EXACTIS COM INC, 424B4, 1999-11-19

EXACTIS COM INC
424B4, 1999-11-19
TELEGRAPH & OTHER MESSAGE COMMUNICATIONS

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<PAGE> 1

FILED PURSUANT TO RULE 424(b)(4)
REGISTRATION NO. 333-85315

PROSPECTUS

[EXACTIS.COM LOGO]

3,800,000 Shares
Common Stock
- --------------------------------------------------------------------------------

This is an initial public offering of shares of common stock of Exactis.com,
Inc. We are offering 3,530,000 shares in this offering. The selling stockholders
that we identify in this prospectus are offering an additional 270,000 shares.
We will not receive any proceeds from the sale of the shares by the selling
stockholders. No public market currently exists for our common stock.

Our common stock has been approved for quotation on the Nasdaq National Market
under the symbol "XACT."
- --------------------------------------------------------------------------------

INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 5.
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<TABLE>
<CAPTION>
Per Share Total
<S> <C> <C>
Public offering price $14.00 $53,200,000
Underwriting discounts and commissions $ 0.98 $ 3,724,000
Proceeds to us $13.02 $45,960,600
Proceeds to the selling stockholders $13.02 $ 3,515,400
</TABLE>

The underwriters have an option to purchase 490,000 additional shares of common
stock from us and 80,000 additional shares from the selling stockholders at the
initial public offering price to cover any over-allotments of shares at any time
until 30 days after the date of this prospectus.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
- --------------------------------------------------------------------------------

THOMAS WEISEL PARTNERS LLC

DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED

WIT CAPITAL CORPORATION
The date of this prospectus is November 19, 1999
<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Forward-Looking Statements.................................. 14
Use of Proceeds............................................. 15
Dividend Policy............................................. 15
Conventions which Apply to this Prospectus.................. 15
Dilution.................................................... 16
Capitalization.............................................. 17
Selected Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Business.................................................... 29
Management.................................................. 43
Certain Relationships and Related Transactions.............. 52
Principal and Selling Stockholders.......................... 55
Description of Securities................................... 58
Shares Eligible for Future Sale............................. 62
Underwriting................................................ 63
Legal Matters............................................... 65
Experts..................................................... 65
Where You Can Find Additional Information................... 66
Index to Financial Statements............................... F-1
</TABLE>
<PAGE> 3

PROSPECTUS SUMMARY

This summary highlights some of the information found in greater detail
elsewhere in this prospectus. In addition to this summary, we urge you to read
the entire prospectus carefully, especially the risks of investing in our common
stock discussed under "Risk Factors" and the financial statements before you
decide to buy our common stock.

OUR COMPANY

We are a leading provider of permission-based outsourced email marketing
and communications solutions. Permission-based email is email that the recipient
has consented to receive. We provide a comprehensive and scalable, or
expandable, suite of email services which enable our clients to deliver large
numbers of custom email messages in an efficient, timely and cost-effective
manner. Our primary services consist of the distribution of email newsletters
and information bulletins, as well as the delivery of personalized order and
trade confirmation messages, which are triggered by specific transactions or
events. We also serve targeted banner advertisements within the email
communications that we deliver to over two million subscribers of Sony Music's
daily email newsletters. In addition, we are continuing to develop a wide
variety of targeted messaging capabilities to allow our clients to conduct
personalized one-to-one email marketing campaigns.

We help our clients create, maintain and analyze their customer
relationships. Our email solutions help establish new revenue opportunities for
our clients while reducing their costs of communicating with large numbers of
customers. Our advanced, proprietary technology allows us to deliver a large
volume of email messages for our clients. In the third quarter of 1999, we
delivered over 500 million email messages for 56 companies, primarily in the
media, ecommerce and financial services industries. Our two largest clients are
Sony Music and Charles Schwab & Co., which accounted for 64% and 9% of our total
revenue, respectively, in the quarter ended September 30, 1999. As email
continues to gain widespread acceptance as a marketing and communications
channel, we anticipate that businesses will grow increasingly reliant on
outsourced email marketing and communications services.

OUR STRATEGY

Our objective is to be a world leader in the delivery of permission-based
email marketing and communications services. To achieve this objective, our
strategy includes the following key elements:

- extending our industry leading technology infrastructure to increase our
email capacity, system reliability and security;

- broadening our suite of email services to continue to offer our clients a
full line of feature-rich email services to meet their email needs across
a variety of applications;

- continuing to develop and leverage strategic relationships, particularly
in the areas of joint product development and marketing;

- increasing our marketing and sales efforts to become experts within
specific vertical markets and expand internationally; and

- acquiring businesses, products, services and technologies that are
complementary to our existing business.

CORPORATE INFORMATION

We were incorporated in Colorado in January 1996 under the name Mercury
Mail, Inc. We reincorporated in Delaware in July 1996. In August 1997, we
changed our name to InfoBeat Inc., and in January 1999, we changed our name to
Exactis.com, Inc. Our principal executive office is located at 707 -- 17th
Street, Suite 2850, Denver, Colorado 80202 and our telephone number is (303)
675-2300. The information contained on our Web site, www.exactis.com, does not
constitute part of this prospectus.

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<PAGE> 4

THE OFFERING

Common stock offered by
us......................... 3,530,000 shares

Common stock offered by the
selling stockholders..... 270,000 shares

Common stock outstanding
after this offering........ 12,070,746 shares

Use of proceeds............ For working capital and other general corporate
purposes. Please see "Use of Proceeds" for more
information regarding our planned use of the
proceeds from this offering.

Nasdaq National Market
Symbol..................... XACT

The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of September 30, 1999. It also
reflects the automatic conversion of all outstanding series of preferred stock
into common stock upon completion of this offering. In addition to the shares of
common stock to be outstanding after this offering, there are:

- 1,682,517 shares that could be issued upon the exercise of options
outstanding as of September 30, 1999 at a weighted average exercise price
of $3.56 per share;

- 1,556,263 shares that could be issued upon the exercise of warrants
outstanding and contingently issuable as of September 30, 1999 at a
weighted average exercise price of $5.81 per share;

- 1,078,794 shares that could be issued under our option plans; and

- 500,000 shares that could be issued to our employees who elect to buy
stock in the future under our employee stock purchase plan.

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<PAGE> 5

SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

We were founded in January 1996 and our initial business consisted of the
publication of a suite of advertising supported newsletters delivered daily to
subscribers via email, which we refer to as our online publishing business. In
1997, we began using the email technologies we developed for our online
publishing business to deliver email for another client. In early 1998, we
launched our outsourced email marketing and communications services, or email
services business.

In December 1998, we sold our online publishing business to Sony Music, a
Group of Sony Music Entertainment Inc. At the same time, we entered into a
service agreement to provide email services to Sony Music through 2001. Revenue
from services provided to Sony Music constituted $4.9 million of our total
revenue for the nine months ended September 30, 1999 and is not reflected in any
prior period. Expenses related to our online publishing business, including
editorial, advertising sales and subscriber acquisition expenses, were a major
component of cost of revenue in periods prior to 1999. Beginning in January
1999, Sony Music assumed responsibility for the advertising sales and subscriber
acquisition expenses. We retained responsibility for the expenses related to
certain editorial activities, for which we are reimbursed by Sony Music. As a
result, we believe period-to-period comparisons of our revenue and operating
results are not meaningful. Please see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
related notes appearing elsewhere in this prospectus for a description of the
accounting treatment of the sale and service agreements and additional
information on the online publishing and email and other services segments of
our business.

We have not paid any dividends on our common stock since inception.

Net loss attributable to common stockholders includes the effect of the
accretion on the redeemable convertible preferred stock which increases net loss
attributable to common stockholders for the related periods. This accretion will
not be recognized after the conversion of all outstanding series of preferred
stock into common stock upon completion of this offering.

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<PAGE> 6

Pro forma basic and diluted net loss per share is computed using the
weighted average number of common shares outstanding, including the pro forma
effects of the automatic conversion of all outstanding series of preferred stock
into common stock upon completion of this offering as if the conversion occurred
on January 1, 1998, or at the date the preferred stock was actually issued, if
later.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
----------------------
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 6,551 $51,862
Working capital........................................... 3,010 48,321
Total assets.............................................. 14,083 59,394
Long-term debt and capital lease obligations, net of
current portion and discount........................... 217 217
Redeemable convertible preferred stock and warrants....... 27,593 --
Total stockholders' equity (deficit)...................... (23,125) 49,779
</TABLE>

The as adjusted column gives effect to:

- the automatic conversion of all outstanding series of preferred stock
into common stock upon completion of this offering; and

- our receipt of the net proceeds from the sale of the 3,530,000 shares of
common stock we are selling in this offering at an initial public
offering price of $14.00 per share, after deducting underwriting
discounts and commissions and estimated offering expenses.

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<PAGE> 7

RISK FACTORS

An investment in our common stock involves a high degree of risk. You
should carefully consider the following information about these risks, together
with the other information contained in this prospectus, before you decide
whether to buy our common stock. If any of the events described in the following
risks actually occurs, the market price of our common stock could decline, and
you may lose all or part of the money you paid to buy our common stock.

RISKS ASSOCIATED WITH OUR BUSINESS

WE HAVE A HISTORY OF LOSSES, WE EXPECT CONTINUING LOSSES AND WE MAY NEVER
ACHIEVE PROFITABILITY.

We have not generated enough revenue to cover the substantial amounts we
have spent to create, launch and enhance our services. If our revenue does not
increase substantially, we may never become profitable. Even if we do achieve
profitability, we may not sustain or increase profitability on a quarterly or
annual basis in the future. This may, in turn, cause our stock price to decline.
In addition, if we do not achieve or sustain profitability in the future, we may
be unable to continue our operations. Our operating costs have exceeded our
revenue in all quarters since our inception. We incurred net losses of
approximately $3.4 million from January 30, 1996, the date of our inception,
through December 31, 1996, $7.7 million in 1997, $7.9 million in 1998 and $6.3
million for the nine months ended September 30, 1999. We had an accumulated
deficit of $25.5 million at September 30, 1999. We expect to incur net losses
and negative cash flows for the foreseeable future.

We have invested heavily in technology and infrastructure development. We
expect to continue to invest substantial financial and other resources to
develop and introduce new services and expand our sales and marketing
organizations, strategic relationships and operating infrastructure. We expect
that our cost of revenue, sales and marketing expenses, general and
administrative expenses, research development and engineering expenses,
operations and customer support expenses and depreciation and amortization
expenses will continue to increase in absolute dollars and may increase as a
percent of revenue. If our revenue does not correspondingly increase, we may
never become profitable.

OUR BUSINESS WILL SUFFER IF THE MARKET FOR OUTSOURCED EMAIL MARKETING AND
COMMUNICATIONS SOLUTIONS FAILS TO GROW.

The market for outsourced email marketing and communications solutions is
new and rapidly evolving. If sufficient demand for our services does not
develop, we may not generate sufficient revenue to offset our costs and we may
never become profitable. Market acceptance of our existing and planned services
will depend on the acceptance and use of outsourced email marketing and
communications solutions. Our current and planned services are very different
from the traditional advertising and direct mail methods that our clients have
historically used to attract new customers and maintain customer relationships.
Businesses that have already invested substantial resources in traditional or
other methods of marketing and communications may be reluctant to adopt new
marketing strategies and methods. Consumers may also be reluctant to alter
established patterns of purchasing goods and services. Moreover, the sales cycle
for the new targeted messaging services that we are developing may be longer
than for existing services.

ONE OF OUR CLIENTS ACCOUNTED FOR A MAJORITY OF OUR REVENUE AND A SMALL NUMBER OF
CLIENTS ACCOUNTED FOR A HIGH PERCENTAGE OF OUR REVENUE IN A RECENT PERIOD;
THEREFORE, THE LOSS OF A MAJOR CLIENT COULD HARM OUR BUSINESS.

A small number of clients account for most of our revenue. If we lose
existing clients and do not replace them with new clients, our revenue will
decrease and may not be sufficient to cover our costs. In the first nine months
of 1999, Sony Music accounted for approximately 68% of our total revenue and our
two next largest clients accounted for approximately 10% of our total revenue.
We expect that a small number of clients will continue to account for a high
percentage of our total revenue for at least the

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<PAGE> 8

foreseeable future. This could cause our revenue and earnings to fluctuate from
quarter to quarter. The loss of a major client could harm our business.

INTENSE COMPETITION EXISTS IN THE EMAIL SERVICES MARKET AND WE EXPECT
COMPETITION TO CONTINUE TO INTENSIFY.

Competition in the email services market is intense. If we do not respond
successfully to competitive pressures, we could lose market share. We may not be
able to compete successfully against our current or future competitors which
include the in-house email capabilities of many businesses. An increasing number
of companies are entering our market. Many of our competitors have greater brand
recognition, longer operating histories, larger customer bases and greater
financial, marketing and other resources than we have. These factors may place
us at a disadvantage when we respond to our competitors' pricing strategies,
technological advances and other initiatives. Additionally, our competitors may
develop or provide services that are superior to ours or that achieve greater
market acceptance. We expect competition to persist and intensify. Barriers to
entry may be insubstantial and we may face substantial and growing competitive
pressures from companies both in the United States and abroad. See "Business --
Competition" for a list of our current and potential competitors.

DELAYS IN THE INTRODUCTION OF NEW SERVICES MAY HARM OUR BUSINESS.

We may experience delays in the development and launch of new services,
which could adversely affect our revenue and profitability. We are currently
developing new services which are designed to provide our clients with a wide
variety of targeted marketing capabilities. Several factors may delay the
development and launch of this new service, including delays or difficulties in
integrating third-party software with our email engine. We may experience
development delays with respect to this new service or other new services that
we may develop in the future. Additionally, actual service offerings and
benefits could differ materially from those currently planned for many reasons,
some or all of which may be out of our control, which could result in a loss of
clients.

WE DEPEND ON KEY STRATEGIC RELATIONSHIPS, INCLUDING RELATIONSHIPS WITH SONY
MUSIC AND E.PIPHANY, INC., TO GENERATE REVENUE AND OUR BUSINESS COULD SUFFER IF
ANY OF THESE RELATIONSHIPS ARE TERMINATED.

We are highly dependent on our strategic relationships with Sony Music and
E.piphany, Inc. If these relationships are terminated early, our revenue will
decrease. Our relationship with Sony Music accounted for approximately 68% of
our total revenue in the first nine months of 1999. Our relationship with
E.piphany is critical to our ability to complete our targeted messaging
capabilities. Our agreement with Sony Music terminates in December 2001 and
certain terms of our agreement with E.piphany related to pricing terminate in
March 2001. These agreements, as well as others covering future strategic
relationships, may not be renewed at the end of their respective terms or may be
terminated early in certain circumstances upon written notice by either party.
We may also be unable to effectively reallocate personnel, equipment and other
resources that were allocated to these relationships.

In October 1999, we found that the software we use to deliver the InfoBeat
newsletter for Sony permitted certain advertisers to access the email addresses
of InfoBeat subscribers that elected to view advertisements in the newsletter.
Sony's privacy policy prohibits disclosure of a subscriber's email address to
advertisers without the subscriber's consent. We have revised our software to
prevent unauthorized disclosure of a subscriber's email address. We believe that
this issue has not seriously harmed our relationship with Sony. However, this
event and the November 8, 1999 Wall Street Journal article reporting this issue
may have harmed our reputation with our current and potential customers, which
could negatively impact our ability to retain and attract customers.

OUR FAILURE TO MANAGE OUR PLANNED RAPID GROWTH COULD CAUSE OUR BUSINESS TO
SUFFER.

Our failure to manage our growth effectively could result in service
disruptions, loss of competitive position and lack of adequate financial
controls. We plan to expand our operations rapidly and to

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significantly augment our infrastructure. We must effectively manage our
operational, customer service and financial systems, procedures and controls to
manage this future growth. This expansion is expected to place a significant
strain on our managerial, operational and financial resources.

OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE AND MAY FALL BELOW MARKET
EXPECTATIONS AS A RESULT OF NON-CASH CHARGES RELATED TO STOCK OPTIONS AND
WARRANTS.

Our operating results will be affected by non-cash charges associated with
stock-based arrangements with employees and strategic partners. As a result of
stock option grants in 1999 with exercise prices below fair value, we are
recognizing total non-cash compensation expense of $3.7 million over the vesting
periods of the options, which are generally three or four years. In connection
with an amended warrant issued to Sony Music in November 1999, we also will
recognize non-cash charges of approximately $4.7 million over the term of the
Sony Music service agreement, which expires in December 2001.

In addition, we have issued warrants to American Express Travel Related
Services Company, Inc. that include vesting provisions tied to their achievement
of performance milestones. Should American Express achieve one or both remaining
milestones, then we expect to record additional non-cash charges of up to
approximately $250,000 in the period in which one or both of these milestones is
achieved. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview."

OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE AND MAY FALL BELOW MARKET
EXPECTATIONS AS A RESULT OF VARIATIONS IN EQUIPMENT EXPENDITURES.

Our operating results may be affected by variations in equipment
expenditures. Due to lead times required to purchase, install and test
equipment, we typically need to purchase equipment well in advance of the
recognition of any expected revenue. Delays in obtaining this equipment could
result in unexpected revenue shortfalls. Small variations in the timing of the
recognition of specific revenue, including deferred revenue, could cause
significant variations in operating results from quarter to quarter.

Period-to-period comparisons of our operating results are not a good
indication of our future performance. Our operating results in some quarters may
be below market expectations. In this event, the price of our common stock is
likely to decline.

IF WE DO NOT SUCCESSFULLY EXPAND OUR EMAIL SERVICES AND OPERATIONS INTO
INTERNATIONAL MARKETS, OUR BUSINESS COULD SUFFER.

We intend to expand into international markets and to spend significant
financial and managerial resources to do so. If our revenue from international
operations does not exceed the expense of establishing and maintaining these
operations, we may never achieve profitability or may attain significantly
reduced profitability. We do not have expertise in conducting business
internationally and may not be able to compete effectively in international
markets. Therefore, we face several risks, including:

- compliance with regulatory requirements which could change in unexpected
ways;

- difficulties and costs of staffing and managing international operations;

- varying technology standards from country to country;

- uncertainties regarding protection of intellectual property rights in
certain countries;

- difficulties in collecting accounts receivable;

- fluctuations in currency exchange rates;

- imposition of currency exchange controls; and

- potentially adverse tax consequences.

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<PAGE> 10

WE MAY ENGAGE IN FUTURE ACQUISITIONS THAT HARM OUR OPERATING RESULTS.

We expect to review acquisition or investment prospects that would
complement our current services, enhance our technical capabilities or offer
growth opportunities. These actions by us could harm our operating results and
the price of our common stock. Acquisitions could also entail many other risks,
such as:

- difficulties in integrating acquired operations, technologies or
services;

- unanticipated costs associated with the acquisitions that harm our
operating results;

- negative effects on our reported results of operations from
acquisition-related charges and of amortization of acquired technology
and other intangibles; and

- risks of entering markets in which we have no or limited prior
experience.

Any of these risks could harm our business, operating results and financial
condition.

WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL CAPITAL TO FUND OUR OPERATIONS WHEN
NEEDED.

If our capital requirements or revenue vary materially from our current
plans or if unforeseen circumstances occur, we may require additional financing
sooner than we anticipate. This financing may not be available on a timely
basis, in sufficient amounts or on terms acceptable to us. The financing may
also dilute existing stockholders.

If we cannot obtain adequate funds on acceptable terms, we may be unable
to:

- fund our capital requirements;

- take advantage of strategic opportunities;

- respond to competitive pressures; and

- develop or enhance our services.

Any of these failures could adversely affect our profitability. If we do
not achieve or sustain profitability in the future, we may be unable to continue
our operations.

WE MAY NOT BE ABLE TO ENTER INTO NEW STRATEGIC RELATIONSHIPS BECAUSE WE MAY
COMPETE WITH EXISTING OR FUTURE RELATIONSHIPS.

Our existing and future strategic relationships may limit our ability to
enter into other strategic relationships or sell our services to similar
businesses. This could limit our ability to compete effectively. For example,
our agreements with Sony Music prevent us from entering into a relationship that
is competitive with the online publishing services that we provide to Sony
Music. We may also enter into similar non-competition arrangements in connection
with future strategic relationships.

WE MAY NOT BE ABLE TO SUCCESSFULLY OPERATE OUR BUSINESS IF WE LOSE KEY
PERSONNEL.

The loss of any member of our senior management team could negatively
affect our future operating results. We believe that our success will depend on
the continued services of our key senior management personnel, especially E.
Thomas Detmer, Jr., our president and chief executive officer. None of the
persons currently in senior management are bound by an employment agreement.

WE MAY NOT BE ABLE TO SUCCESSFULLY OPERATE OUR BUSINESS IF OUR NEWLY FORMED
MANAGEMENT TEAM DOES NOT WORK EFFECTIVELY TOGETHER.

If our management team is unable to work together effectively, our business
could be harmed. The majority of our executive officers, including E. Thomas
Detmer, Jr., our president and chief executive officer, Kenneth W. Edwards, Jr.,
our chief financial officer, and Cynthia L. Brown, our vice president of
engineering, have joined us within the past several months. Accordingly, our
management team has had a limited time to work together and may not be able to
work together effectively.

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OUR BUSINESS WILL SUFFER IF WE DO NOT ATTRACT AND RETAIN ADDITIONAL HIGHLY
SKILLED PERSONNEL.

In order for us to succeed, we must identify, attract, retain and motivate
highly skilled technical, managerial, sales and marketing personnel. Failure to
retain and attract necessary personnel will limit our ability to compete
effectively and provide our services. We plan to significantly expand our
operations and we will need to hire additional personnel as our business grows.
Competition for qualified personnel is intense. In particular, we have
experienced difficulties in hiring highly skilled technical personnel and in
retaining employees due to significant competition for experienced personnel in
our market.

RISKS ASSOCIATED WITH OUR TECHNOLOGY

IF WE FAIL TO UPGRADE OUR SYSTEMS AND INFRASTRUCTURE TO CONTINUE TO EXPAND OUR
BUSINESS AND TO ACCOMMODATE INCREASES IN EMAIL TRAFFIC, WE MAY EXPERIENCE SLOWER
RESPONSE TIMES OR SYSTEM FAILURES.

We must continue to expand our network infrastructure as the number of our
clients increases. Additionally, we must adapt our network infrastructure to the
increasing volume and complexity of information our clients wish to transmit and
as their requirements change. If we do not add sufficient capacity to handle
growing volume and complexity of messages, we could suffer slower response times
or system failures which could result in a loss of clients. We have made and
intend to continue to make substantial investments to increase our capacity by
adding new hardware and upgrading our software. Our services may be unable to
handle growing message volume and complexity. The expansion of our network
infrastructure will also require substantial financial, operational and
managerial resources.

In addition, we may not be able to accurately project the rate or timing of
email traffic increases or upgrade our systems and infrastructure to accommodate
future traffic levels. As we upgrade our network infrastructure to increase
capacity available to our clients, we may encounter equipment or software
incompatibility which may cause delays in implementation. We may not be able to
expand or adapt our network infrastructure to meet additional demand or our
clients' changing requirements in a timely manner or at all.

IF WE DO NOT ADEQUATELY ADDRESS YEAR 2000 ISSUES, WE MAY INCUR SIGNIFICANT COSTS
AND OUR BUSINESS COULD SUFFER.

If our present efforts to address the Year 2000 compliance issues are not
successful, or if third party vendors, licensors and providers of hardware,
software and services with which we conduct business do not successfully address
these issues, we may experience service interruptions and a loss of clients. We
must complete upgrades and Year 2000 certification testing of our proprietary
and third party software. We also need to develop contingency plans for each of
our third-party data sources.

Failure of our internal computer systems, third-party hardware or software,
systems maintained by third parties or electronic data that we receive to
operate properly with regard to Year 2000 and thereafter could cause systems
interruptions or loss of data or could require us to incur significant
unanticipated expenses to remedy any problems. Presently, we are unable to
reasonably estimate the duration and extent of any interruption caused by Year
2000 issues, or to quantify the effect it may have on our future revenue. We
have not yet developed a comprehensive contingency plan to address these issues.
Please refer to our discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Year 2000."

WE MAY NOT COMPETE SUCCESSFULLY AND THE VALUE OF YOUR INVESTMENT MAY DECLINE IF
WE FAIL TO KEEP PACE WITH RAPIDLY CHANGING TECHNOLOGY AND MARKET CONDITIONS.

If we do not successfully respond to new technological developments in our
industry or are unable to respond in a cost-effective manner, we may experience
a loss of competitive position and lose market share. We operate in an industry
that is characterized by rapid technological change, frequent new service
introductions, changing client demands and the emergence of new industry
standards and practices that could render our existing services, proprietary
technology and systems obsolete. We must continually improve the performance,
features and reliability of our services, particularly in response to
competitive offerings. Our success depends, in part, on our ability to enhance
our existing services and to develop new

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services, functionality and technology that address the increasingly
sophisticated and varied needs of our prospective clients. The development of
our technology and necessary service enhancements entail significant technical
and business risks and require substantial expenditures and lead-time. We may
not be able to keep pace with the latest technological developments or adapt our
services to client requirements or emerging industry standards.

IF WE ENCOUNTER SYSTEM FAILURE, WE MAY NOT BE ABLE TO PROVIDE ADEQUATE SERVICE
AND OUR BUSINESS AND REPUTATION COULD BE DAMAGED.

Our ability to successfully receive and send email messages and provide
acceptable levels of customer service largely depends on the efficient and
uninterrupted operation of our computer and communications hardware and network
systems. All of our communications systems are located in Denver, Colorado. As a
result, if there were to be a natural disaster affecting the Denver area, our
communications systems could be disrupted and our business would be harmed. We
may not be able to relocate quickly under those circumstances.

Our clients have experienced some interruptions in our email service in the
past due to network outages and internal system failures. Similar interruptions
may occur from time to time in the future. Our revenue depends on the number of
end users who use our email services. Our business will suffer if we experience
frequent or long system interruptions that result in the unavailability or
reduced performance of our systems or networks or reduce our abilities to
provide email services. Our systems and operations are also vulnerable to damage
or interruption from fire, flood, earthquake, power loss, telecommunications
failure, physical break-ins and similar events. If any of these events occur, we
could fail to meet our minimum performance standards and incur monetary
penalties under our contracts.

IF WE FAIL TO MEET MINIMUM PERFORMANCE STANDARDS, WE MAY BE UNABLE TO ATTRACT
AND RETAIN CLIENTS.

We have entered into service agreements with some of our clients that
require certain minimum performance standards. If we fail to meet these
standards, our clients could terminate their relationships with us and we could
be subject to contractual monetary penalties. Any unplanned interruption of
services may adversely affect our ability to attract and retain clients and
could damage our reputation.

IF WE DO NOT SUCCESSFULLY RELOCATE OUR DATA CENTER TO A FACILITY WITH
APPROPRIATE BACK-UP POWER AND COOLING CAPABILITIES, WE MAY EXPERIENCE AN OUTAGE
AND OUR CURRENT SYSTEMS MAY TEMPORARILY CEASE OPERATING.

Due to insufficient access to back-up power and cooling capabilities in our
current data center, we may experience a system interruption. We plan to
relocate our offices and data center in the first quarter of 2000 to a facility
with more extensive back-up power and cooling capabilities. We have identified a
site for the relocation but have not yet executed a lease. If we are unable to
promptly enter into an acceptable lease for the site we have identified, and if
we are unable to rapidly identify an alternative site, we will continue to be
subject to the risk of a power outage that interrupts our operations. Any
failure of our systems would materially harm our business. Moreover, our
relocation to a new site requires that we rebuild and enhance our system.
Although we plan to continue operating in our current site until our new site is
fully operational, any defects or delays in building our system at the new site
could harm our business.

SERVICE INTERRUPTIONS FROM OUR THIRD PARTY INTERNET AND TELECOMMUNICATIONS
PROVIDERS COULD HARM OUR BUSINESS.

We depend heavily on our third party providers of Internet and related
telecommunications services. Any interruption by our Internet and
telecommunications providers would likely disrupt the operation of our messaging
platform, causing a loss of revenue and a potential loss of clients. In the
past, we have experienced disruptions and delays in our email service due to
service disruption from those providers. These companies may be unable to
provide services to us without disruptions, at the current cost or at all.

10
<PAGE> 13

The costs associated with a transition to a new service provider would be
substantial. We would have to reroute our computer systems and
telecommunications infrastructure to accommodate a new service provider. This
process would be both expensive and time consuming.

UNKNOWN SOFTWARE DEFECTS COULD DISRUPT OUR SERVICES, WHICH COULD HARM OUR
BUSINESS AND REPUTATION.

Our service offerings depend on complex software, both internally developed
and licensed from third parties. Complex software often contains defects,
particularly when first introduced or when new versions are released. These
defects could cause service interruptions, which could damage our reputation,
increase our service costs, cause us to lose revenue, delay market acceptance
and divert our development resources. Although we test our software, we may not
discover software defects that affect current or planned services or
enhancements until after they are deployed.

IF OUR SECURITY SYSTEM IS BREACHED, OUR BUSINESS AND REPUTATION COULD SUFFER.

We must securely receive and transmit confidential information over public
networks and maintain that information on internal systems. Our failure to
prevent security breaches could damage our reputation, expose us to risk of loss
or liability, result in a loss of our clients and adversely affect our ability
to obtain new clients. Although we have implemented network security measures,
our servers are vulnerable to computer viruses, which could lead to
interruptions, delays 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 security breaches or to alleviate problems
caused by any breach.

OUR LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY MAY ADVERSELY AFFECT
OUR COMPETITIVE POSITION.

The unauthorized misappropriation of our proprietary rights could harm our
competitive position and adversely affect our profitability. If we resort to
legal proceedings to enforce our proprietary rights, the proceedings could be
burdensome and expensive and the outcome could be uncertain.

Trademarks, service marks, trade secrets, copyrights, patents and other
proprietary rights are important to our success and competitive position. Our
efforts to protect our proprietary rights may be inadequate and may not prevent
others from claiming violations by us of their proprietary rights. Existing
trade secret, copyright and trademark laws offer only limited protection.
Further, effective trademark, copyright and trade secret protection may not be
available in every country in which our services are made available and policing
unauthorized use of our proprietary information is difficult.

In addition, the status of United States patent protection in the software
industry is not well defined and will evolve as the U.S. Patent and Trademark
Office grants additional patents. We have obtained two patents and we have two
patents pending in the United States. We may seek additional patents in the
future. We do not know if our pending patent applications or any future patent
applications will be issued with the scope of the claims we seek, if at all, or
whether the patent we own or any patents we receive will be challenged or
invalidated. Furthermore, we may not be successful in obtaining registration of
several pending trademark applications in the United States and in other
countries.

WE MAY BE SUBJECT TO CLAIMS ALLEGING INTELLECTUAL PROPERTY INFRINGEMENT.

We may be subject to claims alleging that we have infringed third party
proprietary rights. If we were to discover that we have infringed third party
rights, we may not be able to obtain permission to use those rights on
commercially reasonable terms. If we resort to legal proceedings to enforce our
proprietary rights or defend against alleged infringements, the proceedings
could be burdensome and expensive and could involve a high degree of risk.

11
<PAGE> 14

WE ARE DEPENDENT ON LICENSED THIRD PARTY TECHNOLOGIES AND WE MAY NEED TO LICENSE
ADDITIONAL TECHNOLOGIES TO SUCCEED IN OUR BUSINESS.

We intend to continue to license technology from third parties. We are
highly dependent on the technology we license from SendMail, which enables us to
send email through the Internet, and E.piphany, Inc., which will allow us to
offer a variety of targeted marketing capabilities. The market is evolving and
we may need to license additional technologies to remain competitive. We may not
be able to license these technologies on commercially reasonable terms or at
all. Our inability to obtain any of these licenses could delay the development
of our services until equivalent technology can be identified, licensed and
integrated. Any delays could cause our operating results to suffer. In addition,
we may not be able to integrate any licensed technology into our services. These
third party licenses may expose us to increased risks, including risks related
to the integration of new technology, the diversion of resources from the
development of our own proprietary technology and our inability to generate
revenue from new technology sufficient to offset associated acquisition and
maintenance costs.

RISKS ASSOCIATED WITH THE INTERNET

OUR BUSINESS WILL SUFFER AND THE VALUE OF YOUR INVESTMENT WILL DECLINE IF THE
INTERNET DOES NOT ACHIEVE CONTINUING, WIDESPREAD ACCEPTANCE AS A MARKETING AND
COMMUNICATIONS MEDIUM.

Our revenue and profitability will be adversely affected if the Internet
does not achieve continuing, widespread acceptance as a marketing and
communications medium. Our future success will depend substantially upon our
assumption that the Internet will continue to evolve as an attractive platform
for marketing and communications applications and the use of outsourcing to
solve businesses' email marketing and communications needs. Most businesses and
consumers have only limited experience with the Internet as a marketing and
communications medium.

WE WILL NOT BE ABLE TO GROW OUR BUSINESS UNLESS CONSUMERS AND BUSINESSES
INCREASE THEIR USE OF THE INTERNET AND THE INTERNET IS ABLE TO SUPPORT THE
DEMANDS OF THIS GROWTH.

Our success depends on increasing use of the Internet by consumers and
businesses. If use of the Internet as a medium for consumer and business
communications does not continue to increase, demand for our services will be
limited. Consumers and businesses might not increase their use of the Internet
for a number of reasons, such as:

- high Internet access costs;

- perceived security and privacy risks;

- legal and regulatory issues;

- inconsistent service quality; and

- unavailability of cost-effective, high-speed service.

Even if consumers and businesses increase their use of the Internet, the
Internet infrastructure may not be able to support demands of this growth. The
Internet infrastructure must be continually improved and expanded in order to
alleviate overloading and congestion. Failure to do so will degrade the
Internet's performance and reliability. Internet users may experience service
interruptions as a result of outages and other delays occurring throughout the
Internet. Frequent outages or delays may cause consumers and businesses to slow
or stop their use of the Internet as a communications medium.

WE MAY HAVE LIABILITY FOR INTERNET CONTENT AND WE MAY NOT HAVE ADEQUATE
LIABILITY INSURANCE.

As a provider of email services, we face potential liability for
defamation, negligence, copyright, patent or trademark infringement and other
claims based on the nature and content of the materials transmitted via email.
We do not and cannot screen all of the content generated by our users, and we
could be exposed to liability with respect to this content. Furthermore, some
foreign governments have enforced laws and regulations related to content
distributed over the Internet that are stricter than those currently in place in
the United States.

12
<PAGE> 15

Any imposition of liability, particularly liability that is not covered by
insurance or is in excess of insurance coverage, could harm our reputation and
our operating results or could result in the imposition of criminal penalties.
Although we carry general liability and umbrella liability insurance, our
insurance may not cover claims of these types or may not be adequate to
indemnify us for all liability that may be imposed. A single claim or multiple
claims, if successfully asserted against us, could exceed the total of our
coverage limits or may not qualify for coverage under our insurance policies as
a result of coverage exclusions that are contained within these policies. In
this case, we may need to use capital contributed by our stockholders to settle
claims.

WE MAY LOSE CLIENTS AND OUR REPUTATION MAY SUFFER BECAUSE OF SPAM.

If we fail in our attempts to prevent the distribution of unsolicited bulk
email, or spam, our business and reputation may be harmed. Spam-blocking efforts
by others may also result in the blocking of our clients' legitimate messages.
Additionally, spam may contain false email addresses or be generated by the use
of false email addresses. Our reputation may be harmed if email addresses with
our domain names are used in this manner. Any of these events may cause clients
to become dissatisfied with our service and terminate their use of our services.

INCREASED GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES MAY IMPAIR THE GROWTH
OF THE INTERNET AND DECREASE DEMAND FOR OUR SERVICES OR INCREASE OUR COST OF
DOING BUSINESS.

Although there are currently few laws and regulations directly applicable
to the Internet and commercial email services, the adoption of additional laws
or regulations may impair the growth of our business and the Internet which
could decrease the demand for our services and increase our cost of doing
business. A number of laws have been proposed involving the Internet, including
laws addressing:

- user privacy;

- pricing;

- content;

- copyrights;

- characteristics and quality of services; and

- consumer protection.

In particular, a number of states have already passed statutes prohibiting
unsolicited commercial email. A number of statutes have been introduced in
Congress and state legislatures to impose penalties for sending unsolicited
emails which, if passed, could impose additional restrictions on our business.
In addition, a California court recently held that unsolicited email
distribution is actionable as an illegal trespass for which the sender could be
subject for monetary damages.

Further, the growth and development of the market for online email may
prompt calls for more stringent consumer protection laws that may impose
additional burdens on those companies conducting business online, including us.
If we were alleged to have violated federal, state or foreign, civil or criminal
law, even if we could successfully defend these claims, it could harm our
business and reputation.

CHANGES IN TELECOMMUNICATIONS REGULATIONS COULD CAUSE REDUCED DEMAND FOR OUR
SERVICES.

Several telecommunications carriers are advocating that the Federal
Communications Commission regulate the Internet in the same manner as other
telecommunications services by imposing access fees on Internet service
providers. These regulations could substantially increase the costs of
communicating on the Internet. This, in turn, could slow the growth in Internet
use and thereby decrease the demand for our services.

13
<PAGE> 16

RISKS ASSOCIATED WITH THIS OFFERING

BECAUSE OUR EXISTING STOCKHOLDERS WILL CONTINUE TO HOLD A MAJORITY OF OUR COMMON
STOCK AFTER THIS OFFERING, YOUR ABILITY TO INFLUENCE THE OUTCOME OF DIRECTOR
ELECTIONS AND OTHER MATTERS REQUIRING STOCKHOLDER APPROVAL MAY BE LIMITED.

Following the offering, our executive officers, directors and our
stockholders who currently own over five percent of our common stock will, in
the aggregate, beneficially own approximately 66.9% of our outstanding common
stock. These stockholders, if they vote together, will be able to significantly
influence matters that we require our stockholders to approve, including
electing directors and approving significant corporate transactions. This
concentration of ownership may also have the effect of delaying or preventing a
change in control of us, which could result in a lower stock price.

CERTAIN PROVISIONS IN OUR CORPORATE DOCUMENTS MAY DISCOURAGE OUR ACQUISITION BY
OTHERS AND THUS DEPRESS OUR STOCK PRICE.

Our corporate documents and Delaware law could make it more difficult for a
third party to acquire us, even if a change in control would be beneficial to
our stockholders. These and other provisions might discourage, delay or prevent
a change in control of us or a change in our management. These provisions could
also limit the price that investors might be willing to pay in the future for
shares of common stock.

FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD CAUSE OUR STOCK
PRICE TO FALL AND DECREASE THE VALUE OF YOUR INVESTMENT.

The market price of our common stock could fall if our stockholders sell
substantial amounts of common stock, including shares issued upon the exercise
of outstanding options and warrants, in the public market following this
offering. These sales might also make it more difficult for us to sell equity
securities in the future at a time and price that we deem appropriate.
Additionally, Thomas Weisel Partners LLC may, in its sole discretion, release
all or some portion of the securities subject to lock-up agreements. Some stock
and warrant holders are entitled to certain registration rights. The exercise of
these rights could adversely affect the market price of our common stock.

FORWARD-LOOKING STATEMENTS

This prospectus may contain forward-looking statements based on our current
expectations, assumptions, estimates and projections about us and our industry.
Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of factors more fully described in the
"Risk Factors" section and elsewhere in this prospectus.

14
<PAGE> 17

USE OF PROCEEDS

The net proceeds from the sale of 3,530,000 shares offered by us will be
approximately $45.3 million, after deducting underwriting discounts and
commissions and estimated offering expenses. If the underwriters' over-allotment
option is exercised in full, we estimate that we will receive approximately
$51.7 million in net proceeds from this offering. We will not receive any
proceeds from the sale of common stock by the selling stockholders.

The principal reasons for this offering are to raise funds for working
capital and other general corporate purposes. We have not identified specific
uses for the net proceeds from this offering. The amounts we actually expend in
these areas may vary significantly and will depend on a number of factors,
including our future revenue and cash flows from operations. Accordingly,
management will retain broad discretion in the allocation of the net proceeds of
this offering. You will not have the opportunity to evaluate the economic,
financial or other information on which we base our decisions on how to use the
proceeds. A portion of the net proceeds may also be used to acquire or invest in
complementary businesses, technologies, services or products. We have no current
plans, agreements or commitments with respect to any acquisition or investment,
and we are not currently engaged in any negotiations with respect to any such
transaction.

Pending these uses, the estimated net proceeds of this offering will be
invested in short term, interest bearing, investment grade securities.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain future earnings, if any, to finance the growth and
development of our business and therefore do not anticipate paying any cash
dividends in the foreseeable future. Any future determination to pay cash
dividends will be at the discretion of our board of directors and will be
dependent on our financial condition, operating results, capital requirements
and such other factors as the board of directors deems relevant.

CONVENTIONS WHICH APPLY TO THIS PROSPECTUS

Of the 3,800,000 shares of common stock being offered, we are offering
3,530,000 shares and the selling stockholders are offering 270,000 shares;
however, the underwriters have a 30-day option to purchase up to 570,000
additional shares from us and the selling stockholders to cover over-allotments.
Of the 570,000 shares of common stock available to cover over-allotments,
490,000 shares would be offered by us and 80,000 shares would be offered by the
selling stockholders. Some of the disclosures in this prospectus would be
different if the underwriters exercise the option. Unless we tell you otherwise,
the information in this prospectus assumes that the underwriters will not
exercise the option.

Unless we tell you otherwise, all as adjusted capitalization information in
this prospectus gives effect to:

- the automatic conversion of all outstanding series of preferred stock
into common stock upon completion of this offering;

- our receipt of the estimated net proceeds from the sale of the 3,530,000
shares of common stock we are selling in this offering, after deducting
underwriting discounts and commissions and estimated offering expenses;
and

- an increase in our authorized common stock to 35,000,000 shares and an
increase in our undesignated preferred stock to 3,500,000 shares
effective immediately prior to the closing of this offering.

Our trademarks include "Exactis" and "Email Marketing Solutions." We have
applied for federal registration of our "Exactis" trademark. Each other
trademark, trade name or service mark appearing in this prospectus belongs to
its holder.

15
<PAGE> 18

DILUTION

Our net tangible book value as of September 30, 1999 was $4.2 million, or
approximately $0.50 per share of common stock, assuming conversion of all
outstanding preferred stock into common stock.

Net tangible book value per share represents the amount of total tangible
assets less total liabilities, divided by the number of shares of common stock
outstanding, assuming conversion of all outstanding preferred stock into common
stock. Without taking into account any other changes in the net tangible book
value after September 30, 1999, other than to give effect to our receipt of the
estimated net proceeds from the sale of the 3,530,000 shares of common stock in
this offering, our as adjusted net tangible book value as of September 30, 1999
would have been approximately $49.5 million, or $4.10 per share of common stock.
This represents an immediate increase in net tangible book value of $3.60 per
share to existing stockholders and an immediate dilution of $9.90 per share to
new investors. The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $14.00
Net tangible book value per share before this offering.... $ 0.50
Increase per share attributable to new investors.......... 3.60
--------
As adjusted net tangible book value per share after this
offering.................................................. 4.10
------
As adjusted dilution per share to new investors............. $ 9.90
======
</TABLE>

The following table summarizes, on an as adjusted basis as of September 30,
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 purchasing shares of common stock in this
offering. The information presented is based upon an initial public offering
price of $14.00 per share, before deducting underwriting discounts and
commissions and estimated offering expenses.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. 8,540,746 70.8% $28,733,486 36.8% $ 3.36
New investors.......................... 3,530,000 29.2 49,420,000 63.2 14.00
---------- ----- ----------- -----
Total........................ 12,070,746 100.0% $78,153,486 100.0%
========== ===== =========== =====
</TABLE>

The foregoing table assumes no exercise of the underwriters' over-allotment
option or of any outstanding stock options or warrants after September 30, 1999.
As of September 30, 1999, there were outstanding options to purchase 1,682,517
shares of common stock at a weighted average exercise price of $3.56 per share
and warrants to purchase 1,556,263 shares at a weighted average exercise price
of $5.81 per share. There will be further dilution to the extent any of our
options or warrants are exercised. Please see "Management -- Stock Plans" for a
discussion of our employee benefit plans and "Description of Securities" for a
discussion of our outstanding warrants.

16
<PAGE> 19

CAPITALIZATION

The following table sets forth our cash and cash equivalents and
capitalization as of September 30, 1999. This table should be read together with
the "Selected Financial Data," "Management's Discussion and Analysis of
Financial Condition" and the financial statements and notes to those statements
appearing elsewhere in this prospectus. This information is presented:

- on an actual basis; and

- on an as adjusted basis to give effect to:

- the automatic conversion of all outstanding series of preferred stock
into common stock upon completion of this offering;

- an increase in our authorized common stock to 35,000,000 shares and an
increase in our undesignated preferred stock to 3,500,000 shares
effective immediately prior to the closing of this offering.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 6,551 $ 51,862
======== ========
Long-term debt and capital lease obligations, net of current
portion and discount...................................... 217 217
-------- --------
Redeemable preferred stock:
Preferred Stock (Series B, C, D and E), par value $.01 per
share; 9,920,000 shares authorized actual; none
authorized as adjusted; 6,422,057 shares outstanding
actual; none outstanding as adjusted.................... 26,133 --
Warrants for the purchase of shares of redeemable
preferred stock; 1,556,263 outstanding and contingently
issuable actual......................................... 1,460 --
-------- --------
27,593 --
-------- --------
Stockholders' equity (deficit):
Undesignated preferred stock, par value $.01 per share;
200,000 shares authorized actual; 3,500,000 shares
authorized as adjusted.................................. -- --
Series A preferred stock, par value $.01 per share;
880,000 shares authorized and outstanding actual; none
authorized and outstanding as adjusted.................. 1,094 --
Common stock, par value $.01 per share; 13,500,000 shares
authorized actual; 35,000,000 shares authorized as
adjusted; 1,238,689 shares outstanding actual;
12,070,746 shares outstanding as adjusted............... 12 121
Additional paid-in capital, net of unearned
compensation............................................ 1,284 75,173
Accumulated deficit....................................... (25,515) (25,515)
-------- --------
Total stockholders' equity (deficit)............... (23,125) 49,779
-------- --------
Total capitalization............................... $ 4,685 $ 49,996
======== ========
</TABLE>

The number of shares of common stock is based on the number of shares
outstanding as of September 30, 1999 and does not include the following:

- 1,682,517 shares that could be issued upon the exercise of options
outstanding as of September 30, 1999 at a weighted average exercise price
of $3.56 per share;

- 1,556,263 shares that could be issued upon the exercise of warrants
outstanding and contingently issuable as of September 30, 1999 at a
weighted average exercise price of $5.81 per share;

- 1,078,794 shares that could be issued under our option plans; and

- 500,000 shares that could be issued to our employees who elect to buy
stock in the future under our employee stock purchase plan.

17
<PAGE> 20

SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with
the financial statements and the notes to such statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus. The statement of operations data for the
period from inception to December 31, 1996 and for the years ended December 31,
1997 and 1998, and the balance sheet data at December 31, 1997 and 1998 are
derived from our financial statements which have been audited by KPMG LLP,
independent auditors, and are included elsewhere in this prospectus. The
statement of operations data for the nine months ended September 30, 1998 and
1999 and the balance sheet data at September 30, 1999 have been derived from the
unaudited financial statements included elsewhere in this prospectus that have
been prepared on the same basis as the audited financial statements and, in our
opinion, contain all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial position and
results of operations for these periods. Historical results are not necessarily
indicative of the results to be expected in the future and results for interim
periods are not necessarily indicative of results for the entire year.

In December 1998, we sold our online publishing business to Sony Music, a
Group of Sony Music Entertainment Inc. At the same time, we entered into a
service agreement to provide email and other services to Sony Music through
2001. Revenue from services provided to Sony Music constituted $4.9 million of
our total revenue for the nine months ended September 30, 1999 and is not
reflected in any prior period. Expenses related to our online publishing
business, including editorial, advertising sales and subscriber acquisition
expenses, were a major component of cost of revenue in periods prior to 1999.
Beginning in January 1999, Sony Music assumed responsibility for the advertising
sales and subscriber acquisition expenses. We retained responsibility for the
expenses related to certain editorial activities, for which we are reimbursed by
Sony Music. As a result, we believe period-to-period comparisons of our revenue
and operating results are not meaningful. Please see "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the financial
statements and related notes appearing elsewhere in this prospectus for a
description of the accounting treatment of the sale and service agreements and
additional information on the online publishing and email and other services
segments of our business.

We have not paid any dividends on our common stock since inception.

18
<PAGE> 21

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 30,
1996 NINE MONTHS ENDED
(INCEPTION) TO YEARS ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------------- -----------------------
1996 1997 1998 1998 1999
-------------- ----------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue
Email and other services............ $ -- $ 359 $ 821 $ 449 $ 6,606
Online publishing................... -- 496 1,958 1,541 661
---------- ---------- ---------- ---------- ----------
Total revenue................ -- 855 2,779 1,990 7,267
---------- ---------- ---------- ---------- ----------
Cost of revenue:
Email and other services............ -- 132 256 181 641
Online publishing................... 161 1,907 2,524 1,856 644
---------- ---------- ---------- ---------- ----------
Total cost of revenue........ 161 2,039 2,780 2,037 1,285
---------- ---------- ---------- ---------- ----------
Gross profit (loss)................. (161) (1,184) (1) (47) 5,982
---------- ---------- ---------- ---------- ----------
Operating expenses:
Marketing and sales................. 935 1,458 1,810 1,270 2,058
Research, development and
engineering....................... 1,206 2,201 2,915 2,059 6,231
General and administrative.......... 1,009 1,978 2,039 1,331 2,761
Depreciation and amortization....... 174 805 1,031 750 1,173
---------- ---------- ---------- ---------- ----------
Total operating expenses..... 3,324 6,442 7,795 5,410 12,223
---------- ---------- ---------- ---------- ----------
Loss from operations.... (3,485) (7,626) (7,796) (5,457) (6,241)
Interest income (expense), net........ 93 (73) (101) (45) (12)
---------- ---------- ---------- ---------- ----------
Net loss................ (3,392) (7,699) (7,897) (5,502) (6,253)
Accretion of preferred stock to
liquidation value................... (3) (53) (103) (77) (115)
---------- ---------- ---------- ---------- ----------
Net loss attributable to common
stockholders................... $ (3,395) $ (7,752) $ (8,000) $ (5,579) $ (6,368)
========== ========== ========== ========== ==========
Net loss per share -- basic
and diluted................ $ (3.40) $ (7.75) $ (7.96) $ (5.56) $ (6.27)
========== ========== ========== ========== ==========
Shares used in computing net loss per
share -- basic and diluted.......... 1,000,000 1,000,255 1,004,461 1,003,256 1,015,942
Pro forma basic and diluted net loss
per share (unaudited)............... $ (1.17) $ (0.86)
========== ==========
Shares used in computing pro forma
net loss per share -- basic and
diluted........................... 6,748,964 7,263,884
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- SEPTEMBER 30,
1996 1997 1998 1999
------ -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................ $3,798 $ 3,747 $ 6,383 $ 6,551
Working capital...................................... 3,420 3,863 3,484 3,010
Total assets......................................... 5,791 7,065 10,806 14,083
Long-term debt and capital lease obligations, net of
current portion and discount....................... 30 824 610 217
Redeemable convertible preferred stock and
warrants........................................... 7,540 15,349 18,673 27,593
Total stockholders' deficit.......................... (2,288) (10,039) (18,000) (23,125)
</TABLE>

19
<PAGE> 22

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis in conjunction with
"Selected Financial Data" and the financial statements and notes attached to
those statements included elsewhere in this prospectus. This discussion contains
certain forward-looking statements. Please see "Risk Factors" and "Forward-
Looking Statements" elsewhere in this prospectus.

OVERVIEW

We are a leading provider of permission-based outsourced email marketing
and communications solutions primarily to companies in the media, ecommerce and
financial services industries. We were founded in January 1996 under the name
Mercury Mail, Inc. In August 1997, we changed our name to InfoBeat Inc. and in
January 1999 we changed our name to Exactis.com, Inc. Our initial business was
the publication of a suite of advertising supported newsletters delivered daily
to subscribers via email, which we refer to as the online publishing business.
This business consisted of the online publication of newsletters and other
bulletins about a variety of topics of interest to consumers, which we refer to
as the InfoBeat newsletters. In 1997, we began using the email technologies we
developed for the online publishing business to deliver email newsletters for
another client. In early 1998, we launched our outsourced email marketing and
communications services, which we refer to as our email services business. In
addition, we provide other services related to the email services business,
primarily consisting of custom engineering development work.

In December 1998, we sold our online publishing business to Sony Music and
simultaneously entered into a service agreement to manage the production and
delivery of the InfoBeat newsletters for Sony Music. Under the service
agreement, we will provide services to Sony Music through December 2001. Sony
Music agreed to pay us a minimum of $14.8 million associated with the sale and
service agreements. The assets sold to Sony Music consisted primarily of
intangible assets, the fair value of which were not objectively determinable.
Therefore, under applicable accounting standards, the $14.8 million of proceeds
is being recognized as email and other services revenue over the term of the
service agreement based on the monthly minimum number of email messages to be
provided under the service agreement. Specifically, we will recognize a minimum
of $4.7 million in 1999, $4.9 million in 2000 and $5.2 million in 2001. Because
the Sony Music revenue includes the proceeds of the sale and service agreements,
margins recognized on the Sony Music contract may not be indicative of other
email services contracts. We received $7.8 million in cash and receivables from
Sony Music in December 1998 which has been recorded as deferred revenue and will
be recognized as revenue in the period in which services are performed. The
remaining $7.0 million of the $14.8 million in minimum payments will be received
over the term of the service agreement.

Revenue from services provided to Sony Music constituted $4.9 million, or
68%, of our total revenue for the nine months ended September 30, 1999. For more
information about the sale of our online publishing business, please refer to
note 2 to the financial statements.

Since January 1999, we have focused primarily on providing outsourced email
marketing and communications solutions to a wide range of clients primarily in
the media, ecommerce and financial services industries. We generate revenue
based on a fee per email message sent, charges for related services and custom
engineering development work. The actual per message fees are related to each
client's monthly email message volume and decline as a client's volume
increases. The majority of our clients execute a 12-month contract with
guaranteed monthly minimum charges based upon their expected volume of messages.
Revenue is recognized in the period in which services are provided. We record
deferred revenue for payments received and receivables which are contractually
due in advance of services provided. Beginning in January 1999, we agreed to
provide Sony Music with editorial services related to the InfoBeat newsletters.
Our online publishing revenue in 1999 consists of cost reimbursements by Sony
Music for employees providing these editorial services. Prior to 1999, we also
received revenue from the sale of advertising within our InfoBeat newsletters.

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<PAGE> 23

Since January 1999, cost of revenue consists primarily of editorial costs
associated with the InfoBeat newsletters, sales commissions and network
connectivity charges to our Internet service providers. Internet service
providers charge us for network connectivity based on monthly minimum charges up
to a certain level of usage and incrementally for usage above that level. Sales
commissions are paid monthly based on a percentage of revenue recognized during
the month. Prior to 1999, our cost of revenue also included advertising sales
and subscriber acquisition costs related to our online publishing business. Sony
Music is now responsible for these costs. Because the components of our cost of
revenue have changed significantly, we do not believe period-to-period
comparisons of our gross margins are meaningful. Please refer to note 8 to the
financial statements for additional information on our email and other services
and online publishing segments.

Our average cost to deliver an email message is significantly influenced by
the volume of email messages processed by our systems. As we continue to add new
clients, and as our existing clients increase both the size of their email lists
as well as their overall usage of our services, we expect our average cost to
deliver an email message to decline over the long term. In addition, a portion
of our research, development and engineering efforts are devoted to improving
the performance and efficiency of our systems.

As a result of stock option grants in 1999 with exercise prices below fair
value, we are recognizing total non-cash compensation expense of $3.9 million
over the vesting periods of the options, which are generally three or four
years. For the nine months ended September 30, 1999, we recognized non-cash
general and administrative compensation expense of $856,000 with respect to
these option grants.

In December 1998, we issued to Sony Music a warrant to purchase 600,000
shares of Series D preferred stock at an exercise price of $6.00 per share. The
vesting of this warrant was contingent upon the achievement by Sony Music of
certain performance milestones. On November 18, 1999, the terms of this warrant
were amended. The amended warrant is for the purchase of 400,000 shares of
Series D preferred stock at an exercise price of $6.00 per share. The warrant is
fully vested and expires on December 31, 2003. In connection with the amended
warrant, we will record non-cash charges of approximately $4.7 million over the
remaining term of the Sony Music service agreement, which expires in December
2001. See "Description of Securities -- Warrants."

In July 1997, we issued to American Express a warrant to purchase 425,000
shares of Series C preferred stock at a purchase price of $6.00 per share. The
warrant expires in July 2000. The vesting of this warrant is contingent upon the
achievement by American Express of certain performance milestones. In accordance
with accounting standards in effect at the time of the issuance of this warrant,
the estimated fair value of the warrant, using the Black-Scholes option pricing
model, was calculated at the time awarded and is being amortized over the life
of the warrant. We estimate the number of warrant shares that will ultimately
vest under the warrant at the end of each reporting period and, based upon these
estimates, may recognize additional non-cash charges both currently and over the
remaining life of the warrant. We recognized non-cash charges of $46,000 in
1997, $118,000 in 1998 and $25,000 for the nine months ended September 30, 1999
related to the American Express warrant and, based on estimates as of September
30, 1999 as to the ultimate vesting of the warrant, we plan to recognize an
additional $5,000 of non-cash charges over the next 12 months. Should American
Express achieve one or both remaining milestones, then we expect to record
additional non-cash charges of up to approximately $250,000 in the period in
which one or both of these milestones is achieved.

We incurred net losses of approximately $3.4 million from January 30, 1996,
the date of our inception, through December 31, 1996, $7.7 million in 1997, $7.9
million in 1998 and $6.3 million for the nine months ended September 30, 1999.
We had an accumulated deficit of $25.5 million at September 30, 1999. We expect
to increase spending on marketing and sales as we expand our sales force and
increase promotional and advertising expenditures. We also expect substantially
higher general and administrative and research, development and engineering
expenses as we expand our infrastructure to support expected growth and as we
broaden our suite of email services. As a result of these increases, we expect
to continue to incur significant net losses on a quarterly and annual basis
through at least 2000.

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<PAGE> 24

In view of the rapidly evolving nature of our business, our limited
operating history and our recent focus on providing outsourced email marketing
and communications solutions, we believe that period-to-period comparisons of
our revenue and operating results, including our operating expenses as a
percentage of total revenue, are not meaningful and should not be relied upon as
an indication of future performance. In addition, we do not believe that our
historical growth rates are indicative of future results.

NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1998

Revenue. Total revenue consists of email and other services revenue and
online publishing revenue. Our total revenue increased to $7.3 million in the
first nine months of 1999 from $2.0 million in the first nine months of 1998.
Email and other services revenue consists of charges for providing email
messaging services and includes fees based on the volume of email messages sent,
charges for related services and custom engineering development work. Email and
other services revenue increased to $6.6 million in the first nine months of
1999 from $449,000 in the first nine months of 1998. Revenue from Sony Music for
providing the InfoBeat services under our contract which began on January 1,
1999 constituted $4.3 million, or 64% of the 1999 email and other services
revenue. The balance of the growth is attributable to increases in both our
client base and the volume of email messages sent. Excluding Sony Music, we sent
approximately 326 million email messages for 71 clients in the nine months ended
September 30, 1999, as compared to approximately 54 million email messages for
21 clients in the nine months ended September 30, 1998. We also sent
approximately one billion email messages for Sony Music in the 1999 period.

For the nine months ended September 30, 1999, online publishing revenue
consists of cost reimbursements by Sony Music for employees providing editorial
services related to the InfoBeat newsletters. For the nine months ended
September 30, 1998, online publishing revenue was derived from the sale of
advertising within the InfoBeat newsletters. We had no advertising revenue in
the first nine months of 1999.

Cost of Revenue. Cost of revenue currently consists primarily of editorial
costs associated with the InfoBeat newsletters, sales commissions and network
connectivity charges from our Internet service providers. Prior to 1999, cost of
revenue also included advertising sales and subscriber acquisition costs related
to our online publishing business. Cost of revenue declined to $1.3 million in
the first nine months of 1999 from $2.0 million in the first nine months of
1998, reflecting the change in our business from online publishing to email
services. Of the 1999 amount, editorial costs reimbursed by Sony Music totaled
$644,000, approximating the amount of online publishing revenue. Costs related
to our online publishing business represented $1.9 million of the 1998 amount.
Sales commissions related to email services increased $180,000 in the 1999
period as a result of our growing sales force and corresponding email services
revenue growth. Network connectivity charges increased $195,000 in the 1999
period due to higher email message volume and the addition of a connection to a
second Internet service provider. Because the components of our cost of revenue
have changed significantly, we do not believe period-to-period comparisons of
our gross margins are meaningful.

Marketing and Sales. Marketing and sales costs consist primarily of
salaries and other personnel costs related to our sales, account management,
customer care and marketing employees, as well as travel, advertising and other
promotional costs. Marketing and sales costs increased to $2.1 million in the
first nine months of 1999 from $1.3 million in the first nine months of 1998.
Marketing and sales costs related to our online publishing business represented
$132,000 of the 1998 amount. Salaries and other personnel costs represented the
majority of the 1999 increase as the number of marketing and sales employees
increased to 36 as of September 30, 1999 from 15 at the beginning of 1998. We
expect to significantly increase the number of employees, as well as advertising
and promotional spending in this area in the future.

Research, Development and Engineering. Research, development and
engineering costs consist primarily of salaries and other personnel costs
related to our operations and research and development groups, consultants and
outside contractor costs, and software and hardware maintenance expenses.

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<PAGE> 25

Research, development and engineering costs increased to $6.2 million in the
first nine months of 1999 from $2.1 million in the first nine months of 1998.
The cost of outside contractors and consultants, who are utilized to speed
development efforts, increased by $2.9 million in the 1999 period. In addition,
salaries and other personnel costs significantly increased in the 1999 period,
as the number of research, development and engineering employees increased to 55
as of September 30, 1999 from 22 at the beginning of 1998. Research, development
and engineering costs related to our online publishing business represented
$783,000 of the 1998 amount; however, since most of the employees of the online
publishing business were redeployed to the email services business in 1999,
costs related to those employees are included in the 1999 period. We are
continuing to invest substantially in this area to develop the new features and
services required to meet the needs of current and potential clients, and plan
to maintain or increase the dollar amount we spend on research, development and
engineering activities in the future.

General and Administrative. General and administrative costs consist
primarily of salaries and other personnel costs related to executive and
administrative personnel, occupancy and general office costs and professional
fees. General and administrative costs increased to $2.8 million in the first
nine months of 1999 from $1.3 million in the first nine months of 1998. Non-cash
stock option compensation expense increased by $856,000 in the 1999 period as a
result of options granted in 1999 with exercise prices below fair value.
Professional fees increased $237,000 in the 1999 period, primarily due to costs
related to recently settled patent infringement lawsuits. Occupancy and general
office costs represented $192,000 of the increase in the 1999 period due to an
increase in the total number of our employees. Increased salaries and other
personnel costs accounted for $150,000 of the increase in the 1999 period, as
the number of general and administrative employees increased to 12 as of
September 30, 1999 from six at the beginning of 1998.

Depreciation and Amortization. Depreciation and amortization expense
consists primarily of depreciation of equipment, software and furniture and
amortization of leasehold improvements. Fixed assets are recorded at cost and
depreciated over the estimated useful lives of the assets which range from three
to five years. Depreciation and amortization expense increased to $1.2 million
in the first nine months of 1999 from $750,000 in the first nine months of 1998.
Purchases of equipment and software necessary to deliver higher email message
volume, as well as for general corporate use, were responsible for this increase
in the 1999 period.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997

Revenue. Our total revenue increased to $2.8 million in 1998 from $855,000
in 1997. Email and other services revenue increased to $821,000 in 1998 from
$359,000 in 1997 as a result of increases in our client base, email message
volume and average price per message sent. We sent approximately 115 million
email messages for 25 clients in 1998 as compared to approximately 104 million
email messages for one client in 1997. We did not begin to make our outsourced
email services generally available until early 1998.

Online publishing revenue increased to $2.0 million in 1998 from $496,000
in 1997 as we expanded both our advertising sales efforts and the distribution
of the InfoBeat newsletters.

Cost of Revenue. Cost of revenue increased to $2.8 million in 1998 from
$2.0 million in 1997. Costs related to our online publishing business
represented $2.5 million of 1998 and $1.9 million of 1997 amounts. These costs
increased primarily due to a $400,000 increase in advertising sales commissions
due to revenue growth. Sales commissions related to email services revenue
increased $76,000 in 1998 due to the establishment of a sales force and the
associated payment of commissions. Network connectivity charges increased
$121,000 in 1998 due to higher email message volume.

Marketing and Sales. Marketing and sales costs increased to $1.8 million in
1998 from $1.5 million in 1997. Salaries and other personnel costs increased in
1998 due to the increase in the number of marketing and sales employees to 32 as
of December 31, 1998 from 12 at the beginning of 1997. This increase in salaries
and other personnel costs was partially offset by a decline of $244,000 in
advertising and other promotional costs in 1998.
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<PAGE> 26

Research, Development and Engineering. Research, development and
engineering costs increased to $2.9 million in 1998 from $2.2 million in 1997.
Salaries and other personnel costs increased in 1998, as the number of research,
development and engineering employees increased to 36 as of December 31, 1998
from 21 at the beginning of 1997.

General and Administrative. General and administrative costs remained
relatively unchanged at $2.0 million in both 1998 and 1997. Occupancy and
general office costs increased $168,000 in 1998 due to the increase in the
number of our employees. This increase was partially offset by a $127,000
decline in salaries and other personnel costs for general and administrative
functions in 1998.

Depreciation and Amortization. Depreciation and amortization expense
increased to $1.0 million in 1998 from $806,000 in 1997. Purchases of equipment
and software necessary to deliver higher email message volume, as well as for
general corporate use, were responsible for this increase in 1998.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO PERIOD FROM INCEPTION, JANUARY 31,
1996, THROUGH DECEMBER 31, 1996

Revenue. Our total revenue increased to $855,000 in 1997. Email and other
services revenue increased to $359,000 in 1997 as we began to utilize our email
technology. Online publishing revenue increased to $496,000 in 1997 as we also
began selling advertising within the InfoBeat newsletters. We were in the
development stage in 1996 and did not generate any revenue.

Cost of Revenue. Cost of revenue increased to $2.0 million in 1997 from
$161,000 in 1996. All of the 1996 amount and $1.9 million of the 1997 amount
were related to our online publishing business. The remaining $132,000 related
to network connectivity costs for the email services business in 1997.

Marketing and Sales. Marketing and sales costs increased to $1.5 million in
1997 from $935,000 in 1996. Salaries and other personnel costs were responsible
for the majority of the 1997 increase as we expanded our operations.

Research, Development and Engineering. Research, development and
engineering costs increased to $2.2 million in 1997 from $1.2 million in 1996.
Salaries and other personnel costs were responsible for the majority of the 1997
increase as we expanded our operations.

General and Administrative. General and administrative costs increased to
$2.0 million in 1997 from $1.0 million in 1996. We increased our salaries and
other personnel costs, occupancy and general office costs in 1997 as we expanded
our business beyond the development stage.

Depreciation and Amortization. Depreciation and amortization expense
increased to $806,000 in 1997 from $174,000 in 1996. Purchases of equipment and
software necessary to deliver higher email message volume, as well as for
general corporate use, were responsible for this increase in 1997.

INCOME TAXES

As of December 31, 1998, a net operating loss carryforward for federal
income tax purposes of approximately $11.8 million was available to offset
future federal taxable income, if any, through 2018. No tax benefit for these
losses has been recorded by us in 1996, 1997, 1998 or to date in 1999 due to
uncertainties regarding the utilization of the loss carryforward. The
utilization of a portion of the net operating loss carryforwards will be limited
under Section 382 of the Internal Revenue Code due to changes in ownership
interests.

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<PAGE> 27

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth our historical unaudited quarterly
information for our most recent seven quarters. This quarterly information has
been prepared on a basis consistent with our audited financial statements and,
we believe, includes all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the information shown. Our
quarterly operating results have fluctuated and may continue to fluctuate
significantly as a result of a variety of factors and operating results for any
quarter are not necessarily indicative of results for a full fiscal year.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1998 1998 1998 1998 1999 1999 1999
--------- -------- ------------- ------------ --------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Email and other
services.............. $ 52 $ 102 $ 295 $ 372 $ 1,759 $ 2,250 $ 2,597
Online publishing........ 411 526 604 417 246 189 226
------- ------- ------- ------- ------- ------- -------
Total revenue.... 463 628 899 789 2,005 2,439 2,823
------- ------- ------- ------- ------- ------- -------
Cost of revenue:
Email and other
services.............. 46 47 88 75 143 264 234
Online publishing........ 574 583 699 668 224 203 217
------- ------- ------- ------- ------- ------- -------
Total cost of
revenue........ 620 630 787 743 367 467 451
------- ------- ------- ------- ------- ------- -------
Gross profit
(loss)......... (157) (2) 112 46 1,638 1,972 2,372
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Marketing and sales...... 257 421 592 540 612 663 783
Research, development and
engineering........... 551 631 878 855 963 2,171 3,097
General and
administrative........ 331 528 471 708 1,118 810 833
Depreciation and
amortization.......... 235 240 275 282 310 379 485
------- ------- ------- ------- ------- ------- -------
Total operating
expenses....... 1,374 1,820 2,216 2,385 3,003 4,023 5,198
------- ------- ------- ------- ------- ------- -------
Loss from
operations... (1,531) (1,822) (2,104) (2,339) (1,365) (2,051) (2,826)
Interest income (expense),
net...................... (9) (21) (15) (56) 3 (21) 7
------- ------- ------- ------- ------- ------- -------
Net loss................... $(1,540) $(1,843) $(2,119) $(2,395) $(1,362) $(2,072) $(2,819)
======= ======= ======= ======= ======= ======= =======
</TABLE>

Our limited operating history and the emerging nature of the Internet-based
email services market make it very difficult for us to accurately forecast our
revenue. Our revenue could fall short of our expectations if we experience
delays or cancellations of even a small number of contracts. A number of factors
are likely to cause fluctuations in our operating results, including but not
limited to:

- continued growth of the Internet, in general, and of email usage, in
particular;

- demand for our services;

- our ability to attract and retain clients and maintain client
satisfaction;

- our ability to upgrade, develop and maintain our systems and
infrastructure;

- the amount and timing of operating costs and capital expenditures
relating to expansion of our business and infrastructure;

- technical difficulties or system outages;

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<PAGE> 28

- the announcement or introduction of new or enhanced services by our
competitors;

- pricing policies of our competitors;

- our ability to attract and retain qualified personnel with Internet and
direct marketing industry expertise, particularly technology, sales and
marketing personnel; and

- governmental regulation regarding the Internet, email and direct
marketing.

Please see "Risk Factors -- Due to the emerging nature of the email
services market, our future revenues are unpredictable and our quarterly
operating results may fluctuate" for more detailed information on factors that
could affect our operating results.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have financed our operations primarily from sales of
our preferred stock and, to a lesser extent, proceeds from bank loans. Net cash
used by operating activities was $3.0 million in 1996, $6.9 million in 1997,
$302,000 in 1998 and $5.0 million for the nine months ended September 30, 1999.

Net cash used by investing activities was $1.8 million in 1996, $1.0
million in 1997, $885,000 in 1998 and $3.5 million for the nine months ended
September 30, 1999. In each period, net cash used by investing activities was
primarily the result of capital expenditures for equipment and software used in
our data center from which we operate our email message platform.

Net cash provided by financing activities was $8.6 million in 1996, $7.9
million in 1997, $3.8 million in 1998 and $8.7 million for the nine months ended
September 30, 1999. Proceeds from the sale of preferred stock, net of payments
for debt and capital lease obligations, were the primary source of the net cash
provided by financing activities. In the year ended 1997, proceeds from notes
payable of $3.5 million were also a significant source of financing.
Approximately $2.0 million of this amount was converted into preferred stock in
July 1997. The balance consists primarily of proceeds from bank loans.

At December 31, 1998 and September 30, 1999, we had $6.4 million and $6.6
million, respectively, in cash and cash equivalents. In July 1999, we received a
$1.5 million payment from Sony Music related to the sale of our online
publishing business. In July and August 1999, we received net proceeds of $8.8
million from the sale of Series E preferred stock and warrants. We plan to
increase our general level of spending in the future and plan to expend
significant resources on capital expenditures in 1999 and 2000 for equipment and
software, furniture, and leasehold improvements. We plan to relocate our
existing data center and corporate offices in the first quarter of 2000, and we
plan to open a second data center for disaster recovery in the fourth quarter of
1999. In particular, we expect to spend approximately $2.0 million on capital
expenditures in the fourth quarter of 1999 and approximately $3.0 million in
2000. We expect to incur operating losses through at least the end of 2000.

We expect that existing cash resources and the net proceeds of this
offering will be sufficient to fund currently anticipated working capital and
capital expenditure needs at least through the end of 2000. Additionally, in the
fourth quarter of 1999, we plan to enter into a line of credit with a bank or
other financial institution. Thereafter, we may require additional funds to
support our working capital requirements or for other purposes. If we are not
successful in raising capital when we need it and on terms acceptable to us, it
could harm our business, financial condition and operating results.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At September 30, 1999, we had debt in the aggregate amount of $818,000 and
we may incur additional debt in the future. A change in interest rates would not
affect our obligations related to debt existing as of September 30, 1999, as the
interest payments related to that debt are fixed over the term of the debt.
Increases in interest rates could, however, increase the interest expense
associated with future borrowings.

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<PAGE> 29

We may invest a portion of our cash and cash equivalents and the net
proceeds from this offering in short-term investments. The value of these
investments may decline as the result of changes in equity markets and interest
rates.

YEAR 2000

Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. This could result in
system failures or miscalculations causing disruption of operations for any
company using these computer programs or hardware. Among other things, this
could include a temporary inability to process transactions, send or receive
email messages, send invoices or engage in normal business activities. As a
result, many companies' computer systems may need to be upgraded or replaced in
order to avoid Year 2000 issues.

We have evaluated the Year 2000 readiness of all of the information
technology systems that we use. Based on the results of our evaluation, we
believe our information technology systems are Year 2000 compliant. We have also
received certifications from our providers of our non-information technology
systems, such as our phone systems, power supplies and other systems. These
certifications indicate that our non-information technology systems are Year
2000 compliant. As part of our Year 2000 readiness, we are certifying whether
all of our internal systems are Year 2000 compliant. Year 2000 compliance
provides that we have confirmed that, under the conditions of our internal
testing, our information technology systems will perform as follows:

- date calculations will neither cause any abnormal termination of
performance nor generate inconsistent results; and

- when sorting by date, all records will be sorted in accurate sequence.

We are a comparatively new enterprise. Accordingly, the majority of
software and hardware we use to operate and manage our business has all been
purchased or developed by us within the last three years. While this does not
uniformly protect us against Year 2000 exposure, we believe our exposure is
limited because the information technology we use to operate and manage our
business is not based upon legacy hardware and software systems. Generally,
hardware and software designed within the current decade and the past several
years in particular has given greater consideration to Year 2000 issues.

As part of our Year 2000 compliance program, we have a separate dedicated
Year 2000 team, consisting of five external Year 2000 technology experts, as
well as our own staff. We have installed a complete Year 2000 test system to
facilitate achieving Year 2000 compliance of our internal systems. In
implementing our Year 2000 compliance program, we have identified and
inventoried Year 2000 sensitive components in our internal systems and we are
working to verify Year 2000 compliance of our components. We have also made
reasonable efforts to contact vendors and suppliers that provide us with Year
2000 sensitive components in order to determine the compliance of these
components. The majority of our vendors have certified to us that they are Year
2000 compliant. For vendors that have not provided this certification, we intend
to test their products for Year 2000 compliance and develop contingency plans to
address any problems associated with noncompliance of their products. It is the
intent of our Year 2000 compliance program to either repair or replace any
components for our internal systems that are determined not to be Year 2000
compliant. We have completed our evaluation of substantially all of our hardware
components and have received vendor certification that they are Year 2000
compliant. We have also upgraded substantially all our operating systems to Year
2000 compliant system versions. We plan to complete our software Year 2000
compliance program in November 1999.

Because we are unable to control other companies' products and software, we
are not able to certify that these products and software will not suffer any
errors or malfunctions related to Year 2000. In addition, although some Year
2000 sensitive components in our internal systems may have passed internal Year
2000 compliance testing by our suppliers or vendors, we do not certify that
these materials or components will perform as tested when used in circumstances
not reflected in the testing.

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<PAGE> 30

In addition, we rely on third party network infrastructure providers to
gain access to the Internet. If these providers experience business
interruptions as a result of their failure to achieve Year 2000 compliance, our
ability to provide email services could be impaired, which could harm our
business. In particular, one of our Internet service providers has informed us
that it will be unable to certify that it has attained Year 2000 compliance
prior to December 1999.

Through September 30, 1999, we have incurred approximately $200,000 in
costs toward achieving Year 2000 compliance. We anticipate that future costs
associated with our Year 2000 remediation will not exceed $500,000. If we, our
clients, our providers of hardware or software or our third party network
providers fail to remedy any Year 2000 issues, our service could be interrupted
and we could experience a material loss of revenue that could harm our business.
Presently, we are unable to estimate the duration and extent of any interruption
or quantify the effect it may have on our future revenue. We are developing a
comprehensive contingency plan to address the effects of a failure. We plan to
complete development of this contingency plan in November 1999.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which is effective, as amended, for all fiscal quarters
of fiscal years beginning after June 15, 2000. This statement establishes
accounting and reporting standards for derivative instruments, including some
derivative instruments embedded in other contracts, and for hedging securities.
To the extent we begin to enter into these transactions in the future, we will
adopt the statement's disclosure requirements in our financial statements for
the year ending December 31, 2000.

During 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise" and the American Institute of Certified Public
Accountants issued Statement of Position No. 98-5, Reporting on the Costs of
Start-up Activities. The adoption of these pronouncements is not expected to
impact us.

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<PAGE> 31

BUSINESS

OVERVIEW

We are a leading provider of permission-based outsourced email marketing
and communications solutions. We provide a comprehensive and scalable suite of
email services which enable our clients to deliver large numbers of custom email
messages in an efficient, timely and cost-effective manner. Our primary services
consist of the distribution of email newsletters and information bulletins, as
well as the delivery of personalized order and trade confirmation messages,
which are triggered by specific transactions or events. We also serve targeted
banner advertisements within the email communications that we deliver to over
two million subscribers of Sony Music's daily email newsletters. In addition, we
are continuing to develop a wide variety of targeted messaging capabilities to
allow our clients to conduct personalized one-to-one email marketing campaigns.
Our advanced, proprietary technology allows us to deliver a large volume of
email messages for our clients. In the third quarter of 1999, we delivered over
500 million email messages for 56 companies, primarily in the media, ecommerce
and financial services industries.

INDUSTRY BACKGROUND

GROWTH OF THE INTERNET AND EMAIL

The Internet has emerged as a significant tool for global communications,
commerce and media. According to a December 1998 Jupiter Communications study,
there were over 77 million Web users in the United States at the end of 1998,
representing 28% of the United States population. This number is expected to
grow to over 131 million users by the end of 2002, representing 47% of the
United States population. The growth of the Internet is the result of a number
of factors, including the extensive and growing installed base of advanced
personal computers in the home and workplace, increasingly faster and cheaper
access to the Internet, improvements in network infrastructure and bandwidth,
development of Internet-based applications and increasingly useful content
available online. The proliferation of alternative access devices providing
Internet connectivity, including pagers and Internet capable wireline and
wireless phones, is also contributing to the increasing use of the Internet.

Email is one of the most popular applications associated with the Internet.
Increased use of the Internet has resulted in the widespread adoption of email
as a regular and dependable communications medium. Initially developed for
people working on single mainframe computers or on small networks, email has
expanded rapidly to become a widely used medium for business and personal
communications worldwide. The ability to inexpensively communicate at any time
and from any location with Internet access has resulted in the rapid increase in
email use in recent years. Continued growth in the use of email is being driven
by its convenience, speed, low cost and the ability to send increasingly large
and complex files and attachments, including documents, spreadsheets and
multimedia.

Today, email is becoming increasingly critical to business-to-consumer and
business-to-business communications. Forrester Research estimates that three
billion solicited commercial emails were sent during 1997 and predicts that 250
billion commercial emails will be sent in 2002 for both consumer and business
email users. Because email provides an immediate, targeted and inexpensive
method to reach an expanding number of online consumers, businesses are facing
increasing competitive pressure to develop comprehensive Internet and email
communications strategies. These email strategies are driving a wide range of
customer communications, including promotional messages, announcements,
confirmations, order acknowledgments, customer requested information and
one-to-one marketing initiatives.

GROWTH OF PERMISSION-BASED EMAIL MARKETING AND COMMUNICATIONS

Consumer marketing has traditionally been conducted through a variety of
media, including direct mail and telephone. The widespread adoption of the
Internet and email has enabled companies to create new direct marketing and
communications strategies to target and acquire new customers, as well as
enhance existing customer relationships. The Direct Marketing Association has
estimated that approxi-

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<PAGE> 32

mately $603 million was spent on direct marketing through the Internet in 1998
and predicts that this number will grow to $5.3 billion by 2003.

Permission-based email marketing and communications strategies are gaining
acceptance among a wide variety of businesses. In a 1999, Forrester Research
study, 70% of online retail, manufacturing and media companies surveyed
indicated that email marketing is "important" or "very important" to their sales
and marketing strategy and that 66% of such companies are using email for
promotional activities. Permission-based email marketing and communications
strategies have several advantages over traditional direct marketing methods,
including the following:

- Cost-Effectiveness -- In a 1998 study, Jupiter Communications estimated
that each email costs $0.01 to $0.25, as compared to $1.00 to $2.00 per
piece for a marketing mailing done via postal mail.

- Instantaneous Communication -- As compared to many other traditional
marketing channels, email enables significantly faster communication with
a large audience. Jupiter Communications reports that 80% of all
responses to an email campaign occur within two days, as compared to six
to eight weeks for a marketing campaign done via mail.

- Higher Response Rates -- Jupiter Communications reports that response
rates for permission-based email campaigns are generally five percent to
15%, as compared to response rates of 0.5% to five percent for
traditional direct mail marketing methods.

CHALLENGES IN IMPLEMENTING EMAIL MARKETING AND COMMUNICATIONS SOLUTIONS

Companies seeking to successfully utilize email as a channel for marketing
and communications face several challenges. Many companies attempting to develop
and manage an in-house solution to expanding and increasingly sophisticated
email systems lack the resources and expertise required to cost-effectively
launch email marketing initiatives. Businesses often find it difficult and
costly to integrate state-of-the-art technology into their infrastructure,
resulting in email marketing efforts which are defined by a company's
technological capabilities, rather than the company's strategic marketing and
communications goals. Sophisticated email marketing initiatives require
technology solutions with the following capabilities:

- sufficient bandwidth to handle peak volumes of emails;

- email content integration with selected email lists;

- inbound message management, including bounces from undeliverable
addresses and responses from recipients;

- subscriber and recipient database management, including email addresses
and demographic, transactional and behavioral data;

- applications which enable campaign management, Web-based reporting and
targeting and predictive modeling; and

- safeguards to avoid distribution of unsolicited bulk mail, or spam, and
to operate in accordance with existing governmental regulations.

The demonstrated success of the Internet and permission-based email as a
marketing and communications channel, combined with the challenges of developing
and managing in-house solutions, has led many companies to seek email
outsourcing services that can rapidly deploy large-scale marketing and
communications programs.

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<PAGE> 33

OUR SOLUTION

We offer a comprehensive suite of end-to-end outsourced email marketing and
communications solutions. Our email services provide our clients with the
following benefits:

LEADING EDGE TECHNOLOGIES

Our advanced, proprietary technologies enable us to quickly distribute
large quantities of email messages for our clients. In addition, our
technologies allow us to deliver customized messages according to user-defined
preferences or client-defined message templates which are personalized through
our mail merge technology. Our Internet-based email solutions are designed to
afford our clients choice and flexibility. Our clients are able to:

- send email messages in both text and graphically-rich HyperText Markup
Language, commonly known as HTML, formats;

- define bounce rules for handling undeliverable emails;

- select the schedule for delivery of their email communications one month
in advance;

- generate report information based on a variety of menu options and dates;
and

- create the content in subscribe and unsubscribe confirmation messages and
provide users multiple ways to subscribe and unsubscribe.

We also serve targeted advertising banners within the email newsletters
that we deliver to over two million subscribers of Sony Music's InfoBeat
newsletters, enabling Sony Music to generate advertising revenue.

HIGHLY SCALABLE AND RELIABLE SOLUTION

Our email engine delivered an average of over 7.6 million email messages
per weekday in September 1999. We have the capacity to deliver up to 25 million
email messages per day without additional hardware or infrastructure
improvements. Our system can accommodate rapid growth in the volume and
complexity of the messaging needs of our clients and is designed to be highly
reliable. We have identified single points of failure and designed redundancy
where appropriate. We maintain two separate Internet connections and have
separate routers connected to one another in the event a router fails. We do not
need to interrupt our service during maintenance periods. Automated performance
monitoring allows us to intervene promptly if required.

BROAD SUITE OF INTEGRATED EMAIL APPLICATIONS

Our comprehensive suite of email marketing and communications solutions is
designed to address all aspects of our clients' email program needs. Currently,
we send and manage email news and information bulletins as well as deliver
personalized order and trade confirmation messages triggered by specific
transactions and events. Our end-to-end solution includes email list
administration, subscription management, bounce and reply processing, logging
and reporting, customer service, content submission and a high level of account
management with availability 24 hours per day, seven days per week. In addition,
we are developing a wide variety of targeted marketing capabilities to allow our
clients to conduct one-to-one email marketing campaigns.

COST-EFFECTIVE OUTSOURCED SOLUTIONS

Compared to internally-developed solutions, our outsourcing services allow
our clients to conduct cost-effective email marketing and communications
initiatives. We offer our clients a complete turnkey solution, from professional
implementation of all required systems to 24 hours per day, seven days per week
account service. By outsourcing their email programs to us, our clients can
focus on their core business competencies rather than managing a complex email
delivery system. This reduces our clients' need to invest in complex
infrastructure, bandwidth and technical professionals.
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<PAGE> 34

SECURE DATA CAPABILITIES

To ensure protection of client data, we have established strict security
measures including multiple firewalls to prevent unauthorized sending of email,
tampering or unauthorized access to files. Our clients' data and lists are kept
confidential and we do not sell their lists or data. All data and client
interfaces are password protected and our clients oversee the permission process
for sending and scheduling capabilities to appropriate parties. We have
procedures for regular on-site and off-site back-up of client information,
including subscriber databases, reports and logging and account information.

COMPREHENSIVE SPAM POLICY

We understand that if email is used improperly, it can cause significant
harm to our own and our clients' reputations and customer relationships. It is
our policy not to send unsolicited commercial email. We assist our clients in
conducting email programs that are anti-spam compliant. Our clients are required
to represent to us that their email addresses have been obtained using
permission-based methods.

We are members of the Direct Marketing Association and the Association for
Interactive Media and serve on its Council for Responsible Email. These
associations provide us with updates of legislative activity around the country
that could affect our clients' email marketing initiatives and result in changes
to our spam policy.

STRATEGY

Our objective is to be a world leader in the delivery of permission-based
email marketing and communications services. We plan to achieve this objective
by pursuing the following strategies:

EXTEND INDUSTRY LEADING TECHNOLOGIES

We intend to further develop our technology infrastructure to increase our
email capacity, system reliability and security. Our goal is to increase our
capacity to 50 million email messages per day by the end of 1999. In addition to
expanding our capacity, we plan to continue to offer a high level of system
reliability and security by improving our redundancy and failsafe features in
our primary data center, as well as opening a second data center in another
location for disaster recovery and additional failsafe capabilities.

We are developing a unified software-based platform that will support our
entire range of services and offer our clients a consistent user interface and
single database. This will allow us to share new features and capabilities that
we develop among different products and clients. This new platform is being
designed to reduce product development and implementation time, allowing us
quicker time-to-market while spreading infrastructure costs across our various
service offerings.

BROADEN OUR SUITE OF EMAIL SERVICES

We intend to continue to offer our clients a full line of feature-rich
email marketing and communications services to meet their email needs across a
variety of applications. We are developing an advanced, targeted email marketing
solution which will allow clients to implement one-to-one email marketing
programs directed at their most profitable customers. New features that we plan
to introduce over the next 12 months include:

- Targeting and Predictive Modeling -- to give clients the ability to
perform sophisticated analyses to target potential customers based on
their profiles and on a comparison model to current buyers.

- Enhanced Personalization -- to expand capabilities across our entire
product suite to enable clients to personalize various fields within the
body of an email.

- Web-Based Reporting and Analysis -- to allow clients to more effectively
analyze results of an email campaign to determine its success.

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<PAGE> 35

- Web-Based Campaign Management -- to allow clients to easily manage their
email campaigns, including complex scheduling, database querying and
testing.

- Targeted Ad-Serving Capabilities -- to enable all of our clients to
insert targeted banner advertisements within the body of an email.

We also plan to provide professional services that complement our email
service offerings. These professional services are intended to extend our
relationships with current clients, attract new clients and allow us to
differentiate ourselves in the outsourced email services market. These services
may consist of the procurement of email lists, email program consulting and
campaign results analysis.

CONTINUE TO DEVELOP AND LEVERAGE STRATEGIC RELATIONSHIPS

In order to strengthen our market position and offer our clients additional
services, we plan to develop strategic relationships with companies that possess
complementary technical and marketing services. Through these strategic
relationships, we will undertake joint product development and marketing
efforts, such as integrating email with ecommerce applications and developing
relationships with permission-based email list partners. Potential strategic
partners include database design, ad-serving, ecommerce, secure email and
language translation companies, as well as technology service providers.

INCREASE MARKETING AND SALES EFFORTS

We intend to increase the size of our direct sales force substantially over
the next 12 to 18 months. As our sales force grows, we intend to move from our
current geographic focus to a vertical market focus, allowing our sales staff to
become experts within specific vertical markets and to offer more consultative
email marketing and communications solutions specifically tailored to each
client's individual needs. We also plan to increase our sales efforts by
developing relationships with a network of partners that are in a position to
influence their clients' marketing strategies and tactics, including advertising
agencies, marketers and systems integrators. Additionally, we plan to expand
into international markets both through the addition of a direct sales force and
by developing alliances with international partners. We intend to launch our
international expansion in the United Kingdom.

ACQUIRE NEW BUSINESSES AND TECHNOLOGIES

We intend to pursue acquisitions of businesses, products, services and
technologies that are complementary to our existing business. These may include
acquisitions of secure email solutions, permission-based lists of email
addresses, statistical analysis and consulting services, inbound email
processing capabilities and Internet ad-serving solutions. We currently have no
agreements or current negotiations regarding acquisitions.

SERVICES AND FEATURES

We provide a comprehensive suite of email services which enable our clients
to develop and send large numbers of custom email messages. Our services are
designed to offer clients a reliable, timely and cost-effective means of
communicating with their customers and prospects. Our clients can select from a
broad array of features and functions to develop email messaging solutions for a
wide range of business communication needs. We offer clients a complete turnkey
solution, from professional implementation of all required systems to 24 hours
per day, seven days per week account service. We generally charge clients on a
per message basis.

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<PAGE> 36

CURRENT SERVICES

We offer our comprehensive offering of email services to a variety of
clients, primarily in the media, ecommerce and financial services industries.
Our solutions include:

News and Information Distribution. Our services enable our clients to send
the same message to a large number of recipients or subscribers. A Web-based
interface allows our clients to input content, preview the message and approve
the message for sending. Typically, news and information distributions are sent
in response to consumer requests for information. Our clients utilize these
services to retain customers and drive traffic to their Web sites. Sample
messages under this service offering include newsletters, announcements and
welcome notices.

We currently offer a highly customized version of our news and information
distribution service to two clients, Sony Music for its InfoBeat newsletters and
Tribune Media Services for its MovieQuest service. Our service allows Sony
Music's email subscribers to select preferences from a menu or list of options
and receive only the information they have requested, thereby customizing the
news, weather and financial, entertainment and other information that they
receive via email. The MovieQuest service allows Tribune Media's subscribers to
receive weekly updates of movie listings for theatres they have selected. We are
further developing our capabilities to offer a standard customized messaging
solution that can be used by all of our clients across a range of industries and
applications.

Event-Driven Customer Communications. This service allows our clients to
send large numbers of personalized email messages that are triggered by a
specific event or transaction, such as executing an online trade or making an
online purchase. These emails have a similar format but include content that is
unique and personalized to each recipient. We create, maintain and store a
customized template for each client and use mail merge technology to insert data
from the clients into the template to create a personalized message for each
customer. These messages may be archived in a manner that meets regulatory
requirements that apply to the financial services industry. This service is
faster and less expensive than traditional mailings.

Ad-Serving Capabilities. We currently serve targeted advertising banners
within the email newsletters to subscribers of Sony Music's InfoBeat
newsletters. Our ad-serving capabilities generate additional revenue
opportunities for Sony Music, which receives advertising revenue based upon
clickthrough rates and images served as a result of the banner ads embedded
within the email messages. We are currently serving banner advertisements to
over two million subscribers of Sony Music's daily email newsletters. This
service is included in our per message price to Sony Music and does not generate
additional revenue for us. However, we intend to further develop and offer our
ad-serving services to other clients.

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<PAGE> 37

CURRENT FEATURES AND FUNCTIONS

Our current email services include a variety of standard and optional
features and functionality that can be flexibly implemented based upon the
client's preferences, including the following:

<TABLE>
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
FEATURE/FUNCTION DESCRIPTION BENEFITS
- -----------------------------------------------------------------------------------------------------------
List Management - Manages and corrects invalid - Keeps subscriber lists
email addresses accurate
- Lowers costs
- -----------------------------------------------------------------------------------------------------------
Web Interface - Using a Web interface, client - Client controls approval
can submit content, approve - Client controls scheduling
email and schedule sending - User-friendly interface
time
- -----------------------------------------------------------------------------------------------------------
Online Reporting - Using a Web interface, client - Client generates timely
can request information about reports
email sends, such as messages - Client selects time periods
delivered, bounces, click to evaluate results
throughs and mail opened
- -----------------------------------------------------------------------------------------------------------
Bounce Management - Tracks undeliverable email - Keeps subscriber lists
addresses accurate
- Lowers costs
- -----------------------------------------------------------------------------------------------------------
Inbound Reply Processing - Handles reply emails on - Timely response to customer
client's behalf emails
- Less staff required by client
- -----------------------------------------------------------------------------------------------------------
Content Archiving - All content is stored at - Ability to recreate email
Exactis.com distributions
- Less storage space required
at client site
- -----------------------------------------------------------------------------------------------------------
Personalization - Ability to personalize email - Personalized to each customer
content using customer data - Higher response rates
and template
- -----------------------------------------------------------------------------------------------------------
Clickthrough Reporting - Ability to determine which - Tracking of customer response
customers clicked on specific
URLs in the email
- -----------------------------------------------------------------------------------------------------------
Open Mail Reporting - Ability, for HyperText Markup - Tracking of customer response
Language emails, to determine
which customers opened the
email
- -----------------------------------------------------------------------------------------------------------
Attachments - Ability to send an attachment - Client can send more custom-
with the email ized information
- -----------------------------------------------------------------------------------------------------------
</TABLE>

PLANNED TARGETED MARKETING SERVICES

We are developing a system to enable targeted marketing initiatives across
a wide range of industries. Our system is designed to enable our clients to
communicate with their customers through targeted and personalized
communications based on selected demographics, purchase behavior or other
characteristics. Under this planned service, we would host the client's customer
database, perform database queries and evaluate the effectiveness of each email
marketing campaign. We also plan to offer clients access to a Web-based
interface to perform these querying and analysis activities on their own.
Targeted email uses templates and the client's database to merge customer
specific information with messages or content similar to a segmented direct mail
program, allowing us to send personalized messages based on the name, purchase
behavior, demographic profile or any other attribute of an individual customer.
We believe that our database querying and targeting capabilities will result in:

- more cost-effective direct marketing efforts due to improved customer
response rates;

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<PAGE> 38

- immediate feedback;

- reporting and measurability features; and

- one-to-one customer communication capabilities.

PLANNED FEATURES AND FUNCTIONS

In addition to our planned targeted marketing capabilities, we are
developing a number of other standard and optional features, including the
following:

<TABLE>
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
FEATURE/FUNCTION DESCRIPTION BENEFITS
- -----------------------------------------------------------------------------------------------------------
Format Identification - Ability to determine in which - HyperText Markup Language
format (HyperText Markup emails receive higher
Language or text) an email response rates, but not all
should be sent browsers can read them
- -----------------------------------------------------------------------------------------------------------
Flexible Scheduling - Ability to send unscheduled - Clients can react to market
email notices demands
- Database can be maintained by
client
- -----------------------------------------------------------------------------------------------------------
Alternate Content Submission - Client can send content via - Flexible for client
email, Web or user interface
- -----------------------------------------------------------------------------------------------------------
Enhanced Personalization - Ability to personalize email - More personalized messages
content based on demographics - Higher response rates
and response history
- -----------------------------------------------------------------------------------------------------------
Expanded Database - Ability to store demographic - Segmentation of customers for
and response information varying offers
about each customer
- -----------------------------------------------------------------------------------------------------------
Triggered Scheduling - Ability to schedule emails - Automates sending
based on factors such as capabilities
birthday or last purchase
date
- -----------------------------------------------------------------------------------------------------------
Database Synchronization - Ability to transport and syn- - Flexibility in database
chronize databases between management and hosting
Exactis.com and client
- -----------------------------------------------------------------------------------------------------------
Advanced Response Analysis and - Ability to analyze campaign - Tracking and analysis of cus-
Reporting results tomer response
- -----------------------------------------------------------------------------------------------------------
Customized Content - Customer can select from a - Content is more relevant to
menu of content/information customer who is then more
they wish to receive in one likely to read the message
email
- -----------------------------------------------------------------------------------------------------------
Secure Email - Ability to send encrypted - Clients can send confidential
email messages that can only be or sensitive information to
read by the intended their customers
recipient - Lowers cost by replacing
paper mail
- -----------------------------------------------------------------------------------------------------------
Ad Serving - Ability to insert banner ads - Generates revenue for client
within email messages
- -----------------------------------------------------------------------------------------------------------
</TABLE>

We are actively engaged in the design and development of all these planned
features and functions and plan to introduce them over the next 12 months.

The statements in this prospectus regarding planned service offerings and
anticipated features and functions of such planned service offerings are
forward-looking statements. Actual service offerings and

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<PAGE> 39

benefits could differ materially from those projected as a result of a variety
of factors, some or all of which may be out of our control. For a discussion of
these factors, see "Risk Factors."

CUSTOMERS

To date, we have provided our services to clients primarily in the media,
ecommerce and financial services industries. We have focused on these market
segments as a result of their email volume potential, range of email needs and
acceptance of email marketing and communications solutions. The following is a
list of substantially all of our current clients:

4anything.com
Activision
Advance Internet Services
Affinia
American Express Company
BBDO Worldwide
ChannelSeven.com
Charles Schwab & Co.
Chipcenter
Client Logic
CMPnet
Consumer Net Marketplace
Covad Communications
Creative Planet
The Daily Deal
Digital Work
DoubleDay
The Economist Newspaper
Egreetings.com
ePhysician.com
The Financial Times
First Source Bancorp.
First Union Corporation
Forbes, Inc.
KBKids.com
Last Minute Network Limited
Law News Network
Microsoft Web events
MSNBC Interactive News
News America Digital Publishing
Network Publishing
Organic Media
Princessnet
Research Systems, Inc.
Sage Online
Silicon Alley Reporter
Slate Magazine
Sony Music
Spinner.com
Sterling-Rice Group
Strong Funds
TheStreet.com
theWhiz.com
Tribune Media Services
USAToday.com
Wired
Worldly Investor
World Wrestling Federation

In the quarter ended September 30, 1999, the clients listed above accounted
for over 99% of our total revenue. Of this amount, Sony Music accounted for
approximately 64% of our total revenue, Charles Schwab accounted for
approximately 9% of our total revenue and Egreetings.com and MSNBC Interactive
News each accounted for approximately three percent of our revenue. The
remaining clients each accounted for less than three percent of our total
revenue in the quarter ended September 30, 1999. We expect that a small number
of clients will continue to account for a high percentage of our total revenue
for the foreseeable future.

MARKETING AND SALES

MARKETING STRATEGY

The key components of our marketing strategy are to:

- continue to develop our reputation as an industry leader;

- build brand awareness; and

- aggressively generate sales leads.

We employ a number of marketing methods to promote our brand and
reputation, as well as to generate leads for our sales organization. Our
marketing methods include media relations, press releases,

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<PAGE> 40

magazine and newspaper advertisements, speaking engagements and attendance at
trade shows and seminars. We also use our Web site to build our image and to
provide information about our services, technology and organization to potential
clients. We are scheduled to have a presence at more than ten national
conferences and trade shows during 1999, including Jupiter Consumer Online,
@Travel and Online Retail, as well as Internet World in London. We are
implementing an aggressive lead generation program using direct marketing
campaigns to key decision makers within specific targeted markets, including
ecommerce, media and financial services companies.

SALES STRATEGY

Through our direct sales force, we have historically targeted the media,
ecommerce and financial services segments. Currently, our sales force is
geographically focused, with sales representatives covering a particular region.
As our sales force grows, we intend to move to a vertical market focus, allowing
our sales staff to become experts within specific vertical markets and to offer
more consultative email marketing and communications solutions specifically
tailored to each client's individual needs.

As of September 30, 1999, we had six sales professionals in our direct
sales force located in California, Colorado, Boston and New York. We plan to
significantly expand this group in the next 12 months and add an international
sales office in London, England. In addition to the sales professionals, as of
September 30, 1999, we had three sales engineers and one lead generation
associate who support potential clients and the sales process.

CUSTOMER SERVICE AND ACCOUNT MANAGEMENT

We offer a high level of customer service and account management to our
clients and to their customers. As of September 30, 1999, we employed seven
customer service representatives who handle all incoming responses via email.
Typical responses include subscribing, unsubscribing, format changes and report
requests. In many cases, we utilize an automated response tool to respond
without human intervention. Our customer service representatives attempt to
handle all responses within 24 hours of receipt.

In addition to our customer service representatives, as of September 30,
1999, we employed eight account managers who oversee the day-to-day
relationships with our clients. Account managers are available 24 hours per day,
seven days per week. As the clients' primary point of contact, our account
managers are responsible for providing day-to-day operational support through
regular client interactions. Automated monitoring tools inform the account
manager and operations staff of the status of client mailings.

STRATEGIC RELATIONSHIPS

We seek to enter into strategic relationships to expand our services and
product offerings and to undertake joint product development and marketing
efforts. Our existing strategic relationships include Sony Music and E.piphany.

SONY MUSIC

In connection with the sale of our online publishing business to Sony Music
Entertainment in December 1998, we entered into a long-term strategic
relationship under which we provide the editorial services, content and
technical operations for the InfoBeat newsletters and deliver more than 5.0
million InfoBeat newsletters per weekday. Subscribers can choose from a menu of
preferences to customize the news, weather, financial, entertainment and other
information that they receive via email. Additionally, we provide Sony Music
with customer support and database management services and host and maintain Web
sites on our servers related to the delivery of the services.

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<PAGE> 41

In early 1999, we worked with Sony Music to develop InfoBeat Entertainment,
which is comprised of the following services:

- InfoBeat Music -- a comprehensive source for music news, including
concert and album information and artist updates.

- InfoBeat Movies -- movie news and new video and movie releases.

- TV News -- a behind-the-scenes look at television features, soap opera
updates and special television events.

- Entertainment Express -- entertainment news, Hollywood gossip, horoscopes
and lotteries.

Our service agreement with Sony Music has a three-year term and Sony Music
may, at its sole option, renew the agreement for up to two additional years. In
addition, the agreement may be terminated early under certain circumstances upon
60 days written notice by either party. We will recognize minimum revenue of
$14.8 million during the initial three year term for sending a base amount of
email messages each quarter. We are also entitled to a monthly editorial fee, a
variable per message fee for each email message we send in excess of the base
amount and an hourly fee for requested custom engineering development work.

E.PIPHANY

In March 1999, we entered into an agreement with E.piphany, a leader in
software solutions for analysis of customer data and marketing campaign
management. Under the agreement, we will offer E.piphany E.4 analytic
applications as part of the highly targeted email marketing solution we are
currently developing. Our agreement with E.piphany includes a perpetual software
license and specified pricing terms and conditions. Once integrated with our
email system, E.piphany's E.4 solutions will enable our clients to develop and
implement highly-targeted business-to-consumer relationships via email.
E.piphany's E.4 solutions assist clients to quickly profile customers and design
and execute customer-specific marketing campaigns, measure results and refine
future campaigns based on those results. We believe that the combination of
E.piphany's solutions with our technologies and expertise will enable our
clients to precisely target their marketing efforts to appropriate audiences and
deliver relevant, personalized information in each email message in a timely and
cost-effective manner.

TECHNOLOGY

ARCHITECTURE

Our technology infrastructure has been designed to achieve reliable,
scalable and secure operations. We currently process between six and ten million
messages per day and plan to expand our data center to support 50 million
messages per day by the end of 1999. Our technology is based on a distributed
architecture utilizing Sun Microsystems processor systems and servers, Intel
processor based servers, Cisco Systems routers and Oracle databases. Our system
is designed to enable parallel processing while providing redundancy at any
point of failure. Our current software environment is primarily UNIX and Linux
based.

Our distributed architecture manages outbound and inbound message flow
which enables us to scale rapidly by adding additional servers to assemble and
deliver email. All of the system functions may be replicated, enabling the
network to expand for additional functionality and volume growth.

DATA CENTER AND NETWORK ACCESS

Our principal data facility is located in Denver, Colorado. Our data center
has a high-speed connection to two Internet service providers to allow
high-bandwidth access to the Internet. We operate separate production, test and
development networks. The test and development networks have the same hardware
and software environment as our production network, which enables us to develop
and fully test our services prior to putting any upgrades, enhancements or fixes
into our production system.

We plan to relocate our data center operations to a new data center located
in Denver, Colorado in the first quarter of 2000. The new data center will have
two separate high-speed connections to our
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<PAGE> 42

Internet service providers to prevent a loss of connectivity and will provide
the environment necessary to support our planned increase in messaging capacity.
In addition, the new center will feature redundant systems for power, cooling,
fire protection and security surveillance 24 hours per day, seven days per week
by both personnel and video monitors.

NETWORK SECURITY

We seek to assure network security through multiple firewalls. External
firewalls operate at the network link layer and a second layer of firewalls
separates every public network from its companion private network.

OFFSITE DISASTER RECOVERY

We are in the process of establishing an offsite disaster recovery facility
which will be located in an existing data center in Sunnyvale, California. We
expect that this facility will be operational in November 1999. Initially, this
data center will act solely as a recovery site which can be operational within
twenty four hours of a service interruption at our principal facility. By March
2000, this center will receive continuous data feeds from our principal facility
and be able to convert to sending mode within 30 minutes of any service
interruption at our principal facility. Ultimately, we plan to expand this
facility into a full production center.

NEW SERVICE DEVELOPMENT

Our ability to design, develop, test and support new services, features and
functions on a timely basis is critical to our success. Our product managers
define new service and feature requirements by analyzing market trends, client
needs and competitive offerings. Under the supervision of the product manager, a
team creates a design and specifications document, development schedule and
ultimately a new service or feature.

We cannot assure you that we will be successful in developing and marketing
new services and enhancements that meet changing customer needs or which respond
to technology changes or evolving industry standards. Our current services are
compatible with widely-used and accepted standards. Current and future use of
our services will depend, in part, on industry acceptance of these standards and
practices as they apply to the Internet and ecommerce.

COMPETITION

The email marketing industry is intensely competitive. There are few
barriers to entry, as evidenced by the many new entrants to the market over the
last year, and we expect that established and new entities will continue to
enter the market. We cannot assure you that we will compete effectively with
current or future competitors or that competitive pressures will not harm our
business, operating results and financial condition.

We offer clients a combination of both scalability and functionality. Our
email engine allows us to send large volumes of complex email messages within
client-defined time frames. Our ability to compete depends upon our ability to
offer:

- technical expertise;

- scalability;

- consistent and reliable service;

- features and functionality;

- full service solutions; and

- direct marketing expertise.

The majority of businesses today use their internal email systems to
provide solutions to manage and deliver outbound email campaigns. For companies
seeking outsourced solutions, we compete with email outsourcing companies that
offer services similar to ours, including email distribution, list management,
reporting and bounce processing. In addition, several of these competitors offer
email consulting and

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<PAGE> 43

campaign analysis. Key competitors in this category include Bigfoot
International, Digital Impact, InterStep, L-Soft international, Lyris
Technologies, MarketHome, Media Synergy, MessageMedia, Post Communications and
Responsys.com. Many of these competitors, such as L-Soft, Lyris and
MessageMedia, also offer customers the choice of purchasing or licensing
software to internally handle their own email marketing programs. Other email
outsourcing companies that specialize in corporate email management, including
Critical Path, Mail.com and USA.Net, have the technical capabilities and
infrastructure to enter our market.

Several competitors maintain and rent permission-based email lists that
identify customers by certain interest categories or demographic areas. Clients
pay the list brokers a one-time use fee that includes sending the email to the
customer and tracking results. Competitors in this category include MatchLogic,
MyPoints.com, NetCreations and yesmail.com. Clients must currently use the email
sending service provided by the list broker to reach the end-customer.

There are several other potential competitors that could enter the email
marketing and communications industry, including direct marketing companies,
Internet service providers, Internet ad networks, advertising agencies and
others with large established Internet businesses. Potential competitors include
America Online, Acxiom, DoubleClick, Experian Information Solutions, Harte-Hanks
Communications, IBM, Microsoft and Netscape Communications. Large Internet
portals, such as Yahoo!, also have the financial resources and technical
capabilities to enter this market. Email communication offers Internet portals a
powerful tool to build customer loyalty while driving traffic to their Web site.
These potential competitors could enter the market by acquiring one of our
existing competitors or by forming strategic alliances with our competitors.
Either of these occurrences could harm our ability to compete effectively.

INTELLECTUAL PROPERTY

We regard our copyrights, service marks, trademarks, trade secrets and
similar intellectual property as critical to our success and rely on trademark
and copyright law, trade secret protection and confidentiality and/or license
agreements with our employees, customers, partners and others to protect our
proprietary rights. We have no service marks and only one registered trademark
to date; however, we have several applications currently pending. It may be
possible for unauthorized third parties to copy certain portions of our products
or reverse engineer to obtain and use information that we regard as proprietary.
Certain end-user license provisions protecting against unauthorized use may be
unenforceable under the laws of certain jurisdictions and foreign countries. We
have two patents that have been issued and two patents pending in the United
States. We do not know whether these pending patents will be issued or, if
issued, that the patents will not be challenged or invalidated. In addition, the
laws of some foreign countries do not protect proprietary rights to the same
extent as do the laws of the United States. We cannot assure you that our means
of protecting our proprietary rights in the United States or abroad will be
adequate or that competing companies will not independently develop similar
technology.

We also strategically license certain technology from third parties,
including E.piphany and the Accipter Ad-Manager product from Engage
Technologies, Inc. In the future, if we add certificate technology to our
systems, we may license additional technology from third-party vendors. We
cannot be certain that these third-party content licenses will be available to
us on commercially reasonable terms or at all or that we will be able to
successfully integrate the technology into our products and services. These
third-party content licenses may expose us to increased risks, including risks
associated with the assimilation of new technology, the diversion of resources
from the development of our own proprietary technology and our inability to
generate revenues from new technology sufficient to offset associated
acquisition and maintenance costs. The inability to obtain any of these licenses
could result in delays in product and service development until equivalent
technology can be identified, licensed and integrated. Any delays in services
could cause our business, financial condition and operating results to suffer.

We have also been subject, and may be subject in the future, to claims
alleging that we have infringed third party proprietary rights. We are not
currently subject to any material claims alleging the infringement of third
party proprietary rights. If we were to discover that any of our services
infringed third

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<PAGE> 44

party rights, we may not be able to obtain permission to use those rights on
commercially reasonable terms. This may require us to expend significant
resources to make our services non-infringing or to discontinue the use of our
services. We might incur substantial costs defending against an infringement
claim, even if the claim is invalid. If we have to defend against an
infringement claim, it could distract our management from our business. Further,
a party making a claim could secure a judgment that requires us to pay
substantial damages or that prevents us from using or selling our products and
services. Any of these events could harm our business, financial condition and
operating results. Our success depends significantly on our proprietary
technology.

GOVERNMENT REGULATION

As the Internet continues to evolve, we expect that federal, state or
foreign agencies will adopt regulations covering such issues as user privacy,
pricing, content and quality of products and services. A number of legislative
and regulatory proposals are currently under consideration by federal and state
lawmakers and regulatory bodies and may be adopted with respect to the Internet.
In particular, a number of states have already passed statutes prohibiting
unsolicited commercial email, or spam. A number of statutes have also been
introduced in Congress and state legislatures to impose penalties for sending
unsolicited emails which, if passed, could impose additional restrictions on our
business. In addition, a California court recently held that unsolicited email
distribution is actionable as an illegal trespass for which the sender could be
subject for monetary damages.

The adoption of any such laws or regulations may decrease the growth of the
Internet, which could in turn decrease the projected demand for email services
or increase our cost of doing business. The applicability to the Internet of
existing United States and international laws governing issues such as property
ownership, copyright, trade secret, libel, taxation and personal privacy is
uncertain and developing and may take years to resolve.

Any new legislation or regulation, or application or interpretation of
existing laws, could harm our business, operating results and financial
condition. Additionally, because we expect to expand our operations outside the
United States, the international regulatory environment relating to the Internet
could harm our business, operating results and financial condition.

EMPLOYEES

As of September 30, 1999, we employed 120 people, all of whom were
full-time. The 120 employees included 12 in general and administrative
functions, 22 in operations, 33 in development and testing, 21 in sales and
marketing, 15 in customer service/account management, 15 editors and two
Sony/InfoBeat sales persons. Employees are not represented by a labor union or
covered by any collective bargaining agreements. We consider our employee
relations to be good.

FACILITIES

Our principal executive offices are located in 20,281 square feet of space
in Denver, Colorado under a lease expiring on December 31, 2001. We also lease
14,653 square feet of additional space in Denver, Colorado on a month-to-month
basis. We plan to relocate our data center and principal executive offices in
the first quarter of 2000. We have identified a site for our relocation but have
not yet executed a lease agreement for this space. Assuming that we are able to
secure a lease for the site we have identified, we believe that our facilities
will be adequate for our needs for at least the next 12 months. However, we may
be unable to lease the additional space that we require on commercially
reasonable terms or at all.

LEGAL PROCEEDINGS

From time to time, we are subject to legal proceedings arising out of our
operations. We are not currently a party to any material legal proceedings.

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<PAGE> 45

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

Our executive officers and directors are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION WITH US
- ---- --- ----------------
<S> <C> <C>
E. Thomas Detmer, Jr. .................... 45 Chief Executive Officer, President and
Director
Kenneth W. Edwards, Jr. .................. 39 Chief Financial Officer, Secretary and
Treasurer
Cynthia L. Brown.......................... 40 Vice President of Engineering
Michael J. Rosol.......................... 39 Vice President of Sales
Gregory B. Schneider...................... 38 Vice President of Marketing and Business
Development
Adam Goldman(1)........................... 38 Chairman of the Board of Directors
Pierric D. Beckert(2)..................... 32 Director
Linda Fayne Levinson(1)................... 57 Director
David D. Williams(2)...................... 52 Director
</TABLE>

- ---------------

(1) Member of the Audit Committee

(2) Member of the Compensation Committee

E. Thomas Detmer, Jr. has served as our president and chief executive
officer since January 1999 and as a director since July 1996. From March 1998 to
January 1999, Mr. Detmer served as the president of BehaviorBank/Atlantes, a
division of Experian, Inc., a provider of consumer information solutions to
businesses. In September 1991, Mr. Detmer founded Atlantes Corporation, a
consumer database marketing company, which was acquired by Metromail Company in
July 1997. Metromail was acquired by Experian in March 1998. Prior to Atlantes,
Mr. Detmer founded and served as president of the publishing division of
Telelink Systems, Inc., a telemarketing company. Additionally, Mr. Detmer spent
ten years with National Demographics and Lifestyles, a consumer information
management and resale company. He holds a B.A. from Williams College and an
M.B.A. from the University of Denver.

Kenneth W. Edwards, Jr. has served as our chief financial officer,
secretary and treasurer since March 1999. From March 1998 to March 1999, Mr.
Edwards served as corporate controller and director of business operations for
Atlantes, a division of Experian, a provider of consumer information solutions
to businesses. In January 1994, Mr. Edwards joined Atlantes Corporation, a
consumer database marketing company, as corporate controller. Atlantes was
acquired by Metromail Company in July 1997, which was acquired by Experian in
1998. From March 1988 to September 1993, Mr. Edwards served as controller for CT
Publications Corp., a privately-held magazine publishing company. He also
co-founded and served as a partner with Cordovano and Company, Certified Public
Accountants. Mr. Edwards holds a B.S. from Metropolitan State College of Denver.

Cynthia L. Brown has served as our vice president of engineering since June
1999. From September 1997 to May 1999, Ms. Brown served as a founding partner of
Anova Partners, a management consulting firm specializing in technology and
Internet-based companies. From June 1993 to August 1997, Ms. Brown was the
president and chief operating officer of System One Technical Incorporated, a
software vendor company, prior to its merger with MC Health Care Holdings. From
June 1983 to May 1993, Ms. Brown held various positions with Tandem
Telecommunications, a subsidiary of Tandem Computers Inc. and Applied
Communications, Inc. From June 1981 to May 1983, Ms. Brown was employed by Data
General Corporation, a computer storage company, as a systems engineer. Ms.
Brown holds a B.A. from Park College in Kansas City, Missouri.

Michael J. Rosol has served as our vice president of sales since May 1998.
From August 1996 to May 1998, he served as senior account executive for SCC
Communications Corp., a provider of 911 emergency services and
telecommunications technology systems. From September 1995 to July 1996, Mr.
Rosol served as the vice president of sales for Datasonix Corporation, a
portable storage device

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<PAGE> 46

company. From March 1991 to September 1995, he was the director of North
American Sales for XVT Software Inc, a manufacturer of cross-platform
development tools. Mr. Rosol holds a B.A. and an M.S. from the University of
Colorado, Boulder.

Gregory B. Schneider has served as our vice president of marketing and
business development since February 1997. From August 1989 to February 1997, he
held various marketing positions in product management, market development and
business planning with Hewlett-Packard Company. Mr. Schneider holds a B.A. from
Santa Clara University and an M.B.A. from the J.L. Kellogg Graduate School of
Management at Northwestern University.

Adam Goldman has served as a director since March 1996 and as chairman of
the board since January 1999. Mr. Goldman is a general partner of Centennial
Fund IV, LP and Centennial Fund V, LP, and is a managing principal of Centennial
Fund VI, LLC. The Centennial Funds manage over $700 million in private equity
and specialize in communication, media and technology investments. Mr. Goldman
also serves as a senior vice president of Centennial Holdings, Inc., a venture
capital investment company, which he joined in 1992. Mr. Goldman received a B.A.
from Northwestern University and an M.M. from the J.L. Kellogg Graduate School
of Management at Northwestern University.

Pierric D. Beckert has served as a director since August 1999. Since
January 1998, Mr. Beckert has served as vice president of Interactive Enterprise
Development, a division of American Express Relationship Services and part of
American Express Travel Related Services Company, Inc., where he is responsible
for developing the global American Express Interactive strategy, as well as all
strategic equity investments in interactive companies. From August 1996 to
December 1998, Mr. Beckert served as the director of Interactive New Business
Development within American Express Relationship Services. From 1994 to 1996,
Mr. Beckert was a director of the Customer Information Management group within
American Express Travel Related Services. Mr. Beckert received an M.A. from the
Ecole Nationale de la Statistique et de l'Administration Economique.

Linda Fayne Levinson has served as a director since July 1998. Since April
1997, Ms. Levinson has served as a principal of Global Retail Partners, L.P., a
private equity investment fund. From 1994 to 1997, she served as the president
of Fayne Levinson Associates, a senior management consulting firm. During 1993,
Ms. Levinson served as an executive at Creative Arts Agency, Inc., a talent
agency. Prior to that, Ms. Levinson was a partner at Alfred Checchi Associates,
Inc., a merchant banking firm; a senior vice president of American Express
Travel related Services Company, Inc.; and a partner at McKinsey & Co., a global
consulting firm. She is a director of NCR Corporation, Administaff, Inc., Jacobs
Engineering Group Inc., GoTo.com, Inc. and CyberSource, Inc. Ms. Levinson
received an A.B. from Barnard College, an M.A from Harvard University and an
M.B.A. from New York University.

David D. Williams has served as a director since December 1996. Since
December 1991, Mr. Williams has served as president and chief executive officer
of Tribune Media Services, Inc., a creator and marketer of editorial and
advertising content for multiple media distribution. From July 1990 to November
1991, Mr. Williams served as the executive vice president and chief operating
officer of Tribune Media Services. Prior to joining Tribune Media Services, Mr.
Williams held various advertising and marketing positions at the Chicago
Tribune. Mr. Williams is a director of the Newspaper Features Council. He
received a B.A. from Michigan State University.

CLASSIFIED BOARD OF DIRECTORS

We currently have five directors. In August 1999 and November 1999, our
board of directors and stockholders, respectively, approved our restated
certificate of incorporation. Among other things, our restated certificate of
incorporation provides for a classified board of directors. The restated
certificate of incorporation states that the terms of office of the board of
directors will be divided into three classes:

- class I, whose term will expire at the annual meeting of stockholders to
be held in 2000;

- class II, whose term will expire at the annual meeting of stockholders to
be held in 2001; and
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<PAGE> 47

- class III, whose term will expire at the annual meeting of stockholders
to be held in 2002. At each annual meeting of stockholders beginning with
the 2000 annual meeting, the successors to directors whose terms expire
will be elected to serve from the time of election and qualification
until the third annual meeting following election and until their
successors have been elected.

BOARD COMMITTEES

AUDIT COMMITTEE. Our audit committee consists of Mr. Goldman and Ms.
Levinson. The audit committee makes recommendations to the board of directors
regarding the selection of independent auditors, reviews the results and scope
of the audit and other services provided by our independent auditors and
evaluates our internal accounting procedures.

COMPENSATION COMMITTEE. Our compensation committee consists of Mr. Beckert
and Mr. Williams. The compensation committee reviews and approves compensation
and benefits for our executive officers. The compensation committee also
administers our compensation and stock plans and makes recommendations to the
board of directors regarding such matters.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. No member of
the compensation committee has been an officer or employee of Exactis.com at any
time. None of our executive officers serves as a member of the board of
directors or compensation committee of any other company that has one or more
executive officers serving as a member of our board of directors or compensation
committee.

DIRECTOR COMPENSATION

Other than reimbursing directors for customary and reasonable expenses
incurred in attending board of directors and committee meetings, we do not
currently compensate our directors.

EXECUTIVE COMPENSATION

The following table sets forth all compensation received during 1998 by our
former chief executive officer and our other former executive officers whose
annual salary and bonus exceeded $100,000 for services rendered in all
capacities to us during 1998.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
---------------- ---------------------
SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION
- --------------------------- -------- ----- --------------------- ------------
<S> <C> <C> <C> <C>
John T. Funk,
Former Chairman of the Board of Directors.......... $159,712 -- -- --
Raymond H. Van Wagener, Jr.
Former President and Chief Executive Officer..... 125,000 -- 40,000 --
Eric R. Belcher
Former Vice President of Retail Sales............ 213,360 -- 40,000 $7,200
Craig M. Deans
Former Vice President of Engineering............. 119,034 -- 16,666 --
</TABLE>

Mr. Funk served as our chairman of the board from January 1997 to January
1999. Mr. Van Wagener served as our president and chief executive officer from
February 1997 to January 1999. Mr. Belcher currently serves as a retail sales
consultant for the InfoBeat newsletters and served as our vice president of
retail sales from June 1997 to December 1998. Mr. Deans served as our vice
president of engineering from April 1997 to September 1998.

The amount reflected in the "All Other Compensation" column of the
foregoing table represents the amount allocated for an automobile allowance.

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<PAGE> 48

OPTION GRANTS IN 1998

The following table sets forth information regarding options granted to the
executive officers listed in the Summary Compensation table during 1998.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL RATES
PERCENT OF OF STOCK PRICE
TOTAL OPTIONS APPRECIATION
NUMBER OF GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE ---------------------
NAME GRANTED 1998 ($/SHARE) EXPIRATION DATE 5% 10%
- ---- --------- ------------- --------- --------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
John T. Funk.......... -- -- -- -- -- --
Raymond H.
Van Wagener, Jr. ... 40,000 7.8% $3.40 April 1, 2008 $ 85,530 $216,749
Eric R. Belcher....... -- -- -- -- -- --
Craig M. Deans........ 16,666 3.2 4.32 August 21, 2001 11,349 23,831
</TABLE>

The percent of total options granted to employees in the above table is
based on 513,065 total options granted in 1998. Our board of directors may
reprice options under the terms of our stock option plans.

Options were granted at an exercise price equal to the fair market value of
our common stock, as determined by our board of directors on the date of grant.
In making this determination, the board of directors considered a number of
factors, including:

- our historical and prospective future revenue and profitability;

- our cash balance and rate of cash consumption;

- the development and size of the market for our services;

- the status of our financing activities;

- the stability of our management team; and

- the breadth of our service offerings.

The amounts reflected in the "Potential Realizable Value" column of the
foregoing table are calculated assuming that the fair market value of the common
stock on the date of the grant as determined by the board of directors
appreciates at the indicated annual rate compounded annually for the entire term
of the option, and that the option is exercised and the common stock received
therefor is sold on the last day of the term of the option for the appreciated
price. The five percent and ten percent rates of appreciation are mandated by
the rules of the Securities and Exchange Commission and do not represent our
estimate or projection of future increases in the price of the common stock.

1998 OPTION EXERCISES AND YEAR-END OPTION VALUES

The following table sets forth information concerning the number and value
of unexercised options held by each of the executive officers listed in the
Summary Compensation table at December 31, 1998. None of these executive
officers exercised options to purchase common stock in 1998.

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT DECEMBER 31, 1998 DECEMBER 31, 1998
ACQUIRED ON VALUE ---------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John T. Funk.............. -- -- -- -- -- --
Raymond H. Van Wagener,
Jr. .................... -- -- 149,568 115,432 $186,767 $147,033
Eric R. Belcher........... -- -- 13,333 26,667 17,600 35,201
Craig M. Deans............ -- -- 16,666 -- -- --
</TABLE>

In the table above, the value of the unexercised in-the-money options is
based on the fair market value of our common stock as of December 31, 1998
(determined by the board of directors in the manner

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<PAGE> 49

discussed above to be $4.32 per share), minus the per share exercise price,
multiplied by the number of shares underlying the option. The options granted to
Mr. Van Wagener expired prior to being exercised.

401(k) Plan

Our employees are eligible to participate in our 401(k) plan. Under our
401(k) plan, employees may elect to reduce their current compensation by up to
the lesser of 15% of eligible compensation or the statutorily prescribed annual
limit, which was $10,000 in 1998. Employees may contribute this amount to the
401(k) plan. Employees direct the investment of the assets of the 401(k) plan in
up to 13 different investment funds. The 401(k) plan is intended to qualify
under Section 401 of the Internal Revenue Code so that contributions by
employees to the 401(k) plan, and income earned on plan contributions, are not
taxable to employees until withdrawn, and so that the contributions by employees
will be deductible when made. An employee becomes eligible for the matching
contribution only if he or she makes a pretax contribution. We may make
discretionary matching contributions to the 401(k) plan. Additionally, we may
make annual discretionary profit sharing contributions in amounts to be
determined annually by the board of directors. Since the 401(k) plan's
inception, we have made no matching or profit sharing contributions.

STOCK PLANS

1996 STOCK OPTION PLAN

Our 1996 stock option plan was adopted by the board of directors and
approved by the stockholders on February 1, 1996. No further options will be
granted under the 1996 plan. Options currently outstanding under the 1996 plan
will continue in full force and effect under the terms of the 1996 plan until
such outstanding options are exercised or terminated in accordance with their
terms.

As of September 30, 1999, we had granted options under the 1996 plan to
purchase an aggregate of approximately 703,143 shares of common stock, of which
options to purchase approximately 35,566 shares had been exercised, options to
purchase approximately 589,913 shares had been cancelled (due to expiration or
otherwise) and options to purchase approximately 77,664 shares at a weighted
average exercise price of approximately $1.25 per share remained outstanding.

The 1996 plan provides for the grant of incentive stock options under the
Internal Revenue Code to employees and nonstatutory stock options to employees
and consultants (including non-employee directors).

An incentive stock option is a stock option that has met the requirements
of Section 422 of the Internal Revenue Code. It is free from regular tax at both
the date of grant and the date of exercise. If two holding period tests are met
(two years between grant date and sale date and one year between exercise date
and sale date), the profit on the option is long-term capital gain income. If
the holding periods are not met, there has been a disqualifying disposition, and
the difference between the exercise price and the fair market value of the
shares on the exercise date will be taxed at ordinary income rates. The
difference between the fair market value on the date of exercise and the
exercise price is an item of alternative minimum tax unless there is a
disqualifying disposition in the year of exercise.

A nonstatutory stock option is a stock option that does not meet the
Internal Revenue Code criteria for qualifying incentive stock options and,
therefore, triggers a tax upon exercise. This type of option requires payment of
state and federal income tax on the difference between the exercise price and
the fair market value on the exercise date.

The 1996 plan is administered by the board or a committee appointed by the
board which determines recipients and types of awards to be granted, including
the exercise price, number of shares subject to the award and the exercisability
thereof.

The terms of stock options granted under the 1996 plan generally may not
exceed ten years. The exercise price of options granted under the 1996 plan is
determined by the board, provided that the exercise price of an incentive stock
option cannot be less than 100% of the fair market value of the

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<PAGE> 50

common stock on the date of the option grant. Options granted under the 1996
plan vest over four years or at a rate set by the board. No incentive stock
option may be transferred by the optionee other than by will or the laws of
descent or distribution. A nonstatutory stock option will only be transferable
by will or by the laws of descent and distribution or as otherwise specified by
the board.

An optionee whose relationship with us ceases due to termination by us
other than by death or permanent and total disability or for cause may exercise
vested options in the three-month period following cessation unless the options
terminate or expire sooner by their terms. If we terminate an optionee's
relationship for cause, all options held by the optionee immediately terminate.
If an optionee terminates his or her relationship with us in order to accept
employment with any entity engaged in the business of providing information
services via electronic means, all options held by optionee will immediately
terminate. Vested options may be exercised for up to 12 months after termination
due to death or disability unless the options terminate or expire sooner by
their terms.

All options outstanding under the 1996 plan will immediately vest and
become exercisable upon consummation of this offering or upon the acquisition of
all or substantially all of our assets or in which 40% or more of our
outstanding shares are acquired by a single person or entity or an affiliated
group of persons or entities.

Upon acquisition, we have the option, but not the obligation, to cancel
options outstanding as of the effective date of acquisition, whether or not such
options are then exercisable, in return for payment to the optionees of an
amount equal to the difference between the net amount per share payable as a
result of the acquisition, less the exercise price of the option. For this
purpose, an acquisition means any transaction in which substantially all of our
assets are acquired or in which more than 50% of our outstanding shares are
acquired in each case by a single person or entity or an affiliated group of
persons and/or entities.

Our dissolution or a liquidation or a merger or consolidation in which we
are not the surviving corporation will cause every option outstanding under the
1996 plan to terminate as of the effective date of the dissolution, liquidation,
merger or consolidation. However, the optionee either must be offered a
substitute option by the resulting or surviving corporation in a merger or
consolidation or will have the right to exercise any unexercised options whether
or not then exercisable.

1997 STOCK OPTION PLAN

Our 1997 stock option plan was adopted by the board of directors on March
17, 1997 and approved by the stockholders on March 26, 1997. No further options
will be granted under the 1997 plan. Options currently outstanding under the
1997 plan will continue to be outstanding under the terms of the 1997 plan until
exercised or terminated.

As of September 30, 1999, we had granted options under the 1997 plan to
purchase an aggregate of approximately 2,239,726 shares of common stock, of
which 203,123 options had been exercised, options to purchase approximately
784,250 shares had been cancelled (due to expiration or otherwise) and options
to purchase approximately 1,252,353 shares at a weighted average exercise price
of approximately $3.15 per share remained outstanding. Options granted under the
1996 plan which expire or terminate without having been exercised in full become
available for issuance under the 1997 plan.

The 1997 plan provides for the grant of incentive stock options under the
Code to employees and nonstatutory stock options to employees, directors and
consultants. The 1997 plan is administered by the board or a committee appointed
by the board which determines recipients and types of awards to be granted,
including the exercise price, number of shares subject to the award and the
exercisability thereof.

The terms of stock options granted under the 1997 plan generally may not
exceed ten years. The exercise price of options granted under the 1997 plan is
determined by our board, provided that the exercise price of an incentive stock
option cannot be less than 100% of the fair market value of the common stock on
the date of the option grant. Options granted under the 1997 plan vest at the
rate specified in the applicable option agreement. No incentive stock option may
be transferred by the optionee other than by will or the laws of descent or
distribution. A nonstatutory stock option will only be
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<PAGE> 51

transferable by will or by the laws of descent and distribution under a
qualified domestic relations order, and will be exercisable during the lifetime
of the optionee only by the optionee or by a permitted transferee. An optionee
whose relationship with us ceases for any reason other than death or permanent
and total disability may exercise vested options in the three-month period
following such cessation unless the options terminate or expire sooner by their
terms. Vested options may be exercised for up to 12 months after an optionee's
relationship with us or related corporations ceases due to death or disability
unless such options terminate or expire sooner by their terms. Vested options
may be exercised for up to 18 months after an optionee's death unless such
options terminate or expire sooner by their terms.

Upon certain changes in control, each outstanding option will become fully
vested and exercisable prior to such change in control or thereafter terminate.
If the benefit received by an optionee as a result of accelerated option vesting
resulting from a change of control would constitute a parachute payment within
the meaning of Section 280G of the Internal Revenue Code, the accelerated
vesting will be reduced to the extent necessary so that no portion of such
benefit is subject to the excise tax imposed by Section 4999 of the Code.

1999 EQUITY INCENTIVE PLAN

Our 1999 equity incentive plan was adopted by the board of directors and
approved by the stockholders on August 11, 1999. There is currently an aggregate
of 1,400,000 shares of common stock authorized for issuance under the incentive
plan. Additionally, options granted under the 1997 plan which expire or
terminate without having been exercised in full become available for issuance
under the 1999 incentive plan. The incentive plan will terminate on August 10,
2009 unless sooner terminated by the board or appointed committee.

As of September 30, 1999, we had granted options under the 1999 plan to
purchase an aggregate of approximately 368,000 shares of common stock, of which
no options had been exercised, 15,500 options had been cancelled (due to
expiration or otherwise) and options to purchase approximately 352,500 shares at
a weighted average exercise price of approximately $5.53 per share remained
outstanding.

The incentive plan provides for the grant of incentive stock options to
employees, including officers and employee-directors, and nonstatutory stock
options, restricted stock purchase awards, stock bonuses and stock appreciation
rights to employees, including officers and employee-directors, directors and
consultants. The incentive plan is administered by the board or a committee
appointed by the board which determines recipients and types of awards to be
granted, including the exercise price, number of shares subject to the award and
the exercisability thereof.

The terms of options granted under the incentive plan may not exceed ten
years. The board or committee determines the exercise price of options granted
under the incentive plan. However, the exercise price for an incentive stock
option cannot be less than 100% of the fair market value of the common stock on
the date of the option grant, and the exercise price for a nonstatutory stock
option cannot be less than 85% of the fair market value of the common stock on
the date of the option grant. Options granted under the incentive plan vest at
the rate specified in the option agreement. Generally, the optionee may not
transfer a stock option other than by will or the laws of descent or
distribution unless the optionee holds a nonstatutory stock option that provides
for transfer in the stock option agreement. However, an optionee may designate a
beneficiary who may exercise the option following the optionee's death. An
optionee whose service relationship ceases for any reason may exercise vested
options for the term provided in the option agreement.

No incentive stock option may be granted to any person who, at the time of
the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of our stock or, unless the option exercise price is
at least 110% of the fair market value of the stock subject to the option on the
date of grant and the term of the option does not exceed five years from the
date of grant. In addition, the aggregate fair market value, determined at the
time of grant, of the shares of common stock with respect to which incentive
stock options are exercisable for the first time by an optionee during any
calendar year, under the incentive plan and, all of our other stock plans, may
not exceed $100,000.
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<PAGE> 52

Section 162(m) of the Code denies a deduction to publicly held corporations
for certain compensation paid to specified employees in a taxable year to the
extent that the compensation exceeds $1,000,000. Under Section 162(m), no person
may be granted options under the incentive plan covering more than 700,000
shares of common stock in any calendar year.

Shares subject to stock awards that have expired or otherwise terminated
without having been exercised in full again become available for the grant of
awards under the incentive plan. Under its general authority to grant and to
amend options, the board or appointed committee has the implicit authority to
reprice outstanding options or to offer optionees the opportunity to replace
outstanding options with new options for the same or a different number of
shares. Both the original and new options will count toward the Code Section
162(m) limitation set forth above.

Restricted stock purchase awards granted under the incentive plan may be
granted pursuant to a repurchase option in favor of us in accordance with a
vesting schedule determined by the board or appointed committee. The price of a
restricted stock purchase award under the incentive plan can not be less than
85% of the fair market value of the stock subject to the award on the date of
grant. Stock bonuses may be awarded in consideration of past services without a
purchase payment. Unless otherwise specified, rights under a stock bonus or
restricted stock bonus agreement generally may not be transferred other than by
will or the laws of descent and distribution during this period as the stock
awarded under such an agreement remains subject to the agreement. Stock
appreciation rights granted under the incentive plan allows a recipient to elect
to receive cash or stock of a value equal to the appreciation of optioned
rights. The incentive plan authorizes three types of stock appreciation rights:
a tandem stock appreciation right is granted along with a stock option and is
subject to the same terms and conditions applicable to the option. It requires
the holder to elect between exercising the option (and receiving our shares) or
surrendering, in whole or in part, the option and receiving instead cash or
stock equal to the appreciation of the shares that are surrendered. A concurrent
stock appreciation right also is granted with a stock option and is subject to
the same terms and conditions applicable to the option. However, it is exercised
automatically at the same that the recipient exercises the option. Without
surrendering any of the shares subject to the option, the recipient receives
cash or stock equal to the appreciation of the shares exercised. On the other
hand, an independent stock appreciation right is not granted with a stock
option, although it generally is subject to the same terms and conditions
applicable to nonstatutory stock options. On exercising the independent stock
appreciation right, the recipient receives cash or stock equal to the
appreciation of the share equivalents that the recipient is exercising.

If there is any sale of substantially all of our assets, any merger,
reverse merger or any consolidation in which we are not the surviving
corporation, or any acquisition by certain persons, entities or groups of 50% or
more of our stock, all outstanding awards under the incentive plan either will
be assumed or substituted for by any surviving entity. If the surviving entity
determines not to assume or substitute for such awards, the vesting provisions
of such stock awards will be accelerated and the awards terminated if not
exercised prior to such transaction.

1999 EMPLOYEE STOCK PURCHASE PLAN

Our employee stock purchase plan was adopted by the board of directors and
approved by the stockholders on August 11, 1999. There is currently an aggregate
of 500,000 shares of common stock authorized for issuance under the purchase
plan. The purchase plan will become effective on the effective date of this
offering. The purchase plan is intended to qualify as an employee stock purchase
plan within the meaning of Section 423 of the Code. Under the purchase plan, the
board may authorize participation by eligible employees, including officers, in
periodic offerings following the adoption of the purchase plan. The offering
period for any offering will be no longer than 27 months.

The purchase plan provides a means by which employees may purchase common
stock of Exactis through payroll deductions. The purchase plan is implemented by
offerings of rights to eligible employees. Under the purchase plan, Exactis may
specify offerings with a duration of not more than 27 months, and may specify
shorter purchase periods within each offering. The first offering will begin on
the effective date of the initial public offering of our common stock and will
end on January 31, 2001. Purchases will occur
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<PAGE> 53

on July 31, 2000 and January 31, 2001. Unless otherwise determined by the board,
common stock is purchased for accounts of employees participating in the
purchase plan at a price per share equal to the lower of:

- 85% of the fair market value of a share of common stock on the date of
commencement of participation in the offering; or

- 85% of the fair market value of a share of common stock on the date of
purchase.

Generally, all regular employees, including executive officers, who work at
least 20 hours per week, who are customarily employed for at least five months
per calendar year and who are employed as of the start of an offering, or as of
the start of a purchase period within an offering, may participate in the
purchase plan and may authorize payroll deductions of up to 15% of their base
compensation for the purchase of stock under the purchase plan.

Eligible employees may be granted rights only if the rights together with
any other rights granted under employee stock purchase plans do not permit such
employee's rights to purchase stock of Exactis to accrue at a rate which exceeds
$25,000 of fair market value of such stock for each calendar year in which such
rights are outstanding. No employee will be eligible for the grant of any rights
under the purchase plan if immediately after such rights are granted, such
employee has voting power over 5% or more of Exactis' outstanding capital stock.

Upon certain changes of control, the board has discretion to provide that
each right to purchase common stock will be assumed or an equivalent right
substituted by the successor corporation, or the board may shorten the offering
period and provide for all sums collected by payroll deductions to be applied to
purchase stock immediately prior to the change in control. The purchase plan
will terminate at the board's direction or when all of the shares reserved for
issuance have been purchased.

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<PAGE> 54

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

SERIES E FINANCING

On July 15, 1999 and August 13, 1999, we issued an aggregate of 1,357,284
shares of Series E preferred stock to certain principal stockholders and certain
other investors at a purchase price of $6.50 per share. We also issued warrants
to purchase an aggregate of 94,608 shares of Series E preferred stock at an
exercise price of $8.00 per share, exercisable on or prior to July 15, 2004 and
warrants to purchase an aggregate of 108,978 shares of Series E preferred stock
at an exercise price of $8.00 per share, exercisable on or prior to August 13,
2004. Of the 1,357,284 shares of Series E preferred stock sold by us, an
aggregate of 1,307,657 shares were sold to the following principal stockholders
for an aggregate purchase price of approximately $8.5 million:

<TABLE>
<CAPTION>
NUMBER NUMBER AGGREGATE
PURCHASER OF SHARES OF WARRANTS PURCHASE PRICE
- --------- --------- ----------- --------------
<S> <C> <C> <C>
Boulder Ventures II, L.P. ........................ 461,539 70,310 $3,000,707
Centennial Fund IV, L.P. ......................... 384,615 57,961 2,500,574
Global Retail Partners, L.P. ..................... 197,272 29,590 1,282,564
DLJ Diversified Partners, L.P. ................... 58,785 8,817 382,191
DLJ Diversified Partners - A, L.P. ............... 21,830 3,274 141,928
GRP Partners, L.P. ............................... 12,825 1,923 83,382
Global Retail Partners Funding, Inc. ............. 13,584 2,037 88,316
DLJ ESC II, L.P. ................................. 3,396 509 22,079
Tribune Company................................... 153,811 23,071 1,000,002
</TABLE>

Boulder Ventures, Centennial Fund and Tribune Company are each greater than
five percent stockholders of Exactis.com. The remaining entities are all
affiliated with Global Retail Partners, L.P., a greater than five percent
stockholder of Exactis.com. Mr. Goldman, one of our directors, is a general
partner of Centennial Fund. Ms. Levinson, one of our directors, is a principal
of Global Retail Partners, L.P. Mr. Williams, one of our directors, is president
and chief executive officer of Tribune Media Services, a wholly owned subsidiary
of Tribune Company.

SERIES D FINANCING

On June 8, 1998, we issued an aggregate of 625,001 shares of Series D
preferred stock to certain principal stockholders and certain other investors at
a purchase price of $5.08 per share. Of the 625,001 shares of Series D preferred
stock sold by us, an aggregate of 605,315 shares were sold to the following
principal stockholders for an aggregate purchase price of approximately $3.1
million:

<TABLE>
<CAPTION>
NUMBER AGGREGATE
PURCHASER OF SHARES PURCHASE PRICE
- --------- --------- --------------
<S> <C> <C>
Boulder Ventures, L.P....................................... 14,764 $ 75,001
Global Retail Partners, L.P................................. 378,630 1,923,440
DLJ Diversified Partners, L.P............................... 112,824 573,146
DLJ Diversified Partners-A, L.P............................. 41,899 212,847
GRP Partners, L.P........................................... 24,614 125,039
Global Retail Partners Funding, Inc. ....................... 26,068 132,425
DLJ ESC II, L.P............................................. 6,516 33,101
</TABLE>

SERIES C FINANCING

On July 25, 1997, we issued an aggregate of 1,911,533 shares of Series C
preferred stock to certain principal stockholders and certain other investors at
a purchase price of $4.00 per share. We also issued warrants to purchase an
aggregate of 210,917 shares of Series C preferred stock at an exercise price of
$4.00 per share, exercisable on or prior to July 24, 2001, and a warrant to
purchase an aggregate of 425,000 shares of Series C preferred stock at an
exercise price of $6.00 per share exercisable, subject to certain conditions, on
or prior to July 24, 2000. Of the 1,911,533 shares of Series C preferred stock
sold by

52
<PAGE> 55

us, an aggregate of 1,845,413 shares were sold to the following principal
stockholders for an aggregate purchase price of approximately $7.4 million:

<TABLE>
<CAPTION>
NUMBER NUMBER AGGREGATE
PURCHASER OF SHARES OF WARRANTS PURCHASE PRICE
- --------- --------- ----------- --------------
<S> <C> <C> <C>
American Express Travel Related Services
Company........................................... 875,000 556,250 $3,500,556
Boulder Ventures Ltd.............................. 40,898 3,355 163,598
Centennial Fund IV, L.P........................... 402,150 30,268 1,608,632
Telecom Partners, L.P............................. 201,290 12,160 805,173
Tribune Company................................... 326,075 33,884 1,304,335
</TABLE>

American Express and Telecom Partners are each greater than five percent
stockholders of Exactis.com. Mr. Beckert, one of our directors, is vice
president of a division affiliated with American Express.

BRIDGE FINANCING

On June 20, 1997, we issued promissory notes in the aggregate principal
amount of $2.0 million bearing simple interest at a rate of 12.0% per annum to
certain principal stockholders and certain other investors. We also issued
warrants to purchase an aggregate of 75,000 shares of Series C preferred stock
at an exercise price of $4.00 per share exercisable on or prior to June 17,
2001. Immediately upon the closing of the Series C preferred stock financing,
the principal amount outstanding under the notes and accrued interest thereon
automatically converted into shares of Series C preferred stock at $4.00 per
share.

Of the principal amount of $2.0 million issued by us, an aggregate
principal amount of $1.7 million and warrants to purchase an aggregate of 65,188
shares of Series C preferred stock were issued to the following principal
stockholders:

<TABLE>
<CAPTION>
AGGREGATE NUMBER
PURCHASER PRINCIPAL AMOUNT OF WARRANTS
- --------- ---------------- -----------
<S> <C> <C>
Centennial Fund IV, L.P. ................................. $792,864 29,732
Telecom Partners, L.P. ................................... 475,719 17,840
Boulder Ventures, L.P. ................................... 73,340 2,750
Tribune Company........................................... 396,432 14,866
</TABLE>

SERIES B FINANCING

On July 22, 1996, September 19, 1996 and November 27, 1996, we issued an
aggregate of 1,416,666, 440,000 and 666,667 shares of Series B preferred stock,
respectively, to certain principal stockholders and certain other investors at a
purchase price of $3.00 per share. Of the 2,523,333 shares of Series B preferred
stock sold by us, an aggregate of 1,683,333 shares were sold to the following
principal stockholders for an aggregate purchase price of approximately $7.6
million:

<TABLE>
<CAPTION>
NUMBER AGGREGATE
PURCHASER OF SHARES PURCHASE PRICE
- --------- --------- --------------
<S> <C> <C>
Boulder Ventures Ltd........................................ 83,333 $ 249,999
Centennial Fund IV, L.P..................................... 933,333 2,799,999
Softven No. 2 Investment Enterprise Partnership............. 440,000 1,320,000
Telecom Partners, L.P....................................... 400,000 1,200,000
Tribune Company............................................. 666,667 2,000,001
</TABLE>

Softven No. 2 Investment Enterprise Partnership is a greater than five
percent stockholder of Exactis.com.

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<PAGE> 56

SERIES A FINANCING

On February 14, 1996 and March 15, 1996, we issued an aggregate of 600,000
and 280,000 shares, respectively, of Series A preferred stock to certain
principal stockholders and certain other investors at a purchase price of $1.25
per share. Of the 880,000 shares of Series A preferred stock sold by us, an
aggregate of 840,000 shares were sold to the following principal stockholders
for an aggregate purchase price of approximately $1.1 million:

<TABLE>
<CAPTION>
NUMBER AGGREGATE
PURCHASER OF SHARES PURCHASE PRICE
- --------- --------- --------------
<S> <C> <C>
Centennial Fund IV, L.P. ................................... 400,000 $500,000
Telecom Partners, L.P. ..................................... 400,000 500,000
Boulder Ventures Ltd. ...................................... 40,000 50,000
</TABLE>

We are not currently indebted to any of our directors, officers or greater
than five percent stockholders.

We believe that each of the transactions described above was carried out on
terms that were no less favorable to us than those that would have been obtained
from unaffiliated third parties. Any future transactions between us and any of
our directors, officers or principal stockholders will be on terms no less
favorable to us than could be obtained from unaffiliated third parties and will
be approved by a majority of the independent and disinterested members of the
board of directors.

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<PAGE> 57

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth information with respect to beneficial
ownership of our common stock as of September 30, 1999 for:

- each person or group of affiliated persons known to us to own
beneficially more than five percent of our common stock;

- each of our directors;

- our executive officers listed in the Summary Compensation Table;

- each of our current stockholders who is expected to sell shares in this
offering; and

- all of our directors and executive officers as a group.

In accordance with the rules of the Securities and Exchange Commission, the
following table gives effect to the shares of common stock that could be issued
upon the exercise of outstanding options within 60 days of September 30, 1999.
Unless otherwise noted in the footnotes to the table and subject to community
property laws where applicable, the following individuals have sole voting and
investment control with respect to the shares beneficially owned by them.

We have calculated the percent of shares beneficially owned based on
8,540,746 shares of common stock outstanding as of September 30, 1999 and
12,070,746 shares of common stock outstanding after this offering. An asterisk
indicates ownership of less than one percent.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING AFTER THE OFFERING
---------------------- SHARES ----------------------
NAME NUMBER PERCENTAGE TO BE SOLD NUMBER PERCENTAGE
- ---- --------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Centennial Fund IV, L.P.(1)............ 2,237,789 25.9% -- 2,237,789 18.4%
American Express Travel Related
Services Company, Inc.(2)............ 1,176,250 13.3% -- 1,176,250 9.5%
Tribune Company(3)..................... 1,218,374 14.2% -- 1,218,374 10.0%
Telecom Partners, L.P.(4).............. 1,031,290 12.0% -- 1,031,290 8.5%
Global Retail Partners, L.P.(5)........ 944,393 11.0% -- 944,393 7.8%
Boulder Ventures, L.P. and Boulder
Ventures II, L.P.(6)................. 716,949 8.3% -- 716,949 5.9%
Softven No. 2 Investment Enterprise
Partnership(7)....................... 444,906 5.2% -- 444,906 3.7%
Eric R. Belcher........................ 22,055 * -- 22,055 *
Pierric D. Beckert(8).................. -- -- -- -- --
Craig M. Deans......................... 16,666 * -- 16,666 *
E. Thomas Detmer, Jr.(9)............... 230,797 2.7% -- 230,797 1.9%
John T. Funk(10)....................... 676,552 7.9% 178,184 498,368 4.1%
Adam Goldman(11)....................... -- -- -- -- --
Linda Fayne Levinson(12)............... 944,393 11.0% -- 944,393 7.8%
Raymond H. Van Wagener, Jr.(13)........ 31,260 * 8,440 22,820 *
David D. Williams(14).................. -- -- -- -- --
Officers and directors as a group (9
persons)(15)......................... 1,215,904 14.1% -- 1,215,904 10.0%
ADDITIONAL SELLING STOCKHOLDERS
- ---------------------------
Gus Bigos(16).......................... 126,500 1.5% 34,155 92,345 *
Kenneth Cook(17)....................... 54,000 * 14,580 39,420 *
Jeffrey M. Horn(18).................... 53,750 * 13,500 40,250 *
Sally H. Horn(19)...................... 21,167 * 5,400 15,767 *
Michael K. Stake(20)................... 28,000 * 7,560 20,440 *
Homer John Livingston, III(21)......... 10,000 * 2,700 7,300 *
Frank Parkinson(22).................... 10,000 * 2,700 7,300 *
Thomas S. Finke(23).................... 5,000 * 1,350 3,650 *
Jack Walter Funk Educational
Trust(24)............................ 5,300 * 1,431 3,869 *
</TABLE>

- ---------------

55
<PAGE> 58

(1) Includes 117,691 shares of common stock issuable upon exercise of warrants.
The address of Centennial Fund IV, L.P. is 1428 Fifteenth Street, Denver,
Colorado 80202.
(2) Includes 301,250 shares of common stock issuable upon exercise of vested
warrants. Excludes 255,000 shares of common stock issuable upon exercise of
unvested warrants. The address of American Express Travel Related Services
Company, Inc. is 3 World Financial Center, 40th Floor, New York, New York
10285.
(3) Includes 71,821 shares of common stock issuable upon exercise of warrants.
The address of Tribune Company is 435 North Michigan Avenue, Suite 1500,
Chicago, Illinois 60611.
(4) Includes 30,000 shares of common stock issuable upon exercise of warrants.
The address of Telecom Partners, L.P. is 4600 S. Syracuse St., Suite 1000,
Denver, Colorado 80237.
(5) Consists of (i) the following shares of common stock (A) 575,902 shares
held by Global Retail Partners, L.P., (B) 171,609 shares held by DLJ
Diversified Partners, L.P., (C) 63,729 shares held by DLJ Diversified
Partners -- A, L.P. , (D) 37,439 shares held by GRP Partners, L.P., (E)
39,652 shares held by Global Retail Partners Funding, Inc. and (F) 9,912
shares held by DLJ ESC II, L.P., and (ii) the following shares of common
stock issuable upon exercise of warrants (A) 29,590 shares held by Global
Retail Partners, L.P., (B) 8,817 shares held by DLJ Diversified Partners,
L.P., (C) 3,274 shares held by DLJ Diversified Partners -- A, L.P., (D)
1,923 shares held by GRP Partners, L.P., (E) 2,037 shares held by Global
Retail Partners Funding, Inc., and (F) 509 shares held by DLJ ESC II, L.P.
The address of Global Retail Partners, L.P. and its affiliates is 2121
Avenue of the Stars, Suite 1630, Los Angeles, California 90067.
(6) Consists of (i) the following shares of common stock: (A) 178,995 shares
held by Boulder Ventures, L.P. and (B) 461,539 shares held by Boulder
Ventures II, L.P., and (ii) the following shares of common stock issuable
upon exercise of warrants (A) 6,105 shares held by Boulder Ventures I and
(B) 70,310 shares held by Boulder Ventures II. Boulder Ventures I and
Boulder Ventures II are affiliated entities. The address of Boulder
Ventures I and Boulder Ventures II is 1634 Walnut Street, Suite 301,
Boulder, Colorado 80302.
(7) The address of Softven No. 2 Investment Enterprise Partnership is 3-12-3
Kanda-Nishikicho, Chiyoda, Tokyo 101-0054, Japan.
(8) Mr. Beckert is the vice president of Interactive Enterprise Development, a
division of American Express Relationship Services and part of American
Express Travel Related Services.
(9) Includes 509 shares of common stock issuable upon exercise of warrants and
26,446 shares of common stock issuable upon exercise of stock options, of
which 2,201 of such shares shall vest upon the completion of this offering.
(10) The address of Mr. Funk is 22583 Anasazi Way, Golden, Colorado 80401. If
the underwriters' over-allotment option is exercised, Mr. Funk will sell up
to 52,795 shares of common stock at such time. If Mr. Funk sells 52,795
shares, he will beneficially own 445,573 shares of common stock after this
offering, or 3.5%.
(11) The sole general partner of Centennial Fund IV is Centennial Holdings IV,
L.P. Centennial Holdings IV may be deemed to beneficially own the shares
owned by Centennial Fund IV. Mr. Goldman is a general partner of Centennial
Holdings IV and may be deemed to be the indirect beneficial owner of the
shares owned by Centennial Fund IV. Mr. Goldman disclaims beneficial
ownership of all shares held by Centennial Fund IV, except to the extent of
his pecuniary interest.
(12) Ms. Levinson is a principal of Global Retail Partners, L.P. The shares
listed represent shares held by Global Retail Partners, L.P. and it
affiliated entities. Ms. Levinson disclaims beneficial ownership of all
shares held by Global Retail Partners, L.P. and it affiliated entities,
except to the extent of her pecuniary interest. The address of Ms. Levinson
is Global Retail Partners, L.P., 2121 Avenue of the Stars, Suite 1630, Los
Angeles, California 90067.
(13) The address of Mr. Van Wagener is 9230 East Crestline Avenue Greenwood
Village, Colorado 80111. If the underwriters' over-allotment option is
exercised, Mr. Van Wagener will sell up to 2,501 shares of common stock at
such time. If Mr. Van Wagener sells 2,501 shares, he will beneficially own
20,319 shares of common stock after this offering, or less than one
percent.

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<PAGE> 59

(14) Mr. Williams is president and chief executive officer of Tribune Media
Services, Inc., a wholly-owned subsidiary of Tribune Company.

(15) Includes shares included pursuant to note (12).

(16) If the underwriters' over-allotment option is exercised, Mr. Bigos will
sell up to 10,120 shares of common stock at such time. If Mr. Bigos sells
10,120 shares, he will beneficially own 82,225 shares of common stock after
this offering, or less than one percent.

(17) If the underwriters' over-allotment option is exercised, Mr. Cook will sell
up to 4,320 shares of common stock at such time. If Mr. Cook sells 4,320
shares, he will beneficially own 35,100 shares of common stock after this
offering, or less than one percent.

(18) Includes 3,750 shares of common stock issuable upon exercise of stock
options. If the underwriters' over-allotment option is exercised, Mr. Horn
will sell up to 4,000 shares of common stock at such time. If Mr. Horn
sells 4,000 shares, he will beneficially own 36,250 shares of common stock
after this offering, or less than one percent.

(19) If the underwriters' over-allotment option is exercised, Ms. Horn will sell
up to 1,600 shares of common stock at such time. If Ms. Horn sells 1,600
shares, she will beneficially own 14,167 shares of common stock after this
offering, or less than one percent.

(20) If the underwriters' over-allotment option is exercised, Mr. Stake will
sell up to 2,240 shares of common stock at such time. If Mr. Stake sells
2,240 shares, he will beneficially own 18,200 shares of common stock after
this offering, or less than one percent.

(21) If the underwriters' over-allotment option is exercised, Mr. Livingston
will sell up to 800 shares of common stock at such time. If Mr. Livingston
sells 800 shares, he will beneficially own 6,500 shares of common stock
after this offering, or less than one percent.

(22) If the underwriters' over-allotment option is exercised, Mr. Parkinson will
sell up to 800 shares of common stock at such time. If Mr. Parkinson sells
800 shares, he will beneficially own 6,500 shares of common stock after
this offering, or less than one percent.

(23) If the underwriters' over-allotment option is exercised, Mr. Finke will
sell up to 400 shares of common stock at such time. If Mr. Finke sells 400
shares, he will beneficially own 3,250 shares of common stock after this
offering, or less than one percent.

(24) If the underwriters' over-allotment option is exercised, the Jack Walter
Funk Educational Trust will sell up to 424 shares of common stock at such
time. If the Jack Walter Funk Educational Trust sells 424 shares, it will
beneficially own 3,445 shares of common stock after this offering, or less
than one percent.

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<PAGE> 60

DESCRIPTION OF SECURITIES

Following completion of this offering, our authorized capital stock will
consist of 35,000,000 shares of common stock, par value $.01 per share, and
3,500,000 shares of preferred stock, par value $.01 per share.

The following description of our securities reflects changes that will be
made to our certificate of incorporation and bylaws upon the closing of this
offering. We have filed our restated certificate of incorporation and amended
and restated bylaws as exhibits to the registration statement of which this
prospectus is a part.

COMMON STOCK

As of the date of this prospectus, there are 8,541,329 shares of common
stock outstanding and held of record by 66 stockholders. Upon the closing of
this offering, there will be 12,071,329 shares of common stock outstanding,
assuming no exercise of the underwriters' over-allotment option.

Holders of common stock are entitled to one vote for each share on all
matters submitted to a vote of stockholders. Holders of common stock are not
entitled to cumulative voting rights in the election of directors. Accordingly,
minority stockholders will not be able to elect directors on the basis of their
votes alone. Subject to preferences that may be applicable to any
then-outstanding shares of preferred stock, holders of common stock are entitled
to receive ratably such dividends as may be declared by our board of directors.
In the event we liquidate, dissolve or wind up our affairs, holders of common
stock are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preferences of any then-outstanding shares of
preferred stock. Holders of common stock have no preemptive, subscription,
redemption or conversion rights. There are no sinking fund provisions applicable
to the common stock.

PREFERRED STOCK

Our board of directors is authorized, without further stockholder approval,
to issue up to an aggregate of 3,500,000 shares of preferred stock in one or
more series. The board of directors may fix or alter the designations,
preferences, rights and any qualifications, limitations or restrictions of the
shares of each such series, and the dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption price or prices and
liquidation preferences. The issuance of preferred stock could:

- adversely affect the voting power of holders of common stock;

- adversely affect the likelihood that the holders of common stock will
receive dividend payments and payments upon liquidation; and

- delay, defer or prevent a change in control.

We have no present plans to issue any shares of preferred stock.

WARRANTS

As of the date of this prospectus, we have outstanding warrants to purchase
an aggregate of 94,608 and 108,978 shares of common stock at an exercise price
of $8.00 per share issued to certain principal stockholders and certain other
investors, which expire on July 15, 2004 and August 13, 2004, respectively. The
warrants contain anti-dilution provisions providing for adjustments of the
exercise price and the number of shares of common stock underlying the warrants
upon the occurrence of any recapitalization, reclassification, stock dividend,
stock split, stock combination or similar transaction. The shares of common
stock issuable upon exercise of the warrants carry registration rights, as
discussed below.

As of the date of this prospectus, Sony Music holds a warrant to purchase
an aggregate of 400,000 shares of common stock at an exercise price of $6.00 per
share. The warrant expires on December 31, 2003. The warrant contains
anti-dilution provisions providing for adjustments of the exercise price and the
number of shares of common stock underlying the warrant upon the occurrence of
any

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<PAGE> 61

recapitalization, reclassification, stock dividend, stock split, stock
combination or similar transaction. The shares of common stock issuable upon
exercise of the warrant carry registration rights, as discussed below.

As of the date of this prospectus, we have outstanding warrants to purchase
an aggregate of 70,094 and 210,917 shares of common stock at an exercise price
of $4.00 per share issued to certain principal stockholders and certain other
investors, which expire on June 17, 2001 and July 24, 2001, respectively. The
warrants contain anti-dilution provisions providing for adjustments of the
exercise price and the number of shares of common stock underlying the warrants
upon the occurrence of any recapitalization, reclassification, stock dividend,
stock split, stock combination or similar transaction. The shares of common
stock issuable upon exercise of the warrants carry registration rights, as
discussed below.

As of the date of this prospectus, we have outstanding a warrant to
purchase an aggregate of 425,000 shares of common stock at an exercise price of
$6.00 per share issued to American Express. The warrant expires on July 24,
2000. The warrant contains anti-dilution provisions providing for adjustments of
the exercise price and the number of shares of common stock underlying the
warrant upon the occurrence of any recapitalization, reclassification, stock
dividend, stock split, stock combination or similar transaction. The shares of
common stock issuable upon exercise of the warrant carry registration rights, as
discussed below. The warrant vests in increments based upon the achievement by
American Express of certain performance milestones. As of September 30, 1999,
170,000 shares have vested. The remaining 255,000 shares vest upon achievement
of monthly gross revenue targets.

As of the date of this prospectus, we have outstanding warrants to purchase
an aggregate of 46,666 shares of common stock at an exercise price of $3.00 per
share issued to MMC/GATX Partnership No. 1 and Silicon Valley Bank. The warrants
expire on the date that is five years from the date of closing of this offering.
The warrants contain anti-dilution provisions providing for adjustments of the
exercise price and the number of shares of common stock underlying the warrants
upon the occurrence of any recapitalization, reclassification, stock dividend,
stock split, stock combination or similar transaction. The shares of common
stock issuable upon exercise of the warrants carry registration rights, as
discussed below.

REGISTRATION RIGHTS

Under our stockholders' agreement, holders of 7,302,057 shares of common
stock and up to 1,356,263 shares of common stock issuable upon the exercise of
warrants, have certain rights to require us to register their shares for resale
under the Securities Act of 1933 during the ten-year period following this
offering.

Subject to certain limitations:

- (i) the holders of more than a majority of registrable securities may
require that we register such shares under the Securities Act of 1933 on
Form S-1 or any similar form, with respect to at least 25% of such
shares; and

- (ii) any holder of such shares may demand that we register on Form S-3 or
any similar form, if available, shares having an aggregate offering price
to the public of more than $1,000,000. We are not required to effect more
than four demand registrations on Form S-1 or more than ten demand
registrations on Form S-3. In addition, these stockholders are entitled
to piggyback registration rights with respect to any public offering
registration statement we file under the Securities Act following this
offering, with certain limitations. Further, at any time after we become
eligible to file a registration statement on Form S-3 or any similar
short-form registration statement, such stockholders may require us to
file such registration statements from time to time, again with certain
limitations. We are generally required to bear all of the expenses of
these registrations, except underwriting discounts and commissions.
Registration of any of the shares of common stock entitled to these
registration rights would result in such shares becoming freely tradable
without restriction under the Securities Act.

Upon completion of this offering, the registration rights with respect to
the shares held by a stockholder will terminate if the stockholder holds less
than 5% of the then-outstanding shares of common
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<PAGE> 62

stock and the stockholder's shares are entitled to be resold without restriction
under Rule 144 promulgated under the Securities Act.

ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND OUR CERTIFICATE
OF INCORPORATION AND BYLAWS

Following the closing of this offering, we will be subject to the
provisions of Section 203 of the Delaware General Corporation Law, which
generally prohibits a publicly-held Delaware corporation from engaging in a
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 corporation's board of directors or unless the business
combination is approved in a prescribed manner. Business combinations include
mergers, asset sales and other transactions resulting in a financial benefit to
the interested stockholder. With certain exceptions, an interested stockholder
is a person who, together with affiliates and associates, owns, or within three
years did own, 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 and, accordingly, may discourage attempts to acquire
us.

The following provisions of our restated certificate of incorporation and
amended and restated bylaws that will become effective upon the closing of this
offering may have an anti-takeover effect and may delay or prevent a tender
offer or takeover attempt that a stockholder might consider to be in its best
interest, including attempts that might result in a premium over the market
price for the common stock:

CLASSIFIED BOARD OF DIRECTORS. Our board of directors will be divided into
three classes. The directors in class I will hold office until the first annual
meeting of stockholders following this offering, the directors in class II will
hold office until the second annual meeting of stockholders following this
offering and the directors in class III will hold office until the third annual
meeting of stockholders following this offering. After each such election, the
directors in that class will serve for terms of three years. The classification
system of electing directors may tend to discourage a third party from making a
tender offer or otherwise attempting to obtain control of us and may maintain
the incumbency of the board of directors, since such classification generally
increases the difficulty of replacing a majority of the directors.

BOARD OF DIRECTOR VACANCIES. The board of directors will be authorized to
fill vacant directorships and to increase the size of the board of directors.
This may deter a stockholder from removing incumbent directors and
simultaneously gaining control of the board of directors by filling the
resulting vacancies with its own nominees.

STOCKHOLDER ACTION; SPECIAL MEETINGS OF STOCKHOLDERS. Our stockholders will
not be permitted to take action by written consent, but only at duly called
annual or special meetings of stockholders. In addition, special meetings of
stockholders may be called only by the chairman of the board, the chief
executive officer or a majority of the board of directors.

ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. Stockholders seeking to bring business before an annual meeting of
stockholders, or to nominate candidates for election as directors at an annual
meeting of stockholders, must deliver a written notice to our principal
executive offices within a prescribed time period. Our amended and restated
bylaws also set forth specific requirements as to the form and content of a
stockholder's notice. These provisions may preclude stockholders from bringing
matters before an annual meeting of stockholders or from making nominations for
the election of directors at an annual meeting of stockholders.

AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval, subject to limitations imposed by the Nasdaq National
Market. We may use these additional shares 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 more

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<PAGE> 63

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

Our bylaws provide that we will indemnify our directors, officers,
employees and agents to the fullest extent permitted by Delaware law. In
addition, our certificate of incorporation provides that, to the fullest extent
permitted by Delaware law, our directors will not be liable for monetary damages
for breach of the directors' fiduciary duty to us and our stockholders. This
provision of the certificate of incorporation does not eliminate the duty of
care. In appropriate circumstances equitable remedies such as an injunction or
other forms of non-monetary relief are available under Delaware law. This
provision also does not affect a director's responsibilities under any other
laws, such as the federal securities laws.

Each director will continue to be subject to liability for:

- breach of the director's duty of loyalty to Exactis.com;

- acts or omissions not in good faith or involving intentional misconduct;

- knowing violations of law;

- any transaction from which the director derived an improper personal
benefit;

- improper transactions between the director and Exactis.com; and

- improper distributions to stockholders and improper loans to directors
and officers.

We intend to enter into indemnity agreements with each of our directors and
executive officers under which each director and executive officer will be
indemnified against expenses and losses incurred for claims brought against them
by reason of their being a director or executive officer of Exactis.com. Our
board of directors has authorized the officers of Exactis.com to investigate and
obtain directors' and officers' liability insurance.

There is no pending litigation or proceeding involving a director or
officer of Exactis.com as to which indemnification is being sought. We are not
aware of any pending or threatened litigation that may result in claims for
indemnification by any director or officer.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and control persons
of Exactis.com pursuant to the foregoing provisions, or otherwise, we have been
advised that in the opinion of the SEC, such indemnification is against public
policy as expressed in the Securities Act of 1933, and is, therefore,
unenforceable.

LISTING

Our common stock has been approved for listing on the Nasdaq National
Market under the trading symbol "XACT."

TRANSFER AGENT AND REGISTRAR

We have appointed American Securities Transfer & Trust, Inc. to serve as
the transfer agent and registrar for the common stock.

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<PAGE> 64

SHARES ELIGIBLE FOR FUTURE SALE

Upon the closing of this offering, we will have a total of 12,071,329
shares of common stock outstanding, assuming no exercise of the underwriters'
over-allotment option and no exercise of options or warrants. Of the outstanding
shares, the 3,800,000 shares being sold in this offering will be freely
tradable, except that any shares held by our affiliates may only be sold in
compliance with the limitations described below. The remaining 8,271,329 shares
of common stock will be restricted securities that may be sold in the public
market only if they are registered under the Securities Act or if they qualify
for an exemption from registration under Rule 144, 144(k) or 701 promulgated
under the Securities Act.

Subject to the lock-up agreements described below and the provisions of
Rules 144, 144(k) and 701, additional shares will become available for sale in
the public market as follows:

<TABLE>
<CAPTION>
NUMBER
OF SHARES DATE
- --------- ----
<S> <C>
6,000.............. Upon the date of this prospectus (shares eligible for resale
under Rule 144(k) and not subject to lock-up agreements)
3,349.............. 90 days following the date of this prospectus (shares
eligible for resale under Rules 144 and 701 and not subject
to lock-up agreements)
8,261,980.............. 180 days following the date of this prospectus (lock-up
agreements released)
</TABLE>

In general, under Rule 144, a person or persons whose shares are required
to be aggregated, including an affiliate, who has beneficially owned shares for
at least one year is entitled to sell, within any three-month period commencing
90 days after the date of this prospectus, a number of shares that does not
exceed the greater of:

- (i) 1% of the then-outstanding shares of common stock, or approximately
120,713 shares immediately after this offering; or

- (ii) the average weekly trading volume of the common stock during the
four calendar weeks preceding the date on which notice of that sale is
filed. In addition, a person who is not considered an affiliate of ours
at any time during the 90 days preceding a sale and who has beneficially
owned the shares proposed to be sold for at least two years is entitled
to sell such shares under Rule 144(k) without regard to the volume
limitations described above.

In addition, following the closing of this offering, we intend to file a
registration statement to register for resale up to 3,500,000 shares of common
stock available for issuance under our stock plans. Accordingly, shares issued
under those plans will become eligible for resale in the public market from time
to time, subject to the lock-up agreements described below and, in the case of
our affiliates, the volume limitations of Rule 144 described above. As of the
date of this prospectus, options and purchase rights to acquire a total of
1,874,017 shares of common stock are outstanding under our stock plans, of which
229,327 are currently exercisable.

Directors, officers and stockholders of Exactis.com holding an aggregate of
8,261,980 shares of common stock have agreed that they will not sell any shares
of common stock without the prior written consent of Thomas Weisel Partners LLC
for a period of 180 days from the date of this prospectus. Please refer to our
discussion in "Underwriting" for further discussion of these agreements.

We have agreed not to sell or otherwise dispose of any shares of common
stock during the 180-day period following the date of this prospectus, other
than the grant of options and purchase rights under our stock plans and the
issuance of common stock under these options and purchase rights.

Following this offering, certain of our stockholders will have rights to
have their shares of common stock registered for resale under the Securities
Act. Please refer to our discussion in "Description of
Securities -- Registration Rights" for further discussion of these registration
rights.

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<PAGE> 65

UNDERWRITING

GENERAL

Subject to the terms and conditions set forth in an agreement among the
underwriters and us, each of the underwriters named below, through their
representatives, Thomas Weisel Partners LLC, Dain Rauscher Wessels, a division
of Dain Rauscher Incorporated, and Wit Capital Corporation, has severally agreed
to purchase from us and the selling stockholders the aggregate number of shares
of common stock set forth opposite its name below:

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
Thomas Weisel Partners LLC.................................. 1,620,000
Dain Rauscher Wessels....................................... 1,296,000
Wit Capital Corporation..................................... 324,000
Bear, Stearns & Co. Inc. ................................... 50,000
Donaldson, Lufkin & Jenrette Securities..................... 50,000
First Union Securities, Inc. ............................... 50,000
Hambrecht & Quist LLC....................................... 50,000
ING Barings LLC............................................. 50,000
Prudential Securities Incorporated.......................... 50,000
C.E. Unterberg, Towbin...................................... 50,000
First Security Van Kasper................................... 30,000
Gruntal & Co., L.L.C. ...................................... 30,000
Janco Partners, Inc. ....................................... 30,000
Legg Mason Wood Walker, Incorporated........................ 30,000
Parker/Hunter Incorporated.................................. 30,000
Petrie Parkman & Co. ....................................... 30,000
Wedbush Morgan Securities Inc. ............................. 30,000
---------
Total............................................. 3,800,000
=========
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters are subject to various conditions. The nature of the underwriters'
obligations is such that they are committed to purchase and pay for all of the
shares of common stock listed above if any are purchased.

The underwriting agreement provides that we and the selling stockholders
will indemnify the underwriters against liabilities specified in the
underwriting agreement under the Securities Act or will contribute to payments
that the underwriters may be required to make relating to these liabilities.

OVER-ALLOTMENT OPTION

We have granted a 30-day over-allotment option to the underwriters to
purchase up to an aggregate of 570,000 additional shares of our common stock
from us and the selling stockholders exercisable at the public offering price
less the underwriting discounts and commissions, each as set forth on the cover
page of this prospectus. Of the 570,000 shares of common stock available to
cover over-allotments, 490,000 shares would be offered by us and 80,000 would be
offered by the selling stockholders. If the underwriters exercise such option in
whole or in part, then each of the underwriters will be severally committed,
subject to conditions described in the underwriting agreement, to purchase the
additional shares of our common stock in proportion to their respective
commitments set forth in the table above.

COMMISSIONS AND DISCOUNTS

The underwriters propose to offer the shares of common stock directly to
the public at the public offering price set forth on the cover page of this
prospectus, and at such price less a concession not in excess of $0.59 per share
of common stock to other dealers specified in a master agreement among
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<PAGE> 66

underwriters who are members of the National Association of Securities Dealers,
Inc. The underwriters may allow, and such dealers may reallow, concessions, not
in excess of $0.10 per share of common stock to these other dealers. After this
offering, the offering price, concessions and other selling terms may be changed
by the underwriters. Our common stock is offered subject to receipt and
acceptance by the underwriters and to other conditions, including the right to
reject orders in whole or in part.

The following table summarizes the compensation to be paid to the
underwriters by us and the selling stockholders and the expenses payable by us
and the selling stockholders:

<TABLE>
<CAPTION>
TOTAL
-------------------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions paid by
us.............................................. $0.98 $3,459,400 $3,939,600
Underwriting discounts and commissions paid by
the selling stockholders...................... 0.98 264,600 343,000
Expenses payable by us.......................... 0.18 650,000 650,000
</TABLE>

RESERVED SHARES

The underwriters, at our request, have reserved for sale at the initial
public offering price up to 175,000 shares of common stock to be sold in this
offering for sale to our employees and other persons designated by us. The
number of shares available for sale to the general public will be reduced to the
extent that any reserved shares are purchased. Any reserved shares not purchased
in this manner will be offered by the underwriters on the same basis as the
other shares offered in this offering.

NO SALES OF SIMILAR SECURITIES

We have agreed that for a period of 180 days after the date of this
prospectus we will not, without the prior written consent of Thomas Weisel
Partners LLC, offer, sell, or otherwise dispose of any shares of common stock
except for the shares of common stock offered in the offering and the shares of
common stock issuable upon exercise of outstanding options and warrants.

INFORMATION REGARDING THOMAS WEISEL PARTNERS LLC AND WIT CAPITAL CORPORATION

Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners LLC has been named as a lead or co-manager on 88
filed public offerings of equity securities, of which 65 have been completed,
and has acted as a syndicate member in an additional 46 public offerings of
equity securities. Thomas Weisel Partners LLC does not have any material
relationship with us or any of our officers, directors or controlling persons,
except with respect to its contractual relationship with us under the
underwriting agreement entered into in connection with this offering.

Wit Capital, a member of the National Association of Securities Dealers,
Inc., will participate in this offering as one of the underwriters. The National
Association of Securities Dealers, Inc. approved the membership of Wit Capital
on September 4, 1997. Since that time, Wit Capital has acted as an underwriter,
co-manager or selected dealer in over 130 public offerings. Except for its
participation as a manager in this offering, Wit Capital has no relationship
with us or any of our founders or significant stockholders.

NASDAQ NATIONAL MARKET LISTING

Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock was
determined through negotiations between us and representatives of the
underwriters. Some of the factors considered in these negotiations were our
results of operations in recent periods, estimates of our prospects and the
industry in which we compete, an assessment of our management, the general state
of the securities markets at the time of this offering and the prices of similar
securities of generally comparable companies. Our common stock has been approved

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<PAGE> 67

for quotation on the Nasdaq National Market under the symbol "XACT." We cannot
assure you that an active or orderly trading market will develop for our common
stock or that our common stock will trade in the public markets subsequent to
this offering at or above the initial offering price.

The underwriters do not expect to confirm sales of common stock to any
accounts over which they exercise discretionary authority to exceed five percent
of shares being offered under this prospectus.

MARKET STABILIZATION, SHORT POSITIONS AND PENALTY BIDS

In order to facilitate this offering, persons participating in this
offering may engage in transactions that stabilize, maintain or otherwise affect
the price of our common stock during and after this offering. Specifically, the
underwriters may over-allot or otherwise create a short position in our common
stock for their own account by selling more shares of common stock than we have
sold to them. The underwriters may elect to cover any short position by
purchasing shares of common stock in the open market or by exercising the
over-allotment option granted to the underwriters. In addition, the underwriters
may stabilize or maintain the price of the common stock by bidding for or
purchasing shares of common stock in the open market and may impose penalty
bids. Under these penalty bids, selling concessions that are allowed to
syndicate members or other broker-dealers participating in this offering are
reclaimed if shares of common stock previously distributed in this offering are
repurchased, usually in order to stabilize the market. The effect of these
transactions may be to stabilize or maintain the market price at a level above
that which might otherwise prevail in the open market. No representation is made
as to the magnitude or effect of any such stabilization or other transactions.
These transactions may be effected on the Nasdaq National Market or otherwise
and may be discontinued at any time after they are commenced.

A prospectus in electronic format is being made available on an Internet
Web site maintained by Wit Capital. In addition, all dealers purchasing shares
from Wit Capital in the offering similarly have agreed to make a prospectus in
electronic format available on Web sites maintained by these dealers.

LEGAL MATTERS

Cooley Godward LLP, Boulder, Colorado will pass upon the validity of the
shares of common stock offered hereby. Attorneys at Cooley Godward LLP are the
beneficial owners, through investment partnerships, of approximately 8,700
shares of our common stock.

Brobeck, Phleger & Harrison LLP, San Francisco, California, will pass upon
certain legal matters in connection with the offering for the underwriters.

EXPERTS

The financial statements of Exactis.com, Inc. (formerly InfoBeat Inc.) as
of December 31, 1997 and 1998 and for the period from inception (January 30,
1996) to December 31, 1996 and for the years ended December 31, 1997 and 1998,
have been included herein and in the registration statement in reliance upon the
report of KPMG LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.

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<PAGE> 68

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 (including exhibits, schedules and amendments) under the
Securities Act with respect to the common stock to be sold in this offering.
This prospectus does not contain all of the information in the registration
statement. For further information about us and our common stock, please refer
to the registration statement. In each instance, please refer to the copy of
that contract, agreement or document filed as an exhibit to the registration
statement.

You may read and copy all or any portion of the registration statement or
any other information we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You can request copies of these documents,
upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. Our SEC filings, including the registration statement, are also available
to you on the SEC's web site (http://www.sec.gov).

As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, as amended. In
accordance with those requirements, we will file periodic reports, proxy
statements and other information with the SEC.

We intend to furnish our stockholders with annual reports containing
audited financial statements and with quarterly reports for the first three
quarters of each year containing unaudited interim financial information.

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<PAGE> 69

EXACTIS.COM, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Balance Sheets as of December 31, 1997 and 1998 and
September 30, 1999 (unaudited)............................ F-3
Statements of Operations for the period from inception
(January 30, 1996) to December 31, 1996, years ended
December 31, 1997 and 1998 and nine months ended September
30, 1998 and 1999 (unaudited)............................. F-4
Statements of Stockholders' Deficit for the period from
inception (January 30, 1996) to December 31, 1996, years
ended December 31, 1997 and 1998 and nine months ended
September 30, 1999 (unaudited)............................ F-5
Statements of Cash Flows for the period from inception
(January 30, 1996) to December 31, 1996, years ended
December 31, 1997 and 1998 and nine months ended September
30, 1998 and 1999 (unaudited)............................. F-6
Notes to Financial Statements............................... F-7
</TABLE>

F-1
<PAGE> 70

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Exactis.com, Inc.:

We have audited the accompanying balance sheets of Exactis.com, Inc.
(formerly InfoBeat Inc.) as of December 31, 1997 and 1998 and the related
statements of operations, stockholders' deficit and cash flows for the period
from inception (January 30, 1996) to December 31, 1996 and the years ended
December 31, 1997 and 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 Exactis.com, Inc. as of
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the period from inception (January 30, 1996) to December 31, 1996 and the
years ended December 31, 1997 and 1998 in conformity with generally accepted
accounting principles.

KPMG LLP

Denver, Colorado
October 18, 1999

F-2
<PAGE> 71

EXACTIS.COM, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- SEPTEMBER 30,
1997 1998 1999
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,746,703 $ 6,383,255 $ 6,551,387
Restricted cash........................................... 750,320 -- --
Accounts receivable, net of allowance of approximately
$75,000 in 1997, 1998 and 1999.......................... 193,687 727,295 2,335,992
Receivable from sale of online publishing business (note
2)...................................................... -- 1,500,000 --
Prepaid expenses and other................................ 104,207 96,961 795,716
------------ ------------ ------------
Total current assets................................ 4,794,917 8,707,511 9,683,095
------------ ------------ ------------
Equipment and purchased computer software, at cost (note 5):
Computers and equipment -- production..................... 1,736,167 2,304,982 4,961,242
Computers and equipment -- administrative................. 370,312 465,920 685,171
Furniture and fixtures.................................... 327,941 438,630 537,416
Purchased computer software............................... 234,442 322,973 731,047
Leasehold improvements.................................... 289,763 314,879 419,138
------------ ------------ ------------
2,958,625 3,847,384 7,334,014
Less accumulated depreciation and amortization............ (982,324) (2,010,118) (3,170,639)
------------ ------------ ------------
1,976,301 1,837,266 4,163,375
Deferred marketing and financing costs, net................. 151,289 59,275 12,524
Other assets................................................ 142,880 202,219 223,663
------------ ------------ ------------
Total assets........................................ $ 7,065,387 $ 10,806,271 $ 14,082,657
============ ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 116,808 $ 194,540 $ 1,817,196
Accrued liabilities....................................... 297,252 699,014 1,876,058
Deferred revenue (note 2)................................. 12,591 3,644,452 2,379,355
Current portion of notes payable (note 5)................. 482,506 677,777 600,931
Current portion of obligations under capital leases (note
6)...................................................... 22,307 8,056 --
------------ ------------ ------------
Total current liabilities........................... 931,464 5,223,839 6,673,540
Deferred revenue, net of current portion (note 2)........... -- 4,300,000 2,725,003
Notes payable, less current portion (note 5)................ 816,429 609,700 216,711
Obligations under capital leases, excluding current portion
(note 6).................................................. 8,056 -- --
------------ ------------ ------------
Total liabilities................................... 1,755,949 10,133,539 9,615,254
------------ ------------ ------------

Mandatorily redeemable preferred stock (note 3):
Series B, par value $.01, authorized 2,570,000 shares;
issued and outstanding 2,523,333 shares (aggregate
liquidation preference of $7,569,999)................... 7,546,884 7,553,489 7,558,442
Series C, par value $.01, authorized 3,550,000 shares;
issued and outstanding 1,911,533 shares in 1997 and 1998
and 1,916,439 shares in 1999 (aggregate liquidation
preference of $7,646,132 in 1997 and 1998 and $7,665,756
in 1999)................................................ 7,224,325 7,318,061 7,407,992
Series D, par value $.01, authorized 1,300,000 shares;
issued and outstanding 625,001 shares in 1998 and 1999
(aggregate liquidation preference of
$3,175,005)............................................. -- 3,153,037 3,156,698
Series E, par value $.01 authorized 2,500,000; issued and
outstanding 1,357,284 in 1999 (aggregate liquidation
preference of $8,822,346)............................... -- -- 8,009,462
Warrants for the purchase of mandatorily redeemable
preferred stock......................................... 577,713 647,936 1,459,936
------------ ------------ ------------
15,348,922 18,672,523 27,592,530
------------ ------------ ------------
Stockholders' deficit (note 3):
Undesignated preferred stock, 200,000 shares authorized in
1999; none issued or outstanding........................ -- -- --
Series A preferred stock, par value $.01, authorized,
issued and outstanding 880,000 shares (aggregate
liquidation preference of $1,100,000)................... 1,094,413 1,094,413 1,094,413
Common stock, par value $.01. Authorized 13,500,000
shares; issued and outstanding 1,001,000, 1,009,053 and
1,238,689 shares, respectively.......................... 10,010 10,091 12,387
Additional paid-in capital................................ 3,523 43,138 3,634,511
Unearned stock option compensation........................ -- -- (2,351,332)
Accumulated deficit....................................... (11,147,430) (19,147,433) (25,515,106)
------------ ------------ ------------
Total stockholders' deficit......................... (10,039,484) (17,999,791) (23,125,127)
Commitments and contingencies (note 6)......................
------------ ------------ ------------
Total liabilities and stockholders' deficit......... $ 7,065,387 $ 10,806,271 $ 14,082,657
============ ============ ============
</TABLE>

See accompanying notes to financial statements.

F-3
<PAGE> 72

EXACTIS.COM, INC.

STATEMENTS OF OPERATIONS

See accompanying notes to financial statements.

F-4
<PAGE> 73

EXACTIS.COM, INC.

STATEMENTS OF STOCKHOLDERS' DEFICIT

PERIOD FROM INCEPTION (JANUARY 30, 1996) TO DECEMBER 31, 1996,
YEARS ENDED DECEMBER 31, 1997 AND 1998 AND THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 (UNAUDITED)

<TABLE>
<CAPTION>
SERIES A
PREFERRED STOCK COMMON STOCK ADDITIONAL UNEARNED
-------------------- ------------------- PAID-IN STOCK OPTION ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL
------- ---------- --------- ------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at inception..... -- $ -- -- $ -- $ -- $ -- $ -- $ --
Issuance of common stock
for assets.............. -- -- 1,000,000 10,000 2,282 -- -- 12,282
Issuance of Series A
preferred stock, net of
issuance costs.......... 880,000 1,094,413 -- -- -- -- -- 1,094,413
Accretion of redeemable
preferred stock to
liquidation value....... -- -- -- -- -- -- (3,303) (3,303)
Net loss.................. -- -- -- -- -- -- (3,391,741) (3,391,741)
------- ---------- --------- ------- ---------- ----------- ------------ ------------
Balances at December 31,
1996.................... 880,000 1,094,413 1,000,000 10,000 2,282 -- (3,395,044) (2,288,349)
Exercise of common stock
options................. -- -- 1,000 10 1,241 -- -- 1,251
Accretion of redeemable
preferred stock to
liquidation value....... -- -- -- -- -- -- (53,473) (53,473)
Net loss.................. -- -- -- -- -- -- (7,698,913) (7,698,913)
------- ---------- --------- ------- ---------- ----------- ------------ ------------
Balances at December 31,
1997.................... 880,000 1,094,413 1,001,000 10,010 3,523 -- (11,147,430) (10,039,484)
Exercise of common stock
options................. -- -- 8,053 81 9,911 -- -- 9,992
Issuance of common stock
options for services.... -- -- -- -- 29,704 -- -- 29,704
Accretion of redeemable
preferred stock to
liquidation value....... -- -- -- -- -- -- (102,782) (102,782)
Net loss.................. -- -- -- -- -- -- (7,897,221) (7,897,221)
------- ---------- --------- ------- ---------- ----------- ------------ ------------
Balances at December 31,
1998.................... 880,000 1,094,413 1,009,053 10,091 43,138 -- (19,147,433) (17,999,791)
Exercise of common stock
options................. -- -- 229,636 2,296 383,638 -- -- 385,934
Issuance of common stock
options at less than
fair value.............. -- -- -- -- 3,207,735 (3,207,735) -- --
Amortization of unearned
compensation............ -- -- -- -- -- 856,403 -- 856,403
Accretion of redeemable
preferred stock to
liquidation value....... -- -- -- -- -- -- (114,348) (114,348)
Net loss.................. -- -- -- -- -- -- (6,253,325) (6,253,325)
------- ---------- --------- ------- ---------- ----------- ------------ ------------
Balances at September 30,
1999 (unaudited)........ 880,000 $1,094,413 1,238,689 $12,387 $3,634,511 $(2,351,332) $(25,515,106) $(23,125,127)
======= ========== ========= ======= ========== =========== ============ ============
</TABLE>

See accompanying notes to financial statements.

F-5
<PAGE> 74

EXACTIS.COM, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(JANUARY 30, NINE MONTHS ENDED
1996) TO YEARS ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------------- -------------------------
1996 1997 1998 1998 1999
------------ ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... $(3,391,741) $(7,698,913) $(7,897,221) $(5,502,208) $(6,253,325)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization................ 173,836 805,520 1,031,607 750,388 1,173,637
Amortization of deferred marketing and
financing costs............................ -- 77,606 162,237 84,110 46,751
Preferred stock and preferred stock warrants
issued for financing costs, marketing costs
and interest expense....................... -- 113,197 -- -- --
Common stock options issued for services and
compensation............................... -- -- 29,704 -- 856,403
Accretion of premium on notes payable........ -- 29,748 53,286 38,635 36,538
Changes in operating assets and liabilities:
Accounts receivable.......................... -- (193,687) (2,033,608) (421,182) (108,697)
Prepaid expenses and other................... (130,808) 26,601 7,246 (61,962) (698,755)
Other assets................................. (129,588) (12,692) (66,693) (62,403) (21,444)
Accounts payable and accrued liabilities..... 475,938 (75,170) 479,494 349,693 2,799,700
Deferred revenue............................. -- 12,591 7,931,861 144,087 (2,840,094)
----------- ----------- ----------- ----------- -----------
Net cash used by operating activities.... (3,002,363) (6,915,199) (302,087) (4,680,842) (5,009,286)
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of equipment and software............. (1,848,753) (1,056,942) (894,493) (791,044) (3,500,212)
Proceeds from sale of equipment................ 29,696 7,358 9,275 1,771 466
----------- ----------- ----------- ----------- -----------
Net cash used by investing activities.... (1,819,057) (1,049,584) (885,218) (789,273) (3,499,746)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common and preferred
stock........................................ 8,631,389 5,414,330 3,160,588 3,160,588 9,191,595
Principal payments on capital lease
obligations.................................. (11,912) (19,768) (22,307) (16,475) (8,056)
Proceeds from notes payable.................... -- 3,522,658 477,343 477,343 --
Payments on notes payable...................... -- (253,471) (542,087) (381,829) (506,375)
Change in restricted cash...................... -- (750,320) 750,320 750,320 --
----------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities............................. 8,619,477 7,913,429 3,823,857 3,989,947 8,677,164
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ 3,798,057 (51,354) 2,636,552 (1,480,168) 168,132
Cash and cash equivalents at beginning of
period......................................... -- 3,798,057 3,746,703 3,746,703 6,383,255
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period....... $ 3,798,057 $ 3,746,703 $ 6,383,255 $ 2,266,525 $ 6,551,387
=========== =========== =========== =========== ===========
Supplemental cash flow information --
cash paid for interest......................... $ 4,807 $ 86,865 $ 107,558 $ 82,433 $ 63,419
=========== =========== =========== =========== ===========
Supplemental noncash investing and financing
activities:
Common stock and common stock options issued
for assets................................... $ 12,282 -- -- -- --
=========== =========== =========== =========== ===========
Redeemable preferred stock warrants issued for
financing and marketing costs................ $ -- $ 320,394 $ 70,223 -- --
=========== =========== =========== =========== ===========
Notes payable and accrued interest payable
converted to preferred stock................. $ -- $ 2,021,697 -- -- --
=========== =========== =========== =========== ===========
</TABLE>

See accompanying notes to financial statements.

F-6
<PAGE> 75

EXACTIS.COM, INC.

Notes to Financial Statements

December 31, 1997 and 1998 and September 30, 1999 (Unaudited)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) BUSINESS AND BASIS OF FINANCIAL STATEMENT PRESENTATION

Exactis.com, Inc. (formerly InfoBeat Inc.) (the "Company"), a Delaware
corporation, was formed on January 30, 1996. In January 1999, the
Company changed its name from InfoBeat Inc. to Exactis.com, Inc. The
Company provides permission-based outsourced email marketing and
communications services. Through December 1998, the Company also
operated an online publishing business, which consisted of the
publication of advertising supported newsletters delivered daily to
subscribers via email (see note 2).

The accompanying unaudited financial information as of September 30,
1999 and for the nine-month periods ended September 30, 1998 and 1999
has been prepared in accordance with generally accepted accounting
principles for interim financial information. All significant
adjustments, consisting of only normal and recurring adjustments, which,
in the opinion of management, are necessary for a fair presentation of
the results of operations and cash flows for the nine months ended
September 30, 1998 and 1999 have been included. Operating results for
the nine month period ending September 30, 1999 are not necessarily
indicative of the results that may be expected for the full year.

The Company has incurred significant losses since inception and expects
to incur a loss in 1999. Should the Company be unable to generate
significant revenue and realize cash flows from operations in the near
term, the Company will require additional equity or debt financing to
meet working capital needs and to fund operating losses. Although the
Company completed financing transactions in July and August 1999, as
described in note 3, management believes the Company will require
additional financing and there can be no assurances that such financing
will be available in the future.

The preparation of the 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 revenue and expenses
during the reporting period. Actual results could differ significantly
from those estimates.

(b) CASH EQUIVALENTS AND RESTRICTED CASH

The Company considers all highly liquid investments with maturities of
three months or less at the date of purchase to be cash equivalents.

Restricted cash in 1997 consisted of proceeds from the sale of preferred
stock to a strategic partner which was committed, and used in 1998, for
the development of the email services business.

Equipment and purchased computer software are recorded at cost.
Depreciation and amortization is calculated using the straight-line
method over the estimated useful lives of the assets which range from 3
to 5 years.

(d) INCOME TAXES

The Company accounts for income taxes under the provisions of Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes
(Statement 109). Under the asset

F-7
<PAGE> 76
EXACTIS.COM, INC.

Notes to Financial Statements -- (Continued)

and liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in operations in the period that includes the enactment date.
A valuation allowance is required to the extent any deferred tax assets
may not be realizable.

(e) FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of certain of the Company's financial instruments,
including accounts receivable and accrued liabilities, approximate fair
value because of their short maturities. Because the interest rates on
the Company's notes payable and capital lease obligations reflect market
rates and terms, the fair values of these instruments approximate
carrying amounts.

(f) REVENUE RECOGNITION

Email and other services revenue generally is derived from the delivery
of email messages for clients on a pre-determined price per message
basis and is recognized upon delivery. The Company records deferred
revenue for payments received and receivables contractually due in
advance of services performed. See note 2 for revenue recognition
related to the email and other services provided to Sony Music.

Online publishing revenue consisted principally of short-term
advertising contracts whereby the Company guaranteed a minimum number of
impressions (a view of an advertisement by a consumer) for a fixed fee.
The Company recorded deferred revenue for payments received in advance
of delivered impressions.

(g) IMPAIRMENT OF LONG-LIVED ASSETS AND ASSETS TO BE DISPOSED OF

In accordance with SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, the
Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is generally measured by a comparison of
the carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is equal to the amount by which the
carrying amounts of the assets exceed the fair values of the assets.
Assets to be disposed of are reported at the lower of the carrying
amount or fair value, less costs to sell.

(h) STOCK-BASED COMPENSATION

The Company accounts for its stock option plans in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense is recorded on the date of grant only if
the current market price of the underlying stock exceeds the exercise
price of the option. Statement of Financial Accounting Standard No. 123,
Accounting for Stock-Based Compensation, permits entities to recognize
as expense, over the vesting period, the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net income or loss disclosures as if the
fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected
F-8
<PAGE> 77
EXACTIS.COM, INC.

Notes to Financial Statements -- (Continued)

to continue to apply the provisions of APB Opinion No. 25 and provide
the pro forma disclosures required by SFAS No. 123.

(i) CONTINGENT STOCK PURCHASE WARRANTS

The Company recorded contingent stock purchase warrants issued prior to
November 21, 1997 in accordance with Emerging Issues Task Force Bulletin
96-3: Accounting for Equity Instruments That Are Issued for
Consideration Other Than Employee Services under FASB Statement No.
123. Under EITF 96-3, the number of warrants estimated to eventually be
issued are recorded at the fair value at the grant date. The Company
expenses subsequent revisions to the estimated number of warrants to be
issued based on the fair value of the warrants, as determined at the
grant date.

The Company has recorded contingent stock purchase warrants issued
subsequent to November 20, 1997 in accordance with Emerging Issues Task
Force Bulletin 96-18: Accounting for Equity Instruments That Are Issued
to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services. At the grant date, the minimum number of warrants
which may eventually be issued are recorded at their fair value, which
is adjusted in subsequent periods for revisions of the minimum number of
warrants to be issued and the then current fair value of the warrants.

(j) LOSS PER SHARE

Loss per share is presented in accordance with the provisions of
Statement of Financial Accounting Standards No. 128, Earnings Per Share
(SFAS 128). Under SFAS 128, basic earnings (loss) per share (EPS)
excludes dilution for potential common stock and is computed by dividing
income or loss available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts
to issue common stock were exercised or converted into common stock.
Basic and diluted EPS are the same in 1996, 1997, 1998 and 1999, as all
potential common stock instruments are antidilutive.

(2) SALE OF ONLINE PUBLISHING BUSINESS

Prior to December 1998, the Company operated in two lines of business. The
Company's initial business, the online publishing business, was the
publication of advertising supported newsletters delivered daily to
subscribers via email. In early 1998, the Company launched its outsourced
email marketing and communications services business (the email services
business).

In December 1998 the Company sold the online publishing business, including
rights to the InfoBeat brand, the consumer newsletters and the subscriber
lists to Sony Music, a Group of Sony Music Entertainment Inc. The Company
also entered into a service agreement to manage the production and delivery
of the InfoBeat newsletters for Sony Music through December 2001. At
December 31, 1998, the Company had received $6.3 million and recorded a
receivable of $1.5 million under the sales agreement and related service
agreement. The agreements also provide for additional minimum payments of
$7.0 million over the term of the service agreement. In connection with the
agreements, Sony Music was granted preferred stock purchase warrants with
contingent vesting provisions based on future performance criteria (see
note 3).

The separate fair values of the sales and service agreements were not
objectively determinable. Therefore, the proceeds of the sales and service
agreements are being recognized as email services

F-9
<PAGE> 78
EXACTIS.COM, INC.

Notes to Financial Statements -- (Continued)

revenue over the term of the service agreement based on the monthly minimum
number of email messages to be provided under the service agreement.

Beginning in January 1999, the Company agreed to provide Sony Music with
editorial services related to the InfoBeat newsletters. Online publishing
revenue in 1999 consists of cost reimbursements by Sony Music for employees
providing these editorial services.

(3) PREFERRED STOCK AND STOCKHOLDERS' EQUITY

(a) PREFERRED STOCK

The Company has five classes of preferred stock outstanding (Series A,
Series B, Series C, Series D and Series E) in addition to common stock.
All preferred shares are convertible at any time, at the option of the
holder, or in the case of an initial public offering meeting certain
offering price requirements, into an equal number of shares of common
stock, subject to adjustment for dilution that may occur from future
equity transactions. All preferred shares have voting rights on an
as-converted basis and have liquidation preferences equal to the face
amount of preferred shares sold.

The Series B, Series C, Series D and Series E Preferred Stock are
subject to mandatory redemption by the Company at $3.00, $4.00, $5.08,
and $6.50 per share, respectively, as specified below:

<TABLE>
<CAPTION>
PERCENTAGE OF REMAINING
REDEMPTION DATE SHARES TO BE REDEEMED
- --------------- -----------------------
<S> <C>
July 31, 2003........................................... 33 1/3%
July 31, 2004........................................... 50%
July 31, 2005........................................... 100%
</TABLE>

The Series A preferred shares are not redeemable.

(b) WARRANTS

In April 1997, the Company issued warrants to purchase 46,666 shares of
Series B preferred stock at $3.00 per share in connection with the
issuance of notes payable to a bank. The warrants expire in 2007 and at
December 31, 1998, all of the warrants were exercisable. The fair value
of the warrants at the date of issuance was recorded as deferred
financing costs and is being amortized to interest expense over the term
of the notes using the interest method.

In June 1997, the Company issued warrants to purchase 75,000 shares of
Series C preferred stock at $4.00 per share in connection with a bridge
financing. The warrants expire in 2001 and at December 31, 1998, all of
the warrants were exercisable. The fair value of the warrants at the
date of issuance was recognized as interest expense in 1997.

In July 1997, the Company issued warrants to purchase 210,917 shares of
Series C preferred stock at $4.00 per share in connection with the
issuance of Series C preferred stock. The warrants expire in 2001 and at
December 31, 1998, all of the warrants were exercisable. The fair value
of the warrants at the date of issuance was separately recorded as
warrants for the purchase of mandatorily redeemable preferred stock and
as a reduction in the Series C preferred stock. In July 1999, 4,906
Series C warrants were exercised.

In July 1997, the Company issued warrants to purchase 425,000 shares of
Series C preferred stock at $6.00 per share in connection with a
marketing agreement. Vesting of the warrants is contingent upon the
recipient meeting certain performance requirements under the agreement.

F-10
<PAGE> 79
EXACTIS.COM, INC.

Notes to Financial Statements -- (Continued)

The warrants expire in 2000 and at December 31, 1998, 63,750 of the
warrants were exercisable. The fair value of the warrants is being
recognized as marketing and sales expense over the term of the
agreement, based on management's periodic estimate of the number of
warrants which will ultimately vest under the agreement. Such estimate
was adjusted in 1998 and the Company recorded an additional $70,223 of
deferred marketing expense. At September 30, 1999, 170,000 warrants were
vested and exercisable.

In December 1998, the Company issued warrants to purchase 600,000 shares
of Series D preferred stock in connection with the service arrangement
described in note 2. The exercise price per share is the greater of
$6.00 per share or the price per share that is received in a qualified
financing prior to performance requirements being met. Vesting of the
warrants is contingent upon the recipient meeting certain performance
requirements under the agreement. The warrants expire in 2003 and at
September 30, 1999 and December 31, 1998, none of the warrants were
exercisable. The fair value of the warrants, if any, would be recognized
as marketing and sales expense at the time performance requirements are
met.

In July and August, 1999, the Company issued warrants to purchase a
total of 203,586 shares of Series E preferred stock at $8.00 per share
in connection with the issuance of Series E preferred stock. The
warrants expire in 2004 and at September 30, 1999, all the warrants were
exercisable. The fair value of the warrants at the date of issuance was
separately recorded as warrants for the purchase of mandatorily
redeemable preferred stock and as a reduction in the Series E preferred
stock.

In 1996 and 1997, the Company adopted stock option plans (the 1996 Plan
and the 1997 Plan) pursuant to which the Company's Board of Directors
may grant incentive stock options and non-qualified stock options to
employees, directors and consultants. The 1996 Plan and the 1997 Plan
authorize grants of options to purchase up to an aggregate of 1,600,000
shares of authorized but unissued common stock. Options forfeited under
the 1996 Plan are available for grant under the 1997 Plan. Stock options
are granted with an exercise price equal to the stock's fair market
value at the date of grant as determined by the Company's Board of
Directors. Incentive stock options have ten-year terms and generally
vest 25% one year from the grant date with the remainder vesting on a
pro-rata basis over 36 months. Non-qualified stock options have ten-year
terms and generally vest over periods up to four years from the grant
date, although 658,000 non-qualified stock options with three-year
vesting were granted in May 1999.

At December 31, 1998, 587,081 shares were available for grant under the
Plans. The per share weighted-average fair value of stock options
granted during 1996, 1997 and 1998 was $0.10, $0.33 and $0.41,
respectively, on the date of grant using the Black Scholes
option-pricing model with the following weighted-average assumptions: no
volatility or dividends, risk-free interest rate of 6%, and an expected
life of 2 years.

The Company utilizes APB Opinion No. 25 in accounting for its Plans and,
accordingly, since the Company generally grants options at fair value,
no compensation cost was recognized for stock options in the
accompanying financial statements in 1996, 1997 and 1998. In 1999, a
total of 920,500 stock options were granted with exercise prices less
than fair value, resulting in total compensation expense to be
recognized over the vesting period of $3,207,735, $856,403 of which was
recognized in the nine months ended September 30, 1999. If the Company
determined compensation cost based on the fair value of the options at
the grant date under SFAS No. 123, the Company's net loss would have
been approximately $3,413,000, $7,714,000 and $7,963,000 in 1996, 1997
and 1998, respectively.
F-11
<PAGE> 80
EXACTIS.COM, INC.

Notes to Financial Statements -- (Continued)

The following table summarizes stock option activity from inception
(January 30, 1996) to September 30, 1999:

<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Balances at inception.............................. -- $ --
Granted.......................................... 619,643 .93
Forfeited........................................ (3,500) .89
---------
Balance at December 31, 1996....................... 616,143 .93
Exercised........................................ (1,000) 1.25
Granted.......................................... 657,160 2.88
Forfeited........................................ (378,667) 1.14
---------
Balance at December 31, 1997....................... 893,636 1.71
Exercised........................................ (8,053) 1.25
Granted.......................................... 513,065 3.74
Forfeited........................................ (385,729) 2.04
---------
Balance at December 31, 1998....................... 1,012,919 3.05
Exercised........................................ (229,636) 1.68
Granted.......................................... 1,521,000 3.45
Forfeited........................................ (621,766) 3.17
---------
Balances at September 30, 1999 (unaudited)......... 1,682,517 3.56
=========
</TABLE>

At December 31, 1998, the range of exercise prices of outstanding
options was $0.75 to $4.32 and the remaining contractual life of
outstanding options was 8.71 years. At December 31, 1998, 291,284
incentive options and 75,043 non-qualified options were exercisable.

The following table summarizes information about stock options
outstanding at December 31, 1998:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- --------------------------------------------------- -----------------------
WEIGHTED NUMBER
RANGE AVERAGE WEIGHTED EXERCISABLE WEIGHTED
OF REMAINING AVERAGE AS OF AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
PRICES OUTSTANDING LIFE PRICE 1998 PRICE
- ------------ ----------- ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$.75 -- 1.25 165,693 7.74 $1.20 100,395 $1.20
3.00 -- 3.40 689,810 8.72 3.21 247,016 3.13
4.32 157,416 9.69 4.32 18,916 4.32
--------- -------
1,012,919 8.71 3.05 366,327 2.66
========= =======
</TABLE>

F-12
<PAGE> 81
EXACTIS.COM, INC.

Notes to Financial Statements -- (Continued)

(4) INCOME TAXES

Income tax benefit relating to losses for the period and years ended
December 31 differs from the amounts that would result from applying the
federal statutory rate of 34% as follows:

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION TO YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------
1996 1997 1998
------------ ----------- -----------
<S> <C> <C> <C>
Expected tax benefit.......................... $(1,153,192) $(2,617,630) $(2,685,055)
State income taxes, net of federal benefit.... (67,156) (152,438) (156,364)
Change in valuation allowance for deferred tax
assets...................................... 1,251,268 2,841,912 2,869,286
Other, net.................................... (30,920) (71,844) (27,867)
----------- ----------- -----------
Actual income tax benefit..................... $ -- $ -- $ --
=========== =========== ===========
</TABLE>

No tax benefit was recorded by the Company for the nine months ended
September 30, 1999 due to net operating losses and an increase in the
valuation allowance for deferred tax assets.

Temporary differences that give rise to the components of deferred tax
assets as of December 31 are as follows:

<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Net operating loss carryforwards........................... $ 4,048,144 $ 4,372,641
Receivables due to allowance for doubtful accounts for tax
purposes only............................................ 27,771 27,771
Deferred revenue........................................... -- 2,362,453
Equipment and leasehold improvements due to differences in
depreciation............................................. (4,938) 71,082
Accrued expenses........................................... 22,203 78,692
Other, net................................................. -- 49,827
----------- -----------
Gross deferred tax asset......................... 4,093,180 6,962,466
Valuation allowance........................................ (4,093,180) (6,962,466)
----------- -----------
Net deferred tax asset........................... $ -- $ --
=========== ===========
</TABLE>

At December 31, 1998, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $11.8 million, which is
available to offset future federal taxable income, if any, through 2018.
Management believes the utilization of the carryforwards will be limited by
Internal Revenue Code Section 382 relating to changes in ownership, as
defined.

Due to the uncertainty regarding the realization of the deferred tax assets
relating to the net operating loss carryforwards and other temporary
differences, a valuation allowance has been recorded for the entire amount
of the Company's deferred tax asset at December 31, 1997 and 1998 and
September 30, 1999.

F-13
<PAGE> 82
EXACTIS.COM, INC.

Notes to Financial Statements -- (Continued)

(5) LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1997 1998 1999
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
14.0% note, payable in monthly installments of
$31,669, including interest, with final payment
of $75,000 due March 1, 2000; secured by
computer equipment.............................. $ 796,513 $ 502,994 $ 255,348
12.5% note, payable in monthly installments of
$12,815, including interest, with final
payment of $30,622 due October 1, 2000;
secured by computer equipment and furniture... 388,056 276,148 182,561
12.5% note, payable in monthly installments of
$3,585, including interest, with final payment
of $8,577 due December 1, 2000; secured by
computer equipment............................ 114,366 82,830 57,148
12.3% note, payable in monthly installments of
$3,487, including interest with final payment
of $8,359 due May 1, 2001..................... -- 93,631 69,838
12.3% note, payable in monthly installments of
$11,454, including interest, with final
payment of $27,442 due August 1, 2001......... -- 331,874 252,747
---------- ---------- ---------
1,298,935 1,287,477 817,642
Less current portion.................. (482,506) (677,777) (600,931)
---------- ---------- ---------
Long-term debt, excluding current
portion............................. $ 816,429 $ 609,700 $ 216,711
========== ========== =========
</TABLE>

The above notes payable are included in a bank financing agreement. The
aggregate maturities for long-term debt for each of the years subsequent to
December 31, 1998 are as follows: 1999 -- $677,777; 2000 -- $496,938 and
2001 -- $112,762.

In June 1997, the Company borrowed $2.0 million in the form of convertible
subordinated promissory notes with an interest rate of 12%, which amount
was converted to Series C preferred stock in July 1997.

F-14
<PAGE> 83
EXACTIS.COM, INC.

Notes to Financial Statements -- (Continued)

(6) COMMITMENTS AND CONTINGENCIES

(a) LEASES

The Company leases office facilities under an operating lease agreement
which expires in 2001. Additionally, the Company has leased $62,043 of
computer equipment under capital leases. Future minimum lease payments
as of December 31, 1998, are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASE
------- ---------
<S> <C> <C>
1999...................................................... $8,260 $175,176
2000...................................................... -- 175,176
2001...................................................... -- 175,176
------ --------
Total future minimum lease payments............. 8,260 $525,528
========
Less amount representing interest......................... (204)
------
Present value of future minimum lease payments--
current....................................... $8,056
======
</TABLE>

Rent expense for the period from inception (January 30, 1996) to
December 31, 1996, the years ended December 31, 1997 and 1998 and the
nine months ended September 30, 1999 was $57,300, $152,461, $167,862 and
$148,070, respectively.

(b) EMPLOYEE BENEFIT PLAN

During 1996, the Company established a 401(k) plan that allows eligible
employees to contribute up to 15% of their compensation up to a maximum
amount provided by the Internal Revenue Code. The Company may make
discretionary contributions to the 401(k) plan. The Company has made no
contributions to the Plan since inception.

The Company is subject to litigation and claims incidental to its
business. While it is not feasible to predict or determine the financial
outcome of these matters, management does not believe that the ultimate
resolution of these matters will result in a significant adverse effect
on the Company's financial position, results of operations or liquidity.

(7) SIGNIFICANT CUSTOMERS

Revenue attributable to significant customers (as a percentage of total
revenue) in 1997, 1998 and 1999 was as follows:

<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED
------------- SEPTEMBER 30,
1997 1998 1999
----- ----- --------------
(UNAUDITED)
<S> <C> <C> <C>
Customer A -- online publishing and email and other
services................................................... -- -- 68%
Customer B -- email and other services..................... 42% 2% --
Customer C -- online publishing and email and other
services................................................. 13% 6% --
</TABLE>

F-15
<PAGE> 84
EXACTIS.COM, INC.

Notes to Financial Statements -- (Continued)

(8) BUSINESS SEGMENTS

The Company had two reportable business segments, email and other services
and online publishing. The online publishing business was sold to Sony
Music in December 1998 (see note 2). The following sets forth selected
segment data for the years ended December 31, 1997 and 1998 and for the
nine months ended September 30, 1998. Online publishing revenue for 1999
consists of cost reimbursements by Sony Music for employees providing
editorial services related to the InfoBeat newsletters. The Company
operates in a single segment in 1999 as it does not prepare segment
financial information related to the editorial services provided to Sony
Music. Segment information is not presented for the period from inception
to December 31, 1996, as the Company operated only in the online publishing
business prior to 1997. The Company primarily evaluates segment performance
based on net income or loss. General and administrative costs, depreciation
and amortization and interest were allocated between the two segments based
upon revenue. The tangible assets used by the two segments were not
separately identifiable.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------
EMAIL
AND OTHER ONLINE
SERVICES PUBLISHING TOTAL
--------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue..................................................... $ 359 $ 496 $ 855
Cost of revenue............................................. 132 1,907 2,039
------- ------- -------
Gross profit (loss)............................... 227 (1,411) (1,184)
------- ------- -------
Operating expenses:
Marketing and sales....................................... 1,033 425 1,458
Research, development and engineering..................... 701 1,500 2,201
General and administrative................................ 831 1,147 1,978
Depreciation and amortization............................. 338 467 805
------- ------- -------
Total operating expenses.......................... 2,903 3,539 6,442
------- ------- -------
Loss from operations.............................. (2,676) (4,950) (7,626)
Interest expense............................................ (104) (148) (252)
Interest income............................................. 74 105 179
------- ------- -------
Net loss.......................................... $(2,706) $(4,993) $(7,699)
======= ======= =======
</TABLE>

F-16
<PAGE> 85
EXACTIS.COM, INC.

Notes to Financial Statements -- (Continued)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------
EMAIL
AND OTHER ONLINE
SERVICES PUBLISHING TOTAL
--------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue..................................................... $ 821 $ 1,958 $ 2,779
Cost of revenue............................................. 256 2,524 2,780
------- ------- -------
Gross profit (loss)............................... 565 (566) (1)
------- ------- -------
Operating expenses:
Marketing and sales....................................... 1,621 189 1,810
Research, development and engineering..................... 1,807 1,108 2,915
General and administrative................................ 602 1,437 2,039
Depreciation and amortization............................. 305 726 1,031
------- ------- -------
Total operating expenses.......................... 4,335 3,460 7,795
------- ------- -------
Loss from operations.............................. (3,770) (4,026) (7,796)
Interest expense............................................ (64) (157) (221)
Interest income............................................. 35 85 120
------- ------- -------
Net loss.......................................... $(3,799) $(4,098) $(7,897)
======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1998
--------------------------------
EMAIL
AND OTHER ONLINE
SERVICES PUBLISHING TOTAL
--------- ---------- -------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Revenue..................................................... $ 449 $ 1,541 $ 1,990
Cost of revenue............................................. 181 1,856 2,037
------- ------- -------
Gross profit (loss)............................... 268 (315) (47)
------- ------- -------
Operating expenses:
Marketing and sales....................................... 1,138 132 1,270
Research, development and engineering..................... 1,277 783 2,060
General and administrative................................ 300 1,030 1,330
Depreciation and amortization............................. 169 581 750
------- ------- -------
Total operating expenses.......................... 2,884 2,526 5,410
------- ------- -------
Loss from operations.............................. (2,616) (2,841) (5,457)
Interest expense............................................ (36) (120) (156)
Interest income............................................. 26 85 111
------- ------- -------
Net loss.......................................... $(2,626) $(2,876) $(5,502)
======= ======= =======
</TABLE>

F-17
<PAGE> 86

[PROSPECTUS , 1999]

[EXACTIS.COM LOGO]

3,800,000 Shares
Common Stock

THOMAS WEISEL PARTNERS LLC

DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED

WIT CAPITAL CORPORATION
- --------------------------------------------------------------------------------

YOU MAY RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NEITHER WE NOR ANY
OF THE UNDERWRITERS OR THE SELLING STOCKHOLDERS HAVE AUTHORIZED ANYONE TO
PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. WHEN YOU
MAKE A DECISION ABOUT WHETHER TO INVEST IN OUR COMMON STOCK, YOU SHOULD NOT RELY
UPON ANY INFORMATION OTHER THAN THE INFORMATION IN THIS PROSPECTUS. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR THE SALE OF OUR COMMON STOCK MEANS THAT
INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE DATE OF THIS
PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR SOLICITATION OF AN OFFER
TO BUY THESE SHARES OF COMMON STOCK IN ANY CIRCUMSTANCES UNDER WHICH THE OFFER
OR SOLICITATION IS UNLAWFUL.

UNTIL DECEMBER 14, 1999, ALL DEALERS THAT BUY, SELL OR TRADE THESE SHARES OF
COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.