@Post Corporation Budget for Years 1-4

© Copyright: Ben Livson 1999. All rights reserved. Confidential. September 1999, V2.

Introduction

This document presents @Post's schedule of performance milestones and budget for the first four years from obtaining mezzanine equity funding. @Post structure and key milestones are detailed. @Post budget planning requirements are:

1. Budgeting accuracy of 5% or better.
2. Flawless financial controls, accounting and audit compliance to enable stock market float in 4 years.
3. Conserve equity funding cash outlays by offering script subject to board approval for payment of services where possible.
4. Encourage loyalty and performance of staff by providing script.
5. Real-time measurement of business performance with monthly board reporting.

Script and Equity Funding

@Post script is $1b with 500 million $2 shares. The equity funding strategy is:

1. $10m mezzanine funding by the @Post founders and Australia Post
2. $10m by strategic investor for 25% shares by month 15.
3. Staff and performance bonus dilution: 16%
4. Final dilution - IPO: approx 10-20%

Budget deficit for the first two years must not exceed $20m. @Post must be profitable from year 3.

Pre-float Script Terms and Conditions

Any pre-float script is held in trust by the @Post board and cannot be sold on the stock market for the first two years after the float. The board reserves the right to revoke any script to staff or suppliers that are in breach of the conditions. Key staff and suppliers are under obligation to perform for the whole period until the float as well as two years post float. Board approval is required for any issue of script.

Board Fees

@Post board members shall not be paid any fees except for travel and accommodation. Each board member is entitled to 5m shares for her or his services for the board in addition to any other entitlements as an investor or otherwise. Rotating board members are nominated for six years and are expected to serve the whole period for their share entitlement.

Executive Management - Founder Fees

@Post founders BL and PM form are each entitled to $150K and are required to serve for at least six years.

Business Performance Milestones and Script Bonuses

@Post milestones are measured in months from the mezzanine equity funding. Failure to meet a milestone by more than a month disqualifies any bonus. The milestones and performance bonuses follow:

A maximum of 80m shares out of the 500m are diluted (16%) as performance bonuses. The founders as executive management will recommend to the board to approve individual staff bonuses.

Staff Expenditure

Year 1: Three developers and two product marketing specialists at $100K ea and gradual recruitment until month 6 budgeted at $400,000.

Year 2: Development $500K, Operations $300K and Marketing $500K totals $1.3m.

Year 3: Development $500K, Operations $500K and Marketing $1m totals $2m.

Year 4: Development $300K, Operations $700K and Marketing $1m totals $2m.

Contract Services

Both staff and contract services are encouraged to accept part of the payment in script. Budget contract services at $600K pa:

Legal $50K

Accounting $25K

Financial Audit $25K

Security Audit $50K

Market Research $100K

Marketing collateral planning and design $100K

E-commerce, e-service, web-site design and implementation $100K

Strategic Planning and Review $50K

Business Planning - prospectus and investor information - $100K

Office and Travel Expenditure

Sydney HO including rent, refurbishment, cabling and office equipment: $120K pa.

Melbourne office from year 2: $60K pa.

Wellington office from year 3: $60K pa.

Site security: $10K year 1 increasing to $20K year 3.

Telecommunications including telephones, faxes, mobiles and Internet access: $10K year 1 increasing to $20K year 3.

Sundries such as electricity, cleaning and consumables: $10K year increasing to $20K year 3.

Travel and accommodation: $150K for year 1 increasing to $300K for year 3 including monthly interstate travel and accommodation for 12x3 board and 100 staff trips interstate for year 1 doubling in year 3. Allocate five overseas trips in year 1 increasing into ten in year 3.

Budget $300K, $450K, $600K and $600K for year 1-4 office and travel expenditure, respectively.

Computing and Network Expenditure

Budget $1m pa for computing and network expenditure:

• Development environment:        $200K
• Test environment:                      $200K
• Production environment:            $500K
• Data communications                $100K

Melbourne will be DRP site for Sydney and Sydney will be DRP for the other sites. Thus, no extra expenditure is required for DRP. The sites will load balance.

The above expenditure must be detailed and is likely to significantly change following @post design. Software licenses are included in the above categories.

Media Advertising

First year's $1m advertising expenditure is the minimum required to enable @Post a meaningful pilot operation. The above advertising categories will be significantly revised to allow for at least 50% of all advertising to be carried out as @Post direct mail advertising. For example, the cost of reaching all the 1.2m businesses in Australia and 1m wealthiest consumers by @Post-EDIPost direct mail would be $3m per marketing campaign. Conducting an @Post direct mail advertising campaign is a major advertisement in its own right as direct mail is the major revenue source for @Post, and an invaluable experience for use of @Post for mass production showing faith in our own product from day one. The extent to which direct mail can be used for marketing has to be researched.

Summary of Expenditure

In particular, the expenditure for the first two years, $18.75m, is within the $20m equity-funding limit.