Each
participant is fully vested in his or her contributions, and any investment
earnings thereon. Contributions by the participants or us, and the income
earned on such contributions, are generally not taxable to the participants
until withdrawn. Contributions by us, if any, are generally deductible by us
when made. Contributions are held in trust as required by law. Individual
participants may direct the trustee to invest their accounts in authorized
investment alternatives. In 1998, we did not make any matching contributions.
In 1999, we have begun to match 100% of all employee contributions up to 6% of
that employee's annual base salary.
Employment Agreements
We have entered into an employment agreement with Mr. Averett pursuant to
which Mr. Averett has agreed to serve full time as our President and Chief
Operating Officer until March 30, 2003, unless earlier terminated in accordance
with the terms of his agreement. Mr. Averett's annual base salary under the
agreement is $200,000 per year. In addition, Mr. Averett was granted options to
purchase 300,000 shares of our common stock at $5.33 per share, which options
will vest as to 25% on each anniversary. Mr. Averett's employment agreement
also provides for vacation and reimbursement of business-related expenses.
In addition, we have entered into an employment agreement with Mr. Sugden,
pursuant to which Mr. Sugden has agreed to serve full time as our Vice
President and Chief Financial Officer until February 15, 2003, unless earlier
terminated in accordance with the terms of his agreement. Mr. Sugden's annual
base salary under the agreement is $100,000 per year. In addition, under the
terms of his agreement Mr. Sugden was granted options to purchase 150,000
shares of our common stock at $4.00 per share, which options vest as to 25% on
each anniversary, and will be entitled to receive bonuses based on the
achievement of performance goals. Mr. Sugden's employment agreement also
provides for vacation and reimbursement of business-related expenses.
Pursuant to each employment agreement, if the executive is terminated for
"cause," as defined within the employment agreements, we will be required to
pay the executive, within ten days following this termination, any unpaid base
salary accrued through the date of termination and we will be required to
reimburse the executive for reasonable business expenses incurred prior to that
date. If we terminate Mr. Averett's employment without cause, we will be
required to pay him any unpaid base salary accrued through the date of
termination, plus an additional $200,000 (or $400,000 if he terminates his
employment as a result of a change in control). For purposes of the employment
agreements, a change in control has the same meaning as in the Stock Option
Plan. If we terminate Mr. Sugden's employment without cause, we will be
required to pay him any unpaid base salary accrued through the date of
termination, plus three months salary, at the then current rate, and his
options will vest as if his termination date was twelve months after the actual
termination date. After termination of Mr. Sugden's employment, he will be
entitled to exercise his exercisable options for a fifteen day period. We will
be required to reimburse Mr. Averett and Mr. Sugden for reasonable business
expenses incurred prior to the date of termination. We will be required to pay
the executives their unpaid base salary within 30 days following a termination
without cause, but can, at our option, pay Mr. Averett amounts in
50
<PAGE>
excess of his base salary in equal monthly installments over the 12-month
period following the date of termination and pay Mr. Sugden amounts in excess
of his base salary in equal installments over three months.
Each of Messrs. Averett and Sugden's employment agreements also provides
that the executive will not, during a one year period after termination,
without our prior written consent, directly or indirectly conduct or engage in
or be associated with any person or entity which conducts or engages in
electronic bill payment, electronic bill publishing or electronic bill
presentment. Each of the employment agreements also provides that the
executives shall not disclose confidential information and may not interfere
with, disrupt or attempt to disrupt the relationship, contractual or otherwise,
between us or any of our subsidiaries and our respective customers or
employees.
51
<PAGE>
CERTAIN TRANSACTIONS
Stock Purchases
In September 1998, we sold 2,493,870 shares of our common stock to Billing
Concepts, a publicly traded corporation with stock listed on the Nasdaq Stock
Market, for an aggregate purchase price of $10.0 million. Under the terms of
the stock purchase agreement for this sale, the parties agreed, among other
things, that (1) in the event that Billing Concepts desires to sell its shares
of common stock, we have a right of first refusal to purchase such shares, (2)
in the event that we offer, sell or grant any option to purchase or otherwise
dispose of any of our equity-equivalent securities or promissory notes in a
transaction intended to be exempt or not subject to registration under the
Securities Act of 1933, except under any employee, officer or director stock
option plan or through mergers or acquisitions not designed to raise capital
approved by our stockholders, Billing Concepts shall have a right of first
refusal to purchase such securities, and (3) Billing Concepts has the right, so
long as it owns at least 10% of our common stock, to have two representatives
on our board of directors. In addition, the agreement provides that if our
working capital deficit at June 30, 1998 was in excess of $8.5 million, then
Billing Concepts had a right to purchase additional shares of our common stock
at a price of $4.01 per share. As a result of our June 30, 1998 working capital
deficit having exceeded $8.5 million, on March 30, 1999, we sold 134,376 shares
of common stock to Billing Concepts for $538,848. In connection with its
acquisition of our stock, Billing Concepts entered into a voting agreement with
Mr. Licciardello, our Chairman and Chief Executive Officer. Under the terms of
this voting agreement, as amended, Mr. Licciardello, the Donald Licciardello
Family Limited Partnership and Billing Concepts have agreed to vote all of
their respective shares of common stock to elect to our board the two
individuals designated by Billing Concepts and three members designated by Mr.
Licciardello. As a result of this voting agreement, Billing Concepts has
appointed two of its executive officers, Parris H. Holmes, Jr. and Kelly E.
Simmons, to serve as directors on our board. In addition, Mr. Licciardello and
the Donald Licciardello Family Limited Partnership agreed to have any
transferee or purchaser of any of their shares of common stock become a party
to the voting agreement, other than purchasers pursuant to sales in a
registered public offering or under Rule 144. The voting agreement
automatically terminates when Billing Concepts ceases to own 10% of our issued
and outstanding common stock. The total number of shares covered by the voting
agreement is 9,620,970.
Guarantee of Loan to Donald C. Licciardello
Until March 26, 1999, some of our certificates of deposit were pledged as
collateral for a guarantee we issued in connection with a loan obtained by Mr.
Licciardello. On March 26, 1999, the collateral and our guarantee were released
by First Union National Bank.
Loan to C. Richard Corl
Mr. Corl issued to us a demand note evidencing the outstanding purchase
price for shares of our common stock purchased by him in June 1996. This demand
note, in the amount of $210,308, bears interest at a rate of 6% annually.
52
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us regarding
the beneficial ownership of our common stock, as of May 31, 1999, before and
after giving effect to this offering by (1) each person known by us to own
beneficially 5% or more of our common stock, (2) each of our directors, (3)
each of the Named Executive Officers, and (4) all of our current directors and
executive officers, as a group. All information with respect to beneficial
ownership has been furnished to us by our respective stockholders
<TABLE>
<CAPTION>
Shares
Beneficially Shares
Owned Prior to Beneficially
this Owned After the
Offering(1)(2) Offering(1)(2)
-------------------- --------------------
Name of Beneficial Owner Number Percent Number Percent
- ------------------------ --------- ------- --------- -------
<S> <C> <C> <C> <C>
Donald C. Licciardello (3)......... 6,992,724 61.6% 6,992,724 48.8%
Billing Concepts Corp. ............ 2,628,246 23.2 2,628,246 18.3
7411 John Smith Drive, Suite 200
San Antonio, Texas 78229
Patricia F. Corl................... 660,000 5.8 660,000 4.6
1107 Robin Road
Gladwyne, PA 19035
C. Richard Corl (4)................ 1,183,620 10.4 1,183,620 8.3
Lawrence Greenberg (5)............. 105,000 * 105,000 *
Parris H. Holmes, Jr .............. 60,000 * 60,000 *
Kelly E. Simmons (5)............... 37,500 * 37,500 *
All executive officers and
directors, as a group (10
persons) (6)..................... 8,468,844(1) 74.0% 8,468,844(1) 59.0%
</TABLE>
- --------
* Represents beneficial ownership of less than 1% of our outstanding shares
of common stock.
(1) Unless otherwise indicated above, the address for each executive officer
and director identified above is 165 Wall Street, Princeton, New Jersey
08540.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options and warrants held by that person
that are currently exercisable or exercisable within 60 days of May 31,
1999 are deemed outstanding. Such shares, however, are not deemed
outstanding for the purposes of computing the percentage ownership of any
other person. Except as indicated in the footnotes to this table, each
stockholder named in the table has sole voting and investment power with
respect to the shares set forth opposite such stockholder's name.
(3) This figure includes 5,100,000 shares held by the Donald Licciardello
Family Limited Partnership, of which Mr. Licciardello is the general
partner. Mr. Licciardello has voting and dispositive control over these
shares.
(4) Includes the 660,000 shares owned by Patricia F. Corl, Mr. Corl's wife, for
which Mr. Corl disclaims beneficial ownership.
(5) Includes the following number of shares of common stock which the officers
named in the Summary Compensation Table have the right to acquire through
the exercise of options within 60 days of May 31, 1999: Mr. Greenberg,
45,000 and Mr. Simmons, 30,000.
(6) Includes a total of 105,000 shares which may be purchased upon the exercise
of options.
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, our authorized capital stock will consist
of 50,000,000 shares of common stock, $0.01 par value per share, and 3,000,000
shares of preferred stock, $0.01 par value per share. As of May 31, 1999, there
were outstanding (1) 11,344,002 shares of our common stock held of record by 27
stockholders and (2) options to purchase an aggregate of 2,988,000 shares of
common stock.
The following summary of some provisions of our common stock, preferred
stock, certificate of incorporation and by-laws, as in effect on the closing
date of this offering, is not intended to be complete and is qualified by
reference to the provisions of the applicable law and our certificate of
incorporation and by-laws included as exhibits to the registration statement of
which this prospectus is a part.
Common Stock
Holders of our common stock are entitled to one vote per share on all
matters on which the holders of common stock are entitled to vote and do not
have cumulative voting rights. This means that the holders of more than 50% of
our shares of common stock voting for the election of directors can elect all
of the directors up for election if they choose to do so; if this event occurs,
the holders of the remaining holders of shares of our common stock will not be
able to elect any person to our board. Subject to rights of any holders of any
shares of our preferred stock, holders of our common stock are entitled to
receive ratably such dividends as may be declared by our board from time to
time out of funds legally available for this purpose. See "Dividend Policy."
Holders of our common stock are not entitled to any preemptive, conversion,
redemption, subscription or similar rights. In the event of a liquidation,
dissolution or winding-up of Princeton eCom, whether voluntary or involuntary,
holders of our common stock are entitled to share ratably in our assets legally
available for distribution, if any, remaining after the payment or provision
for the payment of all of our debts and other liabilities and the payment and
setting aside for payment of any preferential amount due to any holders of any
shares of our outstanding preferred stock. All of our outstanding shares of
common stock are, and all of our shares of common stock offered in this
offering when issued will be, upon payment, duly and validly issued, fully paid
and nonassessable. The rights, preferences and privileges of holders of our
common stock are subject to, and may be adversely affected by, the rights of
the holders of any series of our preferred stock which our board may designate
and issue in the future.
Our common stock has been approved for listing on the Nasdaq National
Market under the trading symbol ECOM.
The transfer agent for our common stock is Continental Stock Transfer &
Trust Company.
Preferred Stock
Prior to completion of this offering, our certificate of incorporation will
be amended to authorize our board to issue, from time to time and without any
further action of our stockholders, up to 3,000,000 shares of preferred stock,
in one or more series. The board will be authorized to fix or alter the
designations, preferences, rights and any qualifications, limitations or
restrictions of the shares of each of these series, including the voting
rights, dividend rights, dividend rates, conversion rights, terms of
redemption, redemption price or prices, liquidation, preferences and the number
of shares constituting any series or designations of these series. The issuance
of preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes could, among other things, have the
effect, under certain circumstances, of delaying, deferring or preventing a
change in control of Princeton eCom. We have no current plan to issue any
shares of our preferred stock. See "--Authorized But Unissued Shares."
Anti-Takeover Effects of Certain Provisions of Delaware Law
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, or the DGCL. Section 203 of the DGCL generally prohibits a
publicly-held Delaware corporation from engaging in a
54
<PAGE>
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an
interested stockholder, unless the interested stockholder attained that status
with the approval of the board or unless the business combination is approved
in a prescribed manner. A "business combination" includes mergers, asset sales
and other transactions resulting in a financial benefit to the interested
stockholder. Subject to exceptions, an "interested stockholder" is a person
who, together with affiliates and associates, owns, or within three years did
own, fifteen percent (15%) or more of a corporation's voting stock. This
statute could prohibit or delay the accomplishment of mergers or other takeover
or change in control attempts with respect to us and, accordingly, may
discourage attempts to acquire us.
Certificate of Incorporation and By-law Provisions
Our by-laws currently divide the board into three classes with staggered
three year terms. This classified board could make it more difficult for a
third party to acquire, or discourage a third party from acquiring, control of
us. Our by-laws also currently authorize our board to fill vacant directorships
or increase the size of the board. This may deter a stockholder from removing
incumbent directors and simultaneously gaining control of the board by filling
the vacancies created by that removal with its own nominees. See "Management."
Prior to completion of this offering, our certificate of incorporation and
by-laws will be amended to include the provisions described in the following
paragraphs, which are intended to further enhance the likelihood of continuity
and stability in the composition of the board and which may have the effect of
delaying, deterring or preventing a future takeover or change in control of us
unless such takeover or change of control has been approved by our board.
Advanced Notice Provisions for Stockholder Proposals and Director
Nominations. Our by-laws will be amended to establish advance notice procedures
with regard to the nomination, other than by or at the direction of the board,
of candidates for election as directors and with regard to some matters to be
brought before an annual meeting of stockholders. In general, these provisions
will require that notice be received by us not less than 120 days prior to the
meeting and must contain specified information concerning the persons to be
nominated or the matter to be brought before the meeting and concerning the
stockholder submitting the proposal.
Stockholder Action; Special Meeting of Stockholders. Our by-laws will also
be amended to provide that stockholders may not take action by written consent,
but only at duly called annual or special meeting of stockholders. Our by-laws
will further be amended to provide that special meetings of our stockholders
may be called only by our Chairman of the Board, a majority of the directors or
a holder of a majority of our outstanding stock.
Authorized But Unissued Shares. Our authorized but unissued shares of our
common stock and preferred stock will be available for future issuance without
stockholder approval, subject to limitations imposed by the Nasdaq National
Market. These additional shares may be utilized for a variety of corporate
purposes, including future public offerings to raise additional capital,
acquisitions and employee benefit plans. The existence of authorized but
unissued and unreserved common stock and preferred stock could render it more
difficult or discourage an attempt to obtain control of us by means of a proxy
contest, tender offer, merger or otherwise.
Limitation of Liability and Indemnification of Directors
Our amended and restated certificate of incorporation provides that, except
to the extent prohibited by the DGCL, our directors shall not be personally
liable to us or our stockholders for monetary damages for any breach of
fiduciary duty as a director. Under the DGCL, our directors have a fiduciary
duty to us that is not eliminated by this provision of our amended and restated
certificate of incorporation and, in appropriate circumstances, injunctions and
other nonmonetary relief will remain available. This provision also does not
affect the directors' responsibilities under any other laws, including the
Federal securities laws or state or Federal environmental laws.
55
<PAGE>
Section 145 of the DGCL enables a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers. However, this provision
does not eliminate or limit the liability of a director:
. for any breach of the director's duty of loyalty to the corporation or
its stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. for payments of dividends or approval of stock repurchases or
redemptions that are prohibited by the DGCL; or
. for any transaction from which the director derived an improper personal
benefit.
Our by-laws provide that we may fully indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeds, whether civil, criminal, administrative or
investigative, by reason of the fact that the person is or was one of our
directors, officers, employees or agents or is or was serving at our request as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against
expenses, including attorney's fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by that person in connection with
any threatened, pending or completed action, suit or proceeding.
We intend to enter into indemnification agreements with our directors and
executive officers. We believe that the provisions of our by-laws and these
indemnification agreements are necessary to attract and retain qualified
directors and executive officers. We intend to secure insurance on behalf of
any officer, director, employee or other agent for any liability arising out of
his or her actions, regardless of whether the DGCL would permit
indemnification.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent for which indemnification will be required
or permitted under our by-laws. We are not aware of any threatened litigation
or proceeding that may result in a claim for indemnification.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have outstanding an aggregate of
14,344,002 shares of common stock, assuming no exercise of the underwriter's
over-allotment option and no exercise of outstanding options. Of these shares,
all of the shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act of 1933, except
that shares purchased by our affiliates, as that term is defined in Rule 144
under the Securities Act of 1933, may generally only be sold in compliance with
the limitations of Rule 144 described below.
Sales of Restricted Securities
The remaining shares of our common stock are deemed "restricted securities"
under Rule 144. Of the restricted securities, approximately shares of
common stock, which are not subject to lock-up agreements with the
representatives for the underwriters, will be eligible for immediate sale in
the public markets pursuant to Rule 144(k) under the Securities Act of 1933.
Approximately an additional shares of common stock, which are not
subject to any lock-up agreement, will be eligible for sale in the public
market in accordance with Rule 144 or Rule 701 under the Securities Act of 1933
beginning 90 days from the date of this prospectus. Upon expiration of the
lockup agreements, approximately additional shares of common stock will
be available for sale in the public markets in accordance with the provisions
of Rule 144.
56
<PAGE>
Rule 144 and Rule 701
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person, including one of our affiliates, who has
beneficially owned his or her restricted securities for at least one year from
the later of the date such securities were acquired from us or, if applicable,
one of our affiliates, is entitled to sell, within any three-month period, a
number of shares that does not exceed the greater of:
. 1% of our then outstanding shares of common stock, which will equal
approximately 143,440 shares immediately after this offering; or
. the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the sale.
Sales under Rule 144 are also subject to certain requirements concerning
the availability of public information, manner of sale and notice. In addition,
under Rule 144(k), if a period of at least two years has elapsed between the
later of the date the restricted securities were acquired from us or, if
applicable, one of our affiliates, a stockholder who is not an affiliate at the
time of sale and has not been one of our affiliates for a period of three
months prior to the sale is entitled to sell the shares immediately without
compliance with the foregoing requirements of Rule 144.
Securities issued in reliance on Rule 701 prior to the completion of this
offering, like shares of common stock acquired pursuant to the exercise of
stock options issued by us, are also restricted securities and, beginning 90
days after the date of this prospectus is a part, may be sold by stockholders
who are not affiliates subject only to the manner of sale provisions of Rule
144 and by affiliates under Rule 144 without compliance with the one-year
holding period requirement of the rule.
Stock Options
Immediately following this offering, we intend to file registration
statements on Form S-8 under the Securities Act of 1933 to register all shares
of common stock issuable under the Stock Option Plan and the Directors Plan.
Shares issued upon exercise of stock options granted under the Stock Option
Plan and the Directors Plan after the effective date of the Form S-8
registration statements will be eligible for resale in the public markets
without restriction, subject to Rule 144 limitations applicable to affiliates
and subject to the lock-up agreements discussed above.
Effect of Sales of Shares
Prior to this offering, there has been no public trading market for our
common stock, and no prediction can be made as to the effect, if any, that
market sales of shares of common stock or the availability of shares for sale
will have on the market price of our common stock prevailing from time to time.
Nevertheless, sales of significant numbers of shares of our common stock in the
public markets could adversely affect the market price of our common stock and
could impair our ability to raise capital through an offering of our equity
securities.
57
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and First Union Capital Markets Corp. have severally agreed with
us, subject to the terms and conditions of the underwriting agreement, to
purchase from us the number of shares of common stock set forth opposite their
respective names below. The underwriters are committed to purchase and pay for
all shares if any are purchased.
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
BancBoston Robertson Stephens Inc. ...............................
Donaldson, Lufkin & Jenrette Securities Corporation...............
First Union Capital Markets Corp. ................................
E*TRADE Securities, Inc. .........................................
---------
Total........................................................... 3,000,000
=========
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the public offering price set forth
on the cover page of this prospectus and to certain dealers at that price less
a concession of not in excess of $ per share, of which $ may be reallowed
to other dealers. After this offering, the public offering price, concession,
and reallowance to dealers may be reduced by the representatives. No reduction
shall change the amount of proceeds to be received by us as set forth on the
cover page of this prospectus. The common stock is offered by the underwriters
as stated in this prospectus, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part.
The following table summarizes the compensation to be paid to the
underwriters by us:
<TABLE>
<CAPTION>
Total
-----------------------------
Without With
Per Share over-allotment over-allotment
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and
commissions..................... $ $ $
</TABLE>
Princeton eCom estimates that expenses payable by us in connection with
this offering, other than the underwriting discounts and commissions referred
to above, will be approximately $1,200,000, including $100,000 being paid to
First Union Capital Markets Corp. as an advisory fee.
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation and a member of the selling group, is facilitating the distribution
of the shares sold in this offering over the Internet. The underwriters have
agreed to allocate a limited number of shares to DLJdirect Inc. for sale to its
brokerage account holders. DLJdirect Inc. is a broker/dealer registered with
the SEC, the NASD and the various states. It conducts the majority of its
business in an "on-line" environment. At the time DLJdirect is advised of a
potential offering, it e-mails a notice to qualified DLJdirect account holders.
DLJdirect's IPO Center web page provides DLJdirect account holders with
information about the offering and an opportunity to review the preliminary
prospectus on-line. If a qualified DLJdirect account holder decides to purchase
shares in the offering, his or her order can be placed on-line through
DLJdirect.
Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 450,000 additional shares of common stock at the same price per
share as we will receive for the 3,000,000 shares that the underwriters have
agreed to purchase. If the underwriters exercise their over-allotment option to
purchase any of the additional 450,000 shares of common stock, the underwriters
have severally agreed, subject to certain conditions, to purchase approximately
the same percentage thereof as the number of shares to be purchased by each of
them bears to the total number of shares of common stock offered in this
offering. If purchased, the additional shares will be sold by the
58
<PAGE>
underwriters on the same terms as those on which the shares offered in this
offering are being sold. We will be obligated, pursuant to the over-allotment
option, to sell shares to the extent that the over-allotment option is
exercised. The underwriters may exercise the over-allotment option only to
cover over-allotments made in connection with the sale of the shares of common
stock offered in this offering.
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and us against certain civil liabilities, including
liabilities under the Securities Act of 1933 and liabilities arising from
breaches of representations and warranties contained in the underwriting
agreement.
Lock-Up Agreements. Each executive officer and director of Princeton eCom
and each holder of more than 1% of our outstanding common stock has agreed,
during the period of 180 days after the effective date of this prospectus,
subject to exceptions, not to offer to sell, contract to sell, or otherwise
sell, dispose of, loan, pledge or grant any rights with respect to any shares
of common stock or any options to purchase any shares of common stock, or any
securities convertible into or exchangeable for shares of common stock owned as
of the date of this prospectus or thereafter acquired directly by such holders
or with respect to which they have the power of disposition, without the prior
written consent of BancBoston Robertson Stephens Inc. However, BancBoston
Robertson Stephens Inc. may, in its sole discretion, and at any time or from
time to time, without notice, release all or any portion of the securities
subject to those lock-up agreements. There are no existing agreements between
the representatives and any of our stockholders who have executed a lock-up
agreement providing consent to the sale of shares prior to the expiration of
the lock-up period.
Future Sales. In addition, we have agreed that during the lock-up period we
will not, without the prior written consent of BancBoston Robertson Stephens
Inc., subject to certain exceptions,
. consent to the disposition of any shares held by stockholders subject to
lock-up agreements prior to the expiration of the lock-up period, or
. issue, sell, contract to sell, or otherwise dispose of, any shares of
common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into, exercisable for or
exchangeable for shares of common stock other than our sale of shares in
this offering, the issuance of our common stock upon the exercise of
outstanding options or warrants, and the issuance of options under
existing stock option and incentive plans provided that those options do
not vest prior to the expiration of the lock-up period. See "Shares
Eligible for Future Sale."
The underwriters do not intend to confirm sales of more than 5% of the
common stock offered in this offering to accounts over which they exercise
discretionary authority.
No Prior Public Market. Prior to this offering, there has been no public
market for the common stock. Consequently, the initial public offering price
for the common stock offered by this prospectus has been determined through
negotiations among the company and the representatives. Among the factors
considered in determining the public offering price were:
. prevailing market conditions;
. certain of our financial information;
. the present stage of the company's development;
. the market valuations of other companies that we and the representatives
believe to be comparable to us;
. estimates of our business potential;
. the present state of our development; and
. other factors deemed relevant.
Listing. Our shares of common stock have been approved for quotation on the
Nasdaq National Market under the symbol "ECOM."
Stabilization. The representatives have advised us that, pursuant to
Regulation M under the Securities Act of 1933, some persons participating in
this offering may engage in transactions, including stabilizing bids,
59
<PAGE>
syndicate covering transactions or the imposition of penalty bids, that may
have the effect of stabilizing or maintaining the market price of the common
stock at a level above that which might otherwise prevail in the open market. A
stabilizing bid is a bid for or the purchase of common stock on behalf of the
underwriters for the purpose of fixing or maintaining the price of the common
stock. A syndicate covering transaction is the bid for or the purchase of
common stock on behalf of the underwriters to reduce a short position incurred
by the underwriters in connection with this offering. A penalty bid is an
arrangement permitting the representatives to reclaim the selling concession
otherwise accruing to an underwriter or syndicate member in connection with
this offering if the common stock originally sold by that underwriter or
syndicate member is purchased by the representatives in a syndicate covering
transaction and has therefore not been effectively placed by such underwriter
or syndicate member. The representatives have advised us that such transactions
may be effected on the Nasdaq National Market or otherwise and, if commenced,
may be discontinued at any time.
Directed Share Program. The underwriters have reserved up to five percent
(5%) of the common stock to be issued by us and offered for sale in this
offering, at the initial public offering price, to directors, officers,
employees, business associates and the family and friends of the directors,
officers and employees of Princeton eCom. The number of shares of common stock
available to the general public will be reduced to the extent these individuals
purchase reserved shares. Any reserved shares which are not purchased will be
offered by the underwriters to the general public on the same basis as the
other shares offered in this offering.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Kelley Drye & Warren LLP, New York, New York. Certain legal matters in
connection with this offering will be passed upon for the underwriters by
Brobeck, Phleger & Harrison LLP, New York, New York.
EXPERTS
The financial statements of Princeton eCom Corporation as of December 31,
1997 and 1998 and for the three years in the period ended December 31, 1998
included in this prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein upon the authority of said firm as experts in
giving said reports.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 with
respect to the shares of common stock offered hereby. This prospectus, which is
a part of the registration statement, does not contain all of the information
included in the registration statement and the exhibits and schedules thereto.
You may review a copy of the registration statement, including exhibits, at the
SEC's public reference room at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or Seven World Trade Center, 13th Floor, New York, New
York 10048 or Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Please call the SEC at 1-800-SEC-0330 for further information
on the operation of the public reference rooms.
We will also file annual, quarterly and current reports, proxy statements
and other information with the SEC. You may read and copy any reports,
statements or other information on file at the public reference rooms. You can
also request copies of these documents, for a copying fee, by writing to the
SEC.
Our SEC filings and the registration statement can also be reviewed by
accessing the SEC's Internet site at http://www.sec.gov, which contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC.
We intend to distribute to our stockholders annual reports containing
audited consolidated financial statements. We also intend to make available to
our stockholders, within 45 days after the end of each fiscal quarter, reports
for the first three quarters of each fiscal year containing interim unaudited
financial information.
60
<PAGE>
PRINCETON ECOM CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants................................... F-2
Balance Sheets............................................................. F-3
Statements of Operations................................................... F-4
Statements of Stockholders' Equity (Deficit)............................... F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
After the recapitalization and 3-for-1 stock split of each outstanding share of
common stock, as discussed in Note 13 to the financial statements, are
effected, we expect to be in a position to render the following audit report.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
March 30, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Princeton eCom Corporation:
We have audited the accompanying balance sheets of Princeton eCom
Corporation (a Delaware corporation), formerly Princeton TeleCom Corporation,
as of December 31, 1997 and 1998, and the related statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Princeton eCom Corporation
as of December 31, 1997 and 1998, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998,
in conformity with generally accepted accounting principles.
Philadelphia, Pa.,
March 30, 1999, except for
Note 13, for which the
date is .
F-2
<PAGE>
PRINCETON ECOM CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31 March 31
------------------------- ------------
1997 1998 1999
----------- ------------ ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........... $ 504,844 $ 6,362,453 $ 8,774,968
Accounts receivable, net of
allowance of $52,941, $49,942 and
$49,942........................... 607,071 637,603 661,101
Prepaid expenses and other.......... 115,586 1,511,743 996,597
----------- ------------ ------------
Total current assets............. 1,227,501 8,511,799 10,432,666
Property and equipment, net........... 852,270 822,142 1,228,358
Other assets.......................... 29,839 10,217 25,280
----------- ------------ ------------
$ 2,109,610 $ 9,344,158 $ 11,686,304
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Bank overdraft...................... $ 843,548 $ 399,809 $ 419,521
Customer deposits payable........... 7,769,416 7,452,033 9,366,078
Current portion of long-term debt... 48,049 29,441 30,478
Accounts payable.................... 211,239 502,650 722,817
Accrued expenses.................... 263,541 435,913 716,414
----------- ------------ ------------
Total current liabilities........ 9,135,793 8,819,846 11,255,308
----------- ------------ ------------
Long-term debt........................ 75,392 49,614 43,949
----------- ------------ ------------
Other liabilities..................... 283,611 196,411 198,436
----------- ------------ ------------
Commitments and contingencies (Note 6)
Stockholders' equity (deficit):
Preferred stock, $.01 par value,
3,000,000 shares authorized, none
issued............................ -- -- --
Common stock, $.01 par value,
50,000,000 shares authorized,
8,614,806, 11,119,626, and
11,284,002
shares issued and outstanding..... 86,148 111,196 112,840
Additional paid-in capital.......... 334,366 12,194,183 14,586,878
Accumulated deficit................. (7,539,193) (10,893,829) (11,970,703)
Subscriptions receivable............ (266,507) (266,507) (187,893)
Deferred compensation............... -- (866,756) (2,352,511)
----------- ------------ ------------
Total stockholders' equity
(deficit)...................... (7,385,186) 278,287 188,611
----------- ------------ ------------
$ 2,109,610 $ 9,344,158 $ 11,686,304
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
PRINCETON ECOM CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31 Three Months Ended March 31
------------------------------------- ----------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ------------- --------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Service fees.......... $ 1,632,200 $ 2,332,995 $ 2,385,587 $ 582,683 $ 735,347
Interest.............. 204,205 698,602 1,436,448 247,937 406,478
----------- ----------- ----------- ------------ --------------
Total revenues..... 1,836,405 3,031,597 3,822,035 830,620 1,141,825
----------- ----------- ----------- ------------ --------------
Operating expenses:
Cost of services...... 1,363,278 1,800,368 1,966,956 430,455 555,021
Development costs..... 833,899 820,335 895,152 216,395 331,581
Selling, general and
administrative...... 1,823,284 2,536,791 3,282,669 670,971 1,099,720
Amortization of
deferred
compensation........ -- -- 1,017,744 33,575 230,245
----------- ----------- ----------- ------------ --------------
Total operating
expenses......... 4,020,461 5,157,494 7,162,521 1,351,396 2,216,567
----------- ----------- ----------- ------------ --------------
Operating loss.......... (2,184,056) (2,125,897) (3,340,486) (520,776) (1,074,742)
Interest expense........ 6,467 15,687 14,150 3,683 2,132
----------- ----------- ----------- ------------ --------------
Net loss................ $(2,190,523) $(2,141,584) $(3,354,636) $ (524,459) $ (1,076,874)
=========== =========== =========== ============ ==============
Basic and diluted net
loss per share........ $ (0.26) $ (0.25) $ (0.36) $ (0.06) $ (0.10)
=========== =========== =========== ============ ==============
Shares used in computing
net loss per share.... 8,454,397 8,567,792 9,423,068 8,614,806 11,126,452
=========== =========== =========== ============ ==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
PRINCETON ECOM CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock Additional
------------------- Paid-in Accumulated Subscriptions Deferred
Shares Amount Capital Deficit Receivable Compensation Total
---------- -------- ----------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1996.................. 8,350,806 $ 83,508 $ 327,156 $ (3,207,086) $(258,157) $ -- $(3,054,579)
Sale of common stock... 174,000 1,740 5,110 -- (5,350) -- 1,500
Net loss............... -- -- -- (2,190,523) -- -- (2,190,523)
---------- -------- ----------- ------------ --------- ----------- -----------
Balance, December 31,
1996.................. 8,524,806 85,248 332,266 (5,397,609) (263,507) -- (5,243,602)
Sale of common stock... 90,000 900 2,100 -- (3,000) -- --
Net loss............... -- -- -- (2,141,584) -- -- (2,141,584)
---------- -------- ----------- ------------ --------- ----------- -----------
Balance, December 31,
1997.................. 8,614,806 86,148 334,366 (7,539,193) (266,507) -- (7,385,186)
Sale of common stock... 2,493,870 24,939 9,975,061 -- -- -- 10,000,000
Exercise of stock
options.............. 10,950 109 256 -- -- -- 365
Issuance of options to
purchase common stock
below fair market
value................ -- -- 1,884,500 -- -- (1,884,500) --
Amortization of
deferred
compensation......... -- -- -- -- -- 1,017,744 1,017,744
Net loss............... -- -- -- (3,354,636) -- -- (3,354,636)
---------- -------- ----------- ------------ --------- ----------- -----------
Balance, December 31,
1998.................. 11,119,626 111,196 12,194,183 (10,893,829) (266,507) (866,756) 278,287
Sale of common stock... 134,376 1,344 537,504 -- -- -- 538,848
Exercise of stock
options.............. 30,000 300 700 -- -- -- 1,000
Issuance of options to
purchase common stock
below fair market
value................ -- -- 1,716,000 -- -- (1,716,000) --
Issuance of options for
services............. -- -- 138,491 -- -- -- 138,491
Amortization of
deferred
compensation......... -- -- -- -- -- 230,245 230,245
Repayment of
subscription
receivable........... -- -- -- -- 78,614 -- 78,614
Net loss............... -- -- -- (1,076,874) -- -- (1,076,874)
---------- -------- ----------- ------------ --------- ----------- -----------
Balance, March 31, 1999
(unaudited)........... 11,284,002 $112,840 $14,586,878 $(11,970,703) $(187,893) $(2,352,511) $ 188,611
========== ======== =========== ============ ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
PRINCETON ECOM CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31 March 31
------------------------------------- ---------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- --------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Operating activities:
Net loss.............. $(2,190,523) $(2,141,584) $(3,354,636) $(524,459) $(1,076,874)
Adjustments to
reconcile net loss to
net cash provided by
(used in) operating
activities--
Depreciation and
amortization....... 152,479 226,466 276,791 67,191 76,862
Amortization of
deferred
compensation....... -- -- 1,017,744 33,575 230,245
Provision for bad
debts.............. 25,165 27,776 15,500 9,103 --
Issuance of common
stock for
services........... 1,500 -- -- -- --
Loss on disposal of
assets............. -- -- 10,664 10,413 --
Changes in operating
assets and
liabilities--
Accounts
receivable....... 82,952 (231,481) (46,032) (54,762) (23,498)
Prepaid expenses
and other
assets........... 232,371 25,540 (1,376,535) 24,572 638,574
Customer deposits
payable.......... (1,676,315) 4,247,161 (317,383) (43,869) 1,914,045
Accounts payable... (76,578) 98,668 291,411 5,225 220,167
Accrued expenses... 10,526 196,608 76,372 56,283 280,501
Other liabilities.. -- 68,256 8,800 2,442 2,025
----------- ----------- ----------- --------- -----------
Net cash provided
by (used in)
operating
activities...... (3,438,423) 2,517,410 (3,397,304) (414,286) 2,262,047
----------- ----------- ----------- --------- -----------
Investing activities:
Purchases of property
and equipment....... (298,369) (372,818) (257,327) (36,352) (483,078)
----------- ----------- ----------- --------- -----------
Net cash used in
investing
activities...... (298,369) (372,818) (257,327) (36,352) (483,078)
----------- ----------- ----------- --------- -----------
Financing activities:
Net increase
(decrease) in bank
overdraft........... 2,879,337 (2,133,248) (443,739) 590,639 19,712
Payments on long-term
debt................ (26,810) (29,747) (44,386) (6,081) (4,628)
Proceeds from sale of
common stock........ -- -- 10,000,000 -- 538,848
Proceeds from
subscription
receivable.......... -- -- -- -- 78,614
Proceeds from exercise
of stock options.... -- -- 365 -- 1,000
----------- ----------- ----------- --------- -----------
Net cash provided
by (used in)
financing
activities...... 2,852,527 (2,162,995) 9,512,240 584,558 633,546
----------- ----------- ----------- --------- -----------
Net increase (decrease)
in cash and cash
equivalents.......... (884,265) (18,403) 5,857,609 133,920 2,412,515
Cash and cash
equivalents,
beginning of period.. 1,407,512 523,247 504,844 504,844 6,362,453
----------- ----------- ----------- --------- -----------
Cash and cash
equivalents, end of
period............... $ 523,247 $ 504,844 $ 6,362,453 $ 638,764 $ 8,774,968
=========== =========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
PRINCETON ECOM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information as of March 31, 1999, and for the three months ended March 31,
1998 and 1999, is unaudited)
1. Background:
On January 25, 1984, Princeton eCom Corporation (the "Company") was
incorporated in the State of Delaware as Princeton TeleCom Corporation. In
March 1999, the Company changed its name to Princeton eCom Corporation. The
Company is a provider of comprehensive electronic bill presentment and payment
services to financial institutions and large businesses which generate a
significant number of recurring bills. The Company's current customers consist
primarily of utilities and financial institutions.
The Company has incurred significant losses and expects to incur
significant losses on a quarterly and annual basis for the foreseeable future.
As of December 31, 1998, the Company had an accumulated deficit of $10,893,829
and during 1998 the Company incurred a net loss of $3,354,636. Since its
inception, the Company has incurred costs to develop and enhance its
technology, establish marketing and customer relationships and build its
administrative organization. The Company currently intends to substantially
increase its operating expenses to further develop its business. To the extent
that such expenses do not subsequently lead to increased revenues, the
Company's business, results of operations and financial condition will be
materially and adversely affected. In addition, the Company's business model is
unproven and evolving and is subject to possible changing governmental
regulations (see Note 6). Also, the Company may not realize the critical mass
necessary to achieve profitability.
The accompanying financial statements have been prepared in conformity with
principles of accounting applicable to a going concern. These principles
contemplate the realization of assets and the satisfaction of liabilities in
the normal course of business. Management believes that the Company's existing
cash and cash equivalents will provide sufficient funding for its operating
activities, capital expenditures and other obligations to at least January 1,
2000. Therefore, the accompanying financial statements do not include necessary
adjustments should the Company be unable to continue as a going concern.
2. Significant Accounting Policies:
Interim Financial Statements
The financial statements as of March 31, 1999 and for the three months
ended March 31, 1998 and 1999 are unaudited and, in the opinion of management,
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of results for those interim periods. The
results of operations for the three months ended March 31, 1998 and 1999 are
not necessarily indicative of the results to be expected for the entire year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Service fees are based on contractual rates with customers. Service fee
revenues, which represent transaction fees charged to billers and financial
institutions are recognized as services are performed. Interest income on the
overnight investment of funds received from consumers pending payment
processing is recorded as earned.
F-7
<PAGE>
PRINCETON ECOM CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999, and for the three months ended March 31,
1998 and 1999, is unaudited)
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with original
maturities of three months or less and funds received from consumers pending
payment processing.
Prepaid Expenses and Other
In December 1998, the Company mistakenly made certain overpayments to
billers on behalf of consumers. Included in prepaid expenses and other at
December 31, 1998 is $862,906 of such overpayments, which were reimbursed to
the Company in early 1999. At December 31, 1998 and March 31, 1999, prepaid
expenses and other also included certificates of deposit in the aggregate of
$370,000 with original maturities greater than three months and certain related
party amounts (see Note 12).
Property and Equipment
Property and equipment are recorded at cost. Property and equipment
capitalized under capital leases are recorded at the present value of the
minimum lease payments due over the term of the lease. Depreciation and
amortization are provided using the straight-line method over the estimated
useful lives or the lease term, whichever is shorter. Expenditures for
maintenance, repairs and betterments that do not prolong the useful life of an
asset have been charged to operations as incurred. Additions and betterments
that substantially extend the useful life of the asset are capitalized. Upon
sale or other disposition of assets, the cost and related accumulated
depreciation and amortization are removed from the respective accounts, and the
resulting gain or loss, if any, is included in operating results.
The Company reviews its long-lived assets for possible impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. When factors indicate that such assets should be
evaluated for possible impairment, the Company uses an estimate of the related
future undiscounted cash flow in measuring whether the asset should be written
down to fair value. As of March 31, 1999, management believes that there are no
material impairment losses or needed revisions to remaining useful lives.
Customer Deposits Payable
Customer deposits payable represents funds received from consumers that are
held by the Company pending payment processing.
Development Costs
Research and development costs are charged to expense as incurred. In
conjunction with the development of its services, the Company incurs certain
software development costs. No costs have been capitalized pursuant to
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for
the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed,"
since the development period is relatively short and software development costs
qualifying for capitalization have been relatively insignificant.
Income Taxes
Income taxes are accounted for using the liability method. Accordingly,
deferred income tax assets and liabilities are determined based on differences
between the financial statement carrying amounts of assets and liabilities and
their respective income tax basis, measured using enacted tax rates.
F-8
<PAGE>
PRINCETON ECOM CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999, and for the three months ended March 31,
1998 and 1999, is unaudited)
Stock Compensation
The Company has elected to follow Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its employee stock options. Under APB No. 25,
if the exercise price of the Company's employee stock options equals or exceeds
the market price of the underlying stock on the date of the grant, no
compensation expense is recognized. If the exercise price of an option is below
the market price of the underlying stock on the date of grant, compensation
cost is recorded and is recognized in the statements of operations over the
vesting period (see Note 9).
Earnings Per Share
The Company follows SFAS No. 128, "Earnings Per Share," which requires a
dual presentation of "basic" and "diluted" earnings per share ("EPS") on the
face of the statements of operations. Basic EPS is computed by dividing net
income (loss) by the weighted average number of shares of common stock
outstanding for the period. Diluted EPS includes the dilutive effect, if any,
from the potential exercise or conversion of securities like stock options,
which would result in the issuance of additional shares of common stock. For
each of the three years in the period ended December 31, 1998 and the three
months ended March 31, 1998 and 1999, the impact of stock options was not
considered as their effect on EPS would be anti-dilutive (see Note 9).
Fair Value of Financial Instruments
Cash, accounts receivable, prepaid expenses, customer deposits payable,
accounts payable and accrued expenses are reflected in the accompanying
financial statements at fair value due to the short-term nature of those
instruments. The carrying amount of long-term debt obligations approximate fair
value at the balance sheet dates.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 is effective for fiscal years
beginning after December 31, 1997. SFAS No. 130 establishes standards for the
reporting and display of comprehensive income in a set of financial statements.
Comprehensive income is defined as the change in net assets of a business
enterprise during a period from transactions generated from non-owner sources.
It includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners. The Company has no other
comprehensive income items, therefore, the adoption of SFAS No. 130 had no
impact on the financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 applies to all pubic companies and is effective for fiscal years beginning
after December 15, 1997. SFAS No. 131 requires that business segment financial
information be reported in the financial statements utilizing the management
approach. The management approach is defined as the manner in which management
organizes the segments within the enterprise for making operating decisions and
assessing performance. Management believes the Company operates in one business
segment, therefore, the adoption of SFAS No. 131 had no impact on the financial
statements.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use."
F-9
<PAGE>
PRINCETON ECOM CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999, and for the three months ended March 31,
1998 and 1999, is unaudited)
The Company adopted SOP 98-1 in January 1999. The adoption had no material
effect on the Company's financial position or results of operations.
3. Supplemental Cash Flow Information:
For the years ended December 31, 1996, 1997 and 1998 and the three months
ended March 31, 1998 and 1999, the Company paid interest of $6,467, $15,687,
$14,150, $3,683 and $2,132, respectively. During 1996 and 1997, the Company
financed equipment purchases of $129,624 and $4,445 with capitalized lease
obligations, respectively.
During the three months ended March 31, 1999, the Company issued options to
purchase common stock to a consultant in exchange for services provided during
the Company's planned initial public offering. The fair value of the options
using the Black-Scholes option pricing model of $138,491 was included in
prepaid expenses and other as of March 31, 1999 in the accompanying balance
sheets.
4. Property and Equipment:
<TABLE>
<CAPTION>
December 31 March 31
Useful ---------------------- ----------
Lives 1997 1998 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Computer and telephone
equipment.............. 5 years $1,372,184 $1,404,057 $1,869,451
Furniture and fixtures... 5 years 50,290 67,452 85,136
Leasehold improvements... Lease term 38,828 38,828 38,828
---------- ---------- ----------
1,461,302 1,510,337 1,993,415
Less--Accumulated
depreciation and
amortization........... (609,032) (688,195) (765,057)
---------- ---------- ----------
$ 852,270 $ 822,142 $1,228,358
========== ========== ==========
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1996, 1997 and 1998 and the three months ended March 31, 1998 and 1999 was
$152,479, $226,466, $276,791, $67,191 and $76,862, respectively. At December
31, 1997 and 1998 and March 31, 1999, the Company had property and equipment
under capitalized lease obligations of $134,069, net of accumulated
amortization of $31,061, $57,874 and $65,271, respectively.
5. Long-Term Debt:
<TABLE>
<CAPTION>
December 31 March 31
------------------ --------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Note payable, repaid in 1998................ $ 20,293 $ -- $ --
Capitalized lease obligations............... 103,148 79,055 74,427
-------- -------- --------
123,441 79,055 74,427
Less--Current portion....................... (48,049) (29,441) (30,478)
-------- -------- --------
$ 75,392 $ 49,614 $ 43,949
======== ======== ========
</TABLE>
F-10
<PAGE>
PRINCETON ECOM CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999, and for the three months ended March 31,
1998 and 1999, is unaudited)
6. Commitments and Contingencies:
Lease Commitments
The Company leases facilities and equipment under capital and noncancelable
operating leases with expiration dates through September 2003. Rent expense for
the years ended December 31, 1996, 1997 and 1998 and the three months ended
March 31, 1998 and 1999 was $106,753, $111,830, $119,216, $31,041 and $37,050,
respectively. Future minimum lease payments as of December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
--------- --------
<S> <C> <C>
1999.................................................. $145,473 $ 38,666
2000.................................................. 141,348 38,666
2001.................................................. 141,704 16,375
2002.................................................. 100,148 --
2003.................................................. 5,691 --
-------- --------
Total minimum lease payments.......................... $534,364 93,707
========
Less--Amount representing interest.................... (14,652)
--------
Present value of future minimum lease payments........ 79,055
Less--Current portion................................. (29,441)
--------
$ 49,614
========
</TABLE>
Litigation
The Company is involved, from time to time, in various legal matters and
claims which are being defended and handled in the ordinary course of business.
None of these matters is expected, in the opinion of management, to have a
material adverse effect upon the financial position or results of operations of
the Company.
Employment Agreements
In early 1999, the Company entered into employment agreements with two
officers of the Company. The agreements provide for, among other things,
salaries, bonuses, severance payments and certain other payments payable upon a
change in control, as defined.
Government Regulation
Management believes that the Company is not required to be licensed by the
Office of the Comptroller of the Currency, the Federal Reserve Board or other
federal or state agencies that regulate or monitor banks or other providers of
electronic commerce. However, the Company may be periodically audited by
banking authorities since the Company is a supplier of services to financial
institutions. Laws regulating Internet commerce may be enacted to address
issues such as user privacy, pricing, content, taxation and the characteristics
and quality of online products and services, among other things. If enacted,
these laws could have a material adverse effect on the Company's business.
7. Common Stock:
On September 4, 1998, the Company entered into an agreement with Billing
Concepts Corp. ("BCC") whereby BCC acquired 2,493,870 shares of the Company's
common stock for $10,000,000. BCC was also given the right to purchase the
number of additional shares of the Company's common stock which is equal to the
Company's working capital deficit as of June 30, 1998 in excess of $8.5 million
divided by $4.01. On March 30, 1999, the Company sold BCC 134,376 shares for
$538,848 in full settlement of this provision. In addition, this agreement
provides for, among other things, the right of first refusal on certain equity
transactions.
F-11
<PAGE>
PRINCETON ECOM CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999, and for the three months ended March 31,
1998 and 1999, is unaudited)
In February 1999, the Company's Chief Executive Officer sold 102,000 shares
of his holdings of the Company's common stock to certain BCC affiliates and to
a former director of the Company at $5.33 per share.
8. Income Taxes:
The reconciliation of the statutory federal income tax rate to the
Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
Year Ended
December 31
---------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Statutory federal income
tax rate.............. (34.0)% (34.0)% (34.0)%
State income taxes, net
of federal tax
benefit............... (6.3) (6.3) (6.3)
Nondeductible expenses.. -- 1.2 0.2
Valuation allowance..... 40.3 39.1 40.1
----- ----- -----
-- % -- % -- %
===== ===== =====
</TABLE>
Deferred taxes are determined based upon the estimated future tax effects
of differences between the financial statements and income tax basis of assets
and liabilities given the provisions of the enacted tax laws. The tax effect of
temporary differences that give rise to deferred taxes are as follows:
<TABLE>
<CAPTION>
December 31
----------------------
1997 1998
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............. $2,145,851 $3,485,424
Deferred compensation........................ -- 410,151
Development costs............................ 567,476 446,454
Accruals and reserves not currently
deductible................................. 109,555 124,403
Property and equipment....................... 60,223 --
---------- ----------
2,883,105 4,466,432
---------- ----------
Deferred tax liabilities:
Property and equipment....................... -- (141,987)
Other........................................ -- (20,132)
---------- ----------
-- (162,119)
---------- ----------
2,883,105 4,304,313
Less--Valuation allowance...................... (2,883,105) (4,304,313)
---------- ----------
Net deferred tax asset......................... $ -- $ --
========== ==========
</TABLE>
Due to the uncertainty surrounding the realization of the net deferred tax
asset, the Company has provided a full valuation allowance. As of December 31,
1998, the Company has net operating loss carryforwards of approximately
$8,600,000 for federal tax purposes, which begin to expire in 2003, and
$7,200,000 for state tax purposes, which begin to expire in 1999. The Tax
Reform Act of 1986 contains provisions that may limit the net operating loss
carryforwards available in any given year in the event of a 50% cumulative
change in ownership over a three-year period.
F-12
<PAGE>
PRINCETON ECOM CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999, and for the three months ended March 31,
1998 and 1999, is unaudited)
9. Stock Options:
Effective July 1, 1996, the Company adopted the 1996 Stock Option Plan (the
"Plan"). The Plan provides for the granting of incentive and non-qualified
stock options to employees and consultants of the Company. The Compensation
Committee of the Board of Directors administers the Plan and awards grants and
determines the terms of such grants at its discretion. The Company has reserved
4,500,000 shares of common stock for issuance pursuant to the Plan.
Effective October 20, 1998, the Company adopted the 1998 Non-Employee
Director Plan (the "Director Plan"). The Director Plan provides for the
granting of non-qualified stock options to non-employee directors of the
Company. The Director Plan provides for grants based on a formula, as defined,
and additional grants at the discretion of the Compensation Committee of the
Board of Directors. The Company has reserved 600,000 shares of common stock for
issuance pursuant to the Director Plan.
Information with respect to the options under the Company's plans is as
follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise Exercise
Shares Price Price
--------- ---------- --------
<S> <C> <C> <C>
Balance, January 1, 1996........................ -- $ -- $ --
Granted at fair market value.................. 512,700 0.03 0.03
--------- ---------- -----
Balance, December 31, 1996...................... 512,700 0.03 0.03
Granted at fair market value.................. 696,000 0.03 0.03
Canceled...................................... (115,500) 0.03 0.03
--------- ---------- -----
Balance, December 31, 1997...................... 1,093,200 0.03 0.03
Granted at fair market value.................. 492,000 4.00 4.00
Granted below fair market value............... 733,500 0.03 0.03
Exercised..................................... (10,950) 0.03 0.03
Canceled...................................... (140,850) 0.03 0.03
--------- ---------- -----
Balance, December 31, 1998...................... 2,166,900 0.03-4.00 0.93
Granted below fair market value............... 621,000 4.00-5.33 4.87
Exercised..................................... (30,000) 0.03 0.03
Canceled...................................... (60,000) 0.03 0.03
--------- ---------- -----
Balance, March 31, 1999......................... 2,697,900 $0.03-5.33 $1.87
========= ========== =====
Balance Exercisable, March 31, 1999............. 561,450 $ 0.03 $0.03
========= ========== =====
</TABLE>
All options have terms ranging from five to ten years and generally vest
over four years. The weighted average contractual life of options outstanding
as of March 31, 1999 was four years for options granted at $0.03 per share and
ten years for options granted at $4.00 and $5.33 per share. At March 31, 1999,
there were 2,361,150 shares available for future option grants under the plans.
In connection with certain options granted to employees during the year
ended December 31, 1998 and the three months ended March 31, 1998 and 1999, the
Company recorded $1,884,500, $159,000 and $1,716,000 of deferred compensation,
respectively. These amounts represent the difference between the fair market
value of the Company's common stock on the date of grant and the exercise price
of options to purchase 733,500, 238,500 and 576,000 shares, respectively, of
the Company's common stock. Deferred compensation is amortized over the vesting
periods of the options, which range from immediate vesting to periods of up to
four years. For the year ended December 31, 1998 and the three months ended
March 31, 1998
F-13
<PAGE>
PRINCETON ECOM CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999, and for the three months ended March 31,
1998 and 1999, is unaudited)
and 1999, $1,017,744, $33,575 and $230,245 of deferred compensation,
respectively, was charged to expense. At March 31, 1999, the Company had
$2,352,511 of deferred compensation to be amortized over the remaining vesting
periods, which range from one to four years.
Pro forma information provided below has been determined as if the Company
had accounted for its employee stock options in accordance with SFAS No. 123,
"Accounting for Stock-Based Compensation." The determination of the fair value
of the options noted above was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted-average assumptions
for the years ended December 31, 1996, 1997 and 1998: risk free interest rate
of 6.2%, 5.8% and 4.9%, respectively, dividend yield of 0%, volatility factor
of the expected market price of the Company's common stock of 70%, and an
expected life of the options of four years.
The weighted average fair value of the options granted is as follows:
<TABLE>
<CAPTION>
Year Ended
December 31
-----------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Granted at fair market value........................... $0.02 $0.02 $2.24
Granted below fair market value........................ -- -- 2.80
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option vesting periods. The Company's
pro forma information is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net loss, as reported............. $(2,190,523) $(2,141,584) $(3,354,636)
Net loss per share, as reported... (0.26) (0.25) (0.36)
Pro forma net loss................ (2,191,728) (2,144,657) (3,364,955)
Pro forma net loss per share...... (0.26) (0.25) (0.36)
</TABLE>
10. Employee Benefit Plan:
The Company has a Section 401(k) retirement savings plan (the "401(k)
Plan"). The 401(k) Plan allows employees to contribute 2% to 15% of their
annual compensation subject to statutory limitations. Company contributions to
the 401(k) Plan are discretionary. Effective January 1999, the Company began
matching contributions of 100% of the first 6% of employee contributions.
Company contributions were $31,181 for the three months ended March 31, 1999.
11. Concentration of Credit Risk:
For the years ended December 31, 1996, 1997 and 1998 and the three months
ended March 31, 1998 and 1999, the Company had four, two, one, three and one
customer(s) which accounted for 61%, 22%, 12%, 35% and 11% of service fee
revenues, respectively. At December 31, 1997 and 1998 and March 31, 1999 these
customers had aggregate accounts receivable of $79,402, $63,675 and $79,612
respectively. The loss of one or more of these customers could have a
materially adverse effect on the Company's business.
12. Related Party Transactions:
Prepaid expenses and other at December 31, 1998 and March 31, 1999 includes
$64,000 and $63,000 of advances made to the Company's Chief Executive Officer,
respectively. At December 31, 1998, certificates of
F-14
<PAGE>
PRINCETON ECOM CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999, and for the three months ended March 31,
1998 and 1999, is unaudited)
deposit in the aggregate of $370,000 were pledged as collateral for a guarantee
by the Company of a personal bank loan to this individual. In March 1999, the
certificates of deposit and loan guarantee were released.
13. Recapitalization and Public Offering Subsequent to December 31, 1998:
On March 30, 1999, the Company's Board of Directors authorized management
to file a Registration Statement with the SEC to permit the Company to commence
an initial public offering of 3,000,000 shares of its common stock, of which
none will be sold by current stockholders. In connection therewith, on March
30, 1999, the Company's Board of Directors approved an amendment to the
Company's Articles of Incorporation to be filed prior to the Offering
authorizing 3,000,000 shares of $.01 par value preferred stock and 50,000,000
shares of common stock and, on April 27, 1999, authorized a 3-for-1 split of
its common stock to be effected prior to the offering. The authorized preferred
stock and common stock and the stock split have been retroactively reflected in
the financial statements.
F-15
<PAGE>
After the recapitalization and 3-for-1 stock split of each outstanding
share of common stock, as discussed in Note 13 to the financial statements, are
effected, we expect to be in a position to render the following audit report.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
March 30, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Princeton eCom Corporation:
We have audited in accordance with generally accepted auditing standards,
the financial statements of Princeton eCom Corporation, formerly Princeton
TeleCom Corporation, included in this registration statement and have issued
our report thereon dated March 30, 1999. Our audit was made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
accompanying financial statement schedule is the responsibility of the
Company's management and is presented for purposes of complying with the SEC's
rules and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
Philadelphia, Pa.,
March 30, 1999
S-1
<PAGE>
PRINCETON ECOM CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Allowance for Doubtful Accounts:
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and End of
of Year Expenses Write-offs Year
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1998................... $52,941 $15,500 $(18,499) $49,942
December 31, 1997................... 25,165 27,776 -- 52,941
December 31, 1996................... -- 25,165 -- 25,165
</TABLE>
S-2
<PAGE>
[CIRCULAR GRAPHIC APPEARS HERE DEPICTING THE INTEGRATION OF PRINCETON ECOM'S
SERVICES. ABOVE THE GRAPHIC IS THE QUOTE "PRINCETON ECOM PROVIDES A FULLY
INTEGRATED SUITE OF OUTSOURCED SERVICES FOR BILLER'S ELECTRONIC BILL PRESENTMENT
AND PAYMENT NEEDS."]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All the amounts shown are estimated
except the SEC registration fee, the National Association of Securities Dealers
filing fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee........... $ 12,788
NASD filing fee............................................... 5,100
Nasdaq National Market listing fee............................ 85,000
Printing and engraving expenses............................... 175,000
Legal fees and expenses....................................... 500,000
Accounting fees and expenses.................................. 150,000
Blue Sky fees and expenses (including legal fees)............. 25,000
Transfer agent and registrar fees and expenses................ 10,000
Miscellaneous................................................. 237,112
----------
Total $1,200,000
==========
</TABLE>
- --------
* To be supplied by amendment.
Item 14. Indemnification of Directors and Officers
Section 102 of the Delaware General Corporation Law ("DGCL"), as amended,
allows a corporation to eliminate the personal liability of directors of a
corporation to the corporation or its stockholders for monetary damages for a
breach of fiduciary duty as a director, except where the director breached his
duty of loyalty, failed to act in good faith, engaged in intentional misconduct
or knowingly violated a law, authorized the payment of a dividend or approved a
stock repurchase in violation of Delaware corporate law or obtained an improper
personal benefit.
Section 145 of the DGCL provides, among other things, that we may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (other than an
action by or in our right) by reason of the fact that the person is or was a
director, officer, agent or employee of ours or is or was serving at our
request as a director, officer, agent, or employee of another corporation,
partnership, joint venture, trust or other enterprise, against expenses,
including attorneys' fees, judgment, fines and amounts paid in settlement
actually and reasonably incurred by the person in connection with such action,
suit or proceeding. The power to indemnify applies (a) if such person is
successful on the merits or otherwise in defense of any action, suit or
proceeding, or (b) if such person acted in good faith and in a manner he
reasonably believed to be in our best interest, or not opposed to our best
interest, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The power to indemnify
applies to actions brought by or in our right as well, but only to the extent
of defense expenses (including attorneys' fees but excluding amounts paid in
settlement) actually and reasonably incurred and not to any satisfaction of
judgment or settlement of the claim itself, and with the further limitation
that in such actions no indemnification shall be made in the event of any
adjudication of negligence or misconduct in the performance of his duties to
us, unless the court believes that in light of all the circumstances
indemnification should apply.
Section 174 of the DGCL provides, among other things, that a director, who
willfully or negligently approves of an unlawful payment of dividends or an
unlawful stock purchase or redemption, may be held liable for such actions. A
director who was either absent when the unlawful actions were approved or
dissented at the time, may avoid liability by causing his or her dissent to
such actions to be entered in the books containing the
II-1
<PAGE>
minutes of the meetings of the board of directors at the time such action
occurred or immediately after such absent director receives notice of the
unlawful acts.
Our Amended and Restated Certificate of Incorporation will include a
provision that eliminates the personal liability of its directors for monetary
damages for breach of fiduciary duty as a director, except for liability:
. for any breach of the director's duty of loyalty to Princeton eCom or
its stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. under the section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
. for any transaction from which the director derived an improper personal
benefit.
Our Amended and Restated Bylaws provide that:
. we must indemnify our directors and officers to the fullest extent
permitted by Delaware law;
. we may indemnify our other employees and agents to the same extent that
we indemnified our officers and directors, unless otherwise determined
by our board of directors; and
. we must advance expenses, as incurred, to our directors and executive
officers in connection with a legal proceeding to the fullest extent
permitted by Delaware law.
Prior to the completion of this offering, we intend to enter into indemnity
agreements with each of our directors and executive officers to give them
additional contractual assurances regarding the scope of the indemnification
described above and to provide additional procedural protections. In addition,
we intend to obtain directors' and officers' insurance in the amount of $15.0
million providing indemnification for our directors, officers and certain
employees for certain liabilities. We believe that these indemnification
provisions and agreements are necessary to attract and retain qualified
directors and officers.
The limitation of liability and indemnification provisions in our Amended
and Restated Certificate of Incorporation and Amended and Restated Bylaws may
discourage stockholders from bringing a lawsuit against directors for breach of
their fiduciary duty. They may also have the effect of reducing the likelihood
of derivative litigation against directors and officers, even though such an
action, if successful, might otherwise benefit us and our stockholders.
Furthermore, a stockholder's investment may be adversely affected to the extent
we pay the costs of settlement and damage awards against directors and officers
pursuant to these indemnification provisions.
At present, there is no pending material litigation or proceeding involving
any of our directors, officers or employees regarding which indemnification is
sought, nor are we aware of any threatened litigation that may result in claims
for indemnification.
Item 15. Recent Sales of Unregistered Securities
In the last three years, we sold the following securities:
In June 1996, we amended a stock purchase agreement with C. Richard Corl
dated June 29, 1993. By the terms of this amended stock purchase agreement, an
adjustment was made for the issuance of an additional 9,000 shares of common
stock to Mr. Corl and an adjustment increasing the amount owed to us by Mr.
Corl under a promissory note for an additional $1,350. This sale of securities
was made under the exemption of (S)4(2) under the Securities Act of 1933.
In July 1996, we sold an aggregate of 120,000 shares of common stock, of
which 30,000 shares were sold to each of Lawrence Greenberg, Diane Hancharik,
Susan Hubbard-Walker, and Alex Peterhans at a purchase price of $1,000. The
consideration for each of these purchases was a promissory note with a
principal
II-2
<PAGE>
amount of $1,000 and 6% interest per annum. Each of these promissory notes was
satisfied in March 1999. In addition, in July 1996 we delivered 45,000 shares
to Benson Lapides in satisfaction of amounts which we owed Mr. Lapides for
consulting services which he performed for us. These sales of securities were
made under the exemption of (S)4(2) under the Securities Act of 1933.
In March 1997, we sold an additional 30,000 shares of common stock to Mr.
Peterhans for an aggregate purchase price of $1,000. The consideration for this
purchase was a promissory note with a principal amount of $1,000 and an
interest rate of 6% per annum.
In December 1997, we sold 60,000 additional shares of common stock, of
which an additional 30,000 shares were sold to Mr. Greenberg and 30,000 shares
were sold to Mrs. Hubbard-Walker, in each instance for an aggregate purchase
price of $1,000. The consideration for each of these purchases was a promissory
note with a principal amount of $1,000 and 6% per annum. Each of these
promissory notes was satisfied in March 1999. These sales of securities were
made under the exemption of (S)4(2) under the Securities Act of 1933.
On September 4, 1998, the Company sold 2,493,870 shares of common stock to
Billing Concepts Corp. for an aggregate purchase price of $10,000,000 in cash.
This sale of securities was made under the exemption of (S)4(2) and Rule 506 of
Regulation D under the Securities Act of 1933.
On March 30, 1999, the Company sold an additional 134,376 shares of common
stock to Billing Concepts Corp. for an aggregate purchase price of $538,848.
These shares were sold to Billing Concepts Corp. under the terms of an option
granted to Billing Concepts Corp. in connection with their September 1998
purchase, which option permitted the purchase of additional shares if the
Company's working capital deficit, as of June 30, 1998, exceeded $8.5 million.
These shares were sold to Billing Concepts Corp. under the exemptions of
(S)4(2) and Rule 506 of Regulation D under the Securities Act of 1933.
Item 16. Exhibits and Consolidated Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement between Princeton eCom Corporation
and the Underwriters.
**3(i)(1) Certificate of Incorporation, as amended, of Princeton eCom
Corporation.
3(i)(2) Amended and Restated Certificate of Incorporation of Princeton
eCom Corporation.
**3(ii)(1) Amended and Restated Bylaws of Princeton eCom Corporation.
*3(ii)(2) Second Amended and Restated Bylaws of Princeton eCom Corporation.
**4.1 Specimen Stock Certificate.
*5.1 Opinion of Kelley Drye & Warren LLP (including the consent of such
firm) as to the validity of the securities being offered.
**10.1 Employment Agreement between Princeton eCom and Ronald W. Averett.
**10.2 Employment Agreement between Princeton eCom and Christopher S.
Sugden.
**10.3 Amended 1996 Stock Option Plan.
**10.4 1998 Non-Employee Director Plan.
*10.5 Form of Indemnification Agreement.
10.6 Lease Agreement relating to 165 Wall Street, Princeton, New
Jersey.
**10.7 Voting Agreement between Billings Concepts Corp., Princeton eCom
Corporation, Donald C. Licciardello and the Licciardello Family
Limited Partnership.
**10.8 Stock Purchase Agreement between Princeton eCom Corporation and
Billing Concepts Corp.
*23.1 Consent of Kelley Drye & Warren LLP (included in Exhibit 5.1).*
23.2 Consent of Arthur Andersen LLP.
**23.3 Consent of William Jennings.
23.4 Consent of Killen & Associates.
**24.1 Power of Attorney (on the signature page).
**27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
II-3
<PAGE>
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts
All other schedules are omitted because they are inapplicable or the
requested information is shown in the consolidated financial statements or
related notes.
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 2nd day of June, 1999.
PRINCETON ECOM CORPORATION
By: Donald C. Licciardello*
------------------------------
Donald C. Licciardello
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
Donald C. Licciardello* Chairman and Chief Executive June 2, 1999
______________________________________ Officer
Donald C. Licciardello (Principal Executive Officer)
/s/ Christopher S. Sugden Senior Vice President and Chief June 2, 1999
______________________________________ Financial
Christopher S. Sugden Officer (Principal Financial and
Accounting Officer)
C. Richard Corl* Executive Vice President, June 2, 1999
______________________________________ Secretary
C. Richard Corl and Director
Parris H. Holmes, Jr.* Director June 2, 1999
______________________________________
Parris H. Holmes, Jr.
Kelly E. Simmons* Director June 2, 1999
______________________________________
Kelly E. Simmons
</TABLE>
By: /s/ Christopher S. Sugden
-------------------------------
Christopher S. Sugden
Attorney-in-fact
II-5
<PAGE>
Exhibit List
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement between Princeton eCom and the
Underwriters.
**3(i)(1) Certificate of Incorporation, as amended, of Princeton eCom
Corporation.
3(i)(2) Amended and Restated Certificate of Incorporation of Princeton
eCom Corporation.
**3(ii)(1) Amended and Restated Bylaws of Princeton eCom Corporation.
*3(ii)(2) Second Amended and Restated Bylaws of Princeton eCom Corporation.
**4.1 Specimen Stock Certificate.
*5.1 Opinion of Kelley Drye & Warren LLP (including the consent of such
firm) as to the validity of the securities being offered.
**10.1 Employment Agreement between Princeton eCom and Ronald W. Averett.
**10.2 Employment Agreement between Princeton eCom and Christopher S.
Sugden.
**10.3 Amended 1996 Stock Option Plan.
**10.4 1998 Non-Employee Director Plan.
*10.5 Form of Indemnification Agreement.
10.6 Lease relating to 165 Wall Street, Princeton, New Jersey.
**10.7 Voting Agreement between Billing Concepts Corp., Princeton eCom
Corporation, Donald C. Licciardello and the Licciardello Family
Limited Partnership.
**10.8 Stock Purchase Agreement between Princeton eCom Corporation and
Billing Concepts Corp.
*23.1 Consent of Kelley Drye & Warren LLP (included in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
**23.3 Consent of William Jennings.
23.4 Consent of Killen & Associates.
**24.1 Power of Attorney (on the signature page).
**27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
<PAGE>
EXHIBIT 3.(i)(2)
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PRINCETON ECOM CORPORATION
Princeton eCom Corporation (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
1. The Corporation filed its original Certificate of Incorporation with
the Secretary of the State of Delaware on January 25, 1984. The Corporation was
originally incorporated under the name Princeton Telecom Corporation.
2. At a duly called meeting of the Board of Directors of the
Corporation at which a quorum was present at all times, a resolution was duly
adopted, pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, setting forth an Amended and Restated Certificate of
Incorporation of the Corporation and declaring said Amended and Restated
Certificate of Incorporation advisable. The stockholders of the Corporation
duly approved said proposed Amended and Restated Certificate of Incorporation by
written consent in accordance with Sections 228, 242 and 245 of the General
Corporation Law of the State of Delaware. The resolution setting forth the
Amended and Restated Certificate of Incorporation is as follows:
RESOLVED: That the Certificate of Incorporation of the Corporation be, and
hereby is, amended and restated in its entirety so that the same shall read
as follows:
FIRST. The name of the Corporation is:
Princeton eCom Corporation
SECOND. The address of its registered office in the State of Delaware is
1013 Centre Road, in the City of Wilmington, County of New Castle. The name of
its registered agent at such address is Prentice-Hall Corporation System, Inc.
THIRD. The nature of the business or purposes to be conducted or promoted
by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 53,000,000 shares, consisting of
(i) 50,000,000 shares of Common Stock, $.01 par value per share ("Common
Stock"), and (ii) 3,000,000 shares of Preferred Stock, $.01 par value per share
("Preferred Stock").
The following is a statement of the designations and the powers,
preferences and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the
<PAGE>
Corporation.
A. COMMON STOCK.
1. General. The voting, dividend and liquidation rights of the holders
-------
of the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one vote
------
for each share held at all meetings of stockholders. There shall be no
cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242 (b) (2) of the
General Corporation Law of Delaware.
3. Dividends. Dividends may be declared and paid on the Common Stock
---------
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the
-----------
Corporation, whether voluntary or involuntary, holders of Common Stock will be
entitled to receive all assets of the Corporation available for distribution to
its stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series, each
of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing for
the issue of the shares thereof, to determine and fix such voting powers, full
or limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by the General Corporation Law of Delaware. Without
limiting the generality
2
<PAGE>
of the foregoing, the resolutions providing for issuance of any series of
Preferred Stock may provide that such series shall be superior or rank equally
or be junior to the Preferred Stock of any other series to the extent permitted
by law. Except as otherwise provided in this Certificate of Incorporation, no
vote of the holders of the Preferred Stock or Common Stock shall be a
prerequisite to the designation or issuance of any shares of any series of the
Preferred Stock authorized by and complying with the conditions of this
Certificate of Incorporation, the right to have such vote being expressly waived
by all present and future holders of the capital stock of the Corporation.
FIFTH. The Corporation shall have a perpetual existence.
SIXTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot, except as and
to the extent provided in the By-Laws of the Corporation.
2. The Board of Directors is expressly authorized to adopt, amend or
repeal the By-Laws of the Corporation, except as and to the extent provided in
the By-Laws of the Corporation.
SEVENTH. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
EIGHTH. Except to the extent that the General Corporation Law of Delaware
prohibits the elimination or limitation of liability of directors for breaches
of fiduciary duty, no director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, notwithstanding any provision of law imposing such
liability. No amendment to or repeal of this provision shall apply to or have
any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
3
<PAGE>
NINTH. Every director, officer or employee of the Corporation shall be
indemnified by the Corporation to the fullest extent permitted by the General
Corporation Law of Delaware against all expenses and liabilities, including
counsel fees, reasonably incurred by or imposed upon that person in connection
with any proceeding to which the person may be made, or threatened to be made, a
party, or in which that person may become involved by reason of his being or
having been a director, officer or employee or of serving or having served in
any capacity with any other enterprise at the request of the Corporation,
whether or not that person is a director, officer or employee or continues to
serve the other enterprise at the time the liabilities or expenses are imposed
or incurred. The foregoing right of indemnification shall be in addition to and
not exclusive of all other rights to which such director, officer or employee
may be entitled.
TENTH. Except as otherwise provided herein, the Corporation reserves the
right to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, in the manner now or hereafter prescribed by
statute and this Certificate of Incorporation, and all rights conferred upon
stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Amended and Restated Certificate of Incorporation to be
signed by its Chairman of the Board and Chief Executive Officer this 18th day of
May, 1999.
Princeton eCom Corporation
By: /s/ DONALD C. LICCIARDELLO
____________________________
Donald C. Licciardello
Chairman of the Board and
Chief Executive Officer
4
<PAGE>
EXHIBIT 10.6
This Lease, dated the 12th day of April 1994.
Between RESEARCH PARK
194 Nassau Street, Princeton, New Jersey 08542
hereinafter referred to as the Landlord, and
PRINCETON TELECOM CORPORATION
395 Wall Street, Princeton, New Jersey 08540
hereinafter referred to as the Tenant,
WITNESSETH: That the Landlord hereby demises and leases unto the Tenant, and the
Tenant hereby hires and takes from the Landlord for the term and upon the
rentals hereinafter specified, the premises described as follows, situated in
the Township of Montgomery County of Somerset and State of New Jersey.
General office space consisting of 4,475 square feet, using exterior dimensions,
and being located in Building 151-175 Wall Street, Research Park and being more
particularly described as 165 Wall Street.
SEE ADDENDUM "B" FOR LOCATION OUTLINED IN RED.
The term of this demise shall be for Three (3) Years beginning June 1, 1994
and ending May 31, 1997.
The rent for the demised term shall be -- ONE HUNDRED SIXTY-ONE THOUSAND ONE
HUNDRED DOLLARS ____________________ (161,100.00), which shall accrue at the
yearly rate of
$53,700.00 per year for years 1 through 3.
The said rent is to be payable monthly in advance on the first day of each
calendar month for the term hereof, in instalments as follows:
$4,475.00 per month per year for years 1 through 3
at the office of Research Park, 194 Nassau Street, Princeton, NJ 08542 or as may
be otherwise directed by the Landlord in writing.
THE ABOVE LETTING IS UPON THE FOLLOWING CONDITIONS:
First. -- The Landlord covenants that the Tenant, on paying the said rental
and performing the covenants and conditions in this Lease contained, shall and
may peaceably and quietly have, hold and enjoy the demised premises for the term
aforesaid.
Second. -- The Tenant covenants and agrees to use the demised premises as a
general office use only,
and agrees not to use or permit the premises to be used for any other purpose
without the prior written consent of the Landlord endorsed hereon.
Third. -- The Tenant shall, without any previous demand therefor, pay to the
Landlord, or its agent, the said rent at the times and in the manner above
provided. In the event of the non-payment of said rent, or any instalment
thereof, at the times and in the manner above provided, and if the same shall
remain in default for ten days after becoming due, or if the Tenant shall be
dispossessed for non-payment of rent, or if the leased premises shall be
deserted or vacated, the Landlord or its agents shall have the right to and may
enter the said premises as the agent of the Tenant, either by force or
otherwise, without being liable for any prosecution or damages therefor, and may
relet the premises as the agent of the Tenant, and receive the rent therefor,
upon such terms as shall be satisfactory to the Landlord, and all rights of the
Tenant to repossess the premises under this lease shall be forfeited. Such re-
entry by the Landlord shall not operate to release the Tenant from any rent to
be paid or covenants to be performed hereunder during the full term of this
lease. For the purpose of reletting, the Landlord shall be authorized to make
such repairs or alterations in or to the leased premises as may be necessary to
place the same in good order and condition. The Tenant shall be liable to the
Landlord for the cost of such repairs or alterations, and all expenses of such
reletting. If the sum realized or to be realized from the reletting is
insufficient to satisfy the monthly or term rent provided in this lease, the
Landlord, at its option, may require the Tenant to pay such deficiency month by
month, or may hold the Tenant in advance for the entire deficiency to be
realized during the term of the reletting. The Tenant shall not be entitled to
any surplus accruing as a result of the reletting. The Landlord is hereby
granted a lien, in addition to any statutory lien or right to distrain that may
exist, on all personal property of the Tenant in or upon the demised premises,
to secure payment of the rent and performance of the covenants and conditions of
this lease. The Landlord shall have the right, as agent of the Tenant, to take
possession of any furniture, fixtures or other personal property of the Tenant
found in or about the premises, and sell the same at public or private sale and
to apply the proceeds thereof to the payment of any monies becoming due under
this lease, the Tenant hereby waiving the benefit of all laws exempting property
from execution, levy and sale on distress or judgment. The Tenant agrees to
pay, as additional rent, all attorney's fees and other expenses incurred by the
Landlord in enforcing any of the obligations under this lease.
Fourth. -- The Tenant shall not sub-let the demised premises nor any portion
thereof, nor shall this lease be assigned by the Tenant without the prior
written consent of the Landlord endorsed hereon, which consent shall not be
unreasonably withheld.
Fifth. -- The Tenant has examined the demised premises, and accepts them in
their present condition (except as otherwise expressly provided herein) and
without any representations on the part of the Landlord or its agents as to the
present or future condition of the said premises. The Tenant shall keep the
demised premises in good condition, and shall redecorate, paint and renovate the
said premises as may be necessary to keep them in repair and good appearance.
The Tenant shall quit and surrender the premises at the end of the demised term
in as good condition as the reasonable use thereof will permit. The Tenant
shall not make any alterations, additions, or improvements to said premises
without the
<PAGE>
prior written consent of the Landlord. All erections, alterations, additions and
improvements, whether temporary or permanent in character, which may be made
upon the premises either by the Landlord or the Tenant, except furniture or
movable trade fixtures installed at the expense of the Tenant, shall be the
property of the Landlord and shall remain upon and be surrendered with the
premises as a part thereof at the termination of this Lease, without
compensation to the Tenant. The Tenant further agrees to keep said premises and
all parts thereof in a clean and sanitary condition and free from trash,
inflammable material and other objectionable matter. If this lease covers
premises, all or a part of which are on the ground floor, the Tenant further
agrees to keep the sidewalks in front of such ground floor portion of the
demised premises clean and free of obstructions, snow and ice.
Sixth. - In the event that any mechanics' lien is filed against the premises
as a result of alterations, additions or improvements made by the Tenant, the
Landlord, at its option, after thirty days' notice to the Tenant, may terminate
this lease and may pay the said lien, without inquiring into the validity
thereof, and the Tenant shall forthwith reimburse the Landlord the total expense
incurred by the Landlord in discharging the said lien, as additional rent
hereunder.
Seventh. - The Tenant agrees to replace at the Tenant's expense any and all
glass which may become broken in and on the demised premises. Plate glass and
mirrors, if any, shall be insured by the Tenant at their full insurable value in
a company satisfactory to the Landlord. Said policy shall be of the full
premium type, and shall be deposited with the Landlord or its agent.
Eighth. - The Landlord shall not be responsible for the loss of or damage to
property, or injury to persons, occurring in or about the demised premises, by
reason of any existing or future condition, defect, matter or thing in said
demised premises or the property of which the premises are a part, or for the
acts, omissions or negligence of other persons or tenants in and about the said
property. The Tenant agrees to indemnify and save the Landlord harmless from
all claims and liability for losses of or damage to property, or injuries to
persons occurring in or about the demised premises.
Ninth. - *Utilities and services furnished to the demised premises for the
benefit of the Tenant shall be provided and paid for as follows: water and
sewer by the Landlord; gas by the Landlord; electricity by the Landlord; heat by
the Landlord; refrigeration by the N/A; hot water by the Landlord. Equipment
maintenance, replacement of equipment and yearly service of equipment which
supplies heat, air and electric to the demised premises covered by this lease
are to be paid for by the Landlord. *See Paragraph 39th.
The Landlord shall not be liable for any interruption or delay in any of the
above services for any reason. See Paragraph 41st.
Tenth. - The Landlord, or its agents, shall have the right to enter the
demised premises at reasonable hours in the day or night to examine the same, or
to run telephone or other wires, or to make such repairs, additions or
alterations as it shall deem necessary for the safety, preservation or
restoration of the improvements, or for the safety or convenience of the
occupants or users thereof (there being no obligation, however, on the part of
the Landlord to make any such repairs, additions or alterations), or to exhibit
the same to prospective purchasers and put upon the premises a suitable "For
Sale" sign. For three months prior to the expiration of the demised term, the
Landlord, or its agents, may similarly exhibit the premises to prospective
tenants, and may place the usual "To Let" signs thereon.
Eleventh. - In the event of the destruction of the demised premises or the
building containing the said premises by fire, explosion, the elements or
otherwise during the term hereby created, or previous thereto, or such partial
destruction thereof as to render the premises wholly untenantable or unfit for
occupancy, or should the demised premises be so badly injured that the same
cannot be required within ninety days from the happening of such injury, then
and in such case the term hereby created shall, at the option of Landlord, cease
and become null and void from the date of such damage or destruction, and the
Tenant shall immediately surrender said premises and all the Tenant's interest
therein to the Landlord, and shall pay rent only to the time of such surrender,
in which event the Landlord may re-enter and re-possess the premises thus
discharged from this lease and may remove all parties therefrom. Should the
demised premises be rendered untenantable and unfit for occupancy, but yet be
repairable within ninety days from the happening of said injury, the Landlord
may enter and repair the same with reasonable speed, and the rent shall not
accrue after said injury or while repairs are being made, but shall recommence
immediately after said repairs shall be completed. But if the premises shall be
so slightly injured as not to be rendered untenantable and unfit for occupancy,
then the Landlord agrees to repair the same with reasonable promptness and in
that case the rent accrued and accruing shall not cease or determine. The Tenant
shall immediately notify the Landlord in case of fire or other damage to the
premises.
Twelfth. - The Tenant agrees to observe and comply with all laws, ordinances,
rules and regulations of the Federal, State, County and Municipal authorities
applicable to the business to be conducted by the Tenant in the demised
premises. The Tenant agrees not to do or permit anything to be done in said
premises, or keep anything therein, which will increase the rate of fire
insurance premiums on the improvements or any part thereof, or on property kept
therein, or which will obstruct or interfere with the rights of other tenants,
or conflict with the regulations of the Fire Department or with any insurance
policy upon said improvements or any part thereof. In the event of any increase
in insurance premiums resulting from the Tenant's occupancy of the premises, or
from any act or omission on the part of the Tenant, the Tenant agrees to pay
said increase in insurance premiums on the improvements or contents thereof as
additional rent.
Thirteenth. - No sign, advertisement or notice shall be affixed to or placed
upon any part of the demised premises by the tenant, except in such manner, and
of such size, design and color as shall be approved in advance in writing by the
Landlord.
See Paragraph 42nd
Fourteenth. - This lease is subject and is hereby subordinated to all present
and future mortgages, deeds of trust and other encumbrances affecting the
demised premises or the property of which said premises are a part. The Tenant
agrees to execute, at no expense to the Landlord any instrument which may be
deemed necessary or desirable by the Landlord, to further effect the
subordination of this lease to any such mortgage, deed of trust or encumbrance.
See Paragraph 53rd.
Fifteenth. - In the event of the sale by the Landlord of the demised
premises, or the property of which said premises are a part, the Landlord or the
purchaser may terminate this lease on the thirtieth day of April in any year
upon giving the Tenant notice of such termination prior to the first day of
January in the same year.
Sixteenth. - The rules and regulations regarding the demised premises, affixed
to this lease, if any, as well as any other and further reasonable rules and
regulations which shall be made by the Landlord, shall be observed by the Tenant
and by the Tenant's employees, agents and customers. The Landlord reserves the
right to rescind any presently existing rules applicable to the demised
premises, and to make such other and further reasonable rules and regulations
as, in its judgment, may from time to time be desirable for the safety, care and
cleanliness of the premises, and for the preservation of good order therein,
which rules, when so made and notice thereof given to the Tenant, shall have the
same force and effect as if originally made a part of this lease. Such other
and further rules shall not, however, be inconsistent with the proper and
rightful enjoyment by the Tenant of the demised premises.
Seventeenth. - In case of violation by the Tenant of any of the covenants,
agreements and conditions of this lease, or of the rules and regulations now or
hereafter to be reasonably established by the Landlord, and upon failure to
discontinue such violation within ten days after notice thereof given to the
Tenant, this lease shall thenceforth, at the option of the Landlord, become null
and void, and the Landlord may re-enter without further notice or demand. The
rent in such case shall become due, be apportioned and paid on and up to the day
of such re-entry, and the Tenant shall be liable for all loss or damage
resulting from such violation as aforesaid. No waiver by the Landlord of any
violation or breach of condition by the Tenant shall constitute or be construed
as a waiver of any other violation or breach of condition, nor shall lapse of
time after breach of condition by the Tenant before the Landlord shall exercise
its option under this paragraph operate to defeat the right of the Landlord to
declare this lease null and void and to re-enter upon the demised premises after
the said breach or violation.
<PAGE>
Eighteenth. -- All notices and demands, legal or otherwise, incidental to this
lease, or the occupation of the demised premises, shall be in writing. If the
Landlord or its agent desires to give or serve upon the Tenant any notice or
demand, it shall be sufficient to send a copy thereof by registered mail,
addressed to the Tenant at the demised premises, or to leave a copy thereof with
a person of suitable age found on the premises, or to post a copy thereof upon
the door to said premises. Notices for the Tenant to the Landlord shall be sent
by registered mail or delivered to the Landlord at the place hereinbefore
designated for the payment of rent, or to such party or place as the Landlord
may form time to time designate in writing.
Nineteenth. -- It is further agreed that if at any time during the term of
this lease the Tenant shall make any assignment for the benefit of creditors, or
be decreed insolvent or bankrupt according to law, or if a receiver shall be
appointed for the Tenant, then the Landlord may, at its option, terminate this
lease, exercise of such option to be evidenced by notice to that effect served
upon the assignee, receiver, trustee or other person in charge of the
liquidation of the property of the Tenant or the Tenant's estate, but such
termination shall not release or discharge any payment of rent payable hereunder
and then accrued, or any liability then accrued by reason of any agreement or
covenant herein contained on the part of the Tenant, or the Tenant's legal
representatives.
Twentieth. -- In the event that the Tenant shall remain in the demised
premises after the expiration of the term of this lease without having executed
a new written lease with the Landlord, such holding over shall not constitute a
renewal or extension of this lease. The Landlord may, at its option, elect to
treat the Tenant as one who has not removed at the end of his term, and
thereupon be entitled to all the remedies against the Tenant provided by law in
that situation, or the Landlord may elect, at its option, to construe such
holding over as a tenancy from month to month, subject to all the terms and
conditions of this lease, except as to duration thereof, and in that event the
Tenant shall pay monthly rent in advance at the rate provided herein as
effective during the last month of the demised term.
Twenty-first. -- If the property or any part thereof wherein the demised
premises are located shall be taken by public or quasi-public authority under
any power of eminent domain or condemnation, this lease, at the option of the
Landlord, shall forthwith terminate and the Tenant shall have no claim or
interest in or to any award of damages for such taking.
Twenty-second. -- The Tenant has this day deposited with the Landlord the sum
of $8,950.00 as security for the full and faithful performance by the Tenant of
all the terms, covenants and conditions of this lease upon the Tenant's part to
be performed, which said sum shall be returned to the Tenant after the time
fixed as the expiration of the term herein, provided the Tenant has fully and
faithfully carried out all of said terms, covenants and conditions on Tenant's
part to be performed. In the event of a bona fide sale, subject to this lease,
the Landlord shall have the right to transfer the security to the vendee for the
benefit of the Tenant and the landlord shall be considered released by the
Tenant from all liability for the return of such security; and the Tenant agrees
to look to the new Landlord solely for the return of the said security, and it
is agreed that this shall apply to every transfer or assignment made of the
security to a new Landlord. The security deposited under this lease shall not
be mortgaged, assigned or encumbered by the Tenant without the written consent
of the Landlord.
Twenty-third. -- Any dispute arising under this lease shall be settled by
arbitration. Then Landlord and tenant shall each choose an arbitrator, and the
two arbitrators thus chosen shall select a third arbitrator. The findings and
award of the three arbitrators thus chosen shall be final and binding on the
parties hereto.
Twenty-fourth. -- No rights are to be conferred upon the Tenant until this
lease has been signed by the Landlord, and an executed copy of the lease has
been delivered to the Tenant.
Twenty-fifth. -- The foregoing rights and remedies are not intended to be
exclusive but as additional to all rights and remedies the Landlord would
otherwise have by law.
Twenty-sixth. -- All of the terms, covenants and conditions of this lease
shall inure to the benefit of and be binding upon the respective heirs,
executors, administrators, successors and assigns of the parties hereto.
However, in the event of the death of the Tenant, if an individual, the Landlord
may, at its option, terminate this lease by notifying the executor or
administrator of the Tenant at the demised premises.
Twenty-seventh. -- This lease and the obligation of Tenant to pay rent
hereunder and perform all of the other covenants and agreements hereunder on
part of Tenant to be performed shall in nowise be affected, impaired or excused
because Landlord is unable to supply or is delayed in supplying any service
expressly or impliedly to be supplied or is unable to make, or is delayed in
making any repairs, additions, alterations or decorations or is unable to supply
or is delayed in supplying any equipment or fixtures if Landlord is prevented or
delayed from so doing by reason of governmental preemption in connection with
the National Emergency declared by the President of the United States or in
connection with any rule, order or regulation of any department or subdivision
thereof of any governmental agency or by reason of the conditions of supply and
demand which have been or are affected by the war.
Twenty-eighth. -- This instrument may not be changed orally.
Twenty-ninth. -- See Addendum "A" attached hereto and made a part hereof.
Thirtieth. -- See Addendum "A" attached hereto and made a part hereof.
Thirty-first. -- Intentionally left blank.
IN WITNESS WHEREOF, the said Parties have hereunto set their hands and seals
the day and year first above written. RESEARCH PARK
Witness: By: /s/ Jeffrey H. Sands (SEAL)
------------------------------------
Jeffrey H. Sands Landlord
/s/ Althea Brower By
- -------------------------------- ------------------------------------
ATTEST: PRINCETON TELECOM CORPORATION
By: /s/ D.C. Licciardello (SEAL)
- -------------------------------- ------------------------------------
Name: Althea Brower Tenant
Title: Name: D.C. Licciardello
Title: President
<PAGE>
GUARANTY
In consideration of the execution of the within lease by the Landlord, at
the request of the undersigned and in reliance of this guaranty, the undersigned
hereby guarantees unto the Landlord, its successors and assigns, the prompt
payment of all rent and the performance of all of the terms, covenants and
conditions provided in said lease, hereby waiving all notice of default, and
consenting to any extensions of time or changes in the manner of payment or
performance of any of the terms and conditions of the said lease the Landlord
may grant the Tenant, and further consenting to the assignment and the
successive assignments of the said lease, and any modifications thereof,
including the sub-letting and changing of the use of the demised premises, all
without notice to the undersigned. The undersigned agrees to pay the Landlord
all expenses incurred in enforcing the obligations of the Tenant under the
within lease and in enforcing this guaranty.
Witness:_____________________ ___________________(SEAL)
_____________________ ___________________(SEAL)
Date:________________________
LEASE
==========================================
RESEARCH PARK
Landlord
to
PRINCETON TELECOM CORPORATION
TENANT
==========================================
Premises leased: General office space consisting of 4,475
square feet, using exterior dimensions, and being located in
building 151-175 Wall Street, Research Park and being more
particularly described as 165 Wall Street.
From: June 1, 1994
---------------------------
To: May 3, 1997
---------------------------
ASSIGNMENT AND ACCEPTANCE OF ASSIGNMENT
For value received the undersigned Tenant hereby assigns all of said Tenant's
right, title and interest in and to the within lease from and after
_____________________unto_______________________ heirs, successors, and assigns,
the demised premises to be used and occupied for __________________ and for no
other purpose, it being expressly agreed that this assignment shall not in any
manner relieve the undersigned assignor from liability upon any of the covenants
of this lease.
Witness:_________________________ _________________________(SEAL)
_________________________ _________________________(SEAL)
Date:____________________________
In consideration of the above assignment and the written consent of the
Landlord thereto, the undersigned assignee,
hereby assumes and agrees from and after_____________________to make all
payments and to perform all covenants and conditions provided in the within
lease by the Tenant therein to be made and performed.
Witness:_________________________ __________________________(SEAL)
_________________________ __________________________(SEAL)
Date:____________________________
CONSENT TO ASSIGNMENT
The undersigned Landlord hereby consents to the assignment of the within lease
to______________________ on the express conditions that the original
Tenant______________________, the assignor, herein, shall remain liable for the
prompt payment of the rent and the performance of the covenants provided in the
said lease by the Tenant to be made and performed, and that no further
assignment of said lease or sub-letting of any part of the premises thereby
demised shall be made without the prior written consent of the undersigned
Landlord.
______________________
Landlord
Date:______________________ By____________________
<PAGE>
ADDENDUM "A" TO LEASE
---------------------
32nd - It is understood and agreed that the Tenant will provide its own
janitorial service for the leased premises, which also includes the bathrooms.
33rd - It is understood and agreed that the Landlord is responsible for building
structural defects. The Tenant is responsible for trash removal and shall obtain
a dumpster for same at Tenant's sole cost. Further, should the Tenant not
maintain the building or remove the trash, then in that event, the Landlord is
hereby authorized to make the necessary repairs and remove the trash, then add
the cost of same plus 15% to the following month's rent which will be considered
part of that month's rent under the terms of this lease.
34th - The Tenant upon vacating the demised premises will leave the premises as
it found them subject to normal wear and tear.
35th - It is understood and agreed that a late charge of 5% of the current
month's rent will be paid by the Tenant should its rent not be received by the
Landlord on or before the 10th day of the month for which the rent covers;
further, a second late charge of 5% of the current month's rent will be paid by
the Tenant if its rent is not received by the 20th day of the month for which
the rent covers; thus making a total of 10%.
36th - It is understood and agreed that this lease can be cancelled at the
option of the Landlord should the Tenant be thirty (30) days or more in arrears
with its rent, any other monies due the Landlord or should the Tenant not keep
the premises in a neat and tidy condition, that is to say, the Tenant shall not
place trash, cartons, etc. to the rear of the premises. Tenant is obligated to
obtain or share a dumpster from a local disposal company and bear the cost of
same.
37th - Tenant agrees to pay as rent in addition to the minimum rental herein
reserved any and all sums which may become due by reason of the failure of the
Tenant to comply with all the covenants of this lease and pay any and all
damages, costs and expenses which the landlord might suffer or incur by reason
of any default of the Tenant or failure on its part to comply with the covenants
of this lease and also any and all damages of the demised premises caused by any
act or neglect of the Tenant.
38th - All required fire extinguishers will be the responsibility of the Tenant.
39th - The Landlord will assume the cost of replacing any air conditioning
compressor or boiler that cannot be repaired. This cost will be added to the
common area maintenance charge for the entire Park. The Landlord shall be
responsible for all other heating and air conditioning repairs, maintenance,
and replacement of parts including the total cost of same, as set forth in
Paragraph 9.
40th - All Tenant renovations must be done in a good, work-
<PAGE>
ADDENDUM "A" (Continued)
------------------------
manlike and orderly fashion and shall be of such nature as to not adversely
affect the safety or structural soundness of the building.
41st - No diminution or abatement of rent, or other compensation shall be
claimed or allowed for inconvenience or discomfort arising from the making of
repairs or improvements to the building, its appliances or services.
42nd - Signage is confined to Tenant's front entrance door and/or exterior glass
door only. All signs must use one color for lettering and may not exceed an
overall size of 4" high by 20" in length unless Tenant requests and receives
prior written approval from Landlord. No sign may be fastened, attached or
adhered to any door in such a manner as to mar or damage said door.
43rd - The sidewalks, entrances, passages, stairway or halls shall not be
obstructed by any Tenant or used for any purpose other than ingress and egress
to and from the demised premises.
44th - No awnings, air conditioning units or other projections shall be attached
to the outside of the building or windows without the prior written consent of
the Landlord.
45th - The skylights, windows and doors that reflect or admit light and air into
the halls, or other public places in the building shall not be covered or
obstructed by any Tenant.
46th - The water and wash closets and other plumbing fixtures shall not be used
for any purpose other than those for which they were constructed and no rubbish,
rags, chemicals or other substance shall be thrown therein. All damages
resulting from any misuse of fixtures shall be borne by the Tenant who, or whose
employees, agents, visitors or licensees shall have caused the same.
47th - No Tenant shall mark, paint, drill into or in any way deface any part of
the demised premises or the building of which they form a part. No boring,
cutting or stringing of wires shall be permitted except with the prior written
consent of the Landlord.
48th - Chair mats must be used under all desks and chairs. Tenant shall be
responsible for any damage to the carpet should it not utilize the above chair
mats.
49th - No Tenant shall make, or permit to be made, any unseemly or disturbing
noises, objectionable odors or disturb or interfere with occupants of this or
neighboring premises or those having business with them. No Tenant shall permit
animals to be brought or kept on the premises.
50th - Equipment or machinery shall be placed in approved settings to absorb or
prevent any noise, odor or annoyance.
51st - No Tenant shall place a load upon any floor of the building exceeding the
floor loads per square foot area which such floor was designed to carry and all
floor loads shall be evenly distributed. The Landlord reserves the right to
prescribe the weight and position of all safes, which must be placed so as to
distribute the weight.
-2-
<PAGE>
ADDENDUM "A" (Continued)
------------------------
52nd - Canvassing, soliciting and peddling in the building is prohibited and
each Tenant shall cooperate to prevent the same.
53rd - This lease is subject and is hereby subordinated to all present and
future mortgages, deeds of trust and other encumbrances affecting the demised
premises or the property of which said premises are a part. The Tenant agrees to
execute, at no expense to the Landlord, any instrument which may be deemed
necessary or desirable by the Landlord to further effect the subordination of
this lease to any such mortgage, deed of trust or encumbrance.
54th - Tenant understands that the square foot figures quoted in this lease are
determined by measuring the area using exterior dimensions. Front to rear
dimensions are measured from outside wall to outside wall and side to side
dimensions are middle of wall to middle of wall, except in circumstances where a
side wall is an exterior wall and measurements are then taken from the outside
of the walls. Common areas are included on a percentage basis and include common
hallways, lobbies, stairways, etc.
55th - Tenant agrees to supply Landlord with its most current financial
statements at the time of or prior to the full execution of this lease. Landlord
has five (5) days to re view the financial statements and either terminate or
continue with this lease. If the Landlord does not respond within the five (5)
day period, the Landlord's option to terminate this lease, based on the
financial statements, is voided.
56th - Tenant shall obtain and keep in full force and effect during the term of
this lease at its own cost and expense Public Liability Insurance, such
insurance to afford protection in an amount of not less than $1,000,000. for
injury or death to any one person, $1,000,000. for injury or death arising out
of any one occurrence, and $1,000,000. for damage to property, protecting and
naming the Landlord and the Tenant as insureds against any and all claims for
personal injury, death or property damage occurring in, upon, adjacent, or
connected with the Demised Premises and any part thereof. Tenant shall pay all
premiums and charges therefore and upon failure to do so Landlord may, but shall
not be obligated to, make such payments and in such latter event the Tenant
agrees to pay the amount thereof to Landlord on demand and said sums shall be
deemed to be additional rent and in each instance collectible on the first day
of any month following the date of notice to Tenant in the same manner as though
it were rent originally reserved hereunder, together with interest thereon at
the rate of three points in excess of prime rate from the Chase Manhattan Bank,
N.A., as same may change from time to time (the "Interest Rate"). Tenant will
use its best efforts to include in such public liability insurance policy a
provision to the effect that same will be non-cancelable, except upon reasonable
advance written notice to Landlord. The original insurance policies or
appropriate certificates shall be deposited with the Landlord together with any
renewals, replacements or endorsements to the end that said insurance shall be
in full force and effect for the benefit of the Landlord during the term of this
lease. In the event Tenant shall fail to produce and place such insurance, the
Landlord may, but shall not be obligated to, procure and place same, in which
event the amount of the premium paid shall be refunded by Tenant to the Landlord
upon demand and shall in each instance be collectible on the first day of the
month or any subsequent month following the date of pay-
-3-
<PAGE>
ADDENDUM "A" (Continued)
------------------------
ment by Landlord, in the same manner as though said sums were additional rent
reserved hereunder together with interest thereon at the rate of three points in
excess of prime rate of the Chase Manhattan Bank, N.A., as same may change from
time to time.
57th - It is understood and agreed by all parties hereto that Hilton Realty Co.
of Princeton is the Broker in this lease and shall receive the recognized real
estate commission covering all monies to be paid on this lease from the
Landlord, and furthermore, shall receive a real estate commission on any and all
renewals of this lease. It is hereby agreed that the Tenant is not obligated to
pay any commission involved in the leasing of the premises. It is also known to
all parties that George H. Sands and Jeffrey H. Sands are partners in Hilton
Realty Co. of Princeton.
58th - Landlord and Tenant each acknowledge that the commencement date is based
upon Landlord's present best estimate of said date, but shall in no manner be
construed as a firm date and Landlord's inability to deliver possession on or
about the date set forth herein shall not give rise to Tenant having any right
to claim any damages whatsoever that may result from a postponement of the
anticipated commencement date.
59th - The Tenant agrees to accept the space "AS IS", except Landlord agrees to
supply the following: New carpeting throughout; fresh paint throughout (Tenant
understands that certain areas will be painted over existing wallpaper and
Tenant agrees to accept same); new ceiling tiles and light lenses, where
necessary; mini blinds; windows shall be cleaned and in good repair; walls and
doorways as shown on Addendum "B" attached hereto and made a part hereof.
Further, the Landlord agrees to replace the wallpaper, ceiling tiles, and toilet
seats in three of the four bathrooms (all except the bathroom marked with an
"X", which the Tenant agrees to lease "AS IS"). The Tenant shall be
responsible for any replacement of light bulbs as may become necessary during
the term of this lease. Landlord agrees to have all lighting systems in
operational order upon occupancy by Tenant.
60th - Commencing six (6) months after the beginning of this lease, the Tenant
shall be granted a right of first refusal to lease the adjacent space to the
south of the 4,475 square feet area called for herein, or any other vacant space
in the building. Should Landlord receive a signed letter of intent on vacant
space, Landlord shall give notice to Tenant that Landlord has received a letter
of intent to lease the area and Tenant shall have five (5) working days in which
to formally notify Landlord of Tenant's intent to exercise its right of refusal
or to relinquish same. Should Landlord not receive notice back from Tenant
within said five (5) day period, Landlord shall deem Tenant's right of first
refusal for the space to be void and of no effect. Should Tenant exercise its
right to lease the space, Tenant agrees to enter into a lease for the space
within ten (10) days of Landlord's receipt of Tenant's notice exercising
Tenant's right to lease the space. The rent and other terms for the additional
space shall be as stated in the letter of intent executed by the third party.
Notwithstanding the above, the Landlord and Tenant agree that the lease period
shall be a minimum of three (3) years and that the existing lease between the
Landlord and Tenant shall be extended to provide a lease term of a minimum of
three (3) years to correspond with the lease term of the additional space. All
of the above notices shall
-4-
<PAGE>
ADDENDUM "A" (Continued)
------------------------
be sent by certified mail with return receipt requested. Attached hereto as
Addendum "D" is the list of tenant expirations for the building in which this
leased premises is located.
61st - Landlord and Tenant understand and agree that the Landlord, upon Tenant's
reaching a total leased area of 7,979 square feet in the building, shall improve
the exterior area of building 151-175 as seen on the attached diagram labeled
Addendum "C".
62nd - The Landlord agrees to supply the Tenant with three (3) reserved spaces
as shown on the attached diagram labeled Addendum "B-2".
63rd - The Landlord understands that the Tenant is desirous of occupying the
space called for herein prior to the June 1, 1994 commencement date found on the
front page of the lease and Landlord agrees to use its best efforts in
accommodating Tenant with an earlier occupancy date. Should Landlord be
successful in completing the improvements, as called for above, and Tenant
occupies prior to June 1, 1994, the rent shall be pro rated and paid by Tenant
as due upon occupancy.
64th - The Landlord agrees to provide the space to the Tenant on or before May
31, 1994, providing the Tenant has executed this lease on or before April 1,
1994. Assuming the Tenant executes this lease timely, the Landlord agrees that
should it not have the premises ready for the Tenant's occupancy on or before
May 31, 1994, due to no fault of the Tenant, the Landlord agrees to provide
two (2) days of free rent for each day past May 31, 1994, the premises is not
delivered. The Landlord and Tenant agree that the above applies to interior
improvements only and not for any exterior improvements.
65th - Notwithstanding the above, Tenant agrees to accept the electric service
which supplies electric to the demised space called for herein, in an "AS IS"
condition.
-5-
<PAGE>
[BLUE PRINT "A"]
-6-
<PAGE>
[BLUE PRINT "B"]
-7-
<PAGE>
[BLUE PRINT "C"]
-8-
<PAGE>
RIDER 2
-------
BUILDING 151-175 WALL STREET
----------------------------
CONSULTATION ON CHURCH UNION 1,790 Square Feet
-----------------
1st Floor-151 Wall Street
Lease Expires May 31, 1999
NETTECH SYSTEMS 4,720 Square Feet
-----------------
2nd Floor-152 Wall Street
04/01/94- 03/31/96- No Option
VACANT 2,770 Square Feet
-----------------
1st Floor-161 Wall Street
Leased by Tenant 6/95
CHAZIN & BELLER 1,865 Square Feet
-----------------
2nd Floor-168 Wall Street
03/01/94- 02/28/94
Two -One Year Options
VACANT 7504 Square Feet
----------------
2nd Floor-170 Wall Street
APPLIED ENGINEERING & TECHNOLOGY Square Feet Increased prior to signed
-------------------------------------
2nd Floor-174 Wall Street
02/01/94- 09/30/98- No Options
FRANK PLAMIERI, ATTORNEY 734 Square Feet
---------------
1st Floor-175 Wall Street
07/01/93- 06/30/94
One-One Year Option
Leased by Tenant 6/95
<PAGE>
[BLUE PRINT "D"]
-10-
<PAGE>
ADDENDUM "C" TO LEASE
BETWEEN: RESEARCH PARK
(Landlord)
AND: PRINCETON TELECOM CORPORATION
(Tenant)
DATED: April 12, 1994
LOCATION: 165 Wall Street, Princeton, NJ
The Landlord and Tenant agree to amend the above referenced lease and any
addendums thereto, as follows:
1. Upon Tenants expanding its leased area beyond 6,000 square feet, Landlord
agrees to allow Tenant to locate a sign at the entryway to 175 Wall Street. Said
sign shall be approved by Landlord for size, color, style and location prior to
any installation of same and shall be allowed only after Tenant has expanded its
leased area into the space now occupied by the attorney at 175 Wall Street.
2. In reference to Paragraph 36, the Tenant is not obligated to obtain a
dumpster so long as Tenant removes all its trash from the site.
3. The Landlord agrees to supply occupancy of the 4,475 square foot space called
for above within thirty (30) days of signing the lease. The Landlord agrees that
should it not have the space ready for the Tenant's occupancy within said thirty
(30) days, due to no fault of the Tenant, the Landlord agrees to provide two (2)
days of free rent for each day past the thirty (30) days that the premises is
not delivered. The Tenant understands that the Landlord shall have forty-five
(45) days from the signing of the lease to complete the improvements to the
kitchen area, including plumbing. Such free rent credit shall be deducted from
the first lease payment.
4. In reference to paragraph 59, Landlord agrees to replace the carpet
throughout the 4,475 square foot area, except the right front office area where
there currently exists an upgraded blue carpet, which Tenant agrees to accept
and Landlord agrees to shampoo and clean. The fixtures in the bathrooms shall
be clean and operational, except for the bathroom marked with an "X" on
Addendum "B", which shall be accepted by the Tenant in an "AS IS" condition.
Landlord shall install new ceiling tiles in three bathrooms and supply the
ceiling tiles to Tenant for the 4th bathroom marked with the "X". Mini blinds
shall be supplied on all windows in the leased area, except the three (3) front
windows located on the right side which currently have verticle blinds. Tenant
agrees to accept the verticle blinds as exist.
5. All holes shall be spackled and painted. Landlord shall remove all telephone
jacks and spackle prior to painting.
6. All baseboard-hot water heat registers will be repaired, where necessary, and
all registers will be painted.
7. All offices which currently have hinges shall have doors installed.
8. All lights shall be in good working order.
9. The Tenant agrees to select upgraded doors for the closet, as shown on the
plan within five (5) days of the signing of the lease. The cost of the upgraded
doors, over and above the cost of Landlord's standard door, shall be paid for by
the Tenant and installed by the Landlord.
<PAGE>
ADDENDUM "C" (Continued)
------------------------
10. Should Tenant make changes to the electrical system, Tenant understands that
it shall be responsible for same and Landlord shall not be responsible for the
electric equipment subsequent thereto.
11. Landlord and Tenant understand that Landlord has paid for the cost of
Architectural sketches outlining improvements to the north end exterior of
building at 151-175 Wall Street, which are attached hereto as Rider 1. The
improvements include the following:
1. Railing at first floor roof line
2. Landscaping on north side of the building
3. Dry-vit on second floor facing north
4. Exterior lighting on either side of front entrance
5. New double doors
6. Replace electric room door with tinted glass door if allowed by code
7. Facia to be wrapped with new material chosen by Landlord
The above improvements shall be installed by Landlord upon the expansion of
Tenant into a minimum of 7,200 square feet and shall be paid for by the
Landlord. The above improvements shall commence only after Princeton Telecom has
leased a total area of greater than 7,200 square feet, including the 7,200
square foot area presently leased by the attorney. The improvements shall be
completed in 90 days provided they commence between May 1 and Sept. 1.
12. The Landlord hereby grants unto the Tenant an option to lease all other
space, either occupied or vacant, within the building at 151-175 Wall Street.
The Tenant is hereby supplied a list of lease expirations, including options,
representing existing tenants who occupy space in the building at 151-175. The
Tenant must serve written notice, sent Certified Mail, Return Receipt Requested
to Landlord eight (8) months prior to the expiration of any lease for which
space Tenant is desirous of leasing. The above list is attached hereto as Rider
2. It is understood by Landlord and Tenant that at any time during the term of
this lease, should Tenant exercise its option to expand into any available space
within the building, as specifically outlined in paragraph 60th of Addendum "A"
and paragraph 12 of Addendum "C", a new three (3) year term shall commence upon
the occupancy by the Tenant of the expansion space. It is further understood
that the rent shall be paid by Tenant based upon the then current rent of the
original three (3) year lease term if the expansion takes place during said
original three (3) year term. Upon the expiration of the original three (3) year
term, the rent 91-3 shall increase from $12.00 per square foot to $13.75 per
square foot and the rent shall continue to be based upon $13.75 per square foot
for the fourth, fifth and sixth years starting from the original lease
commencement date. For example, should the Tenant elect to lease additional
space at the end of the second year, the rent shall be $12.00 per square foot
for the entire leased area for year one (1) of the new three (3) year term and
$13.75 per square foot for the entire leased area for years two (2) and three
(3). For any rental term after the end of the sixth year, the rent shall be
based upon the then current market rent at Research Park. The Tenant agrees that
should it exercise its right to expand within the building at any time during
the term of this lease, it must take on the additional area(s) on a suite-by-
suite basis. Landlord agrees to repaint any of the expansion areas and further
agrees to replace the carpet and paint the 734 square foot area presently
occupied by the attorney at 175 Wall Street.
-2-
<PAGE>
ADDENDUM "C" (Continued)
------------------------
13. The Landlord and Tenant understand that there currently exists a lease
between the Landlord and an attorney for 734 square feet located at 175 Wall
Street, to the North End single floor structure of the building. Landlord has an
option to relocate the attorney, should the Landlord be successful in leasing to
an adjacent Tenant an area of 6,000 square feet or more. Upon notice from
Princeton Telecom that it is desirous of expanding its 4,475 square foot leased
area beyond the 6,000 square foot threshold referenced above, Landlord shall
notify the attorney that Landlord is exercising its option to relocate. Should
the cost to relocate the attorney be greater than $2,500.00 or should the
attorney file a law suit against Landlord affecting Landlord's option to
relocate, the Tenant agrees delay its expansion into the 734 square foot area
occupied by the attorney until the lease with the attorney expires on June 30,
1995. There shall be no liability to the Landlord if the Tenant is not permitted
to occupy the 734 square feet until June 30, 1995, due to the actions of the
attorney presently occupying the space.
14. In reference to paragraph 39th of Addendum "A" it is understood that the
Tenant is not responsible for paying any common area maintenance as it is
included in the rent.
15. Notwithstanding what is stated in paragraph Third of the lease, the Landlord
waives its lien rights against the Tenant's furniture, fixtures and other
personal items belonging to the Tenant.
16. In reference to paragraph Fifteenth of the lease, it is hereby deleted.
17. In reference to paragraph Seventeenth, the "ten days" stated in the third
line is deleted and "30 days" is inserted in its place.
18. Notwithstanding the above, the security deposit of $6,712.50 shall be due
upon the signing of this lease.
Where the above conflicts with the above referenced Lease and any Addendums
thereto, this Addendum "C" shall supersede. Where no conflicts occur, the above
Lease and any Addendums thereto shall remain in full force and effect.
WITNESS: RESEARCH PARK
(Landlord)
/s/ Altitea Brower /s/ Jeffrey H. Sands
- ----------------------------- ------------------------------
Jeffrey H. Sands
ATTEST: PRINCETON TELECOM CORPORATION
(Tenant)
/s/ D.C. Licciardello
- ----------------------------- ------------------------------
Name: Altitea Brower Name: D.C. Licciardello
Title: Title: President
DATED: April 12, 1994.
-3-
<PAGE>
ADDENDUM "D" TO LEASE
BETWEEN: RESEARCH PARK (Landlord)
AND: PRINCETON TELECOM CORPORATION (Tenant)
DATED: April 12, 1994
LOCATION: 165 Wall Street, Princeton, NJ
The Landlord and Tenant agree to amend the above-referenced lease and any
addendums thereto, as follows:
1. As contemplated by paragraph 12 of Addendum "C", Tenant hereby elects to
lease an additional 2,770 square feet commencing on June 5, 1995 as shown on
Section III of Addendum "B-1". Addendum "B-1" annexed hereto and incorporated
herein hereby supersedes Addendum "B" attached to the lease as it pertains to
the additional space to be leased by Tenant in accordance with this Addendum
"D". Landlord hereby waives the requirement that Tenant furnish Landlord with
eight (8) months prior notice sent Certified Mail-Return Receipt Requested to
elect its option to lease the additional 2,770 square feet.
Notwithstanding anything to the contrary set forth in paragraph 11 of Addendum
"C" to the lease, Landlord at Landlord's sole cost shall by June 5, 1995:
a. Install two openings between the existing and new space to code and relocate
one wall as shown on Addendum "B-1". Carpeting to be patched, not replaced
as necessary.
b. Paint the additional 2,770 square feet of interior space;
c. Replace broken or stained ceiling tiles as necessary;
d. Existing bathroom to be delivered in good condition and repair;
e. Landlord shall have one additional day beyond June 5, 1995 to deliver
possession of the additional 2,770 square feet with the above work completed
for each day after May 17, 1995 tenant does not deliver the signed lease to
Landlord.
2. It is further understood that when Landlord delivers possession of the
additional 2,770 square feet, Tenant shall put the electric in its name and pay
the electric charges for such space which shall be separately metered until the
later of (1) 90 days after Landlord delivers possession of the 734 square feet,
plus one extra day for each day after June 5, 1995 that Landlord delivers the
additional 2,770 square feet to Tenant subject to paragraph 1.e above, or (ii)
Landlord substantially completes the improvements set forth in paragraph 4
below, on which date the electric charges will be included in the rent which
shall increase to $12.00 per square foot per year on the total 7,979 square feet
which equals $7,979.00 per month until further increased as set forth below
(7,979 square feet x $12.00 per square foot per year).
The rent of $12.00 per square foot on the 7,979 square feet (the original space
and the additional 3,504 square feet)
<PAGE>
shall increase to $13.75 per square foot per year commencing September 1, 1997
through and including September 30, 1998, which shall accrue at the yearly rate
of One Hundred and Nine Thousand Seven Hundred and Eleven 20/100 Dollars
($109,711.20) payable monthly in advance on the first day of each calendar month
in equal monthly installments of Nine Thousand One Hundred and Forty-Two and
60/100 Dollars ($9,142.60).
3. As contemplated in paragraph 13 of Addendum "C", the lease between Landlord
and an attorney for 734 square feet located at 175 Wall Street is scheduled to
expire by its terms on June 30, 1995. Tenant is desirous of expanding its
premises into the 734 square feet commencing on July 10, 1995 or earlier at
Landlord's option as shown on Section I of Addendum "B-1" annexed hereto and
incorporated herein.
4. Notwithstanding anything to the contrary in paragraph 11 and paragraph 12 of
Addendum "C", Landlord, at Landlord's sole cost, will only install those
improvements to the premises and the north end exterior of the building at 151-
175 Wall Street (shown on Rider 1 attached to Addendum "C" and reattached to and
incorporated herein as Rider 1) as set forth below:
a. Recarpet and paint the 734 square feet interior space with new carpet of
Landlord's standard style and color (color to be cbosen by Tenant) on or
before July 10, 1995;
b. Install double glass doors entering the premises by July 10, 1995;
c. Relandscape the north side of the building in Landlord's reasonable
discretion on or before July 10, 1995;
d. Install Dry-vit on the second floor of the north side of the building;
e. Install an opening and a walkway and step between the existing and the
additional 734 square foot space in connection with the grade change between
the two spaces as shown on Section I of Addendum "B-1" on or before July 10,
1995;
f. Install a railing at the first floor roof line;
g. Install exterior lighting on either side of the front entrance;
h. Replace the electric room door with a tinted glass door if allowed by
code;
i. Facia on the north end of the building to be wrapped with new material
chosen by Landlord;
j. Install a wall in the existing bathroom area servicing the adjacent
tenant to furnish Tenant with one additional bathroom to be delivered in
good condition and repair as shown on Section III of Addendum "B-1";
k. Replace broken or stained ceiling tiles as necessary;
l. Except as set forth above, Tenant agrees to accept the additional 734
square feet and 2,770 square feet "AS IS".
-2-
<PAGE>
ADDENDUM "D" (Continued)
------------------------
5. Commencing on the date Landlord delivers possession of the 734 square feet
to Tenant, the rent shall increase from $4,475.00 per month to $5,209.00 per
month ($12.00 per square foot x 5,209 square feet) until further increased
pursuant to paragraph 2 above.
6. Landlord will not in any event be liable, nor will Tenant be entitled to any
abatement or setoff or deduction for rent, nor will the obligations of Tenant
under the lease be affected in any manner whatsoever, for inconvenience,
annoyance, disturbance, loss of business or other damage of Tenant or any other
occupant of the premises, or any part thereof, by reason of Landlord performing
the work contemplated herein.
7. As contemplated by paragraph 60th of Addendum "A" and paragraph 12 of
Addendum "C" to the lease, a new three (3) year term shall commence on October
1, 1995.
8. Upon Tenant's occupancy of both the 2,770 square feet and the 734 square
feet Tenant shall deposit an additional $3,504.00 security deposit which
represents an addtional on month's security deposit on the additional 3,504
square feet (734 square feet + 2,770 square feet x $12.00 per square foot per
year divided by 12 months) for a total security deposit of $12,454.00.
9. Tenant reserves the right to confirm the measurement of the additional 2,770
square foot and 734 square foot spaces pursuant to Paragraph 54th of Addendum
"A" to the lease. If such additional spaces do not conform to the standard of
measurement set forth in Paragraph 54th of Addendum "A" to the lease, the rent
will be adjusted accordingly.
Where the above conflicts with the above referenced lease and any Addendums
thereto, this Addendum "D" shall supercede. Where no conflicts occur, the above
lease and any addendums thereto shall remain in full force and effect.
WITNESS: RESEARCH PARK
(Landlord)
/s/Jeffrey H. Sands
________________________ ________________________
Jeffrey H. Sands
ATTEST: PRINCETON TELECOM CORPORATION
(Tenant)
/s/D.C. Licciardello
________________________ ________________________
Name: Althea Brower Name: D.C. Licciardello,
Title: 5/19/95 Title: President
<PAGE>
ADDENDUM "E" DATED July 3rd, 1997 TO LEASE
BETWEEN: RESEARCH PARK (LANDLORD)
AND: PRINCETON TELECOM CORPORATION (TENANT)
DATED: April 12, 1994, as amended through Addendum "D"
dated May 19, 1995
LOCATION: 165 Wall Street
Landlord and Tenant agree to amend the above referenced lease as follows:
1. As contemplated by paragraph 12 of Addendum "C" to the Lease, Tenant hereby
elects to lease an additional 1,790 square feet by expanding its premises into
the adjacent space ("Additional Space") known as 151 Wall Street shown in blue
on Addendum "B-2" annexed hereto and incorporated herein. Addendum "B-2" is
in addition to Addendum "B-1" attached to Addendum "D" to the Lease as it
relates to the Additional Space to be leased by Tenant as set forth herein.
Landlord hereby waives the requirement that Tenant furnish Landlord with eight
(8) months prior notice of its election to lease the Additional Space.
2. The Tenant hereby extends its lease term for the current 7,979 square foot
area and the additional 1,790 square foot area referenced above, for a total
leased area of 9,769 square feet. The new five (5) year term referenced herein
shall commence September 1, 1997 and terminate August 31, 2002.
3. The rent for the entire 9,769 square feet area consisting of the 7,979 square
foot space and the additional 1,790 square foot space shall be as follows:
First Year - September 1, 1997 - August 31, 1998 $99,643.80
annually/$8,303.65 per month;
Second Year - September 1, 1998 - August 31, 1999 $104,528.30
annually/$8,710.69 per month;
Third Year - September 1, 1999 - August 31, 2000 $109,412.80
annually/$9,117.73 per month;
Fourth Year - September 1, 2000 - August 31, 2001 $114,297.30
annually/$9,524.77 per month;
Fifth & Final Year - September 1, 2001 - August 31, 2002 $119,181.80
annually/$9,931.82 per month.
All of the above rent figures are gross and are inclusive of rent, taxes,
insurance and maintenance, however all utilities including electric, heat, air
conditioning and service for same shall be placed in the name of the Tenant, no
later than September 1, 1997. The Tenant shall be responsible for heating and
air conditioning repairs, maintenance, and replacement of parts including the
total cost of same except if such repairs are due to the negligence of the
Landlord, its employees, contractors or agents. Should the compressor and/or
boiler need replacement, the Landlord shall be responsible for same.
4. Tenant agrees to accept the total area of 9,769 square fee in an "AS IS". The
Landlord agrees to give the Tenant a credit of $2,500.00 off its first month
rent as referenced above and due September 1, 1997, in lieu of any work Tenant
<PAGE>
ADDENDUM "E" (Continued)
------------------------
plans in the 1,790 square foot space. All improvements to be completed and paid
for by Tenant at its sole cost.
Tenant agrees that any improvements Tenant constructed to the current 7,979
square foot premises or any improvements that Tenant may construct to the
existing 7,979 square foot area and the additional 1,790 square foot space, as
permitted in the Lease, shall be constructed to meet all code and other
governmental requirements, at Tenant's expense. Tenant agrees to secure
Landlord's approval in writing prior to the commencement of any work in its
space.
5. Tenant acknowledges that Landlord, at its cost, relocated the prior Tenant
who occupied the 1,790 square foot space, Consultation in Church Union, to
another space in Research Park. In consideration for same and as an inducement
for Consultation in Church Union to relocate, Landlord paid Consultation in
Church Union's relocation expense in the amount of $1,500.00. Princeton Telecom
agrees to reimburse the Landlord $1,500.00 for this above referenced cost upon
the signing of this addendum.
6. Landlord and Tenant acknowledge that paragraph 60 concerning the right of
first refusal in Addendum "A" to Lease and paragraph 13 of Addendum "C" to
Lease are intentionally deleted due to Tenant having either taken such space or
having previously decided not to take the space and said space had been relet to
another Tenant. Landlord and Tenant further agree that Rider 2 to the Lease is
revised to reflect that the only remaining space available to Tenant from this
date forward with respect to Tenant's option to lease other space in the
building at 151-175 Wall Street, is as follows:
(1) Nettech Systems - 4,720 square feet
Second Floor
152 Wall Street
4/01/94-6/30/97 - Currently in a six (6) months extension
due to expire 12/31/97- no option to extend the lease
exists.
(2) Applied Engineering & Technology -
1,313 square feet
Second Floor
174 Wall Street
Lease Expires 3/31/99 - no option to extend the lease
exists.
(3) American Civil Liberties Union Foundation -
Second Floor
168 Wall Street
Occupying 730 Square Feet
Lease expiring 3/31/98 - Tenant has two (1) one year
options. First option period 4/1/98 through 3/31/99;
second option period 4/l/99 through 3/31/2000. Three (3)
months notice required.
(4) William Wolfe, Architect
168 Wall Street
Second Floor
Currently occupying 1,035 square feet, one year lease term
which expires 4/15/98, Tenant has one - (1) year option.
-2-
<PAGE>
ADDENDUM "E" (Continued)
------------------------
There currently exists a vacant space of 1,167 square feet on the second with an
address of 170 Wall Street.
7. The Tenant shall be granted a right of first refusal to lease the space as
referenced above currently occupied and/or vacant in the building. The Tenant
shall have five (5) working days in which to formally notify Landlord of Tenants
intent to exercise its right of first refusal or to relinquish same, after
receiving written notice from Landlord, certified mail, return receipt
requested, that Landlord has received an offer from a prospective Tenant for
said space referenced above. Should Landlord not receive return notice from
Tenant within said five (5) days period, Landlord shall deem Tenants right of
first refusal for the space to be void and of no effect. Should Tenant exercise
its right to lease the space, Tenant agrees to enter into a lease for the space
within ten (10) days of Landlord's receipt of Tenants notice exercising Tenant's
right to lease the space. Should Tenant choose to exercise its right of first
refusal to lease the space referenced herein, the rent and term shall coincide
with the then-current rent as spelled out in Paragraph 3 above, increase
annually as shown further in Paragraph 3 and the term of the additional space
shall run concurrent and expire August 31, 2002. The space shall be leased in an
"AS IS" condition.
8. Tenant has as of this date previously deposited with the Landlord $10,216.50,
which shall be held by Landlord as the security deposit as referenced in
paragraph 22nd of the lease above.
9. Upon the signing of this addendum the landlord shall release the keys for the
1,790 square foot space as called for above to tenant. It is contemplated that
the Tenant will be completing improvements to the 1,790 square foot space which
should take approximately three weeks. Upon Tenants occupancy of the 1,790
square foot space again, which is contemplated to be approximately three weeks
after the signing of this agreement, Tenant agrees to commence paying rent for
the 1,790 square foot space which shall be based upon a monthly rent of
$1,521.50. The Tenant agrees to immediately place the electric and gas meters
which service the 1,790 square foot space into its name and pay for same.
Where the above conflicts with the above referenced Lease and any Addenda
thereto, this Addendum "E" shall supersede. Where no conflicts occur, the above
Lease and any Addenda thereto shall remain in full force and effect.
WITNESS: RESEARCH PARK
/s/ W.P. Hill By: /s/ Jeffrey H. Sands
- ---------------------------- -------------------------------
Jeffrey H. Sands
WITNESS: PRINCETON TELECOM CORPORATION
/s/ Kathleen A. Rose By: D.C. Licciardello
- ---------------------------- -------------------------------
-3-
<PAGE>
[BLUE PRINT "E"]
-4-
<PAGE>
EXHIBIT 23.2
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Philadelphia, Pa.,
June 2, 1999
<PAGE>
EXHIBIT 23.4
Killen & Associates hereby consents to the use of the language quoted on
the inside front cover of Princeton eCom Corporation's Registration Statement
on Form S-1 (File No. 333-75385) filed with the Securities and Exchange
Commission on March 31, 1999.
KILLEN & ASSOCIATES
/s/ Jules F. Street
-------------------------
Jules F. Street
Vice President
