SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant[ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
EXCHANGE APPLICATIONS, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies: N/A
2) Aggregate Number of securities to which transaction applies: N/A
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): N/A
4) Proposed maximum aggregate value of transaction: N/A
5) Total fee paid: N/A
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: N/A
2) Form, Schedule or Registration Statement No.: N/A
3) Filing Party: N/A
4) Date Filed: N/A
<PAGE>
EXCHANGE APPLICATIONS, INC.
89 SOUTH STREET
BOSTON, MA 02111
NOTICE OF 2000 ANNUAL MEETING OF STOCKHOLDERS
TO THE STOCKHOLDERS OF EXCHANGE APPLICATIONS, INC.:
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Stockholders of
Exchange Applications, Inc. (the "Company") will be held at the offices of
Bingham Dana LLP, 16th Floor, 150 Federal Street, Boston, MA 02110, on
Wednesday, June 14, 2000, at 10:00 a.m., local time, for the following
purposes:
1. To re-elect Mr. Dean F. Goodermote as a director of the Company to
hold office for a three-year term and until his successor has been
duly elected and qualified;
2. To ratify the action of the Board of Directors in amending the 1998
Stock Incentive Plan to increase the number of shares of common stock
authorized for issuance thereunder from 5,400,000 to 9,400,000;
3. To approve the amendment to the Company's Certificate of
Incorporation to change the Company's name to Xchange, Inc.; and
4. To transact such other business as may properly come before the
Meeting or any adjournments or postponements thereof.
The Board of Directors has fixed April 19, 2000 as the record date for the
determination of stockholders entitled to notice of, and to vote at, the 2000
Annual Meeting of Stockholders. Accordingly, only stockholders of record at the
close of business on April 19, 2000 will be entitled to notice of, and to vote
at, such meeting or any adjournments thereof.
By order of the Board of Directors
JOHN G. O'BRIEN
Secretary
May 15, 2000
- -------------------------------------------------------------------------------
NOTE: THE BOARD OF DIRECTORS SOLICITS THE EXECUTION AND PROMPT RETURN OF THE
ACCOMPANYING PROXY. WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE
MEETING, PLEASE COMPLETE, DATE, SIGN AND MAIL THE ACCOMPANYING PROXY
AND PROMPTLY RETURN IT IN THE PRE-ADDRESSED ENVELOPE PROVIDED FOR THAT
PURPOSE. IF YOU ATTEND THE MEETING, YOU MAY WITHDRAW ANY PROXY GIVEN BY
YOU AND VOTE YOUR SHARES IN PERSON.
- -------------------------------------------------------------------------------
<PAGE>
EXCHANGE APPLICATIONS, INC.
89 SOUTH STREET
BOSTON, MA 02111
---------------
PROXY STATEMENT
---------------
GENERAL INFORMATION
PROXY SOLICITATION
This Proxy Statement is furnished to the holders of the common stock,
$.001 par value per share ("Common Stock"), of Exchange Applications, Inc. (the
"Company") in connection with the solicitation of proxies on behalf of the
Board of Directors of the Company for use at the Annual Meeting of Stockholders
to be held on June 14, 2000 (the "Meeting"), or at any adjournment or
postponement thereof, pursuant to the accompanying Notice of 2000 Annual
Meeting of Stockholders. The purposes of the Meeting and the matters to be
acted upon are set forth in the accompanying Notice of 2000 Annual Meeting of
Stockholders. The Board of Directors knows of no other business that will come
before the Meeting.
This Proxy Statement and proxies for use at the Meeting will be first
mailed to stockholders on or about May 15, 2000, and such proxies will be
solicited chiefly by mail, but additional solicitations may be made by
telephone or telegram by the officers or regular employees of the Company. The
Company may enlist the assistance of brokerage houses in soliciting proxies.
All solicitation expenses, including costs of preparing, assembling and mailing
proxy material, will be borne by the Company. In addition, the Company has
retained Corporate Investor Communications, Inc. to assist in the solicitation
of proxies for the Meeting and expects to pay approximately $2,000 in
connection with such proxy solicitation.
REVOCABILITY AND VOTING OF PROXY
A form of proxy for use at the Meeting and a return envelope for the proxy
are enclosed. Stockholders may revoke the authority granted by their execution
of proxies at any time before their effective exercise by filing with the
Secretary of the Company a written revocation or a duly executed proxy bearing
a later date or by voting in person at the Meeting. Shares represented by
executed and unrevoked proxies will be voted in accordance with the choice or
instructions specified thereon. If no specifications are given, the proxies
intend to vote the shares represented thereby to approve Proposals No. 1, No.
2, and No. 3 as set forth in the accompanying Notice of 2000 Annual Meeting of
Stockholders and in accordance with their best judgment on any other matters
that may properly come before the Meeting.
<PAGE>
RECORD DATE AND VOTING RIGHTS
Only stockholders of record at the close of business on April 19, 2000 are
entitled to notice of and to vote at the Meeting or any adjournment or
postponement thereof. As of April 19, 2000, the Company had outstanding
25,278,7891 shares of Common Stock, each of which is entitled to one vote upon
the matters to be presented at the Meeting. The presence, in person or by
proxy, of a majority of the issued and outstanding shares of Common Stock will
constitute a quorum for the transaction of business at the Meeting. Votes
withheld from any nominee, abstentions and broker "non-votes" are counted as
present or represented for purposes of determining the presence or absence of a
quorum for the Meeting. A broker "non-vote" occurs when a nominee holding
shares for a beneficial owner does not vote on one or more proposals because
the nominee does not have discretionary voting power and has not received
instructions from the beneficial owner. Abstentions are included in the number
of shares present or represented and voting on each matter. Broker "non-votes"
are not so included.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of Common stock as of April 19, 2000 of (i) each director
or nominee for director of the Company, (ii) executive officer of the Company
named in the Summary Compensation Table set forth under the caption "Executive
Compensation" below, (iii) all directors and executive officers as a group and
(iv) each person known to the Company to be the beneficial owner of more than
5% of the issued and outstanding Common Stock. As of April 19, 2000, 25,278,789
shares of Common Stock were outstanding.
<TABLE>
<CAPTION>
<S> <C> <C>
NAME ** AMOUNT AND NATURE OF PERCENTAGE OF
BENEFICIAL OWNERSHIP OUTSTANDING SHARES OF
OF COMMON STOCK (1) COMMON STOCK OWNED (1)
Andrew J. Frawley (2)............... 1,521,502 6.0%
Ramanan Raghavendran................ 5,036 *
Jeffrey Horing...................... 146,774 *
Dean F. Goodermote (3).............. 20,000 *
William Bryant (4).................. 14,864 *
N. Wayne Townsend (5)............... 115,423 *
David G. McFarlane (6).............. 351,868 1.4%
David L. Fitzgerald (7)............. 104,502 *
F. Daniel Haley (8)................. 5,376 *
</TABLE>
- ------------------------
1 On January 28, 2000 the Company's Board of Directors approved a 2 for 1
stock split in the form of a stock dividend. The dividend was paid on March 17,
2000 to all shareholders of record on March 3, 2000. Accordingly, all share and
per share amounts contained in this Proxy Statement have been adjusted to
reflect the stock split.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
NAME ** AMOUNT AND NATURE OF PERCENTAGE OF
BENEFICIAL OWNERSHIP OUTSTANDING SHARES OF
OF COMMON STOCK (1) COMMON STOCK OWNED (1)
Entities affiliated with Dresdner RCM 1,258,400 5.0%
Global Investors LLC (9).............
RS Investment Management Co. LLC
(10) 1,871,800 7.4%
The TCW Group, Inc. (11)............. 1,219,316 4.8%
All directors and executive 2,545,449 10.1%
officers as a group (twelve
persons)............................
</TABLE>
- --------
* Indicates less than 1% of the outstanding shares of Common Stock.
** Addresses are given only for beneficial owners of more than 5% of the
outstanding shares of Common Stock.
(1) Beneficial ownership is calculated in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options held by that person that
are currently exercisable or become exercisable within 60 days following
April 19, 2000 are deemed outstanding. However, such shares are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person. Unless otherwise indicated in the footnotes to this table,
the persons and entities named in the table have sole voting and sole
investment power with respect to all shares beneficially owned, subject to
community property laws where applicable.
(2) Includes 494,900 shares of Common Stock subject to options that are
exercisable within 60 days of April 19, 2000. Mr. Frawley's business
address is c/o Exchange Applications, Inc., 89 South Street, Boston, MA
02111.
(3) Includes 18,000 shares of Common Stock subject to options that are
exercisable within 60 days of April 19, 2000.
(4) Includes 11,510 shares of Common Stock subject to options that are
exercisable within 60 days of April 19, 2000.
(5) Includes 104,874 shares of Common Stock subject to options that are
exercisable within 60 days of April 19, 2000.
(6) Includes 221,866 shares of Common Stock subject to options that are
exercisable within 60 days of April 19, 2000.
(7) Includes 104,500 shares of Common Stock subject to options that are
exercisable within 60 days of April 19, 2000.
(8) Includes 5,374 shares of Common Stock subject to options that are
exercisable within 60 days of April 19, 2000.
(9) Four Embarcadero Center, San Francisco, CA 94111. Dresdner RCM Global
Investors LLC is an investment advisor and a wholly-owned subsidiary of
Dresdner RCM U.S. Holdings LLC, itself a wholly-owned subsidiary of
Dresdner Bank AG, an international banking organization headquartered in
Frankfurt, Germany.
(10) 388 Market Street, Suite 200, San Francisco, CA 94111. Includes 885,750
shares held by RS Investment Management, L.P., of which RS Investment
Management Co. LLC is the general partner.
<PAGE>
(11) 865 South Figueroa Street, Los Angeles, CA 90017. Robert Day may be deemed
to control The TCW Group, Inc. Mr. Day's business address is c/o The TCW
Group, Inc., 865 South Figueroa Street, Los Angeles, CA 90017.
PROPOSAL NO. 1
ELECTION OF DIRECTOR
NOMINEE FOR ELECTION AS DIRECTOR
The Board of Directors is divided into three classes, with the members of
the respective classes serving for staggered three-year terms. The first class
is comprised of Jeffrey Horing and William Bryant, the second class is
comprised of Dean F. Goodermote and the third class is comprised of Andrew J.
Frawley and Ramanan Raghavendran. All directors of a class hold their positions
until the annual meeting of stockholders at which their terms of office expire
and until their successors have been duly elected and qualified.
The term of office of Mr. Goodermote will expire at the Meeting. The Board
of Directors has nominated Mr. Goodermote (the "Nominee") for re-election as a
director of the Company to hold office until the annual meeting of stockholders
to be held in 2003 and until his successor has been duly elected and qualified.
If the Nominee shall be unable or unwilling to serve as a director,
discretionary authority is reserved to vote for a substitute. The Board of
Directors has no reason to believe that the Nominee will be unable or unwilling
to serve.
The affirmative vote of the holders of a plurality of the shares of Common
Stock present at the Meeting, in person or by proxy, is required for the
election of the Nominee.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 1 TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL THEREOF.
INFORMATION AS TO DIRECTORS AND NOMINEE FOR DIRECTOR
The names of the directors of the Company (including the Nominee), their
ages, their position(s) with the Company, the year in which each first became a
director, the expiration of the term of office of each, the principal
occupation and employment of each over at least the last five years, and other
directorships, if any, of each are shown below.
DIRECTOR TERM
NAME AGE POSITION(S) HELD SINCE EXPIRES
Andrew J. Frawley 37 Chairman of the 1996 2001
Board, President,
Chief Executive
Officer and Director
Ramanan Raghavendran 32 Director 1997 2001
Jeffrey Horing 36 Director 1997 2002
Dean F. Goodermote 46 Director 1998 2000
<PAGE>
William Bryant 42 Director 1999 2002
Mr. Frawley founded the Company in November 1994 and has served as its
President and Chief Executive Officer since its incorporation in November 1996.
Mr. Frawley was elected Chairman of the Board of Directors of the Company in
January 1998. From July 1993 until founding the Company, Mr. Frawley served as
a principal of Grant & Partners Limited Partnership, a management consulting
company. From May 1989 to July 1993, Mr. Frawley held various positions at
MarketPulse, a subsidiary of Praxis International Inc. and developer and
provider of database marketing products, including serving as Vice President of
North American Operations. Mr. Frawley has more than 10 years of experience in
the high technology industry.
Mr. Raghavendran has served as a Director of the Company since March
1997. Since February, 2000, Mr. Raghavendran has been Chairman and Chief
Executive Officer of ConnectCapital, a pan-Asian investment company,
and Special Partner, Asia, for Insight Capital Partners, a private equity
investment firm. From December 1996 to January 2000, Mr. Raghavendran was a
General Partner of Insight Capital Partners and several related entities.
From August 1992 to December 1996, Mr. Raghavendran was a senior member
of the investment team at General Atlantic Partners, a private equity
investment firm. Mr. Raghavendran is a member of the board of directors of
C-Bridge Internet Solutions as well as several privately held companies.
Mr. Horing has served as a Director of the Company since March 1997. Mr.
Horing has served as a managing member of Insight Venture Associates, LLC and
Insight Venture Associates II, LLC, a private equity investment firm, since
January 1995. From 1990 to 1994, Mr. Horing was employed at E.M. Warburg
Pincus, an investment firm. Mr. Horing also serves on the boards of directors
of several privately held companies.
Mr. Goodermote has been a Director of the Company since January 1998. Mr.
Goodermote has been the President and Chief Executive Officer of Process
Software Corporation, a software development company, since August 1996. From
August 1986 to August 1996, Mr. Goodermote held various positions at Project
Software and Development, Inc., including President and Chief Operating
Officer. He was Chairman of the Board of Directors at Project Software and
Development, Inc. through February 1997. Mr. Goodermote has more than 15 years
of experience in the high technology industry.
Mr. Bryant has been a Director of the Company since October 1999. Mr.
Bryant is the co-founder of Qpass, Inc., an internet commerce infrastructure
company, where he served as Chief Executive Officer from December 1996 through
June 1998 and is currently serving as Chairman. From March 1996 to December
1996, Mr. Bryant was President and founder of Netbot Inc., an internet
comparison shopping agent which was acquired by Excite Incorporated. From
January 1995 through March 1996 Mr. Bryant was President of Phinney Partners, a
sole proprietorship strategic consulting firm.
THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board of Directors has established an Audit Committee and a
Compensation Committee, but not a nominating committee. The Audit Committee met
four times during the 1999 fiscal year. The functions of the Audit Committee
include reviewing the scope and results of the annual audit of the Company's
consolidated financial statements provided by the Company's independent
accountants, the scope of other services provided by the Company's independent
accountants, proposed changes in the Company's financial and accounting
<PAGE>
standards and principles, and the Company's policies and procedures with
respect to its internal accounting, auditing and financial controls, as well as
other matters which may come before the Audit Committee. The members of the
Audit Committee were Mr. Raghavendran and Mr. Goodermote. The Compensation
Committee's principal functions are to review and approve salary plans and
bonus awards, as well as other forms of compensation. The Compensation
Committee met two times during the 1999 fiscal year. The members of the
Compensation Committee were Mr. Horing and Mr. Goodermote through October 1999.
In October 1999 Mr. Bryant replaced Mr. Goodermote on the Compensation
Committee.
During the 1999 fiscal year, the Board of Directors held four regularly
scheduled meetings as well as numerous special meetings to discuss and approve
transactions that were being contemplated by the Company throughout the year.
No director attended fewer than seventy-five percent (75%) of the Board
meetings and the meetings of Board committees on which he served. On six
occassions during the 1999 fiscal year, the Board of Directors acted by
unanimous written consent in lieu of a special meeting, pursuant to Delaware
law.
COMPENSATION OF DIRECTORS
Mr. Frawley is a director who is a full-time officer of the Company; he
receives no additional compensation for serving on the Board of Directors or
its committees. No other director is a full-time officer of the Company. The
1998 Director Stock Option Plan2 provides for the grant of stock options to
non-employee directors. Pursuant to such plan, the Company granted 5,000
options to each of Mr. Goodermote, Mr. Horing and Mr. Raghavendran on September
10, 1999 at an exercise price of $13.19. Additionally, the Company granted Mr.
Bryant 50,000 options on October 15, 1999 at an exercise price of $14.50.
Directors who are employees of the Company are not paid any fees or additional
compensation for service as members of the Board or any committee thereof. The
Company may enter from time to time into customary arrangements with respect to
fees and other compensation (including expense reimbursement) for directors who
are not employees of the Company or any of its subsidiaries.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The table below sets forth certain compensation information for the fiscal
years ended December 31, 1999, 1998 and 1997 with respect to the Company's
Chief Executive Officer and its other four most highly compensated executive
officers (the "Named Executive Officers") whose 1999 compensation exceeded
$100,000.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
LONG-TERM
COMPENSATION
AWARDS
NAME AND ANNUAL ------------------------
COMPENSATION(1) RESTRICTED SECURITIES
----------------- STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS AWARDS(2) OPTIONS(#) COMPENSATION
- ------------------------- ---- ------ ----- ---------- ----------- ------------
</TABLE>
- -------------------------
2 All option amounts and exercise prices contained in this Proxy Statement
have been adjusted to give retroactive effect to the Company stock split which
was effective on March 17, 2000.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Andrew J. Frawley 1999 $ 275,000 $ 55,000 $28,683,260 300,000 --
Chairman of the Board, 1998 $ 200,000 $100,000 $16,661,664 210,000 --
President and Chief 1997 $ 200,000 $100,000 $ 2,319,440 302,400 --
Executive Officer
David G. McFarlane 1999 $ 150,000 $ 77,008 -- 140,000 --
Chief Operating Officer 1998 $ 139,375 $134,723 -- 60,000 --
1997 $ 78,757 $ 47,500 -- 600,000 --
David L. Fitzgerald 1999 $ 125,012 $ 97,276 -- 40,000 --
Vice President, 1998 $ 59,891 $ 53,988 -- 380,000 --
North American Sales 1997 $ $ --
and Alliances
F. Daniel Haley 1999 $ 150,000 $ 48,653 -- 120,000
Chief Deal Officer 1998 $ 21,635 $ 25,000 -- 200,000 --
1997 $ $ --
N. Wayne Townsend 1999 $ 150,000 $ 77,544 $ 283,647 60,000
Vice President, 1998 $ 134,375 $ 77,762 $ 736,088 23,000
Solutions 1997 $ 125,000 $ 85,000 $ 81,975 148,000
</TABLE>
- ---------------
(1) Excludes certain perquisites and other benefits the amount of which did
not exceed 10% of the employee's total salary and bonus.
(2) Represents the value of vested restricted stock at December 31, 1999, 1998
and 1997 using a fair market value for the Common Stock of $27.94, $9.81
and $1.64 per share, respectively.
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding grants of stock options
to the Named Executive Officers during the fiscal year ended December 31, 1999.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
NUMBER OF PERCENT
SECURITIES OF TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED TO EXERCISE GRANT DATE
GRANTED EMPLOYEES IN OR BASE EXPIRATION PRESENT
NAME (SHARES) FISCAL 1999 PRICE DATE VALUE(1)
- -----------------------------------------------------------------------------------------
Andrew J. Frawley 300,000 11.3% $ 9.35 3/16/2009 $1,473,780
David G. McFarlane 100,000 3.8% $ 8.50 3/16/2008 $ 543,980
David L. Fitzgerald 40,000 1.5% $ 8.50 3/16/2008 $ 206,612
F. Daniel Haley 60,000 2.2% $ 8.50 3/16/2009 $ 234,154
F. Daniel Haley 60,000 2.2% $ 13.19 9/10/2009 $ 473,940
N. Wayne Townsend 60,000 2.2% $ 8.50 3/16/2008 $ 305,418
</TABLE>
- ----------
(1) Based on the Black-Scholes pricing model suggested by the Securities and
Exchange Commission. The estimated values under that model are based on
the following assumptions: (i) expected volatility of 75.5%; (ii) expected
life of four years; and (iii) risk-free interest rate of 5.54%. No
dividends on common stock were assumed for purposes of this estimate.
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAl YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information with respect to the stock
options exercised during the fiscal year ended December 31, 1999, and the
unexercised stock options held at the end of such fiscal year by the Named
Executive Officers.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1999(1) DECEMBER 31, 1999(2)
-----------------------------------------------------
SHARES
ACQUIRED VALUE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME ON EXERCISE REALIZED
- ---------------------------------------------------------------------------------------------------
Andrew J. Frawley -- -- 480,000 330,000 $12,398,625 $6,913,500
David G. McFarlane 208,470 $2,704,308 137,492 310,038 $ 3,738,493 $7,659,799
David L. Fitzgerald 63,000 $ 865,552 79,500 257,500 $ 1,753,531 $5,836,406
F. Daniel Haley 12,500 $ 171,417 1,000 242,500 $ 19,438 $4,913,444
N. Wayne Townsend -- -- 100,500 112,500 $ 2,636,044 $2,722,144
</TABLE>
- ----------
(1) "Exercisable" refers to those options which were both exercisable and
vested, while "Unexercisable" refers to those options which were
unvested.
(2) Based on the difference between the aggregate exercise price and the
closing price of the Common Stock of $27.94 per share on the Nasdaq
National Market as of December 31, 1999.
EXECUTIVE EMPLOYMENT AGREEMENTS
Mr. Frawley, the Company's President and Chief Executive Officer, is
employed pursuant to an employment agreement with the Company, dated November
15, 1996. Under the terms of the employment agreement, Mr. Frawley is entitled
to a performance bonus upon the Company's achievement of certain profitability
performance milestones and Mr. Frawley's corporate citizenship performance, as
assessed by the Board of Directors. Mr. Frawley received a base salary of
$275,000 in 1999 and a performance bonus of $55,000. Mr. Frawley's employment
with the Company may be terminated by the Company at any time with or without
cause, subject to the requirements of applicable law. Upon termination of the
Employment Agreement and Mr. Frawley's employment by the Company, Mr. Frawley
is not entitled to any severance benefits other than as may be required by
applicable law.
None of the Company's other executive officers has entered into an
employment agreement with the Company, and all serve at the discretion of the
Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Audit Committee or the Compensation Committee
is a past or current officer or employee of the Company.
<PAGE>
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE OFFICER COMPENSATION
COMPENSATION PHILOSOPHY AND OBJECTIVES
The Company's compensation philosophy is that executive officer
compensation should reflect the value created and protected for stockholders,
while furthering the Company's short- and long-term strategic goals and values
by aligning compensation with business objectives and individual performance.
Short- and long-term compensation should provide an incentive for the
achievement of strategic goals, be tied to the Company's achievement of
quarterly performance targets and attract and retain qualified executive
officers essential to the long-term success of the Company. Accordingly, the
Company's executive officer compensation package consists of three primary
components: base salary, quarterly and annual cash bonuses and grants of stock
options, including stock options whose vesting may be accelerated during the
year based on the achievement of well-defined fiscal and professional
objectives at the beginning of such year.
In evaluating its executive officers' performance, the Company generally
follows the process outlined below:
o Prior to or shortly after the beginning of each fiscal year, the
Company sets goals and objectives that are reviewed with, and
ultimately approved by, the full Board of Directors. The Chief
Executive Officer reports to the Board on the Company's progress
toward the achievement of these goals and objectives throughout the
year at Board meetings and at other times as necessary.
o The Chief Executive Officer submits for the Compensation Committee's
consideration at the end of the fiscal year the amount of proposed
compensation (following fiscal year base salary, current fiscal year
cash bonus and stock option awards) for himself and for the Company's
other executive officers. The executive officers' fiscal year cash
bonus is payable upon the achievement of well-defined objectives
established at the beginning of each year. In addition, some
executive officers have been granted performance-based stock options
whose vesting may be accelerated based on the achievement of fiscal
and professional objectives established at the beginning of each
fiscal year. The following fiscal year base salary, as well as
current year stock option awards, are based on more subjective
factors, including the Board of Directors' evaluation of the
Company's success in meeting its strategic objectives during the most
recent fiscal year and the Chief Executive Officer's subjective
evaluation of each executive officer's individual performance
relative to a set of pre-determined individual performance
objectives.
o The Compensation Committee acts upon the recommendations made with
respect to the executive officers after weighing the Board of
Directors' evaluation of the Company's overall achievements for the
year, the Chief Executive Officer's discussion of each executive
officer's individual performance for the year and each executive
officer's current level of compensation. The Compensation Committee
performs a comprehensive review of the compensation paid to the
Company's executive officers, including an independent third party
comparison of the compensation paid to the executive officers with
that paid to other officers in similar roles within comparable public
companies. That review, combined with the Compensation Committee
members' general industry experience, enables the Compensation
Committee to assess whether proposed compensation levels are in
keeping with industry norms.
o The Compensation Committee applies the same criteria in evaluating
the Chief Executive Officer's cash compensation as that applied to
the other executive officers of the Company as previously explained.
<PAGE>
COMPENSATION FOR FISCAL 1999
Chief Executive Officer Compensation
In January 1999, the Compensation Committee set Mr. Frawley's 1999 annual
base salary at $275,000. In addition, the Compensation Committee recommended,
and the Board of Directors approved, a grant of an option to purchase 300,000
shares of Common Stock. The Compensation Committee felt that 1999, being the
first full year as a public company, would be a critical year in establishing
the Company's foothold in the evolving eCRM marketplace. In addition to
expanding the Company's geographic penetration, the Compensation Committee
realized the identification and acquisition of complementary technologies and
competancies would be critical to the Company's success. It was the
Compensation Committee's belief that Mr. Frawley's 1999 base salary, as well as
the 1999 stock option award, was commensurate for his performance.
In January 2000, the Compensation Committee determined that Mr. Frawley
achieved the major objectives of the previous year, including the successful
completion of a follow on stock offering in June 1999 and the identification
and acquisition of the eXstatic Software (formerly Gino Borland Inc) in August
1999, and awarded Mr. Frawley a bonus accordingly. The actual bonus granted to
Mr. Frawley for fiscal 1999 was $55,000, which was paid based on the
achievement of quarterly objectives throughout the year. In addition, the
Compensation Committee set Mr. Frawley's 2000 annual base salary at the same
$275,000 level paid in 1999, feeling that it represented a level commensurate
with chief executive officers in other public companies who are of similar size
and growth characteristic.
Report on Executive Compensation
In January 1999, Mr. Frawley recommended, and the Compensation Committee
accepted, base salary increases for the executive staff of up to 15%. The
increases were determined after reviewing performance against goals and
objectives set for the year and also against salaries of similar positions in
comparable companies.
The executive officers' stock options awarded during the year to executive
officers who were employed as of January 1, 1999, other than Mr. Frawley,
amounted to 460,000 shares of common stock. In addition, the Compensation
Committee approved the vesting of options to purchase 127,750 shares of Common
Stock for the executive staff, granted as part of performance-based stock
options whose vesting is tied to the achievement of personal and Company
objectives.
Conclusion
The Company does not believe that section 162(m) of the Internal Revenue
Code, which disallows a tax deduction for certain compensation in excess of $1
million, will generally have an effect on the Company.
The Compensation Committee believes that the total 1999-related
compensation of the Chief Executive Officer and each of the executive officers,
as described above, is fair and is within the range of compensation for
executive officers in similar positions at comparable companies.
Compensation Committee
Jeffrey Horing and
William Bryant
<PAGE>
CORPORATE PERFORMANCE GRAPH
The following graph compares the performance of the Company's Common Stock
to the Nasdaq Stock Market Index and to a peer group index since December 8,
1998 (the effective date of the Company's initial public offering of the Common
Stock). The peer group is comprised of Hyperion Solutions, HNC Software Inc.,
Siebel Systems, Inc. and Remedy Corporation. The comparison assumes $100 was
invested on December 9, 1998 in the Common Stock and in each of the foregoing
indices and assumes reinvestment of dividends. The stock performance on the
graph below is not necessarily indicative of future stock price performance.
CORPORATE PERFORMANCE GRAPH
[INSERT GRAPH]
<PAGE>
PROPOSAL NO. 2
APPROVAL OF AMENDMENT TO 1996 STOCK OPTION PLAN
On April 21, 2000, the Board of Directors increased the authorized number
of shares of Common Stock reserved for issuance under the Company's 1998 Stock
Incentive Plan (the "Plan") from 5,400,000 to 9,400,000. The Company, through
the granting of incentive and nonstatutory stock options, provides incentives
to key employees and other persons who provide services to the Company by
enabling them to acquire or increase their proprietary interest in the Company.
The affirmative vote of the holders of a majority of Common Stock present
at the Meeting, in person or by proxy, is required to approve the amendment to
the Plan.
SUMMARY DESCRIPTION OF THE 1998 STOCK INCENTIVE PLAN
The Plan is administered by the Compensation Committee of the Board of
Directors. Subject to the terms of the Plan, the Compensation Committee has
complete authority to designate persons to receive awards, to grant the awards,
to determine the form of the awards and to fix all terms of any awards granted.
Incentive stock options, which are intended to meet the requirements of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), may be
granted only to officers and other employees of the Company and must have an
exercise price of not less than 100% of the fair market value of the Company's
Common Stock on the date of grant (not less than 110% for incentive stock
options granted to any 10% stockholder of the Company). The aggregate exercise
price of the shares of Common Stock as to which an incentive stock option
becomes exercisable in any calendar year may not exceed $100,000. The term of
an incentive stock option may not exceed ten years (five years in the case of
an incentive stock option granted to any 10% stockholder of the Company).
Nonstatutory stock options may be granted on such terms (date of grant,
vesting, number of shares and exercise price) as the Board may determine,
subject to the terms of the Plan. Grants of restricted stock may be made to
eligible persons and are evidenced by a restricted stock agreement, subject to
the terms of the Plan. The Plan may be terminated or amended by the Board at
any time, subject to any required regulatory approval. The stockholders of the
Company must approve any amendment if such approval is required to comply with
any applicable tax or regulatory requirement or the terms of the Plan.
FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND THE PARTICIPANTS
Nonstatutory options. There are no Federal income tax consequences to the
Company or the participants upon grant of nonstatutory options. Upon the
exercise of such an award (or other realization event, such as the lapse of a
forfeiture restriction), (i) the participant will recognize ordinary income in
an amount equal to the amount by which the fair market value of the Common
Stock acquired upon the exercise of such award exceeds the exercise price, if
any, and (ii) the Company will receive a corresponding deduction. A sale of
Common Stock so acquired will give rise to a capital gain equal to the
difference between the fair market value of the Common Stock on the exercise
and sale dates.
Incentive stock options. Except as noted below, there are no Federal
income tax consequences to the Company or the participant upon grant or
exercise of an incentive stock option. If the participant holds shares of
Common Stock purchased pursuant to the exercise of an incentive stock option
for at least two years after the date the option was granted and at least one
year after the exercise of the option, the subsequent sale of Common Stock will
give rise to a long-term capital gain or loss to the participant and no
deduction will be available to the Company. If the participant sells the shares
of Common Stock within two years after the date an incentive stock option is
<PAGE>
granted or within one year after the exercise of an option, the participant
will recognize ordinary income in an amount equal to the difference between the
fair market value at the exercise date and the option exercise price, and the
Company will be entitled to an equivalent deduction. Some participants may have
to pay alternative minimum tax upon exercise of an incentive stock option.
Restricted stock awards. When a participant receives an award of
restricted stock that is subject to a substantial risk of forfeiture, the
participant will not have to report any taxable income except as follows: if
(i) the participant makes an "83(b) election", at the date the participant
receives the restricted stock award he or she will have to report compensation
income equal to the difference between the value of the shares and the price
paid for the shares, if any (value is determined without regard to the risk of
forfeiture); and (ii) if the participant does not make an 83(b) election, at
the date or dates the substantial risk of forfeiture that applies to the award
expire, the participant will have to report compensation income equal to the
difference between the then-value of the shares and the price paid for the
shares, if any. Participants may have to report taxable gain or loss when they
sell the shares they received as restricted stock awards.
Although the foregoing summarizes the essential features of the Plan, it
is qualified in its entirety by reference to the full text of the Plan as
amended, which is attached as Exhibit 1 to this Proxy Statement.
NEW PLAN BENEFITS
1998 STOCK INCENTIVE PLAN
The following table sets forth as of April 19, 2000 the number of options
to purchase Common Stock under the 1998 Stock Incentive Plan since the Plan was
adopted by the Company by each of (i) the officers listed in the Executive
Compensation Summary Compensation Table, (ii) each of the nominees for election
as a director, (iii) all directors of the Company who are not executive
officers of the Company as a group, (iv) all present executive officers of the
Company as a group, and (v) all employees of the Company, including all other
current officers, as a group:
<TABLE>
<CAPTION>
<S> <C>
NUMBER OF
NAME AND POSITION UNITS
Andrew J. Frawley, Chairman, President and CEO (2)............................ ` 550,000
N. Wayne Townsend, Vice President, Solutions (3).............................. 130,000
David G. McFarlane, Chief Operating Officer (4)............................... 260,000
David L. Fitzgerald, Vice President, North American Sales and Alliances (5)... 80,000
F. Daniel Haley, Chief Deal Officer(6)........................................ 230,000
Dean F. Goodermote, Director.................................................. --
All directors who are not executive officers of the Company as a group........ --
All present executive officers of the Company as a group...................... 1,190,000
All employees of the Company, including all current officers, who are not
executive officers, as a group................................................ 2,279,642
</TABLE>
- ------------------------------
(1) Market value of underlying securities at April 19, 2000, minus the
exercise price of "in-the-money" options.
(2) 300,000 shares granted on March 17, 1999 at an exercise price of $ 9.35
per share
(3) 60,000 shares granted on March 17, 1999 at an exercise price of $ 8.50 per
share
<PAGE>
(4) 140,000 shares granted on March 17, 1999 at an exercise price of $ 8.50
per share
(5) 40,000 shares granted on March 17, 1999 at an exercise price of $ 8.50 per
share
(6) 60,000 shares granted on March 17, 1999 at an exercise price of $ 8.50 per
share and 60,000 shares granted on September 10, 1999 at an exercise price
of $ 13.19 per share
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 2 TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL THEREOF.
PROPOSAL NO. 3
AMENDMENT TO THE CERTIFICATE OF INCORPORATION
NAME CHANGE
On April 21, 2000 the Board of Directors unanimously adopted a resolution
approving a change in the Company's name from Exchange Applications, Inc. to
Xchange, Inc. The Board of Directors declare it advisable and in the best
interests of the Company to amend the Company's Certificate of Incorporation to
effectuate such name change.
The name change is being made at the suggestion of marketing consultants
hired by the Company to help create a corporate identity and brand that is tied
to the new business and products the Company is developing in the internet eCRM
industry.
The name change will not affect the validity of currently outstanding
stock certificates. The Company's current stockholders will not be required to
surrender or exchange any stock certificates that they now hold and should not
send such certificates to the Company or its transfer agent for exchange.
Section 242 of the Delaware Law provides an outline of the scope of
amendments that a Delaware corporation can make to its Certificate of
Incorporation. These include the name change as proposed.
The procedure and requirements to effect an amendment to the Certificate
of Incorporation of a Delaware corporation are set forth in this Section. This
Section provides that the proposed amendments must first be adopted by the
Board of Directors, submitted to the stockholders for their consideration at a
special or annual meeting and must be approved by persons owning a majority of
the outstanding voting securities.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 3 TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL THEREOF.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As evidenced by a Promissory Note (the "Note"), dated as of December 4,
1997, in the original principal amount of $124,997.73, the Company loaned to
Mr. Frawley the total amount of the purchase price for 38,249 shares of Series
B Convertible Preferred Stock purchased by Mr. Frawley under the Stock Purchase
<PAGE>
and Waiver Agreement, dated as of December 4, 1997. The Note bears interest at
8% per annum and is secured by 38,249 shares of Common Stock owned by Mr.
Frawley. The largest aggregate amount of the indebtedness outstanding at any
time during 1999 was $146,025.13. As of April 19, 2000, the outstanding balance
of the indebtedness under the Note was $149,080.63.
From time to time, the Company has retained the services of the law firm
of Bingham Dana LLP. The Company's legal fees to Bingham Dana LLP in 1999
exceeded $600,000. Neil W. Townsend, a partner at Bingham Dana LLP, is the
brother of N. Wayne Townsend, Vice President, Financial Services Solutions.
As part of the settlement of his January 1998 divorce proceeding, John G.
O'Brien, Vice President, Chief Financial Officer, Treasurer and Secretary of
the Company, voluntarily filed a bankruptcy petition under Chapter 13 of the
federal bankruptcy code. The Company does not believe that the filing of such
petition or the related circumstances reflects on Mr. O'Brien's ability or
integrity as an executive officer of the Company.
For a description of certain transactions and certain employment and other
arrangements between the Company and certain of its directors and executive
officers, see "Compensation of Directors," "Executive Compensation" and
"Executive Employment Agreements."
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, as amended,
the Company's directors, its executive (and certain other) officers, and any
persons holding more than 10 percent of the Common Stock are required to report
their ownership of the Common Stock and any changes in that ownership to the
Securities and Exchange Commission ("SEC"). Specific due dates for these
reports have been established and the Company is required to report in this
proxy statement any failure to file by these dates during 1999. A Form 4
(Statement of Changes in Beneficial Ownership of Securities) was not filed on a
timely basis in January 1999 by the following persons in connection with a
December 1998 transaction: Andrew J. Frawley, David G. McFarlane, Michael D.
McGonagle, Patrick A. McHugh, N. Wayne Townsend and Dean F. Goodermote. A Form
4 was not filed on a timely basis by each of Dean F. Goodermote, Jeffrey Horing
and Ramanan Raghavendran for grants of stock options in September 1999.
Additionally, William Bryant was one day late in filing a Form 3 (Initial
Statement of Beneficial Ownership of Securities) upon becoming a director in
October 1999.
<PAGE>
STOCKHOLDER PROPOSALS
All stockholder proposals that are intended to be presented at the 2001
Annual Meeting of Stockholders of the Company must be received by the Company
not later than November 15, 2000, for inclusion in the Board of Directors'
proxy statement and form of proxy relating to such annual meeting.
OTHER BUSINESS
Representatives of Arthur Andersen LLP, the Company's independent public
accountants, are expected to be present at the Meeting and will have the
opportunity to make a statement if they desire to do so and to respond to
appropriate questions.
The Board of Directors knows of no other business to be acted upon at the
Meeting. However, if any other business properly comes before the Meeting, it
is the intention of the persons named in the enclosed proxy to vote on such
matters in accordance with their judgment.
The prompt return of your proxy will be appreciated and helpful in
obtaining the necessary vote. Therefore, whether or not you expect to attend
the Meeting, please sign the proxy and return it in the enclosed envelope.
ANNUAL REPORT ON FORM 10-K
The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999, which includes financial statements, has been filed with the
SEC. Copies of the Annual Report on Form 10-K may be obtained by stockholders
of the Company without charge upon written request to the Secretary of the
Company at the address set forth below.
BY ORDER OF THE BOARD OF DIRECTORS
JOHN G. O'BRIEN
Secretary
Exchange Applications, Inc.
89 South Street
Boston, MA 02111
May 15, 2000
<PAGE>
EXHIBIT 1
EXCHANGE APPLICATIONS, INC.
1998 STOCK INCENTIVE PLAN
1. Purpose. This Exchange Applications, Inc. 1998 Stock Incentive Plan
(the "Plan") is intended to provide incentives (a) to the officers and other
employees of Exchange Applications, Inc. (the "Company"), its parent (if any)
and any present or future subsidiaries of the Company (collectively, "Related
Corporations") by providing them with opportunities to purchase stock in the
Company pursuant to options which qualify as "incentive stock options" under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
granted hereunder ("ISO" or "ISOs"); (b) to directors, officers, employees and
consultants of the Company and Related Corporations by providing them with
opportunities to purchase stock in the Company pursuant to options granted
hereunder which do not qualify as ISOs ("Non-Qualified Option" or
"Non-Qualified Options"); and (c) to directors, officers, employees and
consultants of the Company and Related Corporations by providing them with
opportunities to make direct purchases of restricted stock in the Company
("Restricted Stock"). Both ISOs and Non-Qualified options are referred to
hereafter individually as an "Option" and collectively as "Options." As used
herein, the terms "parent" and "subsidiary" mean "parent corporation" and
"subsidiary corporation" as those terms are defined in Section 424 of the Code.
2. Administration of the Plan. (a) The Plan shall be administered by the
Board of Directors of the Company (the "Board"). The Board may appoint a
Compensation Committee (the "Committee") of two or more of its members to
administer the Plan. Subject to ratification of the grant of each option or
Restricted Stock by the Board (if so required by applicable state law), and
subject to the terms of the Plan, the Committee, if so appointed, shall have
the authority to (i) determine the employees of the Company and Related
Corporations (from among the class of employees eligible under paragraph 3 to
receive ISOs) to whom ISOs may be granted, and to determine (from among the
class of individuals and entities eligible under paragraph 3 to receive
Non-Qualified Options and Restricted Stock) to whom Non-Qualified options or
Restricted Stock may be granted; (ii) determine the time or times at which
options or Restricted Stock may be granted; (iii) determine the option price of
shares subject to each option, which price with respect to ISOs shall not be
less than the minimum specified in paragraph 6, and the purchase price of
Restricted Stock; (iv) determine whether each option granted shall be an ISO or
a Non-Qualified option; (v) determine (subject to paragraph 7) the time or
times when each option shall become exercisable and the duration of the
exercise period; (vi) determine whether restrictions such as repurchase options
are to be imposed on shares subject to options and to Restricted Stock, and the
nature of such restrictions, if any; and (vii) interpret the Plan and prescribe
and rescind rules and regulations relating to it. If the Committee determines
to issue a Non-Qualified Option, it shall take whatever actions it deems
necessary, under Section 422 of the Code and the regulations promulgated
thereunder, to ensure that such Option is not treated as an ISO. The
interpretation and construction by the Committee of any provisions of the Plan
or of any Option or authorization or agreement for Restricted Stock granted
under it shall be final unless otherwise determined by the Board. The Committee
may from time to time adopt such rules and regulations for carrying out the
Plan as it may deem best. No member of the Board or the Committee shall be
liable for any action or determination made in good faith with respect to the
Plan or any Option or Restricted Stock granted under it.
(b) The Committee may select one of its members as its chairman, and shall
hold meetings at such time and places as it may determine. Acts by a majority
of the Committee, or acts reduced to or approved in writing by a majority of
<PAGE>
the members of the Committee, shall be the valid acts of the Committee. All
references in the Plan to the Committee shall mean the Board if there is no
Committee so appointed. From time to time the Board may increase the size of
the Committee and appoint additional members thereof, remove members (with or
without cause), and appoint new members in substitution therefor, fill
vacancies however caused, or remove all members of the Committee and thereafter
directly administer the Plan.
3. Eligible Employees and Others. ISOs may be granted to any officer or
other employee of the Company or any Related Corporation. Those directors of
the Company who are not employees may not be granted ISOs under the Plan.
Non-Qualified Options and Restricted Stock may be granted to any director
(whether or not an employee), officer, employee or consultant of the Company or
any Related Corporation. The Committee may take into consideration an
optionee's individual circumstances in determining whether to grant an ISO or a
Non-Qualified Option or Restricted Stock. Granting of any Option or Restricted
Stock to any individual or entity shall neither entitle that individual or
entity to, nor disqualify him from, participation in any other grant of Options
or Restricted Stock.
4. Stock. The stock subject to options and Restricted Stock shall be
authorized but unissued shares of Common Stock of the Company, $.001 par value
per share (the "Common Stock"), or shares of Common Stock re-acquired by the
Company in any manner. The aggregate number shares which may be issued pursuant
to the Plan is 2,700,000, subject to adjustment as provided in paragraph 13.
Any such shares may be issued as ISOs, Non-Qualified Options or Restricted
Stock so long as the aggregate number of shares so issued does not exceed such
number, as adjusted. If any Option granted under the Plan shall expire, be
cancelled or terminate for any reason without having been exercised in full or
shall cease for any reason to be exercisable in whole or in part, or if any
Restricted Stock shall be reacquired by the Company by exercise of its
repurchase option, the shares subject to such expired, terminated or cancelled
Option and reacquired shares of Restricted Stock shall again be available for
grants of Options or Restricted Stock under the Plan.
5. Grants Under the Plan. Options or Restricted Stock may be granted under
the Plan at any time on or after July 15, 1998 and prior to July 15, 2008. Any
such grants of ISOs shall be subject to the receipt, within 12 months of July
15, 1998, of the approval of Stockholders as provided in paragraph 17. The date
of grant of an Option under the Plan will be the date specified by the
Committee at the time it awards the option; provided, however, that such date
shall not be prior to the date of award. The Committee shall have the right,
with the consent of the optionee, to convert an ISO granted under the Plan to a
NonQualified Option pursuant to paragraph 15.
6. Minimum Option Price. (a) The price per share specified in the
agreement relating to each ISO granted under the Plan shall not be less than
the fair market value per share of Common Stock on the date of such grant. In
the case of an ISO to be granted to an employee owning stock possessing more
than ten percent of the total combined voting power of all classes of stock of
the Company or any Related Corporation, the price per share specified in the
agreement relating to such ISO shall not be less than 110 percent of the fair
market value of Common Stock on the date of grant.
(b) In no event shall the aggregate fair market value (determined at the
time the option is granted) of Common Stock for which ISOs granted to any
employee are exercisable for the first time by such employee during any
calendar year (under all stock option plans of the Company and any Related
Corporation) exceed $100,000. If the foregoing limitation is exceeded, the
balance shall be non-statutory options.
(c) If, at the time an Option is granted under the Plan, the Company's
Common Stock is publicly traded, "fair market value" shall be determined as of
the last business day for which the prices or quotes discussed in this sentence
<PAGE>
are available prior to the date such Option is granted and shall mean (i) the
average (on that date) of the high and low prices of the Common Stock on the
principal national securities exchange on which the Common Stock is traded, if
such stock is then traded on a national securities exchange; or (ii) the last
reported sale price (on that date) of the Common Stock on the Nasdaq National
Market System, if the Common Stock is not then traded on a national securities
exchange; or (iii) the closing bid price (or average of bid prices) last quoted
(on that date) by an established quotation service for over-the-counter
securities, if the Common Stock is not reported on the Nasdaq National Market
System or on a national securities exchange. However, if the Common Stock is
not publicly traded at the time an option is granted under the Plan, "fair
market value" shall be deemed to be the fair value of the Common Stock as
determined by the Committee after taking into consideration all factors which
it deems appropriate, including, without limitation, recent sale and offer
prices of the Common Stock in private transactions negotiated at arms' length.
7. Option Duration. Subject to earlier termination as provided in
paragraphs 9 and 10, each Option shall expire on the date specified by the
Committee, but not more than ten years from the date of grant or, in the case
of ISOs granted to an employee owning stock possessing more than ten percent of
the total combined voting power of all classes of stock of the Company or any
Related Corporation, not more than five years from date of grant. Subject to
earlier termination as provided in paragraphs 9 and 10, the term of each ISO
shall be the term set forth in the original instrument granting such ISO,
except with respect to any part of such ISO that is converted into a
Non-Qualified option pursuant to paragraph 15.
8. Exercise of Option. Subject to the provisions of paragraphs 9 through
12, each option granted under the Plan shall be exercisable as follows:
(a) The Option shall either be fully exercisable on the date of grant or
shall become exercisable thereafter in such installments as the Committee may
specify.
(b) Once an installment becomes exercisable it shall remain exercisable
until expiration or termination of the Option, unless otherwise specified by
the Committee.
(c) Each Option or installment may be exercised at any time or from time
to time, in whole or in part, for up to the total number of shares with respect
to which it is then exercisable.
(d) The Committee shall have the right to accelerate the date of exercise
of any installment; provided that the Committee shall not accelerate the
exercise date of any installment of any Option granted to any employee as an
ISO (and not previously converted into a Non-Qualified Option pursuant to
paragraph 15) if such acceleration would violate the annual vesting limitation
contained in Section 422(d) of the Code which provides generally that the
aggregate fair market value (determined at the time the option is granted) of
the stock with respect to which ISOs granted to any employee are exercisable
for the first time by such employee during any calendar year (under all plans
of the Company and any Related Corporation) shall not exceed $100,000.
9. Termination of Employment. If an ISO optionee ceases to be employed by
the Company or any Related Corporation other than by reason of death or
disability as provided in paragraph 10, no further installments of his ISOs
shall become exercisable, and his ISOs shall terminate after the passage of 60
days from the date of termination of his employment, but in no event later than
on their specified expiration dates except to the extent that such ISOs (or
unexercised installments thereof) have been converted into Non-Qualified
Options pursuant to paragraph 15. Leave of absence with the written approval of
the Committee shall not be considered an interruption of employment under the
Plan, provided that such written approval contractually obligates the Company
or any Related Corporation to continue the employment of the employee after the
<PAGE>
approved period of absence. Employment shall also be considered as continuing
uninterrupted during any other bona fide leave of absence (such as those
attributable to illness, military obligations or governmental service) provided
that the period of such leave does not exceed 90 days or, if longer, any period
during which such optionee's right to reemployment is guaranteed by statute.
Nothing in the Plan shall be deemed to give any grantee of any option or
Restricted Stock the right to be retained in employment or other service by the
Company or any Related Corporation for any period of time. ISOs granted under
the Plan shall not be affected by any change of employment within or among the
Company and Related Corporations, so long as the optionee continues to be an
employee of the Company or any Related Corporation. In granting any
Non-Qualified option, the Committee may specify that such Non-Qualified Option
shall be subject to the restrictions set forth herein with respect to ISOs, or
to such other termination or cancellation provisions as the Committee may
determine.
10. Death; Disability; Dissolution. If an optionee ceases to be employed
by the Company and all Related Corporations by reason of his death, any Option
of his may be exercised, to the extent of the number of shares with respect to
which he could have exercised it on the date of his death, by his estate,
personal representative or beneficiary who has acquired the option by will or
by the laws of descent and distribution, at any time prior to the earlier of
the Option's specified expiration date or 180 days from the date of the
optionee's death.
If an optionee ceases to be employed by the Company and all Related
Corporations by reason of his disability, he shall have the right to exercise
any Option held by him on the date of termination of employment, to the extent
of the number of shares with respect to which he could have exercised it on
that date, at any time prior to the earlier of the option's specified
expiration date or 180 days from the date of the termination of the optionee's
employment. For the purposes of the Plan, the term "disability" shall have the
meaning assigned to it in Section 22(e)(3) of the Code or any successor
statute.
In the case of a partnership, corporation or other entity holding a
Non-Qualified Option, if such entity is dissolved, liquidated, becomes
insolvent or enters into a merger or acquisition with respect to which such
optionee is not the surviving entity, such Option shall terminate immediately.
11. Assignability. No Option shall be assignable or transferable by the
optionee except by will or by the laws of descent and distribution, and during
the lifetime of the Optionee each Option shall be exercisable only by him.
12. Terms and Conditions of Options. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including transfer and repurchase restrictions applicable to
shares of Common Stock issuable upon exercise of Options. The Committee may
from time to time confer authority and responsibility on one or more of its own
members and/or one or more officers of the Company to execute and deliver such
instruments. The proper officers of the Company are authorized and directed to
take any and all action necessary or advisable from time to time to carry out
the terms of such instruments.
13. Adjustments. Upon the happening of any of the following described
events, an optionee's rights with respect to Options granted to him hereunder
shall be adjusted as hereinafter provided:
(a) Subject to any contrary provision contained in any instrument
evidencing an option, in the event shares of Common Stock shall be sub-divided
or combined into a greater or smaller number of shares or if, upon a merger,
consolidation, reorganization, split-up, liquidation, combination,
recapitalization or the like of the Company, the shares of Common Stock shall
<PAGE>
be exchanged for other securities of the Company or of another corporation,
each optionee shall be entitled, subject to the conditions herein stated, to
purchase such number of shares of common stock or amount of other securities of
the Company or such other corporation as were exchangeable for the number of
shares of Common Stock which such optionee would have been entitled to purchase
except for such action, and appropriate adjustments shall be made in the
purchase price per share to reflect such subdivision, combination, or exchange.
(b) In the event the Company shall issue any of its shares as a stock
dividend upon or with respect to the shares of stock of the class which shall
at the time be subject to option hereunder, each optionee upon exercising an
Option shall be entitled to receive (for the purchase price paid upon such
exercise) the shares as to which he is exercising his Option and, in addition
thereto (at no additional cost), such number of shares of the class or classes
in which such stock dividend or dividends were declared or paid, and such
amount of cash in lieu of fractional shares, as he would have received if he
had been the holder of the shares as to which he is exercising his option at
all times between the date of grant of such Option and the date of its
exercise.
(c) Notwithstanding the foregoing, any adjustments made pursuant to
subparagraph (a) or (b) shall be made only after the Committee, after
consulting with counsel for the Company, determines whether such adjustments
with respect to ISOs will constitute a "modification" of such ISOs as that term
is defined in Section 424 of the Code, or cause any adverse tax consequences
for the holders of such ISOs. No adjustments shall be made for dividends paid
in cash or in property other than securities of the Company.
(d) No fractional shares shall actually be issued under the Plan. Any
fractional shares which, but for this subparagraph (d), would have been issued
to an optionee pursuant to an Option, shall be deemed to have been issued and
immediately sold to the Company for their fair market value, and the optionee
shall receive from the Company cash in lieu of such fractional shares.
(e) Upon the happening of any of the foregoing events described in
subparagraphs (a) or (b) above, the class and aggregate number of shares set
forth in paragraph 4 hereof which are subject to options which previously have
been or subsequently may be granted under the Plan shall also be appropriately
adjusted to reflect the events specified in such subparagraphs. The Committee
shall determine the specific adjustments to be made under this paragraph 13,
and subject to paragraph 2, its determination shall be conclusive.
14. Means of Exercising Options. An Option (or any part or installment
thereof) shall be exercised by giving written notice to the Company at its
principal office address. Such notice shall identify the option being exercised
and specify the number of shares as to which such Option is being exercised,
accompanied by full payment of the purchase price therefor either (i) in United
States dollars in cash or by check, or (ii) at the discretion of the Committee,
through delivery of shares of Common Stock having fair market value equal as of
the date of the exercise to the cash exercise price of the Option, or (iii) at
the discretion of the Committee, by delivery of the optionee's personal
recourse note bearing interest payable not less than annually at no less than
100% of the lowest applicable Federal rate, as defined in Section 1274(d) of
the Code, or (iv) at the discretion of the Committee, by any combination of
(i), (ii) and (iii) above. The holder of an Option shall not have the rights of
a shareholder with respect to the shares covered by his option until the date
of issuance of a stock certificate to him for such shares. Except as expressly
provided above in paragraph 13 with respect to change in capitalization and
stock dividends, no adjustment shall be made for dividends or similar rights
for which the record date is before the date such stock certificates is issued.
15. Conversion of ISOs into Non-Qualified Options: Termination of ISOs.
The Committee, at the written request of any optionee, may in its discretion
take such actions as may be necessary to convert such optionee's ISOs (or any
installments or portions of installments thereof) that have not been exercised
<PAGE>
on the date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the optionee is an employee of
the Company or a Related Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of the appropriate installments of such Options. At
the time of such conversion, the Committee (with the consent of the optionee)
may impose such conditions on the exercise of the resulting Non-Qualified
Options as the Committee in its discretion may determine, provided that such
conditions shall not be inconsistent with the Plan. Nothing in the Plan shall
be deemed to give any optionee the right to have such optionee's ISOs converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Committee takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any ISO that has not been exercised
at the time of such termination.
16. Restricted Stock. Each grant of Restricted Stock under the Plan shall
be evidenced by an instrument (a "Restricted Stock Agreement") in such form as
the Committee shall prescribe from time to time in accordance with the Plan and
shall comply with the following terms and conditions, and with such other terms
and conditions as the Committee, in its discretion, shall establish:
(a) The Committee shall determine the number of shares of Common Stock to
be issued to an eligible person pursuant to the grant of Restricted Stock, and
the extent, if any, to which they shall be issued in exchange for cash, other
consideration, or both.
(b) Shares issued pursuant to a grant of Restricted Stock may not be sold,
assigned, transferred, pledged or otherwise disposed of, except by will or the
laws of descent and distribution, or as otherwise determined by the Committee
in the Restricted Stock Agreement, for such period as the Committee shall
determine, from the date on which the Restricted Stock is granted (the
"Restricted Period"). The Company will have the option to repurchase the Common
Stock at such price as the Committee shall have fixed in the Restricted Stock
Agreement which option will be exercisable (i) if the participant's continuous
employment or performance of services for the Company and the Related
Corporations shall terminate prior to the expiration of the Restricted Period,
(ii) if, on or prior to the expiration of the Restricted Period or the earlier
lapse of such repurchase option, the participant has not paid to the Company an
amount equal to any federal, state, local or foreign income or other taxes
which the Company determines is required to be withheld in respect of such
Restricted Stock, or (iii) under such other circumstances as determined by the
Committee in its discretion. Such repurchase option shall be exercisable on
such terms, in such manner and during such period as shall be determined by the
Committee in the Restricted Stock Agreement. Each certificate for shares issued
as Restricted Stock shall bear an appropriate legend referring to the foregoing
repurchase option and other restrictions; shall be deposited by the stockholder
with the Company, together with a stock power endorsed in blank; or shall be
evidenced in such other manner permitted by applicable law as determined by the
Committee in its discretion. Any attempt to dispose of any such shares in
contravention of the foregoing repurchase option and other restrictions shall
be null and void and without effect. If shares issued as Restricted Stock shall
be repurchased pursuant to the repurchase option described above, the
stockholder, or in the event of his death, his estate, personal representative,
or beneficiary who has acquired the Restricted Stock by will or by the laws of
descent and distribution, shall forthwith deliver to the Secretary of the
Company the certificates for the shares, accompanied by such instrument of
transfer, if any, as may reasonably be required by the Secretary of the
Company. If the repurchase option described above is not exercised by the
Company, such repurchase option and the restrictions imposed pursuant to the
first sentence of this subparagraph (b) shall terminate and be of no further
force and effect.
(c) If a person who has been in continuous employment or performance of
services for the Company or a Related Corporation since the date on which
Restricted Stock was granted to him shall, while in such employment or
performance of services, die, or terminate such employment or performance of
<PAGE>
services by reason of disability or by reason of early, normal or deferred
retirement under an approved retirement program of the Company or a Related
Corporation (or such other plan or arrangement as may be approved by the
Committee in its discretion, for this purpose) and any of such events shall
occur after the date on which the Restricted Stock was granted to him and prior
to the end of the Restricted Period, the Committee may determine to cancel the
repurchase option (and any and all other restrictions) on any or all of the
shares of Restricted Stock; and the repurchase option shall become exercisable
at such time as to the remaining shares, if any.
17. Term and Amendment of Plan. This Plan was adopted by the Board on July
15, 1998, subject to approval of the Plan by the holders of a majority of the
outstanding voting stock of the Company. The Plan shall expire on July 15, 2008
(except as to options and Restricted Stock outstanding on that date). Subject
to the provisions of paragraph 5 above, Options and Restricted Stock may be
granted under the Plan by the Committee, prior to the date of stockholder
approval of the Plan. If the approval of stockholders is not obtained by July
15, 1999, any grants of options or Restricted Stock under the Plan made prior
to that date will be rescinded. The Board may terminate or amend the Plan in
any respect at any time, except that, any amendment that (a) increases the
total number of shares that may be issued under the Plan (except by adjustment
pursuant to paragraph 13), (b) changes the class of persons eligible to
participate in the Plan, or (c) materially increases the benefits to
participants under the Plan, shall be subject to approval by stockholders
obtained within 12 months before or after the Board adopts a resolution
authorizing any of the foregoing amendments, and shall be null and void if such
approval is not obtained. Except as provided in the fourth sentence of this
paragraph 17, in no event may action of the Board or stockholders alter or
impair the rights of an optionee or purchaser of Restricted Stock without his
consent, under any Option or Restricted Stock previously granted to him.
18. Application of Funds. The proceeds received by the Company from the
sale of shares pursuant to Options and Restricted Stock authorized under the
Plan shall be used for general corporate purposes.
19. Governmental Regulation. The Company's obligation to sell and deliver
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
20. Withholding of Additional Income Taxes. The Company, in accordance
with the Code, may, upon exercise of a Non-Qualified Option or the purchase of
Common Stock for less than its fair market value or the lapse of restrictions
on Restricted Stock or the making of a Disqualifying Disposition (as defined in
paragraph 21) require the employee to pay additional withholding taxes in
respect of the amount that is considered compensation includable in such
person's gross income.
21. Notice to Company of Disqualifying Disposition. Each employee who
receives IS0s shall agree to notify the Company in writing immediately after
the employee makes a disqualifying disposition of any Common Stock received
pursuant to the exercise of an ISO (a "Disqualifying Disposition").
Disqualifying Disposition means any disposition (including any sale) of such
stock before the later of (a) two years after the employee was granted the ISO
under which he acquired such stock, or (b) one year after the employee acquired
such stock by exercising such ISO. If the employee has died before such stock
is sold, these holding period requirements do not apply and no Disqualifying
Disposition will thereafter occur.
22. Governing Laws; Construction. The validity and construction of the
Plan and the instruments evidencing options and Restricted Stock shall be
governed by the laws of the Commonwealth of Massachusetts. In construing this
Plan, the singular shall include the plural and the masculine gender shall
include the feminine and neuter, unless the context otherwise requires.
<PAGE>
EXCHANGE APPLICATIONS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR
ANNUAL MEETING OF STOCKHOLDERS ON JUNE 14, 2000
The undersigned hereby appoints Andrew J. Frawley and John G. O'Brien and
each of them proxies, each with power of substitution, to vote at the Annual
Meeting of Stockholders of EXCHANGE APPLICATIONS, INC. to be held on June 14,
2000 (including any adjournments or postponements thereof), with all the powers
the undersigned would possess if personally present, as specified on the ballot
below on the matters listed below and, in accordance with their discretion, on
any other business that may come before the meeting, and revokes all proxies
previously given by the undersigned with respect to the shares covered hereby.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
DETACH HERE --------------------------------------------
Detach card below, sign, date and mail in postage paid envelope provided.
EXCHANGE APPLICATIONS, INC.
89 South Street, Boston, MA 02111
[X] Please mark votes as in this example.
1. Election of one Class II Director
Nominee: Dean F. Goodermote
FOR NOMINEE [_]
WITHHELD FROM NOMINEE [_]
2. Proposal to ratify the amendment to the 1998 Stock Incentive Plan to
increase the number of authorized shares.
FOR [_]
AGAINST [_]
ABSTAIN [_]
3. Proposal to amend the Company's Certificate of Incorporation to effectuate
the change of the Company's name from Exchange Applications, Inc. to Xchange
Inc.
FOR [_]
AGAINST [_]
ABSTAIN [_]
MARK HERE FOR ADDRESS CHANGE AND [_] NOTE AT LEFT
This proxy when properly executed will be voted in the manner directed herein
by the stockholder. If no contrary specification is made, this proxy will be
voted FOR each of Proposal No. 1, Proposal No. 2 and Proposal No. 3 and upon
such other business as may properly come before the Annual Meeting and any
adjournments or postponements thereof in the appointed proxies' discretion.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [__]
<PAGE>
Please date, sign as name appears at left, and return this proxy in the
enclosed envelope, whether or not you expect to attend the meeting. You may
nevertheless vote in person if you do attend..
(Executors, administrators, trustees, custodians, etc. should indicate capacity
in which signing. When stock is held in the name of more than one person, each
person should sign the proxy.
Signature ________________
Date _________________
