EXCHANGE APPLICATIONS INC, 10-K, 2000-03-30

EXCHANGE APPLICATIONS INC
10-K, 2000-03-30
COMPUTER INTEGRATED SYSTEMS DESIGN

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM _____________ TO _____________

COMMISSION FILE NUMBER

EXCHANGE APPLICATIONS, INC.
---------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 04-3338916
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STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

89 SOUTH STREET
BOSTON, MASSACHUSETTS 02111
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

617-737-2244
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.001 par value
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the shares of Common Stock of the registrant
held by non-affiliates as of March 20, 2000 was $1,071,061,030.

As of March 20, 2000, there were 25,201,436 shares of the registrant's
Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The information required under Part III of this Annual Report, to the extent
not set forth herein, is incorporated by reference from the registrant's
definitive proxy statement relating to the annual meeting of stockholders to be
held on June 14, 2000, which definitive proxy statement shall be filed with the
Securities and Exchange Commission within 120 days after the end of the fiscal
year to which this Annual Report relates.
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<PAGE>
PART I

ITEM 1. BUSINESS

INTRODUCTION

Exchange Applications, Inc., doing-business-as Xchange, Inc. (the
"Company"), helps optimize interactive relationships between companies and their
customers. The Company's eCRM (enterprise Customer Relationship Management)
software helps make customer communications profitable, relevant, timely and
coordinated across on-line and off-line customer channels. By focusing on the
economics of customer relationships, the Company helps to increase return on
investment on eMarketing and eCommerce initiatives. More than 100 companies,
including Ameritrade, British Sky Broadcasting, Citigroup, DaimlerChrysler,
Microsoft, Sprint, theglobe.com, and Vodafone, currently use the Company's
software and services to strengthen customer relationships and earn a greater
share of each customer's business.

As part of a re-branding effort in the first half of 2000, the Company's
products and services have been renamed and grouped into suites that comprise
the Company's global eCRM solution. The Company markets its Xchange 4.0 eCRM
solution suite to brick-and-mortar and dot-com companies that are converging
toward click-and-mortar enterprises built around their customers. The Xchange
4.0 suite helps companies cultivate and nurture interactive, personalized
relationships that last. The following product and service groups comprise the
Xchange 4.0 solution:

o Xchange Dialogue(TM) is a family of products that deliver personalized
online and offline customer communications.

o Xchange Optimizer(TM) is a product that performs customer-analytics.

o Xchange Real Time(TM) is a product that synchronizes cross-channel
communications and determines the best message, offer and channel
delivery for real-time interactions between a company and its customers.

o Xchange Solution Services(TM) is a family of service offerings that help
companies ensure the success of their eCRM initiatives.

BACKGROUND

A number of industry trends are driving the adoption of eCRM solutions - a
market expected to reach $16.8 billion by 2003, according to AMR Research. Among
them are:

o THE COMMODITIZATION OF GOODS AND SERVICES, much of which is due to the
arrival of the Internet. Often, a company's chief differentiators are the
strength of its customer relationships and the relevancy of marketing
communications.

o DEREGULATION, which has accelerated the need to devise new strategies to
retain customers and head-off competitors' attempts to acquire them.

o THE EMERGENCE OF NEW, DYNAMIC CUSTOMER INTERACTION CHANNELS, such as the
Web and email, which have changed the economics of managing and
communicating with customers.

Research organizations estimate that companies that follow the basic tenets
of eCRM - cross-channel integration, personalization, customer-centricity and
opt-in - in their customer communication strategies will achieve higher response
rates. Forrester Research, for instance, estimates that companies that use
opt-in email can achieve average response rates of 18 percent, versus 0.65
percent for Web banner ads. Researchers believe that these companies will also
experience an easier time attracting, retaining and expanding valuable
relationships with customers. Xchange's eCRM solutions are designed to help
companies address these basic tenets.

The Company believes successful eCRM solutions will address six important
areas:

1. ELECTRONIC communications through the Internet present new opportunities
to reach and interact with customers and prospects.

2. The requirement for an ENTERPRISE view of the customer

3. The requirement of EBUSINESSES to re-think their customer relationship
management strategies.

4. The trend toward consumer EMPOWERMENT - customers and prospects, rather
than the companies they buy from, are making the rules.

5. The ECONOMICS of customer relationships (i.e., investing in relationships
based on the anticipated level of return) remains important.

6. EVALUATION enables companies to measure the impact of their
customer-communication initiatives.

Over the past two years, the eCRM industry has evolved considerably. This
evolution can be viewed in three distinct phases:

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DATABASE MARKETING: These solutions are characterized by single-channel,
outbound customer communications (usually mail or telephone) that are targeted
according to simple demographic data such as zip code. Target segments tend to
be very large since precise targeting is not possible. Measurement of campaign
success, if performed at all, is generally limited to simple metrics such as
response rates. In its simplest form, Database Marketing enables businesses to
target their messages to certain segments of recipients, but does not allow for
multi-level segmentation, a high degree of personalization, or complex
analytics. Because traditional Database Marketing campaigns requiring the
involvement of Information Systems personnel as well as Marketers are typically
sent to large audiences, most businesses are limited to performing small
quantities of campaigns per year.

BEHAVIOR-BASED MARKETING: These solutions enable businesses to target
marketing messages based on a customer or prospect's historical behavior. Though
Behavior-Based Marketing is also limited to outbound channels, it can often
accommodate multiple channels within a campaign, allowing companies to, for
instance, send the same offer by either telephone or mail. Because
Behavior-Based Marketing helps companies perform more precise targeting,
campaigns tend to be smaller than Database Marketing campaigns, and companies
can thus execute them more often. However, Behavior-Based Marketing solutions
have drawbacks. First, they perform historical analysis, but not prospective
analysis. Second, the applications required for Behavior-Based Marketing tend to
be complex and slow, and thus not well suited for Internet communications.

ECRM: Xchange refers to the latest phase of evolution as eCRM,
distinguished from Database Marketing and Behavior Based Marketing in four
important ways. First, eCRM solutions are designed to provide businesses with an
integrated, single view of customers across all channels, both inbound (i.e.,
web marketing and sales) and outbound (i.e., web service and support). Second,
these solutions incorporate sophisticated analytical capabilities that enable
businesses to make educated guesses about what customers or prospects are likely
to want or need in the future. Third, they provide real-time synchronization of
information among customer channels, so that Internet communications can be
integrated with an organization's offline marketing. Fourth, because eCRM are
designed to provide a 360-degree view of customers, they are designed to perform
more sophisticated analysis and metrics, including return-on-investment
analysis.

THE ECRM OPPORTUNITY

The Company believes that eCRM software and solutions represent a
significant opportunity across many industries. Businesses are adopting these
technologies at different rates based on their access to customer information,
their level of database marketing sophistication, and the marginal economic
impact of changes in the behavior of their customers and the degree of
competitiveness within their industry. The Company believes that the demand for
these technologies will grow rapidly as additional industries increasingly
recognize eCRM as a competitive requirement. Significant opportunities exist for
solutions that enable businesses to transition from Database Marketing to
Behavior Based Marketing and then to enterprise-wide eCRM environments. These
transitions require highly automated software and services solutions that
integrate people, processes and technology across the enterprise to insure
adherence to a common customer management methodology.

In late 1999, industry research firm AMR Research predicted that the CRM
market (its term equivalent for "eCRM") would reach $16.8 billion by 2003.
Forrester Research predicts that spending on email marketing solutions such as
the Company's eXstatic product will triple between 1999 and 2004, to more than
$4.7 billion. A related opportunity is the market for hosted applications, known
as the Application Service Provider (ASP) market. International Data Corporation
expects that worldwide ASP spending will approach $8 billion in 2004.

In January 2000, the Company announced a partnership with
MicroStrategy, by which the two companies will co-develop a new class of
customer analytics software. The Company has labeled these solutions Xchange
Optimizer. Optimizer will be developed to help businesses gain insights into
customer trends and behavior, and then enable these firms to easily take action
on their discoveries. It will be designed to predict, measure, and interpret
customer behaviors, allowing companies to understand the effectiveness of eCRM
efforts across both inbound and outbound channels, and provide a set of eCRM
metrics that describe customers across the enterprise. Scheduled for release in
the second half of 2000, Optimizer is being designed to be pre-customized for
specific verticals, including; business-to-consumer ecommerce, financial
services, retail, travel and tourism, telecommunications and insurance; and to
be the first packaged application to enable businesses to implement customer
analytics without requiring great amounts of expensive systems integration and
consulting.

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STRATEGY

The Company's objective is to be the leading provider of eCRM software and
solutions globally. The Company's strategy for achieving this objective
includes:

DEVELOP OR ACQUIRE ADDITIONAL ECRM SOLUTIONS: The Company intends to develop
or acquire additional products to broaden its offering, particularly in the area
of management of "e" interactions.

DEVELOP ADDITIONAL HOSTED SERVICES FOR ECRM: The Company's campaign
management and eMessaging products are currently available in an ASP
environment. The Company intends to capitalize on the growing market for ASP
services by making its other solutions available in hosted models.

FURTHER INTEGRATE ITS EXISTING ECRM SOLUTIONS: The Company's solutions
enable businesses to optimize customer relationships. The Company is undertaking
several research and development efforts to design stronger technical links
between its various software applications. As part of this effort, the Company
is re-designing each of its products' user interfaces to provide a more seamless
experience for users of multiple products and hosted services of the Company.

EXPAND VERTICAL INDUSTRY FOCUS: To date, most of the Company's revenues have
come from the financial services and telecommunications industries. In 1999,
however, several other verticals for eCRM solutions emerged, including
business-to-business and business-to-consumer internet companies, travel and
tourism, retail, catalog, utilities, non-profit and insurance. The Company has
already contracted with a number of clients in these emerging verticals, and
intends to further expand its focus as demand for its eCRM solutions grows.

BROADEN DISTRIBUTION CHANNELS AND BUILD ALLIANCES. The Company will continue
to develop indirect distribution channels. The Company maintains global
re-seller agreements with IBM, Compaq, Hewlett-Packard, Acxiom and others to
leverage these partners' extensive marketing and distribution channels. The
Company also has co-marketing relationships with companies such as
PricewaterhouseCoopers, SAS Institute, and Sun Microsystems, enabling it to
utilize their extensive customer relationships and, in certain cases, their
products and services. The Company plans to leverage the professional services
resources of these re-seller and co-marketing organizations to provide certain
non-proprietary professional services required in connection with the
implementation of eCRM solutions. This strategy will allow the Company to
provide and expand its professional services offerings to most effectively
complement its software applications, and will help increase the efficient
implementation of eCRM solutions in anticipation of increased demands on the
Company's services resources.

INCREASE DIRECT SALES GLOBALLY. The Company currently maintains and is
expanding its direct sales forces in North America, Europe and Asia/Pacific. The
Company plans to expand further in Europe and the Pacific Rim, with particular
attention on territories or industries experiencing trends commensurate with the
adoption of the Company's solution, such as industry deregulation. The Company
also plans to further expand the direct sales force at its eXstatic subsidiary
in Seattle.

PRODUCTS AND SERVICES

Businesses today face unique challenges and opportunities to effectively
manage a customer's activities across the business enterprise. Therefore,
Xchange designed its product and service offerings with flexibility. Most
products can stand alone, or be used in concert with other Xchange or related
applications. Companies can choose the total Xchange eCRM solution, or simply
select the precise elements and service packages needed to reach their corporate
objectives.

XCHANGE SOLUTION SERVICES

Xchange Solution Services help companies ensure the successful deployment of
their eCRM initiatives and help them plot long-term strategies to reach a full
eCRM solution.

Xchange and its systems-integration partners help companies prepare,
install, customize, and optimize Xchange eCRM products for optimal
effectiveness. Xchange services and support specialists include: project
managers, systems-integration experts, strategic process and eCRM consultants,
technical consultants, and Customer Success Managers, who are assigned to
specific clients, serving as their business partner.

XCHANGE DIALOGUE

Xchange Dialogue is the umbrella name for the company's line of online
and offline products for customer-communications management. Specifically,
Xchange Dialogue helps business:

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o Identify high-profit customers, and allocate investments commensurate
with value.

o Facilitate customer acquisition and retention.

o Identify multi-channel, up-sell, and cross-sell opportunities.

o Improve the timeliness, pertinence, and impact of direct customer and
prospect communications.

The Xchange Dialogue modules:

o XCHANGE DIALOGUE FOR MARKETING (FORMERLY VALEX) provides robust online
and offline customer-communications capabilities and automates and
accelerates a closed-loop marketing process. This process ranges from
opportunity identification to campaign execution, assessment, and
continuous refinement.

The software enables multiple, targeted campaigns to run simultaneously
in a "lights out" environment, managing customer relationships over time
by responding to timed events and customer behavior. Xchange Dialogue for
Marketing also attributes direct and indirect responses across all
channels to accurately assess campaign results. Using Xchange Dialogue
for Marketing, marketers spend more time planning and evaluating customer
campaigns, and less time handling execution logistics.

o XCHANGE DIALOGUE FOR EMESSAGING (FORMERLY EXSTATIC) delivers online
campaign design and highly personalized eMessaging, supporting very high
volumes, two-way communications, opt-in and privacy principles, and
multiple-language capabilities.

Available as an ASP service, or as a stand-alone product, Xchange
Dialogue for eMessaging manages both human and machine responses,
ensuring proper routing and disposition of customers' responses. It is
flexible enough to permit customer-segment queries based on any field in
a data warehouse. The product is offered to companies that require only
online customer communications, or it can be integrated with Xchange
Dialogue for Marketing.

Both Xchange Dialogue for Marketing and Dialogue for eMessaging - the
latter developed by Xchange's Seattle-based subsidiary, eXstatic - are
available as either licensed products for internal use or as hosted
environments.

o XCHANGE DIALOGUE FOR PLANNING (FORMERLY CAMPAIGN OPTIMIZER) provides
sophisticated investment-planning tools that help companies simulate
campaign results prior to execution for maximum effectiveness. It spares
organizations from costly and time consuming test-and-control
experiments.

Xchange Dialgoue for Planning compares projected versus actual return on
investment for an individual campaign. To identify the best offer to
extend to a particular customer, it weighs a series of known constraints
and inputs such as propensity scores, budget limitations, profitability
analysis, required return on investment, and channel-delivery
requirements.

o XCHANGE DIALOGUE FOR MODELING (FORMERLY MODEL CONNECT) integrates
propensity modeling with campaign management to improve the accuracy and
effectiveness of campaigns. Through Xchange Dialogue for Modeling, a
marketer invokes a model from an available library to call it into a
campaign. The model then "scores" each customer within the campaign's
specified customer segment to dynamically identify the likelihood of each
customer taking a specified action. Marketers then adjust their campaigns
accordingly before execution. By scoring only customers within a
campaign, as opposed to the entire database, the product module enables
your modeling to keep pace with campaign execution. It lowers campaign
costs by limiting communications to only those customers with high
propensity scores.

XCHANGE OPTIMIZER

Xchange Optimizer (formerly eXcentuate), currently under development, will
provide extensive, customer-analytic reporting to help marketers and others
evaluate and understand customer behavior. Used with Xchange Dialogue and Real
Time, this suite of products is designed to enable a business to apply customer
findings in order to devise sound strategic-marketing plans and apply learned
customer behaviors to adjust marketing campaigns. Under joint developement by
Xchange and partner MicroStrategy, the Company believes Xchange Optimizer will
improve the effectiveness of customer communication strategies by helping
businesses devise optimal investment allocations across profitable customers,
and optimize message, offer and channel delivery for customers and prospects.

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Xchange Optimizer will examine product, channel, demographic, behavioral,
promotional, and related data to uncover broad trends on customer behavior and
show how customer and prospect segments are likely to behave over time. Xchange
Optimizer will determine, for instance, whether an email product promotion
compelled the targeted customer to buy the item, or whether a certain
direct-mail campaign resulted in a jump in sales. The Company expects this
product to reduce costs and limits risk associated with any
customer-communications campaign.

Xchange Optimizer will be accessible to multiple users across an
organization, from marketing professionals to salespeople to corner-office
executives. In contrast to Xchange Dialogue for Planning, which optimizes a
single campaign using a set of KNOWN offers, contacts, and constraints - such as
budgetary limits, Xchange Optimizer provides more extensive customer-analytic
reporting for broad trend analysis and strategic planning.

XCHANGE OPTIMIZER ADDED VALUE, currently under development, will enable
companies to capture anonymous profile information from Web site visitors.
Optimizer will then use this information to study individual behavior and help
personalize content for visitors who subsequently return to the site. With
Xchange Optimizer Added Value, companies will be able to:

o Convert prospects to customers by generating offers based on learned
needs and interests rather than speculation;

o Segment customers and prospects into logical clusters for more effective
up-sell and cross-sell opportunities; and

o Personalize visitors' online experience by serving up targeted Web
offers.

The Company plans to offer Xchange Optimizer Added Value only through an ASP
host environment. It will use Engage Technology, Inc.'s ProfileServer to
physically gather anonymous profile information.

XCHANGE REAL TIME

Xchange Real Time (formerly neXtricity) enables rapid, two-way dialogue
between companies and their customers, and serves as a bridge for cross-channel,
enterprise integration. Through Application Programming Interfaces (APIs),
Xchange Real Time links to customer-facing products from such companies as
Broadvision and Siebel. A recent industry study suggests that more than 90
percent of companies want to synchronize customer information across channels.
Xchange Real Time can help by synchronizing customer communications in real time
for superior service and stronger customer relationships. Xchange Real Time
gives companies a complete view of customer interactions across multiple
channels, from their Web sites to call centers. Marketers can leverage this data
to conduct interactive dialogues with customers and prospects, and make better
informed marketing decisions.

By synchronizing historical knowledge with customer interaction data,
Xchange Real Time dynamically determines the optimal next course of action. It
can, for instance, alert a call center representative that the incoming call is
from a high-value customer who expressed interest in a specific product at the
Web site that same day, and takes the recommended next step. Using Xchange Real
Time, companies gain the ability to understand customer preferences and create a
meaningful dialogue that strengthens customer relationships.

Xchange Real Time helps businesses:

o MAXIMIZE THE VALUE OF CUSTOMER INTERACTIONS It provides a complete
picture of a customer in a timely fashion to effectively initiate and
maintain a meaningful, ongoing, profitable dialogue over any channel in
real time. It determines optimal message, offer, and channel delivery,
improving cross-selling, up-selling, and customer satisfaction.

o DELIVER A CROSS-CHANNEL VIEW OF THE CUSTOMER It ensures that each
touch-point system is aware of customer communications activities for
every other touch point, from the Web to your call center.

o CAPTURE INBOUND COMMUNICATIONS FOR ASSESSMENT It consistently captures
customer communications, used for measurement and evaluation by Xchange
Optimizer.

PRODUCT DEVELOPMENT

The Company originally introduced VALEX, now Xchange Dialogue for Marketing,
in July 1996 and has subsequently made a number of product revisions and
enhancements. Xchange Dialogue for eMessaging was introduced by the Company in
August 1999 as part of the acquisition of eXstatic Software (formerly GBI
Incorporated), Xchange Real Time was introduced in November 1999, and Xchange
Optimizer was announced in January 2000. The Company's ongoing product
development efforts are focused on the continued expansion of the features,
functionality, and integration of the Xchange 4.0 eCRM solution outlined earlier
in this Form

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10K, however the Company is continuously reevaluating the needs of customers and
marketplace trends to identify new products for development.

SALES AND MARKETING

The Company markets its software and services through its direct sales force
of 29 quota-carrying sales representatives (including the eXstatic Software
subsidiary) and indirectly through re-sellers and co-marketers. As of December
31, 1999, the Company had sales offices in Boston; Denver; Seattle; London,
England; and Sydney, Australia. The Company's sales force consists of teams made
up of sales executives, managers and pre-sale engineers organized by geographic
territory.

The Company currently has re-seller relationships with IBM, Compaq, Hewlett
Packard, Acxiom, MicroStrategy, and others, which grants these companies the
right to re-market its software and utilize the Company's marketing materials.
In addition, the Company has co-marketing arrangements with companies such
PricewaterhouseCoopers, SAS Institute, and Sun Microsystems to generate leads
and participate in sales efforts. None of the agreements governing the re-seller
or co-marketing relationships with these organizations includes any commitments
on the part of these organizations to effect any minimum number of sales of the
Company's software, or to otherwise provide the Company with business. No
assurances can be given that any revenue will be realized by the Company from
any of these relationships.

CUSTOMERS

The Company focuses on selling its eCRM solutions to leading businesses in
targeted vertical industries. The Company also has made significant sales to
other database-marketing intensive businesses that seek to develop customized
marketing campaigns. Following are selected customers:

<TABLE><CAPTION>
FINANCIAL SERVICES TELECOMMUNICATIONS INTERNET OTHER
- ------------------ ------------------ -------- -----
<S> <C> <C> <C>
Ameritrade AT&T Wireless Drugstore.com Amway/Quixtar
Bank of America Bell Atlantic Expedia.com DaimlerChrysler
Citigroup Nextel Gateway Great Universal Stores
First USA Sprint Microsoft FedEx
Fidelity Investments U S West Qpass Ford
INVESCO Funds Group Vodafone theglobe.com Staples
</TABLE>

In 1997, two customers each individually accounted for more than 10% of the
Company's revenues. These customers were Acxiom and Fleet Bank. In 1998, only
one customer, Acxiom, accounted for more than 10% of the Company's revenues. In
1999, two customers, Acxiom and MicroStrategy, accounted for more than 10% of
the Company's revenues. Acxiom is a re-seller of the Company's products and
services, and revenues from Acxiom were comprised of sales to multiple end user
businesses. The Company entered into a reseller arrangement with MicroStrategy
in December 1999 whereby the Company recognized $4.5 million of software license
fees for the resale of the eXstatic software product to affiliates of
MicroStrategy's Strategy.com service.

CUSTOMER CASE STUDIES:

The following customer case studies represent the experiences of three of
the Company's customers that have significant operating experience with the
Company's products and that agreed to include information regarding their
experiences in this Annual Report on Form 10-K.

DAIMLERCHRYSLER

DaimlerChrylser, through its marketing agency - the InterOne Marketing Group
- -- developed a sophisticated marketing campaign to send personalized and
relevant responses to inquiries from thousands of potential customers every
week. The customers range from those who are ready to purchase a vehicle to
those who are just window shopping and their requests fall across all the
products in the company's Chrysler line. DaimlerChrysler not only tailors its
responses to individual customers; it follows up that initial contact with other
communications as it nurtures the relationship between the customer and the
brand over time.

InterOne uses Xchange Dialogue for Marketing to streamline its eCRM
initiative and to help DaimlerChrysler track individual customer communications
so the company can better serve its consumers in the future.

The company chose Xchange Dialogue for Marketing because it:

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o Is easy to use;

o Allows users to manage the dialogue flow with individual customers
visually;

o Does not require users to have a technical background; and

o Xchange has many successful implementations of the product at companies
around the world.

CITIGROUP

Facing an ambitious charter to grow its customer base and profitability,
Citigroup has implemented a major eCRM initiative around Citi f/i, the firm's
"financially interactive" Web-based bank. Located at www.citifi.com, this "bank
without walls" markets all products and services through this single channel,
including brokerage, credit card and insurance business.

Citigroup is one of the world's largest financial institutions and issuer of
credit cards. In its credit-card business alone, Citigroup has some 40 million
customers and prospects using 65 million cards.

Citigroup uses a suite of Xchange eCRM products and services that can scale
to handle very high volumes and include a decisioning engine to determine the
most appropriate offer, message and channel delivery. Xchange products and
professional services enable Citigroup to coordinate communications across
disparate customer touch points, as well as safeguarding customer privacy and
adhere to stringent opt-in, permission-based, marketing principals. Through
Xchange, Citi f/i will be able to ensure that a customer enjoys a consistent
"experience" across the enterprise.

DRUGSTORE.COM

For drugstore.com, becoming an exceptionally popular pharmacy Web site that
attracts hoards of new consumers daily made the company realize it had to
abandon its home-grown eMessaging system if it wanted to send highly
personalized messages and attractive HTML pages and scale to reach its ever
growing number of customers. To achieve its goals and meet its high customer
demand, drugstore now employs the Xchange Dialogue for eMessaging so it can send
targeted text messages, subscription notices, and HTML newsletters on health,
nutrition, wellness, beauty and other areas that interest its customers.

In addition, Xchange Dialogue for eMessaging creates these messages within
an environment that abides to consumer privacy principals and permission-based,
opt-in, opt-out, and frequency options, requiring consumers to explicitly agree
to receive communications from the firm. Adherence to permission-based practices
increases customer trust and ensures that consumers get information that is
relevant and useful. Dialogue for eMessaging handles all of these challenges and
allows drugstore.com to execute its marketing initiatives in one-fifth the time
it took under the old system.

As drugstore closes in on sending one-million, personalized, eMessages per
month, the company has seen a 50-percent increase in click-through traffic since
it began using Xchange Dialogue for eMessaging. That high click-through traffic
is as important to drugstore.com as actual conversions.

COMPETITION

The market for eCRM and related services is highly competitive. There can be
no assurance that the Company will maintain its competitive position against
current and potential competitors, especially those with significantly greater
financial, marketing, service, support, technical and other resources. The
Company's products and services are targeted at the emerging market for eCRM
solutions. The Company's competitors are diverse in their orientation and
history. The Company's current and potential competitors fall into the following
categories: front-office and ERP application providers such as Siebel Systems,
PeopleSoft, Oracle and Nortel/Clarify; analytical applications vendors such as
Epiphany and Hyperion; and campaign management vendors such as Prime Response
and Recognition Systems. Exchange Applications also essentially competes with
companies' internal information technology departments that attempt to build
their own systems.

The principal competitive factors that favor the Company include: domain
expertise and intellectual property in eCRM; reputation of the Company and its
employees and products; the number of installed customers using the Xchange
Dialogue for Marketing and Xchange Dialogue for eMessaging products; the
cross-channel capabilities of its solutions; open and flexible architecture;
strong marketing automation, email marketing and campaign management
functionality; international presence; and speed and ease of implementation and
use of its solutions. However, there can be no assurance that the Company will
be able to compete successfully with existing or new competitors or that
competition will not have a material adverse effect on the Company's business,
operating results and financial condition. See "Risk Factors -- Competition
could reduce our market share and harm our business".

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EMPLOYEES

As of December 31, 1999, the Company had 227 full-time employees, including
72 primarily engaged in research and development and 55 in sales and marketing.
The Company's future success depends in significant part upon the continued
service of its key technical and senior management personnel and its continuing
ability to attract and retain highly qualified technical and managerial
personnel. Competition for such personnel is intense and there can be no
assurance that the Company can retain its key managerial and technical employees
or that it can attract, assimilate or retain other highly qualified technical
and managerial personnel in the future. None of the Company's employees is
represented by collective bargaining units and the Company, to date, has not
experienced a work stoppage. The Company believes that its employee relations
are good.

DIRECTORS AND EXECUTIVE OFFICERS

Set forth below is certain information concerning the directors and
executive officers of Company.

<TABLE><CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
Andrew J. Frawley.................... 37 Chairman of the Board, President, Chief Executive Officer and Director
John G. O'Brien...................... 48 Chief Financial Officer, Treasurer and Secretary
David G. McFarlane................... 36 Chief Operating Officer
David L. Fitzgerald.................. 44 Senior Vice President, North American Sales and Alliances
F. Daniel Haley...................... 44 Chief Deal Officer
Michael D. McGonagle................. 47 Chief Technology Officer
Robin Green.......................... 41 Senior Vice President, World Wide Services
N. Wayne Townsend.................... 36 Senior Vice President, Solutions
Anthony G. Heywood................... 45 Senior Vice President, International
George A. Abatjoglou................. 29 Senior Vice President, Finance
Ramanan Raghavendran................. 31 Director
Jeffrey Horing....................... 36 Director
Dean F. Goodermote................... 46 Director
William K. Bryant.................... 42 Director
</TABLE>

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 holds a B.S. in accounting from the
University of Maine and an M.B.A. from Babson College. Mr. Frawley has more than
10 years of experience in the high technology industry.

Mr. O'Brien joined the Company in September 1997 as Chief Financial Officer
and Secretary and was elected Treasurer of the Company in July 1998. From
November 1996 to April 1997, Mr. O'Brien served as Vice President, Finance and
Chief Financial Officer of Advanced Modular Solutions, a computer hardware
manufacturing company. From August 1993 to November 1996, Mr. O'Brien served as
Corporate Controller of Avid Technology, Inc., a computerized film editing
system manufacturing company. From February 1991 to August 1993, Mr. O'Brien
served as Assistant Corporate Controller at Wang Laboratories, Inc., a computer
hardware and office automation system manufacturing company. Mr. O'Brien is a
C.P.A., holds a B.S. in accounting from Northeastern University, and an M.B.A.
from the Wharton School of the University of Pennsylvania. Mr. O'Brien has more
than 17 years of experience in the high technology industry. As part of the
settlement of Mr. O'Brien's divorce proceeding in January 1998, Mr. O'Brien
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.

Mr. McFarlane joined the Company in June 1997 as Executive Vice President,
Worldwide Sales and Services and was promoted to Chief Operating Officer in
December 1998. From January 1988 until joining the Company, Mr. McFarlane held
various positions at Project Software & Development, Inc., a publicly traded
software company that develops and markets high value capital asset software for
processing plants and production equipment, most recently serving as Vice
President, International and Alliances. Mr. McFarlane holds a B.Sc. in
electrical engineering and a Masters degree in electrical engineering from the
University of Bath in the U.K. Mr. McFarlane has more than 10 years of
experience in the high technology industry.

9
<PAGE>

Mr. Fitzgerald joined the Company in July 1998 as Vice President, North
American Sales and Alliances and was promoted to Senior Vice President, North
American Sales and Alliances in January 2000. From June 1996 until joining the
Company, Mr. Fitzgerald was the Group Vice President, Eastern Region of The
Vantive Corporation, an application software company. From April 1995 to April
1996, Mr. Fitzgerald served as Vice President of Sales of Salesoft, Inc., a
start-up company specializing in sales force automation software. From March
1991 to April 1995, Mr. Fitzgerald served as President of PowerCurve
Corporation, a company which he founded that specializes in systems integration
and ERP implementation services. Mr. Fitzgerald holds a B.S. in engineering from
the University of Massachusetts. Mr. Fitzgerald has more than 15 years of
experience in the high technology industry.

Mr. Haley joined the Company in November 1998 as Vice President, Growth and
Emerging Markets and was promoted to Chief Deal Officer in January 2000. From
October 1997 until joining the Company, Mr. Haley was the President and Chief
Executive Officer of FDH Associates Consulting Group Inc., a private consulting
firm. From February 1995 to October 1997, Mr. Haley was the President and Chief
Executive Officer of Precise Software Ltd., a computer software company. From
May 1989 to February 1995, Mr. Haley was a general partner of Advent
International Corp., a venture capital firm. Mr. Haley holds a B.S. in
Industrial Relations from the University of Massachusetts and an M.B.A. from the
University of Denver. Mr. Haley has more than 20 years of experience in the high
technology industry.

Mr. McGonagle joined the Company upon its founding in November 1994 and
served as Vice President, Product Development from its incorporation in November
1996 until December 1998 when he was promoted to Chief Technology Officer. From
November 1993 until joining the Company, he was Vice President, Research and
Development at MarketPulse. From August 1991 to November 1993, he served as
Director of Client-Server Development at Praxis International Inc. Mr. McGonagle
holds a B.A. in mathematics from the University of Massachusetts (Lowell) and a
Masters degree in mathematics from Brown University. Mr. McGonagle has more than
20 years of experience in the high technology industry.

Mr. Green joined the Company in January 2000 as Senior Vice President,
Global Services. From April 1999 through January 2000, Mr. Green served as Vice
President of Sales and Marketing at MessageMedia Incorporated, an emessaging
solutions company. From July 1995 through April 1999 Mr. Green served in a
variety of management and executive positions with Oracle Corporation
culminating in Vice President of Global Systems Integrator Alliances. From
December 1993 through January 1995 Mr. Green served as Vice President of
Business Development for RHI Consulting, a division of Robert Half
International; from January 1995 through July 1995, Mr. Green served in the role
of Chief Technology Officer for Robert Half International. Mr. Green holds a
B.A. in Business Administration from Belmont University in Nashville. Mr. Green
has more than 15 years of experience in the high technology industry.

Mr. Townsend joined the Company in April 1996 as Vice President, Integration
Services, was appointed to the position of Vice President, Financial Services
Solutions in December 1998, and was appointed to the position of Senior Vice
President, Solutions in January 2000. From April 1994 until joining the Company,
Mr. Townsend was a Project Director at Epsilon, a database marketing services
company. From May 1990 to April 1994, he was a consultant at Andersen
Consulting, a management consulting company. Mr. Townsend holds a B.S. in
mechanical engineering from the Massachusetts Institute of Technology and an
M.S. in mechanical engineering from the University of Dayton. Mr. Townsend has
more than 10 years of experience in the systems integration industry.

Mr. Heywood joined the Company in January 2000 as Senior Vice President,
International. From June 1997 until December 1999, Mr. Heywood served as
Executive Vice President of Europe, Middle East and Africa for Open Text, a
web-based knowledge management and infrastructure software and services firm.
From October 1991 until May 1995 Mr. Heywood was Vice President of Europe for
Locus Computing, an open systems consulting and technology firm, and
subsequently became VP Europe/World-wide acquisitions for Platinum Technology,
an enterprise systems management tools and services company, following
Platinum's acquisition of Locus. From 1985 until 1991 Mr. Heywood was a senior
executive for Uniplex, a unix office automation company. Mr Heywood holds a BSc
Honours degree in Computer Science from Newcastle University. Mr. Heywood has
more than 20 years of experience in the high technology industry.

Mr. Abatjoglou joined the Company in May 1998 as Corporate Controller and
was promoted to Senior Vice President of Finance in January 2000. From December
1995 through April 1998 Mr. Abatjoglou was Treasurer and Controller of HPR Inc.,
a healthcare information technology company. From December 1992 through November
1995, Mr. Abatjoglou served as a senior accountant with the public accounting
firm of PricewaterhouseCoopers LLP. Mr. Abatjoglou is a C.P.A. and holds a B.S.
in accounting from Miami University in Oxford, Ohio. Mr. Abatjoglou has more
than seven years 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

10
<PAGE>

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 February 1997, Mr. Goodermote held various positions at Project
Software and Development, Inc., including President and Chief Operating Officer
and most recently as Chairman of the Board of Directors. Mr. Goodermote is a
director of First International Bank, N.A., a wholly owned subsidiary of First
International Bancorp, Inc., and is also on the board of directors of several
privately held software companies.

Mr. Bryant has been a Director of the Company since October 1998. 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.

HISTORICAL BACKGROUND OF THE COMPANY

The Company commenced operations in 1994 and was incorporated in Delaware on
November 7, 1996. Prior to November 15, 1996, the Company operated as a division
of two entities, Grant & Partners, Inc. ("GPI") and Grant & Partners Limited
Partnership ("GPLP"). GPI was incorporated in June 1993 and was primarily
engaged in providing management consulting services. In November 1994, GPI
segregated its operations into two business segments: a management consulting
practice and a software applications development practice and designated
management and financial resources to the development of VALEX. On March 28,
1995, GPI entered into a limited partnership agreement with Cyrk, Inc. ("Cyrk")
to form GPLP to provide marketing and customer management services for companies
in a wide range of industries including retailing, transportation, banking and
manufacturing. GPI, as the general partner of GPLP, contributed all of its
assets and liabilities to GPLP for a 50% limited partnership interest. Cyrk
purchased the remaining 50% limited partnership interest in GPLP. GPLP operated
as two separate divisions: (i) the Exchange Applications division, which focused
on marketing program design and execution, customer database construction and
software application development; and (ii) the Exchange Partners division, which
focused on providing a variety of management consulting services for marketing
organizations.

On November 15, 1996, the Company and GPLP entered into an assignment and
assumption agreement whereby GPLP sold the Exchange Applications division to the
Company in exchange for 2,300,000 shares of preferred stock of the Company. In
addition, the Company issued 4,968,750 shares of common stock to certain
employees. The Preferred Stock held by GPLP contained voting rights equal to two
votes for each share of common stock into which the preferred stock would
convert. As a result, GPLP held approximately 70% of the voting rights of the
Company.

On August 20, 1999, the Company acquired eXstatic Software, Inc. (formerly
Gino Borland, Inc.) a company that develops and markets software solutions that
enable businesses to plan, create and execute highly personalized,
permission-based email communications based on customer profiles. The Company
exchanged 1,214,568 shares of common stock for all the outstanding shares of
eXstatic common stock, and exchanged options to purchase 277,842 shares of
Exchange Applications common stock for all the outstanding options of eXstatic;
121,442 of the shares issued were placed into escrow as security for
indemnification obligations of eXstatic relating to representations, warranties
and tax matters. This merger has been accounted for as a pooling of interests,
and accordingly the historical results of operations have been restated to
reflect the results of eXstatic Software on a combined basis.

The consolidated financial statements prior to November 15, 1996 represent
the financial results of the Exchange Applications division as included in the
consolidated financial statements of GPI from January 1, 1995 to March 27, 1995
and of GPLP from March 28, 1995 to November 14, 1996.

Unless the context otherwise requires, references herein to the "Company"
refer to Exchange Applications Inc., a Delaware corporation, and its wholly
owned subsidiaries. Exchange Applications, Ltd. was incorporated in July 1997 in
the United Kingdom and Exchange Applications, Pty. was incorporated in April
1998 in Sydney, Australia. Exchange Applications Securities Corporation, a

11
<PAGE>

Massachusetts corporation, was incorporated in December 1998. eXstatic Software,
a Washington corporation, was acquired on August 20, 1999 in a transaction
accounted for as a pooling of interest.

ITEM 2. PROPERTIES

The Company's primary offices are located in approximately 67,229 square
feet in Boston, Massachusetts pursuant to an extended lease expiring in May 31,
2004. The Company also leases space for its sales offices in Denver, Colorado,
Seattle, Washington, London, England, and Sydney, Australia.

ITEM 3. LEGAL PROCEEDINGS

From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. As of the date
of this Annual Report on Form 10-K, the Company is not a party to any legal
proceedings which, if decided adversely to the Company, in management's opinion
would have a material adverse effect on the Company's results of operations or
financial position.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during 1999
except the re-election of Jeffrey Horing as Director of the Company.

12
<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET FOR COMMON STOCK

The Company effected its initial public offering on December 9, 1998 at a
price of $5.50 per share, as adjusted for a 2 for 1 stock split on March 17,
2000. Since that date, the Company's Common Stock has traded on the Nasdaq
National Market under the symbol EXAP. The high and low sales prices for the
Company's common stock for the quarterly periods from December 8, 1998 through
December 31, 1999 was as follows, as adjusted for a 2 for 1 stock split on March
17, 2000:

-------------------------------------------- -------------- ---------------
LOW SALES HIGH SALES
FISCAL 1999 PRICE PRICE
-------------------------------------------- -------------- ---------------
4th quarter ending December 31, 1999 $12.59 $32.13
-------------------------------------------- -------------- ---------------
3rd quarter ending September 30, 1999 $11.25 $19.81
-------------------------------------------- -------------- ---------------
2nd quarter ending June 30, 1999 $ 7.19 $20.88
-------------------------------------------- -------------- ---------------
1st quarter ending March 31, 1999 $ 5.50 $12.75
-------------------------------------------- -------------- ---------------

LOW SALES HIGH SALES
FISCAL 1998 PRICE PRICE
-------------------------------------------- -------------- ---------------
Period from December 8, 1998 to December
31, 1998 $ 6.50 $11.44
-------------------------------------------- -------------- ---------------

HOLDERS OF RECORD

As of December 31, 1999 there were 233 holders of record of the Company's
common stock.

DIVIDENDS

The Company has never declared or paid any cash dividends on its capital
stock. Future dividends, if any, will be determined by the Board of Directors.
The Company's revolving note agreement prohibits the payment of any cash
dividends on its Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".

On January 28, 2000 the Company's Board of Directors approved a 2 for 1
stock split, to be effected in the form of a stock dividend. On February 29,
2000, the Company's shareholders approved an increase in the authorized shares
of $.001 par value common stock to 150,000,000 shares giving the Company enough
authorized shares to effect the stock dividend. Accordingly, the Company paid
the stock dividend on March 17, 2000 to all shareholders of record on March 3,
2000. All share and per share amounts in this Form 10-K have been adjusted to
reflect the stock split.

13
<PAGE>

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following historical selected consolidated financial data of the Company
is qualified by reference to and should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere herein.
The selected consolidated financial data set forth below as of December 31, 1998
and 1999 and for each of the years ended December 31, 1997 ,1998, and 1999 are
derived from the audited financial statements of the Company, which are included
in Item 8 of this Annual Report on Form 10-K. The selected consolidated
financial data as of December 31, 1995, 1996, and 1997 and for the years ended
December 31, 1995, and 1996 are derived from the audited consolidated financial
statements of the Company, which are not included in this Annual Report on Form
10-K. The data should be read in conjunction with the Consolidated Financial
Statements and the Notes thereto and with Management's Discussion and Analysis
of Financial Condition and Results of Operations appearing elsewhere in this
Annual Report on Form 10-K.

<TABLE><CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1995(1) 1996(1) 1997 1998 1999
----------- ----------- ----------- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Software license fees.......................................... $ -- $ 1,500 $ 5,765 $14,357 $26,344
Services and maintenance....................................... 1,759 4,643 7,490 11,817 16,957
------- ------- ------- ------- -------
Total revenues........................................... 1,759 6,143 13,255 26,174 43,301
Cost of revenues:
Software license fees.......................................... -- 890 1,707 185 438
Services and maintenance....................................... 1,063 3,283 5,277 7,023 10,255
------- ------- ------- ------- -------
Total cost of revenues................................... 1,063 4,173 6,984 7,208 10,693
------- ------- ------- ------- -------
Gross profit..................................................... 696 1,970 6,271 18,966 32,608
Operating expenses:
Sales and marketing............................................ 128 1,007 3,614 9,864 14,555
Research and development....................................... 708 1,325 2,846 6,717 9,829
General and administrative...................................... 352 1,018 2,394 3,372 4,948
Cost of Acquisition............................................ -- -- -- -- 1,388
------- ------- ------- ------- -------
Total operating expenses................................. 1,188 3,350 8,854 19,953 30,720
------- ------- ------- ------- -------
Income (loss) from operations.................................... (492) (1,380) (2,583) (987) 1,888
Interest income (expense), net................................... (47) (195) 24 104 1,430
------- ------- ------- ------- -------
Income (loss) before provision for income taxes.................. (539) (1,575) (2,559) (883) 3,318
Provision for income taxes....................................... -- -- -- 111 2,220
------- ------- ------- ------- -------
Net income (loss)................................................ (539) (1,575) (2,559) (994) 1,098
Accretion of discount and dividends on preferred stock........... -- -- (684) (180) --
------- ------- ------- ------- -------
Net income (loss) applicable to common stockholders.............. $ (539) $(1,575) $(3,243) $(1,174) $ 1,098
======= ======= ======= ======= =======
Basic net income (loss) per share applicable to common $ (0.49) $ (1.12) $ (0.47) $ (0.13) $ 0.05
stockholders..................................................... ======= ======= ======= ======= =======

Basic weighted average common shares outstanding (2)............. 1,100 1,410 6,940 8,725 22,115
======= ======= ======= ======= =======
Diluted net income (loss) per share applicable to common $ (0.49) $ (1.12) $ (0.47) $ (0.13) $ 0.04
stockholders..................................................... ======= ======= ======= ======= =======

Diluted weighted average common shares outstanding............... 1,100 1,410 6,940 8,725 26,433
stockholders..................................................... ======= ======= ======= ======= =======
Pro forma basic and diluted net loss per share(2)(3)(4).......... $ (0.22) $ (0.06)
======= =======
Pro forma basic and diluted weighted average common shares 11,882 16,284
outstanding(2)(3)(4)............................................. ======= =======
</TABLE>

<TABLE><CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------
1995(1) 1996 1997 1998 1999
------------------- --------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents, and marketable securities...................... $ 503 $ 376 $ 5,306 $ 20,671 $ 29,107
Working capital (deficit).............................................. (1,215) (848) 5,047 21,485 13,546
Total assets........................................................... 2,527 4,201 11,475 31,986 115,065
Long-term debt, net of current portion................................. 38 2,268 237 145 16,653
Redeemable preferred stock............................................. -- -- 7,088 -- --
Stockholders' equity (deficit)......................................... (549) (1,290) (683) 24,201 70,712
</TABLE>
- ----------------

14
<PAGE>

(1) The Consolidated Balance Sheet Data as of December 31, 1995 and consolidated
statement of operations data for the years ended December 31, 1995 and 1996
include the operations of the Company on a carve-out basis prior to November
15, 1996. During this period, the Company operated as a separate and
substantially independent division of Grant & Partners, Inc. and Grant &
Partners Limited Partnership, and focused on developing VALEX and providing
integration and consulting services. See "Historical Background of the
Company" and Note 1 of Notes to Consolidated Financial Statements.

(2) 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 have been adjusted to reflect the stock split.

(3) Gives effect, as of the issuance date, to the reclassification of Series A
Preferred Stock to $3,269,000 of additional paid-in capital, the conversion
of all outstanding shares of the Series B Convertible Preferred Stock, at a
redemption value of $4,000,000, into 2,555,556 shares of Common Stock, and
the conversion of all outstanding shares of Series C Convertible Preferred
Stock, at $.001 par value per share, into 1,223,954 shares of Common Stock
that occurred upon the closing of the Company's initial public stock
offering on December 14, 1998.

(4) Computed on the basis described in Note 2(b) of Notes to Consolidated
Financial Statements.

15
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS ANNUAL
REPORT ON FORM 10-K. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH UNDER
"RISK FACTORS" AND ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K.

OVERVIEW

o Xchange Dialogue for Marketing for creating and executing customer
communications across all channels;

o Xchange Real Time for planning and synchronizing customer communications
across all channels in real-time;

o Xchange Dialogue for eMessaging for creating and executing Web-based
customer communications; and

o Xchange Optimizer for web-based customer analytics and measurement.

The Company was incorporated in November 1996. Prior to incorporation, the
Company operated as a separate division of two entities, Grant & Partners, Inc.
("GPI") and Grant & Partners Limited Partnership ("GPLP"). The Company's
activities during its early stages of operation focused on the development of
software solutions to provide customer communications support to businesses. In
1995, the Company began providing professional services in the areas of
marketing program design and execution and data warehousing. In March 1997, the
Company ceased providing marketing program design services. The Company's
development efforts culminated in the introduction to the market in July 1996 of
Xchange Dialogue for Marketing, the Company's marketing automation software
product. Since the introduction of Xchange Dialogue for Marketing, the Company
has continued to focus significant resources on the development of additional
functionality and features of the Xchange Dialogue for Marketing product as well
as the development and acquisition of additional solutions within the Company's
eCRM solution set including Xchange Real Time, Xchange Dialogue for eMessaging,
and Xchange Optimizer. The Company also has continued to expand its marketing
activities, build the Exchange Applications identity, develop the competencies
of the professional services group, build international sales and distribution
channels and develop its general and administrative infrastructure. The Company
has shifted its primary business focus from providing services to selling
software products. However, the Company believes that continuing to provide
superior professional services will be critical to maximizing its opportunities
for future revenues. In August 1999, the Company acquired eXstatic Software
(formerly Gino Borland, Inc.) in a transaction accounted for as a pooling of
interest. eXstatic Software develops and markets software products that enable
businesses to plan, create and execute highly personalized, permission-based
email communications based on customer profiles. In accordance with pooling of
interests accounting, the results of operations have been restated to reflect
the historical results of eXstatic on an as combined basis.

The Company generates revenue from software licenses, professional service
arrangements and software maintenance agreements. The Company recognizes
software license fee revenues upon execution of a license agreement and delivery
of the software, provided that the fee is fixed or determinable and deemed
collectible by management. If acceptance of the software by the licensee is
required, revenues are only recognized upon satisfaction of the foregoing
conditions and acceptance of the software. Revenues from professional service
arrangements are recognized on either a time and materials or
percentage-of-completion basis as the services are performed, provided that
amounts due from customers are fixed or determinable and deemed collectible by
management. Revenues related to software maintenance agreements are recognized
ratably over the term of the maintenance period. Amounts collected or billed
prior to satisfying the above revenue recognition criteria are reflected as
deferred revenue.

Although the Company has experienced significant revenue growth recently,
there can be no assurance that such growth rates are sustainable and they should
not be relied upon as predictive of future performance. In addition, the timing
of license revenues is difficult to predict because of the length and
variability of the Company's sales cycle. The Company's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in the early stage of development, particularly in new
and rapidly evolving markets. There can be no assurance that the Company will be
successful in addressing such risks and difficulties or that it will continue to
increase revenues.

16
<PAGE>

TRANSACTIONS WITH MICROSTRATEGY, INC.

In December 1999, the Company entered into a strategic alliance relationship
with MicroStrategy, Inc., resulting in a series of transactions between the two
companies. Because the net cash consideration from the transactions described
below is significant, the Company has accounted for these transactions as
monetary exchanges and has recorded them at the fair value of the elements
exchanged.

The Company agreed to pay to MicroStrategy an aggregate of $65 million in
cash and the Company's common stock over the course of two years commencing in
December 1999. In return, the Company will receive the following:

o licenses for MicroStrategy applications valued at $30 million for the
purpose of developing new products using MicroStrategy technology along
with distribution rights to existing and newly developed MicroStrategy
products on a royalty-free basis for 3 1/2 years;

o a dedicated research and development workforce from MicroStrategy for a
31/2year term valued at $30 million to develop new products using
MicroStrategy's technology; and

o prepaid co-marketing by MicroStrategy over 18 months valued at $5
million.

The Company has capitalized the present value of the $65 million payments,
which totaled $62.0 million, and will amortize this amount to operations over
the terms of the underlying arrangements, which is approximately 42 months. As a
result of the amortization of the costs associated with these transactions with
MicroStrategy, the Company expects to not be profitable for the foreseeable
future.

Conversely, MicroStrategy also agreed to pay to the Company $10 million for
the purchase of the following:

o royalty-free right to distribute in MicroStrategy's Strategy.com ASP
environment for 31/2years the Company's Xchange Dialogue for eMessaging
product to named affiliates of MicroStrategy's Strategy.com web service,
valued at $8.0 million; and

o perpetual internal-use and development licenses to use the Company's
Xchange Dialogue for Marketing and Xchange Dialogue for eMessaging
products, along with the initial year of support and maintenance, valued
at a total of $2.0 million.

MicroStrategy must pay the Company the $8.0 million for the Xchange
Dialogue for eMessaging product distribution over the 3 1/2 year term as
MicroStrategy adds named affiliates to its Strategy.com web service. The Company
will record the license fee as MicroStrategy signs up named affiliates and the
payments become due. The Company is providing support to MicroStrategy under
annual maintenance contracts that are billed when MicroStrategy designates
affiliates. Revenues under these maintenance contracts are recognized over the
period of service. In December 1999, the Company recorded total revenue of $4.5
million when MicroStrategy designated and paid for 45 named affiliates for the
Xchange Dialogue for eMessaging product through the Strategy.com web service.
The Company expects to record the remaining $3.5 million of revenue under this
contract during 2000 when MicroStrategy designates and pays for additional named
affiliates to its Strategy.com web service.

MicroStrategy must pay the Company the $2.0 million for the internal-use and
development licenses upon the delivery and execution of the license agreements.
These products were delivered in January 2000 at which point the product revenue
was recognized and the support and maintenance fees were deferred.

17
<PAGE>

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage of
total revenues represented by certain items from the Company's Consolidated
Statements of Operations.

<TABLE><CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1998 1999
---------- ---------- ---------
<S> <C> <C> <C>
Revenues:
Software license fees.................................... 43.5% 54.9% 60.8%
Services and maintenance................................. 56.5 45.1 39.2
----- ----- -----
Total revenues...................................... 100.0 100.0 100.0
Cost of revenues:
Software license fees.................................... 12.9 0.7 1.0
Services and maintenance................................. 39.8 26.8 23.7
----- ----- -----
Total cost of revenues.............................. 52.7 27.5 24.7
----- ----- -----
Gross margin................................................ 47.3 72.5 75.3
Operating expenses:
Sales and marketing...................................... 27.3 37.7 33.6
Research and development................................. 21.4 25.7 22.7
Cost of acquisition...................................... -- -- 3.2
General and administrative............................... 18.1 12.9 11.4
----- ----- -----
Total operating expenses............................ 66.8 76.3 70.9
----- ----- -----
Income (loss) from operations............................... (19.5) (3.8) 4.4
Interest income (expense), net.............................. 0.2 0.4 3.3
----- ----- -----
Income (loss) before provision for income................... (19.3) (3.4) 7.7
----- ----- -----
Provision for income taxes.................................. -- (0.4) 5.1
----- ----- -----
Net income (loss)........................................... (19.3)% (3.8)% 2.6%
===== ===== =====
</TABLE>

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

REVENUES

The Company's total revenues increased 97% from $13.3 million in 1997 to
$26.2 million in 1998. A number of factors contributed to the increase in total
revenues in 1998, including an increase in the Company's sales force, sales
resulting from the establishment of key strategic re-seller and co-marketing
relationships in late 1997 and the first six months of 1998, increased
international sales resulting from the opening of a U.K. sales office during
July 1997 and an Australia sales office in April 1998 and the growing
contribution of maintenance revenues from the larger installed base of the
Company's products. The Company's total revenues in 1999 increased 65% over 1998
amounts to $43.3 million. The factors contributing to the increase in total
revenue in 1999 included additional sales resulting from the expansion of key
existing strategic re-seller arrangements as well as the establishment of new
re-seller arrangements, the continued increase in the Company's direct sales
force, and incremental revenues provided by the eXstatic Software acquisition.

Software license fee revenues increased 149% from $5.8 million, or 43.5% of
total revenues, in 1997 to $14.4 million, or 54.9% of total revenues, in 1998.
This growth was primarily a result of the expansion of the company's software
license revenues from direct sales to customers both inside and outside of North
America. Software license fee revenues from direct sales to customers outside of
North America were $3.1 million in 1998 as compared to $598,000 in 1997.
Software license fee revenues from direct sales to customers inside North
America were $7.2 million in 1998 versus $2.4 million in 1997. In addition, the
company had $949,000 in incremental software license fee revenues from strategic
re-seller relationships in 1998. From 1998 to 1999, software license fee
revenues grew 83% to $26.3 million, or 60.8% of total revenue. The increase in
software license fee revenues from 1998 to 1999 is attributable to the expansion
of the Company's software license revenues from direct sales to customers both
inside and outside of North America, as well as an increase in software license
fee revenues from strategic re-seller relationships from $4.0 million in 1998 to
$11.4 million in 1999. Software license fee revenues from direct sales to
customers outside of North America were $4.9 million in 1999 as compared to $3.1
million in 1998. Software license fee revenues from direct sales to customers
inside North America were $10 million in 1999 versus $7.2 million in 1998.

Services and maintenance revenues increased 57.8% from $7.5 million, or
56.5% of total revenues in 1997 to $11.8 million, or 45.1% of total revenues, in
1998. The growth of services and maintenance revenues from 1997 to 1998 resulted
from $1.8 million in

18
<PAGE>

incremental professional services revenues associated with the growing sales of
the Company's Xchange Dialogue for Marketing software product and increased
training revenues, $1.0 million in incremental service related revenue generated
by the eXstatic Software subsidiary, and $1.7 million in incremental maintenance
revenues from the larger installed base of software license customers. From 1998
to 1999, services and maintenance revenues increased 43.5% to $17.0 million, or
39.2% of total revenues The growth of services and maintenance revenues in 1999
was directly attributable to $2.1 million in additional services engagement
revenue and $3.0 million in additional maintenance fee revenues from the
Company's increased base of customers. The decrease in services and maintenance
revenues as a percentage of total revenues was primarily attributable to
increased software license fee revenues resulting from market acceptance of the
Company's Xchange Dialogue for Marketing and Xchange Dialogue for eMessaging
software products. The Company expects to continue the expansion of its services
offering to include newly identified opportunities as well as projects that
require unique expertise or familiarity with the Company's eCRM solution set. In
addition, as the Company grows the service business associated with the hosted
Xchange Dialogue for eMessaging product it is expected that services and
maintenance revenues will remain constant or increase slightly as a percentage
of total revenues.

In 1997, the Company's top five customers accounted for 74.7% of total
revenues, while the Company's three largest customers accounted for 34.8%, 22.0%
and 7.3%, respectively, of the Company's total revenues during this same period.
In 1998, the Company's top five customers accounted for 31.1% of total revenues,
while the Company's three largest customers accounted for 12.4%, 5.3% and 5.2%,
respectively, of total revenues during this same period. In 1999, the Company's
top five customers accounted for 37.7% of total revenues, while the Company's
three largest customers accounted for 11.3%, 10.4% and 7.2%, respectively, of
the Company's total revenues during this same period. In 1997, 1998, and 1999
revenues from the largest customer were comprised of sales through a single
re-seller to multiple end-user businesses.

COST OF REVENUES

Total cost of revenues consists of costs associated with software license
fees and costs associated with services and maintenance. In 1997, cost of
revenues also included amortization of capitalized software development costs.
Total cost of revenues as a percentage of total revenues declined from 52.7% in
1997, to 27.5% in 1998 and 24.7% in 1999. The Company's capitalized software
development costs were fully amortized as of December 31, 1997, thereby
accounting for the majority of the significant decrease in cost of revenues as a
percentage of revenues from 1997 to 1998. The decrease in cost of revenues as a
percentage of total revenues from 1998 to 1999 was primarily attributable to the
increased year-over-year contribution of higher-margin software license sales.

Cost of software license fees in 1997, 1998, and 1999 are comprised of
royalty payments made to third parties for licensed intellectual property
included in the Xchange Dialogue for Marketing product, and costs associated
with software packaging and distribution. In addition, in 1997, cost of software
license fees included $1.2 million of amortization of capitalized software
development costs. Cost of software license fees as a percentage of total
revenues decreased from 12.9% in 1997 to 0.7% in 1998 and increased to 1.0% in
1999. Cost of software license fees as a percentage of software license fee
revenues decreased from 29.6% in 1997 to 1.3% in 1998 and increased to 1.7% in
1999. The decrease in the cost of software license fees from 1997 to 1998, both
on an absolute dollar basis and as a percentage of total revenues and software
license fee revenues, is attributable to the elimination of $1.2 million in
amortization of capitalized software in 1998 as compared to 1997 as well as an
incremental $213,000 in royalties in 1997 payable on the sale of Xchange
Dialogue for Marketing. The increase in cost of software license fees from 1998
to 1999 resulted from increased shipments of Xchange Dialogue for Marketing
software and, therefore, the associated royalty expense payable to third parties
and costs associated with software packaging and distribution, as well as an
incremental $117,000 in royalty obligations associated with the new Xchange
Dialogue for Planning module available in 1999. This increase was partially
offset by the fact that the Company's primary royalty obligation in 1997 and
1998, which was payable on the first $10 million of Xchange Dialogue for
Marketing sales, was fully satisfied by the end of the second quarter 1998. As
the Company adds additional components to its software products, the Company may
choose to license software from third parties. The cost of such licenses may
increase the cost of software license fees both in absolute dollars and as a
percentage of revenues.

Cost of services and maintenance consists primarily of personnel, facility
and system costs incurred in providing professional consulting services,
training, hosted software services for the Xchange Dialogue for eMessaging
software product, and customer support services. Cost of services and
maintenance revenues as a percentage of total revenues was 39.8%, 26.8% and
23.7% in 1997, 1998, and 1999, respectively. The decrease in costs as a
percentage of revenue was a result of the increased contribution of the software
license fee revenues from 1997 to 1999. Cost of services and maintenance as a
percentage of services and maintenance revenues was 70.5%, 59.4%, and 60.5% in
1997, 1998, and 1999, respectively. The decrease in cost of services and
maintenance as a percentage of services and maintenance revenue from 1997 to
1998 was attributable primarily to the increased contribution of higher margin
maintenance revenues from the Company's increased installed base of Xchange
Dialogue for Marketing customers. The slight increase in cost of services and
maintenance as a percentage of services and maintenance revenue from 1998 to
1999 was primarily a result of increased costs to establish the application
service provider facilities necessary to deliver the Xchange Dialogue for
eMessaging hosted software business.

19
<PAGE>

As the Company sells more of its software products through re-seller and
co-marketing relationships, it is anticipated that the re-sellers will provide
certain of the consulting and maintenance services associated with these sales.
By using the services resources of the re-sellers and co-marketers, the Company
plans to allocate its own professional services resources to direct sales
customers, projects that require unique expertise or familiarity with the
Company's eCRM solution set, and newly identified, more profitable
opportunities. Due to these items, and the continued increase in contribution
from higher margin maintenance revenues and service revenues from the hosted
Xchange Dialogue for eMessaging software product, the Company expects cost of
services and maintenance to remain the same or decrease slightly as a percentage
of both total revenues and service and maintenance revenues in the foreseeable
future.

Overall gross margin increased from 47.3% in 1997 to 72.5% in 1998 and 75.3%
in 1999. The increase in overall gross margin from 1997 to 1998 was attributable
to the full amortization of the Company's capitalized software development costs
in 1997 as well as the increased contribution in 1998 from higher-margin
software license fee revenues. The slight increase in overall gross margin from
1998 to 1999 was primarily due to the continued increased contribution of
software license fee revenues in 1999 as compared to 1998.

OPERATING EXPENSES

SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries for sales and marketing personnel, commissions, travel and promotional
expenses. Sales and marketing expenses were $3.6 million, $9.9 million, and
$14.6 million representing 27.3%, 37.7%, and 33.6% of total revenues, in 1997,
1998 and 1999, respectively. This increase in expense is primarily attributable
to the increase in personnel, promotional activities including trade shows,
seminars, and the development of promotional materials designed to increase
awareness of the Company and its eCRM solution set. The number of employees in
the Company directly involved in the sales and marketing effort has increased
from 28 in 1997 to 38 in 1998 and 55 in 1999. The investment in sales and
marketing personnel and activities has contributed to increased Xchange Dialogue
for Marketing and Xchange Dialogue for eMessaging revenues and expansion of the
customer installation base to over one hundred twenty locations in 28 countries.
As the Company expands its business into new vertical markets, continues the
expansion internationally into Europe and the Asia/Pacific region, and increases
the market awareness of the eCRM solution offering, the Company expects these
expenses to remain the same or decrease slightly as a percentage of total
revenues due to economies of scale.

RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of employee salary and benefits, consultant costs, and equipment and
purchased-software depreciation costs associated with new product development,
enhancement of existing products and quality assurance activities. Research and
development expenses increased from $2.8 million, to $6.7 million, and $9.8
million representing 21.4%, 25.7%, and 22.7% of total revenues, in 1997, 1998
and 1999, respectively. The increase in absolute dollars reflects the hiring of
24 additional employees in 1998 and 25 additional employees in 1999 and
additional investments in the Company's Xchange Dialogue for Marketing and
Xchange Dialogue for eMessaging product families. Significant research and
development expenditures were incurred in 1998 in the development of the Xchange
Dialogue for eMessaging software product, whose first commercial release was
delivered in the second half of 1999. Over the past year, with the release of
the Xchange Dialogue for eMessaging product as well as continued market
acceptance of the Xchange Dialogue family of products, total revenues have
increased at a faster pace than research and development expenditures, resulting
in a decrease in total research and development expense as a percentage of total
revenues from 1998 to 1999. The Company anticipates that research and
development expenses will continue to increase in absolute dollars and stay the
same or increase slightly as a percentage of total revenues. This is primarily
due to the anticipated investment in research and development of the Xchange
Real Time, Xchange Optimizer and Xchange Dialogue for eMessaging software
products as well as the expansion of the core eCRM product offerings including
Xchange Dialogue for Marketing and Xchange Dialogue for Planning.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries and related costs, outside professional fees, and
equipment and software depreciation costs associated with the finance, legal,
human resources, information systems, and administrative functions of the
Company. General and administrative expenses were $2.4 million, $3.4 million,
and $4.9 million representing 18.1%, 12.9%, and 11.4% of total revenues, in
1997, 1998 and 1999, respectively. From 1997 to 1999 expenses increased in
absolute dollars as the Company's administrative staffing grew from 10 employees
in 1997 to 20 in 1998 and 35 employees in 1999, but declined as a percentage of
total revenues, due primarily to economies of scale. The Company expects general
and administrative expenses to decrease as a percentage of total revenues while
continuing to grow in absolute dollars as a result of the implementation of
additional management information systems, the continuation of the Company's
international expansion, and the costs that the Company is incurring as a result
of being a publicly-held company.

20
<PAGE>

COST OF ACQUISITION

INTEREST INCOME (EXPENSE), NET

The Company reported net interest income of $104,000 in 1998 versus net
interest income of $24,000 in 1997 as the Company earned interest on increased
customer cash payments as well as an incremental $37,000 of interest on the
proceeds from the Company's initial public offering in December 1998. Net
interest income increased to $1.4 million in 1999 primarily as a result of
interest earned on proceeds from the Company's initial public offering completed
in December 1998 and its second public offering completed in June 1999.

PROVISION FOR INCOME TAXES

The Company recorded a provision for income taxes for the twelve months
ended December 31, 1999 of $2.2 million, or 67% of income before taxes. The two
primary reasons for the high effective tax rate were the $1.4 million of
non-tax-deductible acquisition costs and $405,000 of non-tax-deductible
operating losses of eXstatic Software prior to the August 20, 1999 acquisition
date included in the results of operations. Prior to its acquisition, eXstatic
Software was structured as a sub-chapter S corporation and, as such, the tax
benefit of losses incurred through August 20, 1999 reverted to eXstatic's
principals. Because the acquisition was structured as a non-taxable transaction
for the eXstatic shareholders, Exchange Applications does not expect to realize
any tax benefit from eXstatic losses incurred prior to the acquisition.

The Company recorded a provision for foreign income taxes in 1998 for net
operating profits earned by its United Kingdom subsidiary. However no provision
was recorded for federal or state income taxes as the Company incurred net
domestic operating losses in 1998. The Company has recorded a full valuation
allowance against the deferred tax asset generated as a result of net operating
loss carry-forwards in the United States incurred prior to 1999, as the Company
currently believes it is more likely than not that these assets will not be
realized.

21
<PAGE>

SELECTED QUARTERLY RESULTS OF OPERATIONS

The following tables present unaudited quarterly consolidated statement of
operations data for each quarter in the eight quarters ended December 31, 1999,
as well as such data expressed as a percentage of the Company's total revenues
for the periods indicated. This data has been derived from unaudited
consolidated financial statements that have been prepared on the same basis as
the audited consolidated financial statements and include all adjustments
(consisting only of normal recurring adjustments) that the Company considers
necessary for a fair presentation of such information. The Company believes
quarter-to-quarter comparisons of its financial results should not be relied
upon as an indication of future performance, and operating results may fluctuate
from quarter to quarter in the future.

<TABLE><CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
---------- ------------------ --------- ---------- --------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:

Revenues:
Software license fees................... $2,711 $3,105 $3,958 $4,583 $5,008 $6,051 $6,793 $8,492
Services and maintenance................ 2,254 2,812 3,223 3,528 3,457 4,207 4,402 4,891
------ ----- ------ ------ ------ ------ ------ ------
Total revenues.................... 4,965 5,917 7,181 8,111 8,465 10,258 11,195 13,383
Cost of revenues:
Software license fees................... 83 45 57 -- 101 63 68 206
Services and maintenance................ 1,656 1,698 1,801 1,868 1,960 2,491 2,721 3,083
------ ----- ------ ------ ------ ------ ------ ------
Total cost of revenues............ 1,739 1,743 1,858 1,868 2,061 2,554 2,789 3,289
------ ----- ------ ------ ------ ------ ------ ------
Gross profit.............................. 3,226 4,174 5,323 6,243 6,404 7,704 8,406 10,094
Operating expenses:
Sales and marketing..................... 1,735 2,428 2,611 3,090 3,195 3,544 3,711 4,103
Research and development................ 1,334 1,690 1,744 1,949 1,941 2,229 2,648 3,011
General and administrative.............. 636 821 975 940 968 1,177 1,263 1,542
Cost of acquisition..................... -- -- -- -- -- -- 1,388 --
------ ----- ------ ------ ------ ------ ------ ------
Total operating expenses.......... 3,705 4,939 5,330 5,979 6,104 6,950 9,010 8,656
------ ----- ------ ------ ------ ------ ------ ------
Income (loss) from operations............. (479) (765) (7) 264 300 754 (604) 1,438
Interest income (expense), net............ 23 3 22 56 228 237 452 513
------ ----- ------ ------ ------ ------ ------ ------
Income (loss) before provision for income tax (456) (762) 15 320 528 991 (152) 1,951
------ ----- ------ ------ ------ ------ ------ ------
Provision for income taxes................ -- -- -- 111 195 367 457 1,201
------ ----- ------ ------ ------ ------ ------ ------
Net income (loss)......................... $ (456) $(762) $ 15 $ 209 $ 333 $ 624 $ (609) $ 750
====== ===== ====== ====== ====== ====== ======= ======

QUARTER ENDED
-----------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30,DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
---------- --------- ------------------ ---------- --------- --------- -------
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
Software license fees................... 54.6% 52.5% 55.1% 56.5% 59.2% 59.0% 60.7% 63.5%
Services and maintenance................ 45.4 47.5 44.9 43.5 40.8 41.0 39.3 36.5%
----- ----- ----- ----- ----- ----- ----- -----
Total revenues.................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Software license fees................... 1.7 0.8 0.8 -- 1.1 0.6 0.6 1.6
Services and maintenance................ 33.3 28.7 25.1 23.0 23.2 24.3 24.3 23.0
----- ----- ----- ----- ----- ----- ----- -----
Total cost of revenues............ 35.0 29.5 25.9 23.0 24.3 24.9 24.9 24.6
----- ----- ----- ----- ----- ----- ----- -----
Gross margin.............................. 65.0 70.5 74.1 77.0 75.7 75.1 75.1 75.4
Operating expenses:
Sales and marketing..................... 34.9 41.0 36.3 38.1 37.8 34.5 33.1 30.7
Research and development................ 26.9 28.6 24.3 24.0 22.9 21.7 23.7 22.5
General and administrative.............. 12.8 13.9 13.6 11.6 11.4 11.5 11.3 11.5
Cost of acquisition..................... -- -- -- -- -- -- 12.4 --
----- ----- ----- ----- ----- ----- ----- -----
Total operating expenses.......... 74.6 83.5 74.2 73.7 72.1 67.7 80.5 64.7
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from operations............. (9.7) (13) (.1) 3.3 3.5 7.4 (5.4) 10.7
Interest income (expense), net............ 0.5 0.1 0.3 0.7 2.7 2.3 4.0 3.8
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before provision for income tax (9.2) (12.9) 0.2 3.9 6.2 9.7 (1.4) 14.5
Provision for income taxes................ -- -- -- (1.4) 2.3 3.6 4.1 8.9
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)......................... (9.2)% (12.9)% 0.2% 2.6% 3.9% 6.1% (5.4)% 5.6%
===== ===== ===== ===== ===== ===== ====== =====
</TABLE>

The Company's revenues have increased in all quarters presented as a result
of increased market acceptance of the Xchange Dialogue for Marketing product,
the continued growth of indirect channel revenues, increase in sales resources,
and an increase in international revenues. Cost of revenues on a percentage
basis decreased throughout the quarters presented as a result of an increase in
software license fees in the Company's revenue mix and the completion of
software royalty obligations in the second quarter of 1998. No assurances can be
given that the favorable shift in revenue mix will continue. Gross profit for
any quarter will be affected by the revenue mix in that quarter.

22
<PAGE>

Operating expenses have increased in each of the quarters presented. Sales
and marketing expenses have increased as a result of increased sales and
marketing personnel and increased commissions associated with higher revenues.
Research and development expenses generally have increased as a result of
continued enhancements to the eCRM product offerings, including Xchange Dialogue
for Marketing, as well as the Xchange Real Time, Xchange Optimizer, and Xchange
Dialogue for eMessaging software products. General and administrative expenses
have increased primarily due to additional personnel, professional fees and
facilities and other infrastructure costs.

The Company's quarterly and annual operating results have varied
significantly in the past and are expected to do so in the future. Accordingly,
the Company believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as
predictors of future performance. See "Risk Factors -- Our quarterly operating
results may fluctuate significantly and you should not rely on them to predict
our future performance."

LIQUIDITY AND CAPITAL RESOURCES

Since its inception, the Company has financed its operations primarily
through the sale of equity securities in private placements, the issuance of
notes payable to related parties, and the sales of common stock as part of its
initial public stock offering in December 1998 and its secondary public stock
offering in June 1999.

In June 1999, the Company modified the terms of its revolving note agreement
with Fleet National Bank, increasing the credit limit from $2.0 million to $5.0
million. The note bears interest at the bank's prime rate per annum, payable
monthly in arrears, expires on July 31, 2000 and is secured by substantially all
assets of the Company. Under the revolving note agreement, the Company is
required to comply with certain restrictive covenants, including (i) maintaining
a ratio of debt to tangible net worth of not more than 1.00 to 1.00 at the end
of each fiscal quarter, (ii) maintaining a minimum tangible net worth of at
least $20,000,000, subject to certain adjustments, (iii) maintaining minimum net
income of $1.00 for each fiscal year, and (iv) maintaining a current assets to
current liabilities ratio of not less than 2.00 to 1.00 as at the end of each
fiscal quarter. In addition, the Company is prohibited from paying any cash
dividends on its Common Stock under the revolving note agreement. As of December
31, 1999, the Company was in compliance with all financial covenants under the
revolving note agreement with the exception of the quarterly net income
requirement for the quarterly period ended September 30, 1999, and had received
a waiver from the Bank for that instance of non-compliance. As a result of the
MicroStrategy transaction, the Company expects to not be profitable for the
foreseeable future and as such will be requesting a modification to the
appropriate covenants under the revolving note agreement.

As of December 31, 1999 the Company had $34.1 million in cash and short-term
and long-term investments. The Company believes that its existing balance of
cash, cash equivalents and short-term and long-term investments will be
sufficient to meet the Company's working capital and anticipated capital
expenditure needs for at least the next 12 months. Thereafter, the Company may
require additional sources of funds to continue to support its business. There
can be no assurance that such capital, if needed, will be available or will be
available on terms acceptable to the Company.

Cash and cash equivalents as of December 31, 1999 increased $9.5 million
from December 31, 1998. Net cash provided by operations in 1999 of approximately
$2.8 million resulted primarily from net income before depreciation expense and
non-cash option related compensation expense of $3.7 million and an
approximately $889,000 decrease in non-cash working capital. The decrease in
non-cash working capital was primarily attributable to an increase in accounts
receivable associated with increased license and services revenue in 1999 versus
1998, partially offset by an increase in accounts payable and deferred revenue.

Net cash used in investing activities in 1999 totaled $17.4 million. Net
cash used resulted from property and equipment purchases totaling $3.6 million
related to the increase in headcount, the expansion of the main operating
facilities and the acquisition of computer hardware and software for development
and internal operating systems. In addition, the Company purchased $3.9 million
of short-term and long-term investments relative to its investment position at
the end of last year. Lastly, the Company paid $10 million to MicroStrategy
Incorporated as an initial payment in the licensing and co-development
transaction entered into in December 1999.

Net cash provided by financing activities in 1999 of $24.1 million primarily
consisted of $20.0 million in proceeds from the secondary public offering, net
of expenses as well as $1.4 million from the exercise of stock options in 1999
and $2.2 million in cash tax benefits from stock option exercises.

The Company had net operating loss carryforwards of approximately $1.6
million at December 31, 1999 to reduce future income taxes, if any. These
carryforwards expire through 2018 and are subject to review and possible
adjustment by the Internal Revenue Service. The Tax Reform Act of 1986 contains
provisions that may limit the amount of net operating loss and credit
carryforwards that the Company may utilize in any one year in the event of
certain cumulative changes in ownership over a three-year period in excess of

23
<PAGE>

50% as defined. The Company believes that it has experienced a change in
ownership in excess of 50%. The Company does not believe that this change will
significantly impact the Company's ability to utilize its net operating loss
carryforwards.

The Company currently has sales offices in the United Kingdom and Australia,
in addition to the United States. The Company's revenues from international
operations have been denominated in foreign currencies which historically have
been stable in relation to U.S. dollars. As a result, the gain or loss from
foreign currency transactions has not been material to the Company's operating
results. As of December 31, 1999, the material assets and liabilities
denominated in foreign currencies include accounts receivable, accounts payable
and cash and cash equivalents. Due to the stability of the foreign economies
where these assets and liabilities are denominated, the Company has not adopted
a policy of hedging foreign currency risks. While it is anticipated that foreign
transactions will continue to be denominated in local currencies, the Company
expects to use hedging instruments to offset potential currency exposures
arising as the Company's international operations expand into less stable
economic environments.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standard, or SFAS, No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. This statement establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and for hedging activities.
SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal quarters
of fiscal years beginning after June 15, 2000. SFAS No. 133 is not expected to
have a material impact on the Company's consolidated financial statements.

In December 1998, the AICPA issued Statement of Position 98-9, MODIFICATION
OF SOP 97-2 SOFTWARE REVENUE RECOGNITION, WITH RESPECT TO CERTAIN TRANSACTIONS.
SOP 98-9 requires use of the residual method of recognition of revenues when
vendor-specific objective evidence exists for undelivered elements but does not
exist for delivered elements of a software arrangement. The Company will be
required to comply with the provisions of SOP 98-9 for transactions entered into
beginning January 1, 2000. The Company does not expect the adoption of SOP 98-9
will have a material effect on its financial position or operating results.

The Securities and Exchange Commission released Staff Accounting Bulletin
(SAB) No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS, on December 3, 1999.
This SAB provides additional guidance on the accounting for revenue recognition,
including both broad conceptual discussions as well as certain industry-specific
guidance. The guidance is effective for the second quarter 2000. The Company
does not expect the adoption of SAB 101 to have a material impact on the
Company's results of operations.

RISK FACTORS

Statements in this report concerning the future results of operations,
financial condition and business of the Company are "forward-looking" statements
as defined in the Securities Act of 1933 and the Securities Exchange Act of
1934. Investors are cautioned that information contained in these
forward-looking statements is inherently uncertain, and that actual performance
and results may differ materially due to numerous risk factors, including but
not limited to the following:

OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT.

We began commercial shipment of the initial Xchange Dialogue for Marketing
product in July 1996. We were not a separate company until November 1996.
Accordingly, we have only a limited operating history for you to evaluate our
business. You must consider the risks, expenses and difficulties that an
early-stage company like ours faces. These risks include our ability to:

o successfully respond to competitive developments;

o continue to upgrade our products and service offerings; and

o continue to attract, retain and motivate qualified personnel.

RECENT TRANSACTIONS WILL RESULT IN SHORT TERM LOSSES.

As a result of the expenses associated with recent transactions with
MicroStrategy Inc., we will report quarterly and annual operating losses for the
foreseeable future.

24
<PAGE>

OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY AND YOU SHOULD NOT
RELY ON THEM TO PREDICT OUR FUTURE PERFORMANCE.

Our quarterly revenues, expenses and operating results may vary
significantly from quarter to quarter due to a number of factors. Therefore, you
should not rely on period-to-period comparisons of results of operations as an
indication of future performance. Moreover, our operating results may fall below
market analysts' expectations in some future quarters. This could cause the
trading price of our common stock to decline.

OUR BUSINESS MAY SUFFER IF NEW CUSTOMERS DO NOT ACCEPT OUR SOLUTIONS.

We currently derive all of our revenues from Xchange Dialogue for Marketing
licenses, Xchange Dialogue for eMessaging licenses and services related to our
eCRM solution. We anticipate that these sources will continue to account for a
majority of our revenues for the foreseeable future. As a result, our business
will suffer if the market does not accept our solutions and our future
enhancements of these solutions. If demand for our solutions drops as a result
of competition, technological change or other factors, our business could be
substantially harmed.

The market for eCRM applications is still emerging and it may not continue
to grow. Even if the market does grow, businesses may not adopt our solutions.
We have spent, and intend to continue to spend, considerable resources educating
potential customers about customer optimization software and services in general
and about the features and functions of our products and services in particular.
However, our solutions may not achieve any additional degree of market
acceptance. If the market for our solutions fails to grow or grows more slowly
than we currently anticipate, our business would be materially harmed.

WE DEPEND ON A FEW INDUSTRIES FOR MOST OF OUR SALES, AND WE MAY NOT BE
SUCCESSFUL IN EXPANDING BEYOND THOSE LIMITED MARKETS.

A substantial portion of our revenues has been derived from sales to
telecommunications companies and financial institutions, including retail banks,
credit card issuers and mutual fund companies. We may not continue to be
successful in these markets. In addition, we may not be successful in achieving
significant market acceptance in other markets that we target.

THE LOSS OF ONE OF OUR LARGEST CUSTOMERS COULD CAUSE OUR REVENUES TO DROP
QUICKLY AND UNEXPECTEDLY.

In fiscal 1998 and 1999, our top five customers accounted for 31.1% and
37.7% of total revenues, respectively. We cannot be certain that our current
customers will continue to do business with us, that business from existing
customers will continue at the levels of previous periods, or that we will be
able to do a significant amount of business with new customers. If we lose one
of our customers, our revenues could drop more quickly than we could reduce
expenses. This could substantially harm our financial results.

WE NEED TO MANAGE OUR GROWTH EFFECTIVELY OR WE MAY NOT SUCCEED.

We have grown rapidly, with total revenues increasing from $6.0 million in
1996, to $13.3 million in 1997, to $26.2 million in 1998 and we recorded $43.3
million in 1999. The number of our employees has increased from 93 at December
31, 1997 to 164 at December 31, 1998 and to 227 at December 31, 1999. Our
operating and financial systems and the geographic distribution of our
operations and customers have also experienced substantial growth over this
period. Our future operating results will depend on the ability of our officers
and other key employees to continue to implement and improve our operational,
customer support and financial control systems, and to expand, train and manage
our employee base. Our failure to expand and integrate these areas in an
efficient manner could cause our expenses to grow, our revenues to decline or to
grow more slowly than expected, and could have a material adverse effect on our
business.

IF WE LOSE OUR KEY PERSONNEL, OR FAIL TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL, OUR BUSINESS AND GROWTH MAY SUFFER.

Our future success depends on the continued services of a relatively small
number of key technical and senior management personnel, including Andrew J.
Frawley, our Chairman, President and Chief Executive Officer, David G.
McFarlane, our Chief Operating Officer, and Michael D. McGonagle, our Chief
Technology Officer, none of whom presently has an employment contract with us.
Our future success also depends on our continuing ability to attract and retain
other highly qualified technical, sales and managerial personnel. Competition
for these people is intense, and we have at times in the past experienced
difficulty in recruiting qualified personnel. The loss of any member of our key
technical, sales and senior management personnel or the inability to attract and
retain additional qualified personnel could have a material adverse effect on
our business.

25
<PAGE>

OUR BUSINESS WILL NOT GROW IF WE DO NOT KEEP PACE WITH RAPIDLY CHANGING
TECHNOLOGIES.

Because the market for our software products is rapidly changing, our future
success will depend upon our ability to continue to enhance our current product
line. We also must develop and introduce new products that keep pace with
technological developments, satisfy increasingly sophisticated customer
requirements and achieve market acceptance. If we are not successful in
developing and marketing, on a timely and cost-effective basis, fully functional
product enhancements or new products that respond to technological advances by
others, our business will not grow and our financial results will suffer. In
particular, our business could be harmed by:

o any significant errors or "bugs" in our software shipped to customers;

o any delay by customers in making purchasing decisions in anticipation of
the general availability of new or enhanced products;

o significant delays in the general availability of our new products or
releases;

o significant problems in the installation or implementation of our new
products or releases; or

o customer dissatisfaction with our new products or releases.

OUR STOCK PRICE OR OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE ARE NOT ABLE
TO EFFICIENTLY INTEGRATE ACQUISITIONS.

We may pursue acquisitions that could provide new technologies, products or
service offerings. Future acquisitions by us may involve potentially dilutive
issuances of equity securities. We also may incur substantial additional
liabilities and expenses, such as debt or amortization expenses related to
goodwill and other intangible assets. If any of these occur, the market price of
our common stock and our financial results could suffer.

Acquisitions also involve numerous risks, including:

o difficulties in the assimilation of the operations, technologies,
products and personnel of the acquired company;

o the diversion of management's attention from other business concerns;

o risks of entering markets in which we have no or limited prior
experience; and

o the potential loss of key employees of the acquired company.

If we are not successful integrating acquisitions, it could increase our
expenses and harm our business.

COMPETITION COULD REDUCE OUR MARKET SHARE AND HARM OUR BUSINESS.

Our competitors may be able to develop products and services that are more
attractive to businesses than our products and services. Many of our competitors
have longer operating histories, significantly greater financial, technical,
marketing and other resources, greater name recognition and larger customer
bases. As a result, they may be able to adapt more quickly to new or emerging
technologies and changes in customer requirements. They also may be able to
devote greater resources to the promotion and sale of their products and
services than us. If these companies introduce products and services that
effectively competed with our products and services, they could be in a position
to charge lower prices or to bundle their products and services with their other
products and services. This could give them a competitive advantage over us.

In order to be successful in the future, we must continue to respond
promptly and effectively to the challenges of technological change and
competitors' innovations. If we cannot compete successfully with existing or new
competitors, we may have to reduce prices on our products, which could lead to
reduced profits. We could also lose market share, which would materially and
adversely affect our business.

IF WE DO NOT SUCCESSFULLY MAINTAIN OUR RELATIONSHIPS WITH INDIRECT DISTRIBUTION
CHANNELS, OUR SALES COULD DECLINE OR COULD GROW MORE SLOWLY THAN EXPECTED.

We expect to increase the amount of our products that we distribute through
various indirect channels. We are unable to predict the extent to which our
distribution partners will be successful in distributing our products. We rely
on the marketing and sales efforts of

26
<PAGE>

these organizations, many of whom also market and sell competitive products. The
loss of one or more of our relationships with these organizations could have a
material adverse effect on our business.

Our future performance will also depend, in part, on our ability to attract
organizations that will be able to market and support our products effectively,
especially in markets in which we have not previously distributed our products.
None of our agreements governing the re-seller or co-marketing relationships
with these organizations includes any commitments on the part of these
organizations to effect any minimum number of sales of our products, or
otherwise to provide us with business. If revenues arising from our
relationships with these organizations do not exceed historical levels, our
business will not grow as expected.

WE HAVE A LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND OTHERS
COULD INFRINGE ON OR MISAPPROPRIATE OUR PROPRIETARY RIGHTS.

Our success and ability to compete are substantially dependent on our
internally developed technologies and trademarks, which we protect through a
combination of copyright, trademark and trade secret laws, confidentiality
procedures and contractual provisions.

Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult and, while we are unable to determine the extent to which piracy of
our software products exists, we expect software piracy to be a problem. In
addition, the laws of some foreign countries do not protect our proprietary
rights to the same extent as the laws of the United States. Furthermore, our
competitors may independently develop technology similar to ours.

The number of intellectual property claims may increase as the number of
competing products grows and the functionality of products in different industry
segments overlaps. Although we are not aware that any of our products infringe
upon the proprietary rights of third parties, there can be no assurance that
third parties will not claim infringement by us with respect to current or
future products. Any of these claims, with or without merit, could be time-
consuming to address, result in costly litigation, cause product shipment delays
or require us to enter into royalty or licensing agreements. These royalty or
licensing agreements, if required, might not be available on terms acceptable to
us or at all, which could have a material adverse effect upon our business.

IF WE DO NOT SUCCESSFULLY GROW AND MANAGE OUR INTERNATIONAL OPERATIONS, OUR
BUSINESS WILL SUFFER.

We have operations in a number of foreign markets. We currently have
customers in more than 28 countries. We believe that we must expand our sales in
international markets in order for our business to grow as planned. In order to
successfully expand international sales, we must establish additional foreign
operations and hire additional personnel. If we are unable to do so in a timely
and effective manner, our growth in international sales will be limited, and our
business could be materially adversely affected. We have begun to translate our
products into different languages and character sets, which may be more
difficult or expensive to complete than expected. In addition, other markets may
have longer selling cycles and different product requirements than the United
States and we may not be able to successfully adapt our products and methods.

Our international operations are also subject to the risks inherent in any
international business activities, including, in particular:

o management of an organization spread over various countries;

o longer accounts-receivable payment cycles in certain countries;

o compliance with a variety of foreign laws and regulations;

o unexpected changes in regulatory requirements;

o overlap of different tax structures; and

o general economic conditions.

CURRENCY FLUCTUATIONS AND GENERAL ECONOMIC CONDITIONS IN OUR FOREIGN MARKETS MAY
IMPACT OUR CUSTOMERS' SPENDING AND THE VALUE OF MONEY OWED TO US.

We have made substantial sales to international customers in Canada,
Denmark, Germany, the Netherlands, Sweden, the United Kingdom and China. Our
revenues from international operations have been denominated in foreign
currencies which historically have been relatively stable in relation to U.S.
dollars. As a result, we have not adopted a policy of hedging foreign currency
risks. If

27
<PAGE>

economic conditions in our target markets decline, currencies could fluctuate
relative to the U.S. dollar, and our customers could reduce their information
technology spending.

OUR FOUNDERS, OFFICERS AND PRINCIPAL STOCKHOLDERS HAVE SUBSTANTIAL CONTROL OVER
OUR VOTING STOCK AND HAVE THE ABILITY TO MAKE DECISIONS THAT COULD ADVERSELY
AFFECT OUR STOCK PRICE.

As of January 20, 2000, our current officers, directors and principal
stockholders held approximately 6.3% of our outstanding common stock.
Consequently, this group will be able to control the outcome of all matters
submitted for stockholder action, including the election of members to our Board
of Directors and the approval of significant change in control transactions,
which may have the effect of delaying or preventing a change in control.
Representatives of the existing stockholders constitute all five directors and
will therefore have significant influence in directing the actions of the Board
of Directors. We have not identified candidates for additional positions on the
Board of Directors.

WE MAY BE SUBJECT TO FUTURE PRODUCT LIABILITY CLAIMS.

While our license agreements with our customers typically contain provisions
designed to limit our exposure to potential product liability claims, it is
possible that these provisions may not be effective under the laws of certain
jurisdictions. Although we have not experienced any product liability claims to
date, we may be subject to claims in the future. A successful product liability
claim brought against us could have a material adverse effect on our business.
Moreover, defending these claims, regardless of merit, could entail substantial
expense and require the time and attention of key management personnel.

YEAR 2000 PROBLEMS MAY DISRUPT OUR BUSINESS.

Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. As of January 1, 2000,
these date code fields need to accept four-digit entries to distinguish 21st
century dates from 20th century dates. As a result, computer systems and
software used by many companies may need to be upgraded to comply with these
"Year 2000" requirements. Significant uncertainty exists in the software
industry concerning the potential effects associated with the failure to comply
with these requirements. Any failure of third-party equipment or software
comprising any part of our systems to operate properly due to Year 2000 problems
could require us to incur unanticipated expenses to address associated problems,
which could have a material adverse effect on our business.

Year 2000 issues may affect the purchasing patterns of customers and
potential customers in a variety of ways. Many companies are expending
significant resources to replace or remedy their current hardware and software
systems for Year 2000 compliance. These expenditures may result in reduced funds
available to purchase software products such as those we offer.

We believe, based on an internal assessment, that the current versions of
our software products are Year 2000 compliant. However, our products are
generally integrated with enterprise systems and other products of our customers
developed by other vendors. Year 2000 problems in these systems and products
might significantly limit the ability of our customers to realize the intended
benefits offered by our products and services. We have no plan to determine
whether the internal systems and products of our customers are Year 2000
compliant. We may in the future be subject to claims based on Year 2000 problems
in others' products or issues arising from the integration of multiple products
within an overall system. Although we have not been involved in any litigation
or proceeding to date involving our products or services related to Year 2000
issues, we may be required in the future to defend our products or services or
to negotiate resolutions of claims based on Year 2000 issues. The costs of
defending and resolving Year 2000-related disputes, and any liabilities for Year
2000-related damages, including consequential damages, could have a material
adverse effect on our business.

OUR COMMON STOCK PRICE IS LIKELY TO BE VOLATILE AND COULD DROP UNEXPECTEDLY.

The market for securities of most high technology companies, including our
common stock, has been highly volatile. It is likely that the market price of
the common stock will continue to fluctuate widely in the future. Factors
affecting the trading price of our common stock include:

o responses to quarter-to-quarter variations in our results of operations;

o the announcement of new products or product enhancements by us or our
competitors;

o technological innovation by us or our competitors;

28
<PAGE>

o general market conditions or market conditions specific to particular
industries; and

o changes in earnings estimates by analysts.

WE HAVE ADOPTED ANTI-TAKEOVER PROVISIONS THAT COULD AFFECT THE MARKET PRICE OF
OUR COMMON STOCK OR OUR ABILITY TO SELL OUR BUSINESS.

Certain provisions of our amended and restated certificate of incorporation
and our by-laws could make it more difficult for a third party to acquire us,
even if doing so would be beneficial to our stockholders. In addition, certain
provisions of Delaware law and our stock incentive plans may also have the
effect of discouraging, delaying or preventing a sale.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The following discussion about the Company's market risk disclosures
involves forward-looking statements. Actual results could differ materially from
those projected in the forward-looking statements. The Company is exposed to
market risk related to changes in interest rates and foreign currency exchange
rates. The Company does not use derivative financial instruments for speculative
or trading purposes.

INTEREST RATE SENSITIVITY. The Company maintains a short-term investment
portfolio consisting mainly of corporate debt securities and U.S. government
agency treasury bills and notes with an average maturity of less then twelve
months. These available-for-sale securities are subject to interest rate risk
and will fall in value if market interest rates increase. If market interest
rates were to increase immediately and uniformly by 10 percent from levels at
December 31, 1999, the fair value of the portfolio would decline by an
immaterial amount.

FOREIGN CURRENCY EXCHANGE RISK. With sales and services offices in the
United States, United Kingdom and Australia, and a global customer base, the
Company faces exposure to adverse movements in foreign currency exchange rates.
These exposures may change over time as business practices evolve and could have
a material adverse impact on the Company's financial results. Historically the
Company's primary exposure has been nondollar-denominated operating expenses and
sales by its United Kingdom subsidiary. The introduction of the Euro as a common
currency for members of the European Monetary Union, of which the United Kingdom
is not a member, occurred in January 1999. To date, the Company has not seen any
impact of the Euro on foreign exchange exposure. In addition, as the Company
expands its sales and service presence in the Asia/Pacific region in 2000, its
exposure to foreign currency exchange rate risks from the more volatile
economies of this region will increase. The Company is prepared to hedge against
fluctuations in the British Sterling, Euro, or other foreign currency if the
exposure becomes material. As of December 31, 1999 the Company's material
nondollar-denominated assets and liabilities primarily consisted of cash,
accounts receivable and accounts payable denominated in British Sterling and
Australian dollars.

29
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

EXCHANGE APPLICATIONS, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE><CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants........................................................................... 31
Consolidated Balance Sheets as of December 31, 1998 and 1999....................................................... 32
Consolidated Statements of Operations for the Years Ended December 31, 1997, 1998 and 1999......................... 33
Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 1997, 1998 and 1999..... 34
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1998 and 1999......................... 36
Notes to Consolidated Financial Statements......................................................................... 37
</TABLE>

30
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
Exchange Applications, Inc. and subsidiaries:

We have audited the accompanying consolidated balance sheets of Exchange
Applications, Inc., a Delaware corporation, and subsidiaries as of December 31,
1998 and 1999, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. 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 Exchange Applications, Inc.
and subsidiaries as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.

ARTHUR ANDERSEN LLP

Boston, Massachusetts
January 28, 2000
(Except with respect to the matters discussed in Note 12(a), as to which the
date is February 29, 2000)

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<PAGE>

EXCHANGE APPLICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE><CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................ $ 5,210 $ 14,678
Marketable securities................................................................ 15,461 14,429
Accounts receivable, less allowance for doubtful accounts of $317 and $375 at
December 31, 1998 and 1999, respectively.......................................... 7,651 11,329
Prepaid expenses and other current assets............................................ 803 2,933
-------- --------
Total current assets......................................................... 29,125 43,369

Property and equipment, net............................................................ 2,571 4,570
Long term marketable securities........................................................ 207 5,030
Non current assets from MicroStrategy Incorporated transaction (Note 4)................ -- 62,030
Other assets........................................................................... 79 66
-------- --------
Total assets................................................................. $ 31,986 $115,065
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:

Accounts payable..................................................................... $ 420 $ 701
Accrued expenses..................................................................... 5,650 5,167
Current portion of obligations under capital leases.................................. 216 --
Current portion of MicroStrategy Incorporated obligation (Note 4).................... -- 15,377
Deferred revenue..................................................................... 1,354 6,455
-------- --------
Total current liabilities.................................................... 7,640 29,823
Obligations under capital leases, net of current portion............................... 145 --
MicroStrategy Incorporated obligation, net of current portion (Note 4)................. -- 16,653

Stockholders' equity (deficit):
Preferred Stock; $.001 par value-- 10,000,000 shares authorized,

zero shares outstanding at December 31, 1998 and 1999................................ -- --
Common Stock, $.001 par value-- 150,000,000 shares authorized;

20,931,289 and 24,053,471 shares issued at December 31, 1998 and 1999, respectively.. 21 24
Additional paid-in capital............................................................. 31,678 56,869
Accumulated deficit.................................................................... (6,611) (5,513)
Due from officer....................................................................... (125) (125)
Deferred compensation.................................................................. (800) (517)
Cumulative translation adjustment...................................................... 30 39
Unrealized gain (loss) on marketable securities........................................ 8 (65)
Stock subscription (Note 4)............................................................ -- 20,000
Treasury stock, at cost; 365,005 and 366,565 shares at December 31, 1998 and 1999,
respectively........................................................................... -- --
-------- --------

Total stockholders' equity................................................... 24,201 70,712
-------- --------
Total liabilities and stockholders' equity................................... $ 31,986 $115,065
======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated
financial statements.

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<PAGE>

EXCHANGE APPLICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)

<TABLE><CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Software license fees......................................... $ 5,765 $ 14,357 $ 26,344
Services and maintenance...................................... 7,490 11,817 16,957
---------- ---------- ----------
Total revenues........................................... 13,255 26,174 43,301
Cost of revenues:
Software license fees......................................... 1,707 185 438
Services and maintenance...................................... 5,277 7,023 10,255
---------- ---------- ----------
Total cost of revenues................................... 6,984 7,208 10,693
---------- ---------- ----------
Gross profit....................................................... 6,271 18,966 32,608
Operating expenses:

Sales and marketing........................................... 3,614 9,864 14,555
Research and development...................................... 2,846 6,717 9,829
General and administrative.................................... 2,394 3,372 4,948
Cost of acquisition .......................................... -- -- 1,388
---------- ---------- ----------
Total operating expenses................................. 8,854 19,953 30,720
---------- ---------- ----------
Income (loss) from operations...................................... (2,583) (987) 1,888
Interest income (expense):
Interest income............................................... 89 159 1,440
Interest expense.............................................. (65) (55) (10)
---------- ---------- -----------
Total interest income.................................... 24 104 1,430
---------- ---------- ----------
Income (loss) before provision for income taxes.................... (2,559) (883) 3,318
Provision for income taxes......................................... -- 111 2,220
---------- ---------- ----------
Net income (loss).................................................. (2,559) (994) 1,098
Accretion of discount and dividends on preferred stock............. (684) (180) --
---------- ---------- ----------
Net income (loss) applicable to common stockholders................ $ (3,243) $ (1,174) $ 1,098
========== ========== ==========
Net income (loss) per share (Note 2(b)):
Basic net income (loss) per share applicable to common
stockholders................................................ $ (0.47) $ (0.13) $ 0.05
========== ========== ==========

Basic weighted average common shares outstanding.............. 6,940,022 8,725,258 22,115,690
========== ========== ==========
Diluted net income (loss) per share applicable to common
stockholders................................................ $ (0.47) $ (0.13) $ 0.04
========== ========== ==========

Diluted weighted average common shares outstanding............ 6,940,022 8,725,258 26,433,134
========== ========== ==========
Pro forma net income (loss) per share (Note 2(b)):
Pro forma basic and diluted net income (loss) per share....... $ (0.22) $ (0.06)
========== ==========
Pro forma basic and diluted weighted average common shares
outstanding................................................. 11,882,110 16,284,278
========== ==========
</TABLE>

The accompanying notes are an integral part of these consolidated
financial statements.

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<PAGE>

EXCHANGE APPLICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE><CAPTION>
SERIES C
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
---------------------- ---------------------- -----------------
NUMBER OF $.001 NUMBER OF $.001 NUMBER OF $.001 PAID-IN
SHARES PAR VALUE SHARES PAR VALUE SHARES PAR VALUE CAPITAL
------ --------- ------ --------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996................ 2,300,000 $2 -- -- 5,702,657 $6 $864
Issuance costs relating to the
sale of Series B Preferred Stock ........ -- -- -- -- -- -- (111)
Conversion of Preferred Stock
to common stock.......................... (2,300,000) (2) -- -- 3,450,000 4 (2)
Sale of Series C Preferred Stock,
net of issuance costs of $13.............. -- -- 1,223,954 1 -- -- 3,986
Accretion of discount and dividends
on Series A Preferred Stock............... -- -- -- -- -- -- --
Loan to officer........................... -- -- -- -- -- -- --
Issuance of common stock.................. -- -- -- -- 31,000 -- 10
Exercise of common stock options ......... -- -- -- -- 20,192 -- 7
Deferred compensation..................... -- -- -- -- -- -- 224
Compensation expense associated
with stock options....................... -- -- -- -- -- -- 77
Cumulative translation adjustment ........ -- -- -- -- -- -- --
Unrealized gain on marketable
securities............................... -- -- -- -- -- -- --
Net loss.................................. -- -- -- -- -- -- --
Comprehensive net loss for
the year ended December 31, 1997.........
----------- ---------- ------------ ---------- ------------ ---------- -----------
Balance, December 31, 1997................ -- -- 1,223,954 1 9,203,849 10 5,055
Accretion of dividends on
Series A Preferred Stock................. -- -- -- -- -- -- --
Exercise of common stock options.......... -- -- -- -- 168,420 -- 58
Deferred compensation..................... -- -- -- -- -- -- 877
Compensation expense associated
with stock options....................... -- -- -- -- -- -- (46)
Issuance of common stock in initial
public offering, net of offering costs.... -- -- -- -- 4,000,000 4 18,470
Cancellation of Series A
Preferred Stock.......................... -- -- -- -- -- -- 3,269
Conversion of Series B
Preferred Stock.......................... -- -- -- -- 5,111,112 5 3,996
Conversion of Series C
Preferred Stock to common stock ......... -- -- (1,223,954) (1) 2,447,908 2 (1)
Cumulative translation adjustment ........ -- -- -- -- -- -- --
Unrealized gain on marketable
Securities............................... -- -- -- -- -- -- --
Net loss.................................. -- -- -- -- -- -- --
Comprehensive net loss for the
year ended December 31, 1998............
----------- ---------- ------------ ---------- ------------ ---------- ---------
Balance, December 31, 1998................ -- -- -- -- 20,931,289 21 31,678
Exercise of common stock options.......... -- -- -- -- 1,008,086 1 1,368
Compensation expense associated
stock options............................ -- -- -- -- -- -- 753
Issuance of common stock in follow on
public offering, net of offering costs... -- -- -- -- 2,000,000 2 20,007
Conversion of convertible debt ........... -- -- -- -- 114,096 -- 850
Cumulative translation adjustment ........ -- -- -- -- -- -- --
Stock subscription to
MicroStrategy Incorporated................ -- -- -- -- -- -- --
Tax benefit of stock options exercised ... -- -- -- -- -- -- 2,213
Unrealized gain on marketable
Securities............................... -- -- -- -- -- -- --
Net income................................ -- -- -- -- -- -- --
Comprehensive net income for
the year ended December 31, 1999..........
----------- ---------- ------------ ---------- ------------ ---------- -----------
Balance, December 31, 1999................ -- $ -- -- $ -- 24,053,471 $ 24 $ 56,869
======== ==== ======== ==== ========== ==== ========
</TABLE>

The accompanying notes are an integral part of these consolidated
financial statements.

34
<PAGE>
EXCHANGE APPLICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

(Continued)

<TABLE><CAPTION>
UNREALIZED
CUMULATIVE GAIN ON
ACCUMULATED DUE FROM DEFERRED TRANSLATION MARKETABLE STOCK COMPREHENSIVE
DEFICIT OFFICER COMPENSATION ADJUSTMENT SECURITIES SUBSCRIPTION TOTAL INCOME(LOSS)
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 ....... $ (2,194) $ -- $ -- $ -- $ -- $ -- $ (1,322)
Issuance costs relating to the
sale of Series B Preferred Stock -- -- -- -- -- -- (111)
Conversion of Preferred Stock
to common stock ................ -- -- -- -- -- -- --
Sale of Series C Preferred Stock,
net of issuance costs of $13 ... -- -- -- -- -- -- 3,987
Accretion of discount and dividends
on Series A Preferred Stock .... (684) -- -- -- -- -- (684)
Loan to officer .................. -- (125) -- -- -- -- (125)
Issuance of common stock ......... -- -- -- -- -- -- 10
Exercise of common stock options . -- -- -- -- -- -- 7
Deferred compensation ............ -- -- (224) -- -- -- --
Compensation expense associated
with stock options ............. -- -- 14 -- -- -- 91
Cumulative translation adjustment -- -- -- 2 -- -- 2 $ 2
Unrealized gain on marketable
Securities .................. -- -- -- -- 3 3 3
Net loss ......................... (2,559) -- -- -- -- -- (2,559) (2,559)
---------
Comprehensive net loss for the
year ended December 31, 1997 ... $ (2,554)
--------- --------- --------- --------- --------- --------- --------- =========
Balance, December 31, 1997 ....... (5,437) (125) (210) 2 3 (701)
Accretion of dividends on
Series A Preferred Stock ....... (180) -- -- -- -- -- (180)
Exercise of common stock options . -- -- -- -- -- -- 58
Deferred compensation ............ -- -- (877) -- -- -- --
Compensation expense associated --
with stock options ............. -- 287 -- -- -- 241
Issuance of common stock in
initial public offering, net
of offering costs .............. -- -- -- -- -- -- 18,474
Cancellation of Series A --
Preferred Stock ................ -- -- -- -- -- -- 3,269
Conversion of Series B --
Preferred Stock ................ -- -- -- -- -- -- 4,000
Conversion of Series C
Preferred Stock to common stock -- -- -- -- -- -- --
Cumulative translation adjustment -- -- -- 28 -- -- 28 $ 28
Unrealized gain on marketable
securities ..................... -- -- -- -- 5 5 5
Net loss ......................... (994) -- -- -- -- -- (994) (994)
---------
Comprehensive net loss for the
year ended December 31, 1998 ... $ (961)
--------- --------- --------- --------- --------- --------- --------- =========
Balance, December 31, 1998 ....... (6,611) (125) (800) 30 8 24,201
Exercise of common stock options . -- -- -- -- -- -- 1,369
Compensation expense associated
stock options .................. -- 283 -- -- -- 1,036
Issuance of common stock in
follow on public offering, net
of offering costs .............. -- -- -- -- -- -- 20,009
Conversion of convertible debt ... -- -- -- -- -- -- 850
Cumulative translation adjustment -- -- -- 9 -- -- 9 $ 9
Stock subscription to
MicroStrategy Incorporated ..... -- -- -- -- -- 20,000 20,000
Tax benefit of stock options
exercised ...................... -- -- -- -- -- -- 2,213
Unrealized gain on marketable
securities ..................... -- -- -- -- (73) (73) (73)
Net income ....................... 1,098 -- -- -- -- -- 1,098 1,098
---------
Comprehensive net income for
the year ended December 31, 1999 $ 1,034
--------- --------- --------- --------- --------- --------- --------- =========
Balance, December 31, 1999........ $ (5,513) $ (125) $ (517) $ 39 $ (65) $ 20,000 $ 70,712
========= ========= ========= ========= ========= ========= =========
</TABLE>

The accompanying notes are an integral part of these
consolidated financial statements.

35
<PAGE>
EXCHANGE APPLICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE><CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income.............................. $ (2,559) $ (994) $ 1,098
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities
Amortization of software development costs..... 1,211 -- --
Depreciation and other amortization............ 297 611 1,600
Compensation expense associated with stock options 91 241 1,036
Changes in operating assets and liabilities
Accounts receivable....................... (1,870) (4,149) (3,678)
Prepaid expenses and other current assets. (479) (74) (2,130)
Accounts payable.......................... (113) (43) 850
Accrued expenses.......................... 2,130 2,485 (1,032)
Deferred revenue.......................... 576 732 5,101
----------- ----------- -----------
Net cash (used in) provided by
operating activities............. (715) (1,191) 2,845
----------- ----------- -----------
Cash flows from investing activities:
Purchase of marketable securities.............. (200) (15,460) (3,864)
Purchases of property and equipment............ (142) (2,074) (3,595)
MicroStrategy Incorporated cash payment........ -- -- (10,000)
(Increase) decrease in other assets............ (679) 356 13
----------- ----------- -----------
Net cash used in investing activities (1,021) (17,178) (17,446)
----------- ----------- -----------
Cash flows from financing activities:
Payments of notes payable to related parties... (1,000) -- --
Repayments under capital leases................ (86) (269) (380)
Due from officer............................... (125) -- --
Exercise of common stock options............... 7 58 1,369
Issuance of common stock....................... 10 -- --
Issuance of convertible debt................... -- -- 850
Tax benefit from exercise of common stock options -- -- 2,213
Dividends paid by eXstatic Software............ (10) (19) --
Issuance of common stock in initial public
offering, net of offering costs............. -- 18,474 --
Issuance of common stock in follow on public
offering, net of offering costs............. -- -- 20,009
Issuance of Series B Preferred Stock, net of
offering costs.............................. 3,888 -- --
Issuance of Series C Preferred Stock, net of
offering costs.............................. 3,987 -- --
----------- ----------- -----------
Net cash provided by financing
activities........................ 6,671 18,245 24,061
----------- ----------- -----------
Effect of exchange rate changes on cash and cash
equivalents....................................... 2 28 8
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 4,937 (96) 9,468
----------- ----------- -----------
Cash and cash equivalents, beginning of year........ 369 5,306 5,210
----------- ----------- -----------
Cash and cash equivalents, end of year.............. $ 5,306 $ 5,210 $ 14,678
=========== =========== ===========
Supplemental disclosure of cash flow information
Cash paid for interest......................... $ 19 $ 55 $ 13
=========== =========== ===========
Cash paid for income taxes..................... $ 476 $ -- $ 104
=========== =========== ===========
Supplemental disclosure of noncash financing and
investing activities:
Equipment acquired under capital leases........ $ 479 $ 180 $ --
=========== =========== ===========
Conversion of preferred stock to common stock.. $ 2 $ 4,000 $ --
=========== =========== ===========
Conversion of notes payable to related parties
to Series A preferred stock.................. $ 2,405 $ -- $ --
=========== =========== ===========
Accretion of discount and dividends on
preferred stock.............................. $ 684 $ 180 $ --
=========== =========== ===========
Conversion of convertible debt to common stock. $ -- $ -- $ 850
=========== =========== ===========
Technology rights acquired for MicroStrategy
Incorporated obligation...................... $ -- $ -- $ 32,030
=========== =========== ===========
Technology rights acquired for subscription stock $ -- $ -- $ 20,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.

36
<PAGE>

EXCHANGE APPLICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) BACKGROUND AND BASIS OF PRESENTATION

Exchange Applications, Inc. and its subsidiaries (the "Company") provide
enterprise Customer Relationship Management (eCRM) solutions that optimize
interactive relationships between customers and companies. Based on the
principles of permission-based marketing and a single view of the customer, its
eCRM software helps ensure that customer communications are relevant, timely and
coordinated across all customer channels. By bridging online and offline
customer communications, Exchange Applications facilitates higher return on
investment on emarketing and ecommerce practices. The Company's solution set
spans several products and services, including: (i) Xchange Dialogue for
Marketing for creating and executing customer communications across all
channels, (ii) Xchange Real Time for planning and synchronizing customer
communications across all channels in real-time, (iii) Xchange Dialogue for
eMessaging for creating and executing Web-based customer communications, and
(iv)Xchange Optimizer for web-based customer analytics and measurement.

(2) SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated financial statements reflect the application
of certain significant accounting policies as described in this note and
elsewhere in the accompanying consolidated financial statements and notes.

(a) PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
balances have been eliminated in consolidation.

(b) NET INCOME (LOSS) PER SHARE

In accordance with Statement of Financial Accounting Standards ("SFAS") No.
128, EARNINGS PER SHARE, basic and diluted net loss per common share for the
years ended December 31, 1998 and 1997 is calculated by dividing the net loss
applicable to common stockholders by the weighted average number of vested
common shares outstanding.

For the year ended December 31, 1999, basic net income per common share is
calculated by dividing the net income applicable to common stockholders by the
weighted average number of vested common shares outstanding. Diluted net income
per common share for year ended December 31, 1999 is calculated by dividing the
net income applicable to common stockholders by the weighted average number of
vested common shares outstanding and the dilutive effect of potential common
shares, consisting of outstanding stock options and unvested common shares, as
determined using the treasury stock method in accordance with SFAS No. 128.

37
<PAGE>

The following table reconciles the weighted average common shares
outstanding to the shares used in the computation of basic and diluted weighted
average common shares outstanding:

<TABLE><CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1998 1999
<S> <C> <C> <C>
Weighted average common shares
outstanding 8,250,960 9,165,084 22,144,634
Less: weighted average
unvested common shares 1,310,938 439,826 28,944
----------- ---------- ----------
outstanding
Basic weighted average common
shares outstanding 6,940,022 8,725,258 22,115,690
Potential common shares from
stock options and unvested
common stock _ - 4,317,444
---------- ---------- ----------
Diluted weighted average common
shares outstanding 6,940,022 8,725,258 26,433,134
==========
Pro forma:
Add: weighted average common
shares issuable upon conversion
of preferred stock 4,942,088 7,559,020
---------- -----------
Pro forma basic and diluted
weighted average common shares
outstanding 11,882,110 16,284,278
========== ==========
</TABLE>

Diluted weighted average shares outstanding at December 31, 1997 and 1998
exclude the potential common shares from stock options, unvested common stock
and convertible preferred stock, because to include such shares would have been
antidilutive. As of December 31, 1997 and 1998, 11,196,006 and 5,026,260
potential common shares were outstanding, respectively.

The pro forma basic and diluted net loss per share for the years ended
December 31, 1997 and 1998 was computed by dividing net loss applicable to
common stockholders by the number of shares used in computing basic and diluted
net loss per share plus the weighted average common shares issuable upon
conversion of preferred stock from date of issuance. Pro forma net income
information for the year ended December 31, 1999 is not relevant because all of
the Company's preferred stock was converted upon the closing of the Company's
initial public offering in December 1998.

The Company accounts for cash equivalents and marketable securities in
accordance with SFAS No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES. Cash equivalents are short-term, highly liquid investments
with original maturity dates of three months or less. Cash equivalents are
carried at amortized cost, which approximates fair market value. The Company's
short-term and long-term marketable securities are classified as
available-for-sale and are recorded at fair value with any unrealized gain or
loss recorded as an element of stockholders' equity. As of December 31, 1998 and
December 31, 1999, the Company's marketable securities consisted of investment
grade corporate bonds. The average life to maturity of the Company's short-term
and long-term marketable securities as of December 31, 1999 was 83 days and 167
days, respectively. As of December 31, 1998 and December 31, 1999, the Company
had recorded unrealized gains and (losses) of approximately $8,000 and
($65,000), respectively.

(d) LONG-LIVED ASSETS

In accordance with the provisions of SFAS No. 121, ACCOUNTING FOR IMPAIRMENT
OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, the Company
evaluates the realizability of its long-lived assets periodically based on
projected future cash flows. As of December 31, 1998 and 1999, the Company
determined that no material adjustment to the carrying value of its long-lived
assets was required.

(e) SOFTWARE DEVELOPMENT COSTS

The Company's software products are highly technical and require a
significant engineering and development effort. In accordance with SFAS No. 86,
ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE
MARKETED, during 1994, 1995 and 1996, the Company capitalized certain software
development costs relating to its Xchange Dialogue for Marketing products
incurred from the date technological feasibility of the software development
project had been established through June 1996. These costs were

38
<PAGE>

amortized over an estimated useful life of 18 months commencing with the general
availability of the product in June 1996. For the year ended December 31, 1997,
the Company charged approximately $1,211,000 to the cost of software license fee
revenues for the amortization of these costs. As of December 31, 1997,
capitalized software development costs were fully amortized.

The software development costs incurred subsequent to the commercial release
of Xchange Dialogue for Marketing were primarily related to product enhancements
and product maintenance. Consequently, software development costs that would
otherwise be capitalized were not material and, therefore, were expensed as
incurred.

(f) INCOME TAXES

The Company accounts for income taxes in accordance with the provisions of
SFAS No. 109, ACCOUNTING FOR INCOME TAXES. This statement requires the Company
to recognize a current tax liability or asset for current taxes payable or
refundable and to record a deferred tax asset or liability for the estimated
future tax effects of temporary differences and carryforwards to the extent they
are realizable. A deferred tax provision or benefit results from the net change
in deferred tax assets and liabilities during the year. A deferred tax valuation
allowance is required if it is "more likely than not" that all or a portion of
the recorded deferred tax assets will not be realized.

(g) FINANCIAL INSTRUMENTS

SFAS No. 107, DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, requires
disclosures about the fair value of financial instruments. Financial instruments
consist principally of cash equivalents, marketable securities, accounts
receivable, accounts payable, and obligations due to MicroStrategy, Inc.. The
estimated fair value of these financial instruments approximates their carrying
value, except for the obligations due to MicroStrategy, Inc., which has been
recorded at the present value of the future payments using an 8% discount rate.

(h) CONCENTRATION OF CREDIT RISK

SFAS No. 105, DISCLOSURE OF INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT
RISK, requires disclosure of any significant off-balance-sheet and credit risk
concentrations. The Company has no significant off-balance-sheet risk and
concentration of credit risk such as significant foreign exchange contracts,
option contracts or other foreign hedging arrangements. Financial instruments
that potentially subject the Company to concentrations of credit risk are
principally cash equivalents, marketable securities and accounts receivable.
Concentration of credit risk with respect to accounts receivable is limited to
certain customers to whom the Company makes substantial sales. The Company
performs periodic credit evaluations of its customers and has recorded
allowances for estimated losses. Marketable securities are held in highly-rated
corporations and financial institutions.

(i) FOREIGN CURRENCY

The functional currencies of the Company's wholly owned subsidiaries in the
United Kingdom and Australia are the local currencies. The financial statements
of the subsidiaries are translated to United States dollars using period-end
exchange rates for assets and liabilities and average exchange rates during the
corresponding period for revenues, cost of revenues and expenses. Translation
gains and losses are deferred and accumulated as a component of stockholders'
equity. Net gains and losses resulting from foreign exchange transactions are
included in the consolidated statements of operations and were not significant
during the periods presented.

(j) REVENUE RECOGNITION

The Company generates revenue from licensing the rights to use its software
to end users and certain re-sellers. The Company also generates service and
maintenance revenues from integrating its software with its customers' operating
environments, the sale of maintenance services and the sale of certain other
consulting and development services.

The Company has recognized revenue in accordance with the provisions of
Statement of Position ("SOP") No. 97-2, SOFTWARE REVENUE RECOGNITION. Revenues
from software license fee agreements are recognized upon execution of a license
agreement and delivery of the software, provided that the fee is fixed or
determinable and deemed collectible by management. If conditions for acceptance
are required subsequent to delivery, revenues are recognized upon customer
acceptance. Revenues from software

39
<PAGE>

maintenance agreements are recognized ratably over the term of the maintenance
period, which is typically one year. Revenues from professional service
arrangements, including application hosting services, are recognized on either a
time-and-materials or percentage-of-completion basis as the services are
performed, provided that amounts due from customers are fixed or determinable
and deemed collectible by management. Amounts collected or billed prior to
satisfying the above revenue recognition criteria are reflected as deferred
revenue.

Cost of software license fee revenues consists of costs to distribute the
product, including the cost of the media on which it is delivered and royalty
payments to third party vendors, as well as the amortization of software
development costs. Cost of service and maintenance revenues consists primarily
of consulting and support personnel salaries and related costs.

(k) ACCOUNTING FOR STOCK-BASED COMPENSATION

The Company follows SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION in
accounting for stock based GRANTS. As permitted by SFAS No. 123, the Company has
continued to account for employee stock options in accordance with Accounting
Principles Board Opinion ("APB") No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, and has included the pro forma disclosures required by SFAS No. 123
for all periods presented.

(l) NEW ACCOUNTING STANDARDS

(m) POSTRETIREMENT BENEFITS

The Company has no obligations for postretirement benefits.

(n) USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.

(3) ACQUISITION OF EXSTATIC SOFTWARE, INC.

On August 20, 1999, the Company acquired eXstatic Software, Inc. (eXstatic)
(formerly Gino Borland, Inc.) a company that develops and markets software
solutions that enable businesses to plan, create and execute highly
personalized, permission-based email communications based on customer profiles.
The Company exchanged 1,214,568 shares of common stock for all the outstanding
shares of eXstatic common stock, and exchanged options to purchase 277,842
shares of the Company's common stock for all the outstanding options of
eXstatic; 121,442 of the shares issued were placed into escrow as security for
indemnification obligations of eXstatic relating to representations, warranties
and tax matters. This acquisition has been accounted for as a pooling of
interests,

40
<PAGE>

and, accordingly, the historical results of operations have been restated to
reflect the results of eXstatic on a combined basis for all periods presented.

The following table presents a reconciliation of net revenues and net
income (loss) previously reported by the Company to those incorporated in the
accompanying consolidated financial statements.

<TABLE><CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX
---------------------------------------- MONTHS ENDED
1997 1998 JUNE 30, 1999
-------------------- ------------------- --------------------
<S> <C> <C> <C>
(unaudited)
NET REVENUES
Exchange Applications $ 12,669 $ 24,766 $ 18,365
eXstatic Software 586 1,398 358
------------ ------------ ------------
COMBINED NET REVENUES $ 13,255 $ 26,174 $ 18,723
============ ============ ============

NET INCOME (LOSS)

Exchange Applications $ (2,613) $ (975) $ 1,214
eXstatic Software 54 (19) (408)
------------ ------------- ------------
COMBINED NET INCOME (LOSS) $ (2,559) $ (994) $ 806
============ ============= ============
</TABLE>

(4) TRANSACTIONS WITH MICROSTRATEGY INCORPORATED

In December 1999, the Company entered into a strategic alliance relationship
with MicroStrategy, Inc., resulting in a series of transactions between the two
companies. MicroStrategy's products help businesses analyze customer data in
order to create intelligent marketing campaigns. Because the net cash
consideration from the transactions described below is significant, the Company
has accounted for these transactions as monetary exchanges and has recorded them
at the fair value of the elements exchanged.

The Company agreed to pay to MicroStrategy an aggregate of $65 million in
cash and the Company's common stock over the two years commencing in December
1999. In return, the Company would receive the following:

TECHNOLOGY LICENSES - The Company received licenses for MicroStrategy's
products for the purpose of developing new products using MicroStrategy
technology along with distribution rights to the MicroStrategy
applications incorporated as part of an eCRM solution on a royalty-free
basis for 42 months. The total consideration for these licenses was $30
million and consisted of a cash payment of $10,000,000 in December 1999
and a stock subscription for $20,000,000, which was settled by the
Company in January 2000 through the issuance of 824,742 shares of the
Company's common stock.

RESEARCH AND DEVELOPMENT WORKFORCE - The Company will receive the
services of a dedicated research and development workforce from
MicroStrategy for a 3 1/2 year term to develop new products using
MicroStrategy's technology.

PREPAID CO-MARKETING SERVICES - The Company will receive $5 million in
co-marketing services from MicroStrategy in the form of joint advertising
and promotion support over a period of 18 months.

The total consideration for the research and development workforce and the
prepaid co-marketing costs is $35 million and is payable in either cash or the
Company's common stock, at the Company's option on a quarterly basis over two
years beginning in June 2000.

The Company has capitalized as a non-current asset the present value of the
future payment obligations to MicroStrategy, totaling $62.0 million, and will
amortize this asset to operations over the terms of the underlying arrangements,
which is approximately 18 to 42 months.

Also in December 1999, MicroStrategy entered into a valued added reseller
agreement and a software license agreement with the Company whereby they will
receive the following licenses from the Company:

ROYALTY-FREE DISTRIBUTION LICENSE - MicroStrategy received a royalty-free
right to distribute in their Strategy.com ASP environment for 3 1/2 years
the Company's Xchange Dialogue for eMessaging product to named affiliates
of MicroStrategy's Strategy.com web service, valued at $8.0 million;

41
<PAGE>

INTERNAL-USE AND DEVELOPMENT LICENSES - MicroStrategy received perpetual
internal-use and development licenses to use the Company's products,
along with the initial year of support and maintenance, valued at a total
of $2.0 million.

MicroStrategy must pay the Company the $8.0 million for the Xchange Dialogue
for eMessaging product distribution over the 3 1/2 year term as MicroStrategy
adds named affiliates to its Strategy.com web service. The Company will record
the license fee as MicroStrategy signs up named affiliates and the payments
become due. The Company is providing support to MicroStrategy under annual
maintenance contracts that are billed when MicroStrategy designates affiliates.
Revenues under these maintenance contracts are recognized over the period of
service. In December 1999, the Company recorded total revenue of $4.5 million
when MicroStrategy designated and paid for 45 named affiliates for the Xchange
Dialogue for eMessaging product through the Strategy.com web service. The
Company expects to record the remaining $3.5 million of revenue under this
contract during 2000

(5) PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, net of accumulated depreciation
and amortization. The Company provides for depreciation and amortization using
the straight-line method to allocate the cost of property and equipment over
their estimated useful lives. Property and equipment, at cost, and their
estimated useful lives are as follows:

DECEMBER 31,
ESTIMATED --------------
USEFUL LIFE 1998 1999
----------- ---- ----
(IN THOUSANDS)
Computers and equipment........... 4 years $ 2,031 $ 3,873
Furniture and fixtures............ 10 years 535 1,022
Purchased software................ 3 years 842 1,891
Leasehold improvements............ Life of the
lease 212 429
------- -------
3,620 7,214
Less -- Accumulated depreciation and
amortization.................... 1,049 2,644
------- -------
$ 2,571 $ 4,570
======= =======

Depreciation and amortization expense for the years ended December 31, 1997,
1998, and 1999 was approximately $297,000, $611,000, and $1,600,000
respectively.

(6) ACCRUED EXPENSES

Accrued expenses at December 31, 1998 and 1999 consisted of the following:

DECEMBER 31,
1998 1999
---- ----
(IN THOUSANDS)
Payroll and
related costs.... $ 2,481 $ 2,484
Royalties........ 47 196
Other............ 3,132 2,467
------- -------
$ 5,650 $ 5,167
======= =======

42
<PAGE>

(7) INCOME TAXES

The components of the provision for income taxes for the each of the three
years in the period ended December 31, 1999 are as follows:

1997 1998 1999
---- ---- ----
(IN THOUSANDS)
Current
Federal $ - $ - $ 1,754
State - - 310
Foreign - 111 152
---------- ---------- ----------
- 111 2,216
---------- ---------- ----------
Deferred
Federal - - -
State - - -
Foreign - - -
---------- ---------- ----------
- - -
---------- ---------- ----------
Total $ - $ 111 $ 2,216
========== ========== ==========

For the year ended December 31, 1999, the Company realized a tax benefit
related to disqualifying dispositions from stock option exercises of
approximately $2,213,000 with a corresponding increase in additional paid-in
capital. For the years ended December 31, 1998 and 1997, a similar tax benefit
was not recorded due to either the absence of disqualifying dispositions or due
to the uncertainty related to the future realizability of the net operating loss
carryforwards generated.

The approximate tax effects of temporary differences that give rise to
significant portions of the Company's deferred tax assets are as follows:

DECEMBER 31,
1998 1999
---- ----
(IN THOUSANDS)

Nondeductible expenses and
reserves.......................... $ 1,059 $ 1,027
Net operating loss carryforwards.. 872 674
----------- -----------
1,931 1,701
----------- -----------
Valuation allowance............... (1,931) (1,701)
----------- -----------
Net deferred tax asset....... $ -- $ --
=========== ===========

The Company has established a valuation allowance against its deferred tax
asset to the extent that it cannot conclusively demonstrate that these assets
"more likely than not" will be realized. In evaluating the realizability of
these deferred tax assets, the Company has considered the following factors: (1)
its short operating history, (2) the volatility of the industry in which it
operates, (3) the operating losses incurred to date, (4) the expected future
earnings impact of the MicroStrategy Incorporated transaction entered into in
December 1999. The Company believes that given the significance of this
evidence, a full valuation reserve against its deferred tax assets is required
as of December 31, 1998 and 1999. The decrease in the valuation allowance during
these periods resulted from the decrease in net operating loss carryforwards due
to partial utilization during 1999.

The Tax Reform Act of 1986 contains provisions that may limit the amount of
net operating loss and credit carryforwards that the Company may utilize in any
one year in the event of certain cumulative changes in ownership over a
three-year period in excess of 50%, as defined. The Company believes it has
experienced a change in ownership in excess of 50%. The Company does not believe
that this change in ownership will significantly impact the Company's ability to
utilize its net operating loss carryforwards. As of December 31, 1999, the
Company had net operating loss carryforwards of approximately $1,645,000 to
reduce future income taxes, if any. These carryforwards expire through 2019 and
are subject to review and possible adjustment by the Internal Revenue Service.

43
<PAGE>

A reconciliation of the federal statutory rate to the Company's effective
tax rate for each of the three years in the period ended December 31, 1999 is as
follows:

1997 1998 1999
---- ---- ----

Provision at federal statutory
rate (34)% (34)% 34%
Increase (decrease) in tax resulting
from:
State income tax, net of
federal benefits - - 6
Foreign income taxes - 13 -
eXstatic pre-acquisition
losses - - 7
eXstatic acquisition expenses - - 16
Change in valuation allowance 34 34 7
Other, net - - (3)
------ ------ ------
Effective tax rate -% 13% 67%
====== ====== ======

(8) REVOLVING NOTE AGREEMENT

Under the revolving note agreement, the Company is required to comply with
certain restrictive covenants, including (i) maintaining a ratio of debt to
tangible net worth of not more than 1.00 to 1.00 at the end of each fiscal
quarter, (ii) maintaining a minimum tangible net worth of at least $20,000,000,
subject to certain adjustments, (iii) maintaining minimum net income of $1.00
for each fiscal year, and (iv) maintaining a current assets to current
liabilities ratio of not less than 2.00 to 1.00 as at the end of each fiscal
quarter. In addition, the Company is prohibited from paying any cash dividends
on its Common Stock under the revolving note agreement. As of December 31, 1999,
the Company was in compliance with all financial covenants under the revolving
note agreement with the exception of the quarterly net income requirement for
the quarterly period ended September 30, 1999, and had received a waiver from
the Bank for that instance of non-compliance. As a result of the MicroStrategy
transaction, the Company expects to not be profitable for the foreseeable future
and as such will be requesting a modification to the appropriate covenants under
the revolving note agreement.

(9) COMMITMENTS

(a) LEASE OBLIGATIONS

In April 1999, the Company paid off all of its outstanding short-term and
long-term obligations for certain equipment leased under agreements that were
accounted for as capital leases. Interest rates on these leases ranged from
12.0% to 14.5%.

The Company has certain noncancellable operating leases for facilities and
equipment. The operating leases expire at various dates through 2005. The
Company has letters of credit outstanding with a bank (see Note 8) for $861,500
as collateral on its leased facilities and certain equipment. Total rent
expense, net of sublease rental income, under these agreements was approximately
$407,000, $956,000, $1,646,000 for the years ended December 31, 1997, 1998, and
1999, respectively. For the year ended December 31, 1999, sublease rent income
was $552,000.

44
<PAGE>

At December 31, 1999, the minimum lease commitments for all leased
facilities and equipment with an initial or remaining term in excess of one year
are as follows:

OPERATING
FOR THE YEAR ENDING DECEMBER 31, LEASES
------
(IN THOUSANDS)
2000............................. 3,075
2001............................. 2,859
2002............................. 2,588
2003............................. 2,597
2004............................. 1,495
Thereafter....................... 82
-------
Total minimum payments...... $12,696
=======

As of December 31, 1999, the Company had two outstanding sublease agreements
that will reduce future rent expense by approximately $851,000 and $236,000 for
the years ended December 31, 2000 and 2001, respectively.

(b) ROYALTY

The Company licensed certain intellectual property from a third party, which
has been integrated with Xchange Dialogue for Marketing, under a royalty-bearing
agreement. Under the terms of the license agreement, the Company is required to
pay royalties to the licensor totaling approximately $656,000 on the first
$10,000,000 of cumulative Xchange Dialogue for Marketing license fees. In the
second quarter of 1998, the aggregate sales of Xchange Dialogue for Marketing
had exceeded the $10,000,000 limit. Accordingly, the Company has no further
royalty obligation under this agreement. For the years ended December 31, 1997
and 1998, the Company charged royalties of approximately $456,000 and $86,000,
respectively, to the cost of software license fees relating to this agreement.

(10) PREFERRED STOCK

At incorporation on November 7, 1996, the Company authorized 10,000,000
shares of $.001 par value Preferred Stock for future issuance in one or more
series.

On March 18, 1997, the Company converted all of its previously outstanding
shares of Preferred Stock into 1,725,000 shares of common stock. The Company
then amended its certificate of incorporation to reduce the number of authorized
shares of its $.001 par value preferred stock to 5,455,556 shares, of which
2,900,000 shares were designated as Series A Preferred Stock and 2,555,556
shares were designated Series B Preferred Stock. The 2,900,000 shares of Series
A Preferred Stock were issued upon the conversion of $2,405,000 of notes payable
to related parties. The 2,555,556 shares of Series B Preferred Stock were sold
to venture capital investors at a price of $1.565 per share, with net proceeds
to the Company of $3,888,000.

Each outstanding share of Series A Preferred Stock accrued a cumulative
annual dividend of 8.25%. The Company has provided for Series A Preferred Stock
cumulative dividends by accreting charges against the accumulated deficit with
corresponding increases to the carrying value of the Series A Preferred Stock.
Such increases aggregated approximately $189,000 and $180,000 for the years
ended December 31, 1997 and 1998, respectively.

The Company loaned $125,000 to an officer for the purchase of approximately
38,000 shares of Series B Preferred Stock from another stockholder. The loan is
evidenced by a note that bears interest at the prime rate and is secured by the
38,000 shares of Series B Preferred Stock the officer purchased. The Company has
accounted for this loan as a stock subscription receivable classified as Due
from Officer in the accompanying consolidated statements of stockholders' equity
as of December 31,1998 and 1999.

On December 4, 1997, the Company authorized an additional 1,223,954 shares
of $.001 par value Preferred Stock and designated these shares as Series C
Convertible Preferred Stock ("Series C Preferred Stock"). The 1,223,954 shares
of the Series C Preferred Stock were sold to venture capital investors at a
price of $3.268 per share, with net proceeds to the Company of $3,987,000.

45
<PAGE>

On December 14, 1998, the Company completed an initial public offering that
satisfied the conditions of a Qualified Offering as defined by the Preferred
Stock agreements. Accordingly, Series A Preferred Stock was reclassified to
$3,269,000 of additional paid-in capital and the Series B Preferred Stock, at a
redemption value of $4,000,000, was converted into 2,555,556 shares of Common
Stock. In addition, the Series C Preferred Stock was converted to 1,223,954
shares of Common Stock upon completion of the initial public offering.

46
<PAGE>

(11) REDEEMABLE PREFERRED STOCK

The following is a summary of the activity for the Series A and Series B
Preferred Stock:

<TABLE><CAPTION>
SERIES A SERIES B
REDEEMABLE CONVERTIBLE REDEEMABLE
PREFERRED STOCK PREFERRED STOCK
-------------------------- ------------------------- TOTAL
NUMBER OF REDEMPTION NUMBER OF REDEMPTION REDEMPTION
SHARES VALUE SHARES VALUE VALUE
------------ ------------ ------------ ------------ ---------
(IN THOUSANDS, EXCEPT SHARE DATA)

<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996....... -- $ -- -- $ -- $ --
Conversion of notes payable to
related parties into Series
A Preferred Stock........... 2,900,000 2,405 -- -- 2,405
Issuance of Series B Preferred
Stock....................... -- -- 2,555,556 4,000 4,000
Accretion of discount and
dividends on Series A
Preferred Stock............. -- 684 -- -- 684
--------- ------- --------- ------- -------
Balance, December 31, 1997....... 2,900,000 3,089 2,555,556 4,000 7,089
Accretion of dividends on
Series A Preferred Stock......... -- 180 -- -- 180
Retirement of Series A
Preferred Stock.................. (2,900,000) (3,269) -- -- (3,269)
Conversion of Series B
Preferred Stock to common stock.. -- -- (2,555,556) (4,000) (4,000)
--------- ------- ---------- ------- -------

Balance, December 31, 1998....... -- $ -- -- $ -- $ --
========= ======= ========= ======= =======
</TABLE>

During 1997, the Company issued Series A Preferred Stock at a discount of
$495,000 from its redemption value. The Company accreted this discount to the
Series A Preferred Stock through a charge to accumulated deficit upon issuance.

(12) STOCKHOLDERS' EQUITY (DEFICIT)

(a) COMMON STOCK

At incorporation, the Company authorized 10,000,000 shares of $.001 par
value common stock. In March 1997 and December 1997 and July 1998, the Company
amended its certificate of incorporation to increase the number of authorized
shares of $.001 par value common stock to a total of 30,000,000 shares. On
February 29, 2000 the Company's shareholders approved an increase in the
authorized shares of $.001 par value common stock to a total of 150,000,000
shares.

On January 28, 2000 the Company's Board of Directors approved a 2 for 1
stock split, to be effected in the form of a stock dividend. On March 17, 2000
the Company paid the stock dividend to all shareholders of record on March 3,
2000. All share and per share amounts in the accompanying financial statements
have been adjusted to reflect the stock split.

The Company has reserved 7,449,926 shares of common stock for the issuance
of stock options under the 1996 Stock Incentive Plan. On July 15, 1998, the
Company reserved an additional 6,000,000 shares of common stock in connection
with the adoption of the 1998 Stock Incentive Plan, an Employee Stock Purchase
Plan and a Directors' Stock Option Plan.

(b) RESTRICTED COMMON STOCK

At incorporation, the Company issued 4,968,750 shares of common stock to the
Company's founders and employees at $.001 per share, the fair market value as
determined by the Board of Directors at the time of issuance.

In connection with the issuance of common stock, the Company and two of its
founders signed a Founder Restricted Stock Agreement (the "Founder Agreement").
These shares vested 50% immediately with the balance vesting ratably on an
annual basis through January 1, 1999.

47
<PAGE>

As provided in the Founder Agreement, if the employment of the founders is
terminated, the Company has the option (the "Company Option") to purchase their
unvested stock. This Company Option shall be exercisable by the Company at a
price equal to the lesser of the issue price or the fair market value of the
stock as determined by the Board of Directors. In March 1997, one of the
founders terminated employment, resulting in the Company's repurchase of 166,750
unvested common shares at $0.001 per share.

In addition, on November 15, 1996, the Company and all of its employees
holding common stock, excluding the two founders, signed restricted stock
agreements (the "Restricted Stock Agreements") providing for shares issued from
the 1996 Stock Incentive Plan to vest retroactively, 25% on the respective
employee's date of hire with an additional 25% on each anniversary thereafter.

According to the Restricted Stock Agreements, if an employee ceases to
provide services to the Company either as a consultant or employee prior to the
third anniversary of the date of hire, the Company has the right to repurchase
the unvested stock from the employee at the price paid by the employee.

In the event of a change of control, as defined, all remaining unvested
stock held by the founders and employees issued under the Founder Agreement and
Restricted Stock Agreements shall be deemed vested and the Company's options to
repurchase unvested shares of restricted common stock shall immediately
terminate. The completion of the Company's initial public stock offering in
December 31, 1998 did not constitute a change of control under the Founder
Agreement or any of the Restricted Stock Agreements.

Since inception, the Company has repurchased an additional 199,815 shares of
unvested common stock at $0.001 per share from other terminated employees.

(13) STOCK OPTIONS

(a) 1996 STOCK OPTION PLAN

In November 1996, the Company adopted the 1996 Stock Incentive Plan (the
1996 Plan), which provides for the grant of incentive stock options,
nonqualified stock options and restricted common stock to officers, employees
and directors who are also employees of the Company. Non-employee directors and
outside consultants to the Company are eligible to receive nonqualified options
and restricted common stock only.

The 1996 Plan is administered by the Board of Directors, which determines
the fair market value and the purchase price for such options. Options generally
vest over a four-year period and expire 10 years from the date of grant.
Restricted common stock awards entitle recipients to purchase shares of the
Company's common stock subject to restrictions concerning the sale, transfer and
other disposition of the shares issued until such shares are vested. The shares
subject to options that expire or are not exercised for other reasons, or any
restricted common stock that is repurchased by the Company will be available for
future grant under the 1996 Plan. In addition, the 1996 Plan provides for the
granting of time accelerated incentive stock options.

(b) 1998 STOCK OPTION PLAN

In July 1998 the Company adopted the 1998 Stock Option Plan. (the 1998 Plan)
pursuant to which 5,400,000 additional shares of the Company's common stock was
reserved for future issuance. The 1998 Plan provides for the grant of incentive
stock options and nonqualified stock options to officers and employees of the
Company. The 1998 Plan is administered by the Board of Directors, which
determines the fair market value and the purchase price for such options.
Options generally vest over a four-year period and expire 10 years from the date
of grant. The shares subject to options that expire or are not exercised for
other reasons will be available for future grant under the 1998 Plan. In
addition, the 1998 Plan provides for the granting of time accelerated incentive
stock options.

In July 1998 the Company adopted the 1998 Board of Directors Plan (the 1998
Directors Plan), which provides for the grant of nonqualified stock options and
restricted common stock to non-employee directors of the Company. The 1998
Directors Plan is administered by the Board of Directors, which determines the
fair market value and the purchase price for such options. Options generally
vest over a four-year period and expire 10 years from the date of grant. The
shares subject to options that expire or are not exercised for other reasons
will be available for future grant under the 1998 Directors Plan.

48
<PAGE>

(d) SUMMARY OF OPTION ACTIVITY

Stock option activity from the 1996 and 1998 Stock Option Plan and the 1998
Board of Directors Plan for each of the three years in the period ended December
31, 1999 was as follows:

<TABLE><CAPTION>
WEIGHTED
NUMBER OF RANGE OF AVERAGE
SHARES EXERCISE PRICES EXERCISE PRICE
------ --------------- --------------
<S> <C> <C> <C>
Outstanding, December 31, 1996... -- -- --
Granted..................... 2,898,950 $0.33 -- $0.68 $0.37
Exercised................... (20,192) 0.33 0.33
Canceled.................... (80,308) 0.33 -- 0.43 0.33
------------ -------------- ------

Outstanding, December 31, 1997... 2,798,450 0.33 -- 0.68 0.37
Granted..................... 3,427,364 0.44 -- 7.25 4.29
Exercised................... (168,420) 0.33 -- 0.68 0.35
Canceled.................... (1,000,414) 0.33 -- 7.25 5.49
------------ -------------- ------

Outstanding, December 31, 1998... 5,056,980 0.33 -- 5.50 2.02
Granted..................... 2,643,676 0.43 -- 17.50 10.86
Exercised................... (1,008,086) 0.33 -- 14.91 1.22
Canceled.................... (558,280) 0.33 -- 17.50 6.00
------------ -------------- ------

Outstanding, December 31, 1999... 6,134,290 $0.33 -- $17.50 $ 5.60
============ -------------- ======

Exercisable, December 31, 1999... 1,992,994 $0.33 -- $14.91 $ 2.33
============ -------------- ======
Exercisable, December 31, 1998... 1,497,815 $0.33 -- $5.50 $ 0.93
============ -------------- ======
Exercisable, December 31, 1997... 561,881 $0.33 -- $0.68 $ 0.36
============ -------------- ======
</TABLE>

<TABLE><CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------------- ----------------------------
RANGE OF OUTSTANDING AS WEIGHTED-AVERAGE WEIGHTED-AVERAGE EXERCISABLE AS WEIGHTED-AVERAGE
EXERCISE PRICES OF 12/31/99 REMAINING LIFE EXERCISE PRICE OF 12/31/99 EXERCISE PRICE
--------------- --------- -------------- -------------- ---------- --------------

Since 1997, approximately 1,683,100 time accelerated incentive stock options
were granted to certain employees. These options vest and become exercisable 25%
annually upon the achievement of certain performance criteria (the Criteria) as
approved by the Company on an annual basis, or after a predetermined number of
years from the date of grant. The Criteria, which are set each year by the Board
of Directors, allows for vesting upon the achievement of the Criteria as of
December 31 for that year.

In connection with certain stock option grants in 1997 and 1998, the Company
has recorded a total of $1,101,000 of deferred compensation expense, which is
being amortized and charged to operations over the four-year vesting period of
the related options. Total option-related compensation expense pertaining to
these grants was $241,000 and $258,000 for the years ended December 31, 1998 and
1999, respectively.

On November 10, 1998 the Company amended the terms of all Stock Option
Agreements granted between May 1, 1998 and September 30, 1998 whereby the
exercise prices on options to purchase 638,200 shares of common stock were
reduced to $5.00 per share.

As of December 31, 1999, the Company had 921,432, 3,120,358, and 135,000
shares available for future issuance under the 1996 Stock Option Plan, 1998
Stock Option Plan, and the Directors Stock Option Plan, respectively.

49
<PAGE>

(e) PRO FORMA STOCK-BASED COMPENSATION

The Company has computed the pro forma disclosures required under SFAS No.
123 for options granted during 1997, 1998 and 1999 using the Black-Scholes
option pricing model prescribed by SFAS No. 123. The weighted average
assumptions used were as follows:

<TABLE><CAPTION>
YEAR ENDED DECEMBER 31,
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate.................. 5.96% 5.40% 5.54%
Expected dividend yield.................. -- -- --
Expected lives........................... 4 years 4 years 4 years
Expected volatility...................... 79% 79% 75.5%

Weighted average grant date fair value... $0.23 $1.23 $2.60
Weighted average remaining contractual
life of options outstanding.............. 9.1 years 8.3 years 7.9 years
</TABLE>

Had compensation expense for the Company's stock option plans been
determined consistent with SFAS No. 123, net loss and net loss per share would
have been approximately as follows:

<TABLE><CAPTION>
YEAR ENDED DECEMBER 31,
1997 1998 1999
----------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
As reported
Net income (loss) applicable to common
Stockholders..................... $(3,243) $(1,174) $ 1,098
======= ======= =======
Diluted net income (loss) per share. $ (0.47) $ (0.13) $ 0.04
======= ======= =======
Pro forma
Net loss applicable to common $(3,457) $(3,327) $(5,069)
======= ======= =======
stockholders....
Diluted net loss per share........... $ (0.50) $ (0.38) $ (0.22)
======= ======= =======
</TABLE>

(14) EMPLOYEE STOCK PURCHASE PLAN

In July 1998, the Company adopted an Employee Stock Purchase Plan (the
"ESPP"),whereby employees, at their option, can purchase shares of Company
common stock. This is done through a payroll deduction at the lower of 85% of
the fair market value on the first day of the ESPP offering period or the end of
each six-month period. The ESPP expires at the earlier of December 31, 2008 or
the date on which all shares available for issuance have been sold. The Company
has reserved 400,000 shares of common stock for issuance under the ESPP. At
December 31, 1999 employees have purchased 14,386 shares through the ESPP and
385,614 shares are available for future purchases.

(15) EMPLOYEE BENEFIT PLAN

The Company has a qualified 401(k) savings plan (the "401(k) Plan") covering
all of the Company's eligible full-time employees. Under this plan, participants
may elect to defer a portion of their compensation, subject to certain IRS
limitations. The Company does not currently provide employer matching
contributions under the 401(k) Plan.

(16) SEGMENT AND ENTERPRISE WIDE REPORTING

The Company has adopted SFAS No. 131 DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION (SFAS No. 131). SFAS No. 131 requires certain
financial and supplementary information to be disclosed on an annual and interim
basis of each reportable segment of an enterprise. SFAS No. 131 also establishes
standards for related disclosures about products and services, geographic areas
and major customers. Operating segments are defined as components of an
enterprise about which separate discrete financial information is evaluated
regularly by the chief operating decision maker or decision making group, in
deciding how to allocate resources and assess performance. Unless impracticable,
companies are required to restate prior period information upon adoption. To
date, the Company has viewed its operations and managed its business as
principally one segment. As a result, the financial information disclosed
herein, materially represents all of the financial information related to the
Company's principal operating segment.

50
<PAGE>

Revenues by geographic destination as a percentage of total revenues are as
follows:

YEARS ENDED
DECEMBER 31,
1997 1998 1999
------- ------- ------
United States.. 86% 68% 77%
United Kingdom. 5 14 8
Canada......... 8 14 2
Germany........ -- 2 1
Japan.......... -- -- 3
Other.......... 1 2 9
--- --- ---
100% 100% 100%
=== === ===

The Company established a foreign subsidiary in the United Kingdom in July
1997 and in Australia in April 1998. Operations in various geographic areas,
since the inception of those entities, are summarized as follows:

<TABLE><CAPTION>
UNITED UNITED
STATES KINGDOM AUSTRALIA ELIMINATIONS CONSOLIDATED
------ ------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997
Total revenues......... $ 12,678 $ 577 $ -- -- $ 13,255
======== ======= ====== ======== ========
Net loss............... $ (2,532) $ (27) $ -- -- $ (2,559)
======== ======= ====== ======== ========
Identifiable assets.... $ 11,153 $ 925 $ -- $ (603) $ 11,475
======== ======= ====== ======== ========

Year Ended December 31, 1998
Total revenues......... $ 22,813 $ 4,764 $ 304 $ (1,707) $ 26,174
======== ======= ====== ======== ========
Net income (loss)...... $ (701) $ 81 $ (374) $ -- $ (994)
======== ======= ====== ======== ========
Identifiable assets.... $ 31,416 $ 2,127 $ 367 $ (1,924) $ 31,986
======== ======= ====== ======== ========

Year Ended December 31, 1999

Total revenues......... $ 37,268 $ 7,592 $2,402 $ (3,962) $ 43,301
======== ======= ====== ======== ========
Net income............. $ 612 $ 380 $ 106 $ -- $ 1,098
======== ======= ====== ======== ========
Identifiable assets.... $115,378 $ 4,595 $1,321 $(6,229) $115,065
======== ======= ====== ======== ========
</TABLE>

The following table summarizes the number of customers that individually
comprise greater than 10% of total revenue and/or total accounts receivable and
their aggregate percentage of the Company's total revenues and accounts
receivable.

<TABLE><CAPTION>
REVENUE ACCOUNTS RECEIVABLE
--------------------- ------------------------
PERCENT OF PERCENT OF
NUMBER OF TOTAL NUMBER OF TOTAL ACCOUNT
CUSTOMERS REVENUE CUSTOMERS RECEIVABLES
--------- ------- --------- -----------
<S> <C> <C> <C> <C>
December 31, 1997. 2 56% 2 66%
December 31, 1998. 1 12 3 47
December 31, 1999. 2 22 1 12
</TABLE>

(17) ALLOWANCE FOR DOUBTFUL ACCOUNTS

A summary of the allowance for doubtful accounts is as follows:

DECEMBER 31,
1997 1998 1999
-------- -------- ------
(IN THOUSANDS)
Balance, beginning of period. $ 43 $ 216 $ 317
Provision for doubtful
accounts..................... 190 150 231
Write-offs................. (17) (49) (173)
------ ------ -----
Balance, end of period....... $ 216 $ 317 $ 375
====== ====== ======

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

51
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item is incorporated herein by reference to
the section entitled "Election of Directors" included in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on June 14, 2000,
which will be filed with the Securities and Exchange Commission within 120 days
after the end of the Company's fiscal year to which this Annual Report on Form
10-K relates. Certain information concerning the registrant's executive officers
is included under the caption "Executive Officers of the Registrant" at pages
14-15 following Part I, Item 1 of this report.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by reference to
the section entitled "Executive Compensation" included in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on June 14,
2000,which will be filed with the Securities and Exchange Commission within 120
days after the end of the Company's fiscal year to which this Annual Report on
Form 10-K relates.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated herein by reference to
the section titled "Voting Securities" included in the Company's Proxy Statement
for the Annual Meeting of Stockholders to be held on June 14, 2000, which will
be filed with the Securities and Exchange Commission within 120 days after the
end of the Company's fiscal year to which this Annual Report on Form 10-K
relates.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated herein by reference to
the section "Compensation Committee Interlocks, Insider Participation and
Certain Transactions" included in the Company's Proxy Statement for the Annual
Meeting of Stockholders to be held on June 14, 2000, which will be filed with
the Securities and Exchange Commission within 120 days after the end of the
Company's fiscal year to which this Annual Report on Form 10-K relates.

ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) FINANCIAL STATEMENTS.

Financial statements are shown in the index and other information on page 13
of this report

(a)(2) SCHEDULES.

All schedules have been omitted because either they are not required, are
not applicable or the information is otherwise set forth in the Consolidated
Financial Statements and notes thereto.

52
<PAGE>

(a)(3) EXHIBITS. The following is a list of exhibits filed herewith or
incorporated by reference herein:

EXHIBITS
--------

3.1* Form of Amended and Restated Certificate of Incorporation of the
Registrant (filed as Exhibit 3.1 to the Company's Registration
Statement on Form S-1, dated July 22, 1998, File No.333-59613)
Form of Amended and Restated By-laws of the Registrant (filed as
Exhibit

3.2* 3.2 to the Company's Registration Statement on Form S-1, dated
July 22, 1998, File No. 333-59613)

4.1* Specimen Certificate for Shares of the Registrant's Common Stock,
$.001 par value (filed as Exhibit 4.1 to Pre-Effective No. 3 to
the Company's Registration Statement on Form S-1, dated July 22,
1998, File No. 333-59613)

4.2* Amended and Restated Registration Rights Agreement dated December
4, 1997 (filed as Exhibit 10.14 to the Company's Registration
Statement on Form S-1, dated July 22, 1998, File No. 333-59613)

10.1* Form of 1998 Stock Incentive Plan, with related forms of stock
option agreements (filed as Exhibit 10.1 to Pre-Effective No. 1
to the Company's Registration Statement on Form S-1, dated July
22, 1998, File No. 333-59613)

10.2* 1996 Stock Incentive Plan, as amended, with related forms of
stock option agreements and form of restricted stock agreement
(filed as Exhibit 10.2 to the Company's Registration Statement on
Form S-1, dated July 22, 1998, File No. 333-59613)

10.3* Form of 1998 Director Stock Option Plan, with related form of
stock option agreement. (filed as Exhibit 10.3 to the Company's
Registration Statement on Form S-1, dated July 22, 1998, File No.
333-59613)

10.4* Form of 1998 Employee Stock Purchase Plan (filed as Exhibit 10.4
to the Company's Registration Statement on Form S-1, dated July
22, 1998, File No. 333-59613)

10.5* 401(k) Plan (filed as Exhibit 10.5 to the Company's Registration
Statement on Form S-1, dated July 22, 1998, File No. 333-59613)

10.6* Employment Agreement, dated November 15, 1996, between the
Registrant and Andrew J. Frawley (filed as Exhibit 10.6 to the
Company's Registration Statement on Form S-1, dated July 22,
1998, File No. 333-59613).

10.7* Restricted Stock Agreement, dated November 8, 1996, between the
Registrant and Andrew J. Frawley (filed as Exhibit 10.7 to the
Company's Registration Statement on Form S-1, dated July 22,
1998, File No. 333-59613).

10.8* Consulting Agreement, dated March 18, 1997, between the
Registrant and Exchange Marketing Group, LLC (filed as Exhibit
10.8 to the Company's Registration Statement on Form S-1, dated
July 22, 1998, File No. 333-59613)

10.9* Securities Purchase Agreement, dated March 18, 1997 (filed as
Exhibit 10.9 to the Company's Registration Statement on Form S-1,
dated July 22, 1998, File No. 333-59613)

10.10* Securities Purchase Agreement, dated December 4, 1997 (filed as
Exhibit 10.10 to the Company's Registration Statement on Form
S-1, dated July 22, 1998, File No. 333-59613)

10.11* Stock Purchase and Waiver Agreement, dated December 4, 199 (filed
as Exhibit 10.11 to the Company's Registration Statement on Form
S-1, dated July 22, 1998, File No. 333-59613)

10.12* Promissory Note, dated December 4, 1997, by Andrew J. Frawley
payable to the Registrant (filed as Exhibit 10.12 to the
Company's Registration Statement on Form S-1, dated July 22,
1998, File No. 333-59613)

10.13* Amended and Restated Stockholders Agreement dated December 4,
1997 (filed as Exhibit 10.13 to the Company's Registration
Statement on Form S-1, dated July 22, 1998, File No. 333-59613)

10.14* Letter Agreement, dated December 22, 1997, between the Registrant
and Fleet National Bank, as amended, and the related Promissory
Note (filed as Exhibit 10.15 to the Company's Registration
Statement on Form S-1, dated July 22, 1998, File No. 333-59613)

10.15* Stock Purchase Agreement, dated June 25, 1998, and the related
Waiver Agreement to the Amended and Restated Stockholders
Agreement, dated June 25, 1998 (filed as Exhibit 10.16 to the
Company's Registration Statement on Form S-1, dated July 22,
1998, File No. 333-59613)

10.16* Office lease for 89 South Street, Boston, Massachusetts (filed as
Exhibit 10.17 to the Company's Registration Statement on Form
S-1, dated July 22, 1998, File No. 333-59613)

10.17* Assignment and Assumption Agreement, dated November 15, 1996,
between the Registrant and Grant & Partners Limited Partnership
(filed as Exhibit 10.18 to Pre-Effective No. 1 to the Company's
Registration Statement on Form S-1, dated July 22, 1998, File No.
333-59613)

10.18* Termination Agreements, each dated March 18, 1997, between the
Registrant and the employee of the Registrant named therein
(filed as Exhibit 10.19 to Pre-Effective No. 1 to the Company's
Registration Statement on Form S-1, dated July 22, 1998, File No.
333-59613)

53
<PAGE>

10.19* Consulting Agreement, dated March 18, 1997, between the
Registrant and Exchange Marketing Group, LLC (filed as Exhibit
10.8 to the Company's Registration Statement on Form S-1, dated
July 22, 1998, File No. 333-59613)

10.20 Payment and Registration Rights Agreement, dated December 28,
1999, between the Registrant and MicroStrategy, Inc.

10.21 Software Development and OEM Agreement, dated December 28, 1999,
between the Registrant and MicroStrategy, Inc.

10.22 Value Added Reseller Agreement, dated December 28, 1999, between
the Registrant and MicroStrategy, Inc.

21.1* Subsidiaries of Registrant (filed as Exhibit 21.1 to the
Company's Registration Statement on Form S-1, dated July 22,
1998, File No. 333-59613)

23.1 Consent of Arthur Andersen LLP, Independent Public Accountants

27.1 Financial Data Schedule

- ----------------
(b) Current Reports on Form 8-K: [None.]

* Incorporated by reference

54
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant,
Exchange Applications, Inc., has caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Boston,
Commonwealth of Massachusetts, on this 30th day of March, 2000.

EXCHANGE APPLICATIONS, INC.

By: /s/ ANDREW J. FRAWLEY
--------------------------------
ANDREW J. FRAWLEY
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER

Pursuant to the requirements of the Securities Act of 1933, this report has
been signed below by the following persons in the capacities and on the dates
indicated:

<TABLE><CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----

<S> <C> <C>
/s/ ANDREW J. FRAWLEY Chairman of the Board, March 30, 2000
------------------------------------ President, Chief Executive
ANDREW J. FRAWLEY Officer and Director (Principal
Executive Officer)

/s/ DEAN F. GOODERMOTE* Director March 30, 2000
------------------------------------
DEAN F. GOODERMOTE

/s/ JEFFREY HORING* Director March 30, 2000
------------------------------------
JEFFREY HORING

/s/ RAMANAN RAGHAVENDRAN* Director March 30, 2000
------------------------------------
RAMANAN RAGHAVENDRAN

/s/ JOHN G. O'BRIEN* Vice President, Chief March 30, 2000
------------------------------------ Financial Officer, Treasurer
JOHN G. O'BRIEN and Secretary (Principal
Financial and Accounting
Officer)

</TABLE>

EXHIBIT 10.20
-------------

PAYMENT AND REGISTRATION RIGHTS AGREEMENT dated as of December
28, 1999 (this "Agreement"), between EXCHANGE APPLICATIONS, INC., a
Delaware corporation ("Exchange"), and MICROSTRATEGY INCORPORATED, a
Delaware corporation ("MicroStrategy").

The parties hereby agree as follows:

ARTICLE I.

Definitions and Construction
----------------------------

Section 1.01. Certain Definitions. As used in this Agreement, the
following terms shall have the meanings specified below:

"Business Day" shall mean any day other than a day which is a Saturday
or Sunday or any other day on which commercial banks in New York, New York are
authorized or required to remain closed.

"Business Unit" shall have the meaning set forth in the Development
Agreement.

"Closing" shall mean the payment of the Closing Payment on the Closing
Date.

"Closing Date" shall mean December 28, 1999.

"Closing Share Amount" shall mean the number of shares of Common Stock
(rounded to the nearest whole number) equal to the result obtained by dividing
(a) $20,000,000 by (b) the Fair Market Value of the Common Stock as of the
Closing Date.

"Common Stock" shall mean the Common Stock, par value $0.001 per share,
of Exchange.

"control" (including, with its correlative meanings, "controlled by"
and "under common control with") shall mean possession, directly or indirectly,
of power to direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership interests, by
contract or otherwise).

"Designee" shall mean any wholly-owned subsidiary of MicroStrategy
designated in writing by MicroStrategy as the recipient and registered holder of
any or all of the Payment Shares to be issued under Article II.

"Development Agreement" shall mean the Software Development and OEM
Agreement, dated as of the Closing Date, by and between MicroStrategy and
Exchange. The final form of the Development Agreement is attached hereto as
Exhibit A.
<PAGE>

"dollars" or "$" shall mean lawful money of the United States of
America.

"Exchange Act" shall mean the Securities Exchange Act of 1934.

"Fair Market Value" means, as of any date of determination, the lowest
closing sale price (if listed on a stock exchange or quoted on the Nasdaq
National Market System or any successor thereto), or the lowest of the mean
between the closing bid and asked prices (if quoted on NASDAQ or otherwise
publicly traded), of the Common Stock during the period commencing on the third
trading day prior to (and including) such date and ending on the third trading
day after such date.

"Governmental Authority" shall mean any court, administrative agency
or commission or other governmental agency or instrumentality, domestic or
foreign, or any arbitrator, of competent jurisdiction.

"Group" shall mean a "Group" within the meaning of Section 13(d)(3) of
the Exchange Act.

"Installment Share Amount" shall mean, with respect to any Installment
for which Exchange has elected in accordance with Section 2.02(b) to pay all or
any portion of the Payment Amount in Common Stock, the number of shares of
Common Stock (rounded to the nearest whole number) equal to the result obtained
by dividing (a) the Payment Amount to be paid on the applicable Installment Date
minus the Cash Component set forth in the applicable Stock Election Notice by
(b) the Fair Market Value of the Common Stock as of the originally scheduled
Installment Date set forth in the table contained in Section 2.01(c); provided,
however, that for purposes of this definition, in no event shall the "Fair
Market Value" as at any date be less than 75% of the Fair Market Value
determined as of the Closing Date or exceed 125% of the Fair Market Value
determined as of the Closing Date.

"Marketing Agreement" shall mean the Joint Marketing Agreement, dated
as of the Closing Date, by and between MicroStrategy and Exchange. The final
form of the Marketing Agreement is attached hereto as Exhibit B.

"MicroStrategy License Agreement" shall mean the License Agreement,
dated as of the Closing Date, by and between MicroStrategy and Exchange. The
final form of the MicroStrategy License Agreement is attached hereto as Exhibit
C.

"Milestones" shall mean, at any time of determination, the milestones
for the Business Unit in effect at such time. On the Closing Date, the
Milestones shall be set forth on Exhibit A to the Development Agreement, and
thereafter, may be established or modified from time to time by the Steering
Committee.

"Operative Agreements" shall mean this Agreement, the Development
Agreement, the Marketing Agreement, the MicroStrategy License Agreement and the
Strategy.com Agreement.

"Payment Shares" shall mean all shares of Common Stock issued to
MicroStrategy under Article II.

2
<PAGE>

"Person" shall mean any individual, firm, corporation, partnership,
Group, trust, joint venture, Governmental Authority or other entity, and shall
include any successor (by merger or otherwise) of such entity.

"Registration Shares" shall mean (i) all Payment Shares issued to
MicroStrategy or a Designee and (ii) all securities issued or issuable to
MicroStrategy or a Designee in respect thereof by way of stock dividend, stock
split or reclassification or in connection with a combination of shares,
recapitalization, merger or, consolidation or other reorganization or otherwise.

"Registration Statement" shall mean, as applicable, the Shelf
Registration Statement or a registration statement filed with the SEC in
connection with a Piggyback Registration.

"Registration Termination Date" means, with respect to any Registration
Statement, the earlier of (i) the date when all of the Registration Shares
registered thereunder shall have been sold or (ii) the third anniversary of the
Closing Date; provided however, that in the event that the right of
MicroStrategy or any Designee to use such Registration Statement (and the
prospectus relating thereto) is delayed or suspended pursuant to Section 5.07 or
5.09, Exchange shall be required to extend the Registration Termination Date
beyond the third anniversary of the Closing Date by the same number of days as
such delay or Suspension Period.

"SEC" shall mean the Securities and Exchange Commission or any
successor commission or agency having similar powers.

"Securities Act" shall mean the Securities Act of 1933.

"Shelf Registration" shall mean the registration of Registration Shares
pursuant to the Shelf Registration Statement.

"Steering Committee" shall have the meaning set forth in the
Development Agreement.

"Strategy.com Agreement" shall mean the Strategy.com Affiliate
Agreement, dated as of the Closing Date, by and between MicroStrategy and
Exchange. The final form of the Strategy.com Agreement is attached hereto as
Exhibit D.

"Transactions" shall mean the transactions contemplated by the
Operative Agreements.

"Transfer" shall mean to sell, transfer or assign.

3
<PAGE>

Section 1.02. Additional Definitions.
- ----------------------------------------

Defined Term Section Defined in
------------ ------------------
Accelerated Installment Date 2.03(c)
Closing Payment 2.01(a)
Cash Component 2.02(b)
Election Date 2.02(b)
Extension Date 2.03(b)
Installment Dates 2.01(c)
Installments 2.01(c)
Payment Amounts 2.01(c)
Piggyback Registration 5.02(a)
Preferred Stock 3.01(c)
Registered Sale 4.01
Sale 4.01
SEC Documents 3.01(e)
Securities 3.01(c)
Shelf Registration Statement 5.01(a)
Stock Election Notice 2.02(b)
Suspension Period 5.09
Unachieved Milestones 2.03(b)

Section 1.03. Terms Generally. The definitions in Sections 1.01 and
1.02 shall apply equally to both the singular and plural forms of the terms
defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words "include",
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation". All references herein to Articles, Sections, Exhibits and Schedules
shall be deemed references to Articles and Sections of, and Exhibits and
Schedules to, this Agreement unless the context shall otherwise require. The
headings of the Articles and Sections are inserted for convenience of reference
only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement. Unless the context shall otherwise require,
any reference to any agreement or other instrument or statute or regulation are
to it as amended and supplemented from time to time (and, in the case of a
statute or regulation, to any successor provision). Any reference in this
Agreement to a "day" or a number of "days" (without the explicit qualification
of "Business") shall be interpreted as a reference to a calendar day or number
of calendar days. If any action or notice is to be taken or given on or by a
particular calendar day, and such calendar day is not a Business Day, then such
action or notice shall be deferred until, or may be taken or given on, the next
Business Day.

4
<PAGE>

ARTICLE II.

Payments and Issuance of Shares
-------------------------------

Section 2.01. Payments and Issuance of Shares. In reliance upon the
representations, warranties and agreements of MicroStrategy set forth in the
Operative Agreements, and upon the terms and conditions set forth herein, in
consideration for the rights, services, interests and benefits received or to be
received by Exchange under the Development Agreement, the Marketing Agreement,
the MicroStrategy License Agreement and the Strategy.com Agreement during the
initial terms thereof:

(a) At the Closing, Exchange shall pay MicroStrategy the sum of
$10,000,000 (the "Closing Payment").

(b) On or before January 20, 2000, Exchange shall issue to
MicroStrategy or a Designee the number of shares of Common Stock equal to the
Closing Share Amount. Exchange shall prepare and deliver to MicroStrategy on or
prior to January 14, 2000 a certificate setting forth its calculation of the
Closing Share Amount, which certificate shall be conclusive absent manifest
error.

(c) Subject to Section 2.03, Exchange shall pay to MicroStrategy on the
dates set forth below (the "Installment Dates") the amounts (the "Payment
Amounts") set forth opposite such dates (the "Installments"):

Installment Dates Payment Amounts
----------------- ---------------
June 30, 2000 $5,833,333
September 1, 2000 $5,833,333
December 1, 2000 $5,833,333
March 1, 2001 $5,833,333
June 1, 2001 $5,833,333
September 1, 2001 $5,833,335;

provided, however, that if Exchange has elected in accordance with Section
2.02(b) to pay all or any portion of the Payment Amount due on any Installment
Date in Common Stock, the relevant Installment Date shall be extended until the
tenth Business Day immediately following the date set forth above. If Exchange
has elected to pay all or any portion of any Payment Amount in Common Stock,
Exchange shall prepare and deliver to MicroStrategy on the third Business Day
prior to the Installment Date (as so extended) a certificate setting forth its
calculation of the Installment Share Amount, which certificate shall be
conclusive absent manifest error.

(d) Payments under Section 2.01(a) or (b) are non-cancelable and, once
made, are non-refundable. Payments made under Section 2.01(c) are
non-refundable.

Section 2.02. Payment in Common Stock; Stock Election Notice. (a) If
Exchange elects in accordance with Section 2.02(b) to pay all or any portion of
the Payment Amount for any Installment Date in Common Stock, the number of
shares of

5
<PAGE>

Common Stock to be issued to MicroStrategy or a Designee on such Installment
Date shall be the Installment Share Amount determined as of the Installment
Date.

(b) On or before the fifteenth day prior to Installment Date set forth
in the table contained in Section 2.01(c) (such fifteenth day being the
"Election Date"), Exchange may by written notice to MicroStrategy (each, a
"Stock Election Notice") elect to pay all or any portion of the Payment Amount
payable in respect of the Installment in Common Stock. Each Stock Election
Notice shall indicate the portion of the Payment Amount in respect of such
Installment to be paid in cash (the "Cash Component"), and shall be irrevocable.
If Exchange does not deliver a Stock Election Notice to MicroStrategy on or
before the Election Date for any Installment, then the entire Payment Amount
shall be paid in cash on the applicable Installment Date set forth in the table
contained in Section 2.01(c).

Section 2.03. Termination of Installment Obligations; Extension of
Installment Dates. Anything to the contrary notwithstanding:

(a) If either Exchange or MicroStrategy delivers a notice of
termination in accordance with Section 10.3 of the Development Agreement or
Exchange delivers a notice of termination in accordance with Section 10.1 of the
Development Agreement, the obligations of Exchange to pay any and all
Installments not yet due and payable at the time of such notice of termination
shall automatically terminate. If either Exchange or MicroStrategy terminates
the Development Agreement in accordance with Section 11.4 of the Development
Agreement, the obligations of Exchange to pay any and all Installments not yet
due and payable at the time of delivery of the written notice of default giving
rise to such termination shall automatically terminate.

(b) If any of the Milestones for a particular Installment Date have not
been achieved by the Business Unit (the "Unachieved Milestones") on or prior to
that Installment Date with respect to any Installment payable after June 30,
2000, Exchange may elect by written notice to MicroStrategy on or before the
Installment Date to extend the applicable Installment Date until the earlier (i)
the 45th day immediately following the scheduled Installment Date contained in
the table set forth in Section 2.01(c) and (ii) the third Business Day following
the achievement of the Unachieved Milestones. If at the end of the 45 day period
described in this Section 2.03(b) (the "Extension Date"), the Business Unit has
not achieved the Milestone, then Exchange shall either (a) pay the Payment
Amount by the third Business Day following the Extension Date or (b) terminate
the Business Unit obligations pursuant to Section 10.1 of the Development
Agreement.

(c) If the Business Unit achieves a Milestone for a particular
Installment Date prior to such Installment Date, then MicroStrategy may elect by
written notice to Exchange to accelerate the applicable Installment Date to the
20th Business Day following such notice (the "Accelerated Installment Date").
The Accelerated Installment Date shall be deemed an Installment Date for the
purposes of Section 2.02 above.

Section 2.04. Payments; Delivery of Shares. (a) On each date on which
Exchange is obligated to make a payment of cash to MicroStrategy under this
Article

6
<PAGE>

II, Exchange shall deliver to MicroStrategy the applicable sum by check or by
wire transfer to a bank account designated in writing by MicroStrategy. (b) On
each date on which Exchange is obligated to deliver shares of Common Stock to
MicroStrategy or a Designee under this Article II, Exchange shall deliver to
MicroStrategy a certificate representing the applicable number of shares of
Common Stock registered in the name of MicroStrategy or such Designee.

Section 2.05. Designees. Each reference to MicroStrategy in Section
3.02, Article IV and Article V shall be deemed a reference to MicroStrategy and,
where applicable, each of its Designees.

ARTICLE III.

Representations and Warranties
------------------------------

Section 3.01. Representations and Warranties of Exchange. Exchange
hereby represents and warrants to MicroStrategy on and as of the Closing Date as
follows:

(a) Organization. Exchange is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and is
qualified to do business in each jurisdiction in which the character of its
properties or the nature of its business requires such qualification, except
where the failure to so qualify would not have a material adverse effect upon
Exchange.

(b) Authorization. All corporate action on the part of Exchange, its
officers, directors and stockholders, necessary for the authorization,
execution, delivery and performance of this Agreement and the other Operative
Agreements and the consummation of the transactions contemplated herein and
therein has been taken. Each of this Agreement and the other Operative
Agreements constitute the legal, valid and binding obligation of Exchange,
enforceable against Exchange in accordance with its terms, except as such may be
limited by bankruptcy, insolvency, reorganization or other laws affecting
creditors' rights generally and by general equitable principles. Exchange has
all requisite corporate power to enter into this Agreement and the other
Operative Agreements and to carry out and perform its obligations under this
Agreement and the other Operative Agreements.

(c) Capitalization. The authorized capital stock of Exchange consists
of (i) 30,000,000 shares of Common Stock and (ii) 10,000,000 shares of preferred
stock, par value $.001 per share (the "Preferred Stock"). The number of
outstanding shares of each class of capital stock are set forth in Schedule
3.01(c) hereto. Except as set forth in Schedule 3.01(c) hereto, there are no
existing options, warrants, calls, preemptive (or similar) rights, subscriptions
or other rights, agreements, arrangements or commitments of any character
obligating Exchange to issue, transfer or sell, or cause to be issued,
transferred or sold, any shares of capital stock of Exchange or other equity
interests in Exchange or any securities convertible into or exchangeable for
such shares of capital stock or other equity interests (collectively,

7
<PAGE>

"Securities"). Schedule 3.01(c) sets forth the number of stock options
outstanding under Exchange's stock incentive plans, and the number of shares
reserved for issuance under such plans that are not subject to outstanding
options. Except as set forth in Schedule 3.01(c), no holder of any capital stock
or Securities of Exchange has any outstanding registration rights.

(d) Valid Issuance of the Payment Share. The Payment Shares to be
issued to MicroStrategy or any Designee hereunder, upon issuance pursuant to the
terms hereof, will be duly authorized and validly issued, fully paid,
nonassessable and free of any liens or encumbrances created by Exchange and,
assuming the accuracy of the representations and warranties made by
MicroStrategy to Exchange, will be issued and sold by Exchange to MicroStrategy
or such Designee in compliance with applicable state and federal securities
laws.

(e) SEC Documents. Exchange has furnished to MicroStrategy (or
otherwise provided access by MicroStrategy to) true and complete copies of the
documents filed by Exchange with the SEC and set forth on Schedule 3.01(e)
hereto (all such documents, collectively, the "SEC Documents"). As of their
respective filing dates, the SEC Documents complied in all material respects
with the requirements of the Exchange Act or the Securities Act, as applicable,
and none of the SEC Documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading, as of their respective filing dates,
except to the extent corrected by a subsequently filed SEC Document.

(f) No Conflict. The execution and delivery of this Agreement and the
other Operative Agreements by Exchange and the consummation of the transactions
contemplated hereby and thereby will not conflict with or result in any
violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to a loss of a material benefit or give rise to an event which
results in the creation of any lien, charge or encumbrance upon any of
Exchange's properties or assets under (i) any provision of the Certificate of
Incorporation or By-laws of Exchange or (ii) any agreement or instrument,
permit, franchise, license, judgment, order, statute, law, ordinance, rule or
regulation, applicable to Exchange or its respective properties or assets,
except where any such event under clause (ii) could not reasonably be expected
to have a material adverse effect on the Transactions contemplated by this
Agreement and the other Operative Agreements.

(g) Consents. All consents, approvals, orders, authorizations,
registrations, qualifications, and filings required on the part of Exchange to
be obtained or made prior to the Closing in connection with the execution,
delivery or performance of this Agreement and the other Operative Agreements,
and the consummation of the transactions contemplated herein and therein have
been obtained or made prior to the Closing.

8
<PAGE>

(h) Absence of Certain Changes or Events. Since the last filing date of
the SEC Documents, no event has occurred that has had a material adverse effect
on Exchange (excluding for this purpose the execution or announcement of the
transactions contemplated by this Agreement and the other Operative Agreements
and any adverse effect resulting therefrom).

Section 3.02. Representations and Warranties of MicroStrategy.
MicroStrategy hereby represents and warrants to Exchange on and as of the
Closing Date as follows:

(a) Organization. MicroStrategy is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and is qualified to do business in each jurisdiction in which the character of
its properties or the nature of its business requires such qualification, except
where the failure to so qualify would not have a material adverse effect upon
MicroStrategy.

(b) Authorization. All corporate action on the part of MicroStrategy,
its officers, directors and stockholders, necessary for the authorization,
execution, delivery and performance of this Agreement and the other Operative
Agreements and the consummation of the transactions contemplated herein and
therein has been taken. Each of this Agreement and the other Operative
Agreements constitute the legal, valid and binding obligation of MicroStrategy,
enforceable against MicroStrategy in accordance with its terms, except as such
may be limited by bankruptcy, insolvency, reorganization or other laws affecting
creditors' rights generally and by general equitable principles. MicroStrategy
has all requisite corporate power to enter into this Agreement and the other
Operative Agreements and to carry out and perform its obligations under this
Agreement and the other Operative Agreements.

(c) Acquisition Solely for the Purpose of Investment. MicroStrategy is
acquiring the Payment Shares being acquired by it hereunder, for investment, for
its own account, and not for resale or with a view to distribution thereof in
violation of the Securities Act or any other applicable securities law.
MicroStrategy has no intention of participating in, and, so long as
MicroStrategy holds or has any right to acquire any Payment Shares MicroStrategy
will not participate in, the formulation, determination or direction of the
basic business decisions of Exchange within the meaning of 16 C.F.R.
801.1(i)(1).

(d) Investor Status, etc. MicroStrategy certifies and represents to
Exchange that, at the time MicroStrategy acquires any of the Payment Shares,
MicroStrategy will be an "accredited investor" as defined in Rule 501 of
Regulation D promulgated under the Securities Act. MicroStrategy's financial
condition is such that it is able to bear the risk of holding any and all of the
Payment Shares acquired by it for an indefinite period of time and the risk of
loss of its entire investment. MicroStrategy has been afforded the opportunity
to ask questions of and receive answers from the management of Exchange
concerning Exchange and its business and this investment, and has also been
afforded the opportunity to review any relevant documents and records concerning
the business of Exchange. MicroStrategy has such

9
<PAGE>

knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of an investment in Exchange.

(e) Payment Shares Not Registered. MicroStrategy understands that
because the Payment Shares are issued by Exchange in a transaction exempt from
the registration requirements of the Securities Act, the Payment Shares have not
been registered under the Securities Act, and that the Payment Shares must
continue to be held by MicroStrategy unless a subsequent disposition thereof is
registered under the Securities Act or is exempt from such registration.
MicroStrategy understands that the exemptions from registration afforded by Rule
144 (the provisions of which are known to it) promulgated under the Securities
Act depend on the satisfaction of various conditions, and that, if applicable,
Rule 144 may afford the basis for sales only in limited amounts.

(f) No Conflict. The execution and delivery of this Agreement and the
other Operative Agreements by MicroStrategy and the consummation of the
transactions contemplated hereby and thereby will not conflict with or result in
any violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to a loss of a material benefit under (i) any provision of the
Certificate of Incorporation or By-laws of MicroStrategy or (ii) any agreement
or instrument, permit, franchise, license, judgment, order, statute, law,
ordinance, rule or regulation, applicable to MicroStrategy or its respective
properties or assets, except where any such event under clause (ii) could not
reasonably be expected to have a material adverse effect on the Transactions
contemplated by this Agreement and the other Operative Agreements.

(g) Consents. All consents, approvals, orders, authorizations,
registrations qualifications and filings required on the part of MicroStrategy
to be obtained or made prior to the Closing in connection with the execution,
delivery or performance of this Agreement and the other Operative Agreements and
the consummation of the Transactions contemplated herein or therein have been
obtained or made prior to the Closing.

(h) Certain Acknowledgements. MicroStrategy has reviewed and
understands the SEC Documents, including the "Risk Factors" set forth therein,
and acknowledges that Exchange has made no representations or warranties to
MicroStrategy to induce MicroStrategy to enter into the Transactions, except for
those set forth herein (or, in the case of the SEC Documents, incorporated
herein by reference) and in the other Operative Agreements. MicroStrategy
acknowledges that investments in the Common Stock are risky, that the market
price of the Common Stock is volatile and subject to a variety of factors, many
of which are outside Exchange's control, and that no assurances can be or are
given by Exchange or any of its officers or directors as to the market price at
which MicroStrategy may be able to sell the Payment Shares.

10
<PAGE>

ARTICLE IV.

Other Covenants
---------------

Section 4.01. Restrictions on Transfer of the Payment Shares.
MicroStrategy shall not offer, sell, assign, transfer, endorse, pledge,
mortgage, hypothecate or otherwise convey or dispose of (a "Sale") any of the
Payment Shares acquired by it, or any interest therein, unless (i) any such sale
shall be effected (A) pursuant to and in conformity with an effective
registration statement under the Securities Act (a "Registered Sale"), or (B)
pursuant to and in conformity with Rule 144 under the Securities Act, and (ii)
in the case of any Sale under such Rule 144, if requested by Exchange,
MicroStategy shall have obtained and delivered to Exchange a written legal
opinion of counsel (reasonably satisfactory to Exchange as to such counsel and
as to the substance of such opinion) to the effect that any such proposed Sale
by MicroStategy does not violate the registration provisions of the Securities
Act and any applicable state securities or blue sky laws.

Section 4.02. Effect of Violation of Transfer Restrictions; Preventive
Measures. Any Sale of any Payment Shares, or of any interest therein, in
violation of this Article IV shall be null and void. Exchange may make a
notation on its records or give instructions to any of its transfer agents in
order to implement the restrictions on transfer set forth in this Article IV.
Exchange shall not incur any liability for any delay in recognizing any transfer
of any Purchased Shares if Exchange reasonably believes that any such transfer
may have been or would be in violation of the provisions of the Securities Act,
applicable blue sky laws or this Article IV.

Section 4.03. Legends. (a) Each certificate evidencing any of the
Payment Shares shall be endorsed with the legend set forth below, and
MicroStrategy covenants that, except to the extent such restrictions are waived
by Exchange, it shall not transfer the Payment Shares represented by any such
certificate without complying with the restrictions on transfer described in
this Agreement and the legends endorsed on such certificate:

"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE OFFERED, SOLD, ASSIGNED, TRANSFERRED,
ENDORSED, PLEDGED, MORTGAGED, HYPOTHECATED OR OTHERWISE CONVEYED OR
DISPOSED OF, UNLESS SUCH SHARES ARE (1) SO REGISTERED OR (2) AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE AND, IF REQUESTED BY
EXCHANGE APPLICATIONS, INC. (THE "COMPANY"), A WRITTEN LEGAL OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY IS PROVIDED BY THE
TRANSFEROR. IF THE SHARES REPRESENTED BY THIS CERTIFICATE ARE NOT
TRANSFERRED PURSUANT TO AND IN CONFORMITY WITH AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 OR IN
ACCORDANCE WITH RULE 144 OF THE SECURITIES

11
<PAGE>

ACT OF 1933, SUCH SHARES ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS ON
TRANSFER SET FORTH IN ARTICLE IV OF A PAYMENT AND REGISTRATION RIGHTS
AGREEMENT DATED AS OF DECEMBER 28, 1999, AND NO TRANSFER OF SUCH SHARES
SHALL BE VALID OR EFFECTIVE IF IT IS NOT EFFECTED IN COMPLIANCE WITH
ALL OF SUCH RESTRICTIONS ON TRANSFER. A COPY OF SUCH PAYMENT AND
REGISTRATION RIGHTS AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF SUCH SHARES TO THE SECRETARY OF
THE COMPANY. "

(b) Each certificate evidencing any of the Payment Shares shall be
endorsed with any legend required under any applicable state securities or blue
sky laws.

ARTICLE V.

Registration Rights
-------------------

Section 5.01. Shelf Registration. (a) As soon as possible and, in any
event, on or prior to January 31, 2000, Exchange will prepare and file with the
SEC a registration statement on Form S-3 (or Form S-1 if registration on Form
S-3 is not available to Exchange at such time) for the purpose of registering
under the Securities Act all of the Registration Shares for resale by, and for
the account of, MicroStrategy as selling stockholder thereunder (the "Shelf
Registration Statement"); provided, however, that Exchange may extend the period
to file the Shelf Registration Statement for not more than an additional 60 days
if (i) such delay would relieve Exchange of the obligation to include any
interim financial statements in the Registration Statement or (ii) Exchange
would be required to disclose in the Registration Statement any material
nonpublic information and Exchange concludes that the disclosure of such
information would be inadvisable at that time. The Shelf Registration Statement
shall permit MicroStrategy to offer and sell, on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act, any or all of the Registration
Shares for the periods set forth herein.

(b) The initial number of Registration Shares to be registered under
the Shelf Registration Statement shall equal 50% of the Closing Share Amount.
Exchange agrees to prepare and file such amendments and supplements to the Shelf
Registration Statement to increase the number of Registration Shares eligible to
be sold thereunder by an amount equal to the balance of the Closing Share Amount
on or before May 1, 2000. Exchange also agrees to prepare and file such
amendments and supplements to the Shelf Registration Statement as may be
necessary so that at any time after May 1, 2000 the Shelf Registration Statement
will cover the Payment Shares already issued to MicroStrategy (unless such
shares have been sold under the Shelf Registration Statement or sold in
connection with a Piggyback Registration) and the Installment Share Amount for
the next Installment (assuming that such

12
<PAGE>

Installment will be paid entirely in Common Stock and that the Fair Market Value
on such Installment Date will equal 75% of the Fair Market Value calculated as
of the Closing Date).

Section 5.02. Piggyback Registrations. (a) If Exchange proposes to
register any Common Stock under the Securities Act for sale for cash in an
underwritten offering, Exchange shall give MicroStrategy notice of such proposed
registration (a "Piggyback Registration") at least 30 days prior to the filing
of the registration statement. At the written request of MicroStrategy delivered
to Exchange within 10 days after the receipt of the notice from Exchange, which
request shall state the number of Registration Shares that MicroStrategy wishes
to sell under the registration statement proposed to be filed by Exchange,
Exchange will use reasonable efforts to include in such underwritten
registration the Registration Shares requested to be included by MicroStrategy.

(b) If the managing underwriters of a Piggyback Registration advise
Exchange in writing that in their opinion the number of securities requested to
be included in the registration exceeds the number which can be sold in the
offering, Exchange may exclude from the registration any or all Registration
Shares that MicroStrategy proposes to sell; provided, however, that no
Registration Shares may be excluded if the registration includes Common Stock of
holders other than MicroStrategy unless MicroStrategy is permitted to
participate in such registration with such holders on a pro rata basis.

(c) All necessary amendments to the Shelf Registration Statement will
be made to reduce the number of shares to be sold by MicroStrategy thereunder,
in the event that shares are sold by MicroStrategy in a Piggyback Registration.

Section 5.03. Indemnification by Exchange. In the event of any
registration of any Registration Shares of MicroStrategy under the Securities
Act, Exchange shall, and hereby does, indemnify and hold harmless MicroStrategy,
its directors and officers, each other Person who participates as an underwriter
in the offering or sale of such Registration Shares and each other Person, if
any, who controls such party or any such underwriter within the meaning of
Section 15 of the Securities Act against any losses, claims, damages or
liabilities, joint or several, to which such party or any such director or
officer or underwriter or controlling Person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which the Registration Shares were registered under the Securities Act,
any preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein in light of the circumstances in which
they were made not misleading, and Exchange shall

13
<PAGE>

reimburse such party and each such director, officer, underwriter and
controlling Person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
liability, action or proceeding; provided, however, that Exchange shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement in reliance upon
and in conformity with written information about such party as a stockholder of
Exchange furnished to Exchange through an instrument duly executed by such party
specifically stating it is for use in the preparation thereof. Such indemnity
shall remain in full force and affect regardless of any investigation made by or
on behalf of such party or any such director, officer, controlling Person or
underwriter and shall survive any transfer of the Registration Shares.

Section 5.04. Indemnification by MicroStrategy. Exchange may require,
as a condition to including any Registration Shares of MicroStrategy in any
registration statement filed pursuant to Section 5.01 or 5.02, that Exchange
shall have received an undertaking satisfactory to it from MicroStrategy to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in Section 5.03) Exchange, each director of Exchange, each officer of
Exchange signing such Registration Statement, each Person who participates as an
underwriter in the offering or sale of such Registration Shares and each other
Person, if any, who controls Exchange or any such underwriter within the meaning
of Section 15 of the Securities Act with respect to any untrue statement or
alleged untrue statement in or omission or alleged omission from such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus contained therein or any amendment or supplement thereto, if such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information about
MicroStrategy furnished to Exchange through an instrument duly executed by
MicroStrategy specifically stating that it is for use in the preparation of such
registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement; provided, however, that the liabilities of
MicroStrategy hereunder shall be limited to an amount equal the net proceeds to
MicroStrategy and its permitted assignees from the Registration Shares sold in
connection with any such registration statement. Such indemnity shall remain in
full force and effect, regardless of any investigation made by or an behalf of
Exchange or any such director, officer or controlling Person and shall survive
the Transfer by MicroStrategy of the Registration Shares being registered.

Section 5.05. Notices of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in Section 5.03 or 5.04, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party,
give notice to the latter of the commencement of such action; provided, however,
that the failure of any indemnified party to give notice as provided herein
shall not relieve the indemnifying party of its obligations under Section 5.03
or 5.04, except to the extent that the indemnifying party is actually prejudiced
by such failure to give notice. In case any such action is

14
<PAGE>

brought against an indemnified party, unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist or the indemnified party may have defenses not
available to the indemnifying party in respect of such claim, the indemnifying
party shall be entitled to participate in and to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall be liable for any settlement of any
action or proceeding effected without its written consent. No indemnifying party
shall, without the consent of the indemnified party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect to such claim or litigation.

Section 5.06. Indemnification Payments. The indemnification required by
this Article shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.

Section 5.07. Registration Covenants of Exchange. In the event that any
Registration Shares are to be registered pursuant to Section 5.01 or 5.02,
Exchange covenants and agrees that it shall use its best efforts to effect the
registration and cooperate in the sale of the Registration Shares to be
registered and shall as expeditiously as possible:

(i) notify MicroStrategy, promptly after Exchange shall
receive notice thereof, of the time when the Registration Statement becomes
effective or when any amendment or supplement or any prospectus forming a part
of the Registration Statement has been filed;

(ii) notify MicroStrategy promptly of any request by the SEC
for the amending or supplementing of the Registration Statement or prospectus or
for additional information;

(iii) (A) advise MicroStrategy after Exchange shall receive
notice or otherwise obtain knowledge of the issuance of any order by the SEC
suspending the effectiveness of the Registration Statement or any thereto or of
the initiation or threatening of any proceeding for that purpose and (B)
promptly use reasonable efforts to prevent the issuance of any stop order or to
obtain its withdrawal promptly if a stop order should be issued;

(iv) (A) prepare and file with the SEC such amendments and
supplements to the Registration Statement and the prospectus forming a part
thereof as may be necessary to keep the Registration Statement effective until
the Registration Termination Date and (B) comply with the provisions of the
Securities Act with respect to the disposition of all Registration Shares
covered by the

15
<PAGE>

Registration Statement in accordance with the intended methods of disposition by
MicroStrategy set forth in the Registration Statement;

(v) furnish to MicroStrategy such number of copies of the
Registration Statement, each amendment and supplement thereto, the prospectus
included in the Registration Statement (including any preliminary prospectus)
and such other documents as MicroStrategy may reasonably request in order to
facilitate the disposition of the Registration Shares owned by MicroStrategy;

(vi) notify MicroStrategy, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the Registration Statement would
contain an untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and, at the request of MicroStrategy, prepare a supplement or
amendment to the Registration Statement so that the Registration Statement shall
not, to Exchange's knowledge, contain an untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that upon such notification
by Exchange, MicroStrategy will not offer or sell Registration Shares until
Exchange has notified MicroStrategy that it has prepared a supplement or
amendment to such prospectus and delivered copies of such supplement or
amendment to MicroStrategy;

(vii) if the Registration Shares are securities of a class
then listed on a securities exchange or traded through a self-regulatory
organization, cause the Registration Shares to be so listed or traded;

(viii) provide a transfer agent and registrar, which may be a
single entity, for all the Registration Shares not later than the effective date
of the Registration Statement;

(ix) use its best efforts to cause the Registration Shares
covered by the Registration Statement to be registered with or approved by such
other Governmental Authorities as may be necessary to enable MicroStrategy to
consummate the disposition of such Registration Shares; and

(x) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC and timely file all reports required
to be filed by it under the Exchange Act, and the rules and regulations adopted
by the SEC thereunder, all to the extent required to enable MicroStrategy to
sell its Payment Shares pursuant to Rule 144 and the Registration Statement.

Section 5.08. Expenses. Exchange shall pay, on behalf of
MicroStrategy, all the expenses in connection with the Shelf Registration or any
Piggyback Registration, including all registration, filing and regulatory review
fees, all fees and expenses of complying with securities or blue sky laws, all
listing fees, all word processing, duplicating and printing expenses, all
messenger and delivery expenses, the fees and disbursements of counsel for
Exchange and of its independent public accountants (including the expenses of
comfort letters required by or incident to such performance

16
<PAGE>

and compliance), and any fees and disbursements of underwriters customarily paid
by issuers or sellers of securities, but excluding any underwriting discounts
and commissions and transfer taxes, if any, on the Registration Shares. In any
registration, MicroStrategy shall pay for its own underwriting discounts and
commissions and transfer taxes, and its own legal fees.

Section 5.09. Deferral. Notwithstanding anything in this Agreement to
the contrary, if Exchange shall furnish to MicroStrategy a certificate signed by
the President or Chief Financial Officer of Exchange stating that the Board of
Directors of Exchange has made the good faith determination (i) that continued
use by MicroStrategy of a Registration Statement for purposes of effecting
offers or sales of Registration Shares pursuant thereto would require, under the
Securities Act, premature disclosure in the Registration Statement (or the
prospectus relating thereto) of material, nonpublic information concerning
Exchange, its business or prospects or any proposed material transaction
involving Exchange, (ii) that such premature disclosure would be materially
adverse to Exchange, its business or prospects or any such proposed material
transaction significantly less likely and (iii) that it is therefore advisable
to suspend the use by MicroStrategy of such Registration Statement (and the
prospectus relating thereto) for purposes of effecting offers or sales of
Registration Shares pursuant thereto, then the right of MicroStrategy to use the
Registration Statement (and the prospectus relating thereto) for purposes of
effecting offers or sales of Registration Shares pursuant thereto shall be
suspended for a period (the "Suspension Period") of not more than 60 days after
delivery by Exchange of the certificate referred to above in this Section 5.09.
During the Suspension Period, MicroStrategy shall not offer or sell any
Registration Shares pursuant to or in reliance upon the Registration Statement
(or the prospectus relating thereto). Notwithstanding the foregoing, Exchange
shall not be entitled to Suspension Periods totaling more than 90 days in any
consecutive twelve-month period during the term of this Agreement.

Section 5.10. Assignment of Registration Rights. The registration
rights set forth in this Article V may not be assigned to any Person, other than
an affiliate of MicroStrategy.

ARTICLE VI.

Miscellaneous
-------------

Section 6.01. Notices. Except as expressly provided herein, notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed or sent by telecopier, as
follows:

17
<PAGE>

(a) if to Exchange,

Exchange Applications, Inc.
89 South Street
Boston, Massachusetts 02111
Telephone: (617) 737-2244
Telecopier: (617) 790-2849
Attention: Andrew J. Frawley and Wayne Townsend

(b) if to MicroStrategy,

MicroStrategy Incorporated
8000 Towers Crescent Drive
Vienna, Virginia 22182
Telephone: (703) 848-8657
Telecopier: (703) 848-8748
Attention: Adam J. Ruttenberg

or to such other address or attention of such other person as any party shall
advise the other party in writing. All notices and other communications given to
a party hereto in accordance with the provisions of this Agreement shall be
deemed to have been given on the date of receipt.

Section 6.02. APPLICABLE LAW; WAIVER OF JURY TRIALS. THE VALIDITY,
CONSTRUCTION AND PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS,
APPLICABLE TO CONTRACTS EXECUTED IN AND PERFORMED ENTIRELY WITHIN SUCH
COMMONWEALTH, WITHOUT REFERENCE TO ANY CHOICE OF LAW PRINCIPLES OF SUCH
COMMONWEALTH. WITH RESPECT TO ANY LEGAL PROCEEDING ARISING OUT OF THIS
AGREEMENT, ANY OF THE OTHER OPERATIVE AGREEMENTS OR ANY TRANSACTION, THE PARTIES
EXPRESSLY WAIVE ANY RIGHT THEY MAY HAVE TO A JURY TRIAL AND AGREE THAT ANY SUCH
LEGAL PROCEEDING SHALL BE TRIED BY A JUDGE WITHOUT A JURY.

Section 6.03. Severability. If any provision of this Agreement shall be
hold to be illegal, invalid or unenforceable, that provision will be enforced to
the maximum extent permissible so as to effect the intent of the parties, and
the validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby. If necessary to effect the intent of
the parties, the parties will negotiate in good faith to amend this Agreement to
replace the unenforceable language with enforceable language which as closely as
possible reflects such intent.

Section 6.04. Amendments. This Agreement may be modified or waived only
by a written a persons authorized to so bind each party.

Section 6.05. Waiver. The waiver by any party of any instance of the
other party's noncompliance with any obligation or responsibility herein shall
not be deemed a waiver of other instances or of any party's remedies for such
noncompliance.

Section 6.06. Counterparts. This Agreement may be executed in one or
more counterparts (including by telecopier), all of which shall be considered
one and the

18
<PAGE>

same agreement, and shall become effective when one or more counterparts shall
have been signed by each party and delivered to each other party.

Section 6.07. Entire Agreement. The provisions of this Agreement, and
the other Operative Agreements set forth the entire agreement and understanding
among the parties as to the subject matter hereof and supersede all prior
agreements, oral or written, and all other communications between the parties
relating to the subject matter hereof.

Section 6.08. Assignment. (a) Except as expressly set forth in this
Agreement, no party shall assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of the other parties,
provided, that no such consent shall be required for a transfer by operation of
law in connection with a merger or consolidation of such party (without
prejudice to any other rights the parties may have under any other Operative
Agreement).

(b) Any attempted assignment of this Agreement in violation of this
Section shall be void and of no effect.

(c) This Agreement shall be binding upon, inure to the benefit of and
be enforceable by the parties hereto and their respective successors and
permitted assigns.

Section 6.09. Survival of Agreement. All covenants, agreements,
represent-ations and warranties made by any party herein and in the certificates
or other instruments prepared or delivered in connection with or pursuant to
this Agreement shall be considered to have been relied upon by the other parties
and shall survive the Closing, regardless of any investigation made by the other
parties hereto or on their behalf.

Section 6.10. No Third-Party Beneficiaries. This Agreement is for the
sole benefit of the parties and their permitted assigns and nothing herein
expressed or implied shall give or be construed to give to any Person, other
than the parties and such assigns, any legal or equitable rights hereunder,
except that Sections 5.03 and 5.04 and are intended to be for the benefit of the
Persons named therein

Section 6.11. Expenses. (a) All costs and expenses incurred in
connection with the Operative Agreements and the Transactions shall be paid by
the party incurring such cost or expense, except as the parties shall otherwise
agree.

(b) The provisions of this Section shall remain operative and in full
force and effect regardless of the expiration of this Agreement or the
consummation of the Transactions.

Section 6.12. Remedies. In no event will any party be liable to another
party for incidental damages, lost profits, lost savings, or any other
consequential damages, even if such party has been advised of the possibility of
such damages, resulting from the breach of its obligations under any Operative
Agreement or from the use of any confidential or other information.

19
<PAGE>

Section 6.13. Publicity. No public release, announcement or other form
of publicity concerning the Transactions shall be issued by any party without
the prior consent of the other party, except as such release or announcement may
be required by law or the rules or regulations of any securities exchange, in
which case the party required to make the release or shall, to the extent
possible, allow the other party reasonable time to comment on such release or
announcement in advance of such issuance.SECTION 2.04

Section 6.14. Construction. This Agreement has been negotiated by the
parties and their respective counsel and will be fairly interpreted in
accordance with its terms and without any strict construction in favor of or
against any party.

IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first above written.

EXCHANGE APPLICATIONS, INC.

By:
----------------------
Name:
Title:

MICROSTRATEGY INCORPORATED

By:
----------------------
Name:
Title:

EXHIBIT 10-21
-------------

SOFTWARE DEVELOPMENT AND OEM AGREEMENT

THIS SOFTWARE DEVELOPMENT AND OEM AGREEMENT (this "AGREEMENT") is
entered into as of December 28, 1999 (the "EFFECTIVE DATE"), by and between
MICROSTRATEGY INCORPORATED, a Delaware corporation ("MICROSTRATEGY") and
EXCHANGE APPLICATIONS, INC., a Delaware corporation ("EA").

RECITALS

1. EA has developed certain proprietary customer relations management
("CRM") software, including, without limitation, VALEX(TM) and eXstatic(TM), all
as described in greater detail hereiN.

2. MicroStrategy desires to develop certain industry-specific data
models for a set of vertical industries, as described in greater detail herein,
and certain CRM applications which will function in connection with such data
models and with the EA Products (as defined below).

3. EA desires to integrate the MicroStrategy Software (as defined
herein) with the data models and CRM applications and/or with the EA Products
(as defined herein) and to sublicense such Exchange Applications Solutions
directly to end users.

4. EA and MicroStrategy believe that it is in their respective best
interests that the foregoing data models, CRM applications, development
environments and certain other developed software (collectively, the "DEVELOPED
PRODUCTS", as defined and described in greater detail in Section 1), be
developed.

5. To achieve the development of the Developed Products, EA and
MicroStrategy have agreed to engage in certain joint development work and to
grant certain technology licenses as set forth in this Agreement.

6. To facilitate the development of the Developed Products and
integration of the Developed Products with the EA Products and the MicroStrategy
Software, MicroStrategy has agreed to create a business unit dedicated to the
development and maintenance of the foregoing.

7. EA and MicroStrategy have also agreed on the basis on which they
will engage in certain joint marketing efforts to achieve commercial success for
the Developed Products.

ACCORDINGLY, EA and MicroStrategy agree as follows:

AGREEMENT

1. DEFINITIONS. In addition to those terms that are defined where first used,
the following definitions shall apply:

"APPLICATIONS" means the CRM applications developed by MicroStrategy
pursuant to this Agreement, which will consist of a set of analytic CRM
functionalities for certain horizontal and/or vertical industries as applied to
the Data Models. The Applications may include, without
<PAGE>

limitation, customer and segment analysis, sales and channel analysis, campaign
and offer analysis and market basket analysis.

"CONFIDENTIAL INFORMATION" means any confidential or proprietary
information, including without limitation any source code, software tools,
designs, schematics, plans or any other information relating to any research
project, work in process, future development, scientific, engineering,
manufacturing, marketing or business plan, or financial or personnel matter
relating to either party, its present or future products, sales, suppliers,
customers, employees, investors or business, identified by the disclosing party
as Confidential Information, whether in oral form, or in written, graphic or
electronic form and marked as confidential or disclosed under circumstances that
would lead a reasonable person to conclude that the information was
confidential, including without limitation, the source code related to the EA
Products, the MicroStrategy Software and the Developed Products.

"DATA MODELS" means the industry-specific models for the storage of
information developed by MicroStrategy pursuant to this Agreement, which may
include, without limitation, the following vertical industries: banking, mutual
fund and brokerage, telecommunications, transportation, automotive, retail
catalogue, business-to-business high technology and business-to-consumer
Internet.

"DERIVATIVE WORK" means a work which is based on the Developed
Products, such as a revision, enhancement, modification, translation,
abridgement, condensation, expansion, or any other form in which the Developed
Products may be recast, transformed, or adapted, and which, if prepared without
authorization of the owner of the copyright in such product, would constitute a
copyright infringement. For purposes hereof, Derivative Work shall also include
any compilation that incorporates a Developed Product.

"DEVELOPED PRODUCTS" means, collectively, the Data Models, Applications
and certain other developed software developed pursuant to the Work Plan (as
defined in Section 2.1(a)) as such Work Plan may be amended and/or modified from
time to time pursuant to the terms of the Work Plan.

"EA KNOW-HOW" means the techniques, inventions, practices, methods,
knowledge, designs, skill and experience relating to the EA Products that are to
be disclosed by EA to MicroStrategy pursuant to this Agreement and that are
proprietary to EA.

"EA PATENTS" means patents related to the EA Products, including
without limitation, all foreign counterparts, all substitutions, extensions,
reissues, renewals, divisions, continuations and continuations in part relating
to such patents and their foreign counterparts, and which are owned or
controlled by EA (where "CONTROLLED" means licensed by EA with a royalty-free
right to grant sublicenses).

"EA PRODUCTS" means EA's proprietary CRM and email software products
and other CRM products and CRM applications, currently existing or which may be
later developed by EA, including, without limitation, VALEX(TM) and eXstatic(TM)
and which may include third party licensed software products as an integrated
component thereof.

2
<PAGE>

"EA TECHNOLOGY" means (i) the inventions, designs, discoveries and
processes claimed in the EA Patents and (ii) the EA Know-How.

"EVALUATION" means an installation of an Exchange Applications Solution
(as defined herein) for a period of sixty (60) days or less under the terms and
conditions specified herein during which an end user may evaluate the Exchange
Applications Solution for its internal use.

"IMPROVEMENTS" means any improvements, discoveries, developments,
modifications or derivative works, whether or not patentable.

"INTELLECTUAL PROPERTY RIGHTS" means all current and future trade
secrets, copyrights, patents and other patent rights, trademark rights, service
mark rights, mask work rights and any and all other intellectual property or
proprietary rights now known or hereafter recognized in any jurisdiction.

"MICROSTRATEGY KNOW-HOW" means the techniques, inventions, practices,
methods, knowledge, designs, skill and experience that are proprietary to
MicroStrategy and that were employed by MicroStrategy in the development of the
MicroStrategy Software or will be employed by MicroStrategy in the development
of the Developed Products, pursuant to this Agreement.

"MICROSTRATEGY PATENTS" means patents related to the MicroStrategy
Software, including without limitation, all foreign counterparts, all
substitutions, extensions, reissues, renewals, divisions, continuations and
continuations in part relating to such patents and their foreign counterparts,
and which are owned or controlled by MicroStrategy (where "CONTROLLED" means
licensed by MicroStrategy with a royalty-free right to grant sublicenses).

"MICROSTRATEGY SOFTWARE" means the entire MicroStrategy product suite
which is made generally available to end users during the term of this Agreement
and which is set forth in Exhibit A in the form in which such product suite
exists as of the Effective Date and as such may be amended by MicroStrategy from
time to time during the term hereof, subject to the requirements set forth in
Section 4.9(g)(ii).

"MICROSTRATEGY TECHNOLOGY" means (i) the inventions, designs,
discoveries and processes claimed in the MicroStrategy Patents and (ii) the
MicroStrategy Know-how.

"OPERATIVE AGREEMENTS" means, collectively, this Agreement, the Payment
and Registration Rights Agreement, the Joint Marketing Agreement, the License
Agreement and the Strategy.com Master Affiliation Agreement.

"QUALIFIED EVENT" means the sale of all or a substantial part of a
party's assets or a stock sale where pre-event shareholders hold less than a
majority of the capital stock of the party after such event, whether by
acquisition, merger or otherwise.

"TERRITORY" means the World.

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"TESTING" means the testing of the G. A. version of the Developed
Products contemplated by Section 2.4 to ensure compatibility, in all material
respects, with the Specifications to be developed by the Steering Committee (as
defined in Section 2.1).

"USER DOCUMENTATION" means all instructional and technical materials
and related literature provided by MicroStrategy which is to be distributed to
end users in connection with the Developed Products and/or the MicroStrategy
Software.

"VAR AGREEMENT" means the value-added reseller agreement between the
parties that will exist upon conversion of this Agreement in accordance with the
provisions herein which shall be substantially in the form set forth in Exhibit
B hereto.

2. DEVELOPMENT OF DEVELOPED PRODUCTS; LICENSE FEE; VAR AGREEMENT SUPERSEDED.

2.1 DEVELOPMENT PROGRAM; CREATION OF BUSINESS UNIT AND STEERING COMMITTEE;
ONGOING OBLIGATIONS.

(a) Promptly following the execution of this Agreement, MicroStrategy
will create a business unit (the "BUSINESS UNIT"), which will include an
engineering team, dedicated to the development and maintenance, support,
integration and testing of the Developed Products pursuant to the terms of this
Agreement. The composition of the Business Unit, development overview and the
development objectives are set forth in Exhibit C, which shall be subject to
modification as set forth in the Work Plan. The parties will establish a
steering committee (the "STEERING COMMITTEE") promptly following the Effective
Date, which committee will be dedicated to setting the direction for development
of the Developed Products and the other development obligations of the Business
Unit as set forth in the Work Plan, including, without limitation, the
establishment of quarterly milestones ("Milestones"). The composition,
process-related responsibilities and operations of the Steering Committee are
set forth in Exhibit D (collectively, with Exhibit C, the "WORK PLAN").
MicroStrategy will allow EA complete access to the Business Unit at all times
during normal business hours, and all reasonable efforts shall be made by EA so
that such access does not interfere with the development responsibilities of the
Business Unit and/or the achievement of Milestones. EA will have the option, at
its discretion, to locate up to ten (10) members of its own engineering and
development team at the site established by MicroStrategy for the location of
the Business Unit, and MicroStrategy will provide EA with adequate space to
accommodate the foregoing. The Steering Committee shall develop the
specifications for the Developed Products (the "SPECIFICATIONS"). Upon
termination of the Business Unit duties by EA as provided in this Agreement or
upon termination of this Agreement for any reason, excluding material breach by
EA, MicroStrategy shall promptly deliver to EA the source code to all Developed
Products which have been completed and/or are in process as of the termination
date, product and design specifications, User Documentation, test data, and
other related information reasonably requested by EA (collectively, the
"DELIVERIES"). From time-to-time as the Developed Products are completed and
tested pursuant to Work Plan and/or upon the request of EA, MicroStrategy shall
make the Deliveries (or that portion thereof requested by EA) to EA.

(b) MicroStrategy shall maintain and support (by providing research and
development support and bug fixes to EA) the Developed Products and all software
licensed by

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MicroStategy hereunder during the term of this Agreement and any renewal periods
thereof as such software is actually used by the end user. The foregoing support
shall be provided in accordance, in all material respects, with MicroStrategy's
standard technical support procedures. In addition, MicroStrategy will provide
testing and quality engineering support for the Developed Products utilizing its
Quality Engineering and Beta Programs groups, which group will provide the
results of their tests to EA. MicroStrategy will designate a dedicated product
manager for the Developed Products, create demonstrations of the Applications
and develop pre-sales consulting materials for the Applications.

(c) Subject to the right of either party under Section 10 to terminate
this Agreement, the Business Unit will develop the Developed Products in
accordance with the Specifications in all material respects, and will perform
the tasks and furnish the deliverables described in the Work Plan, as such may
be modified pursuant to the procedures set forth therein. The parties shall meet
on a periodic basis in connection with the establishment of deliverables
pursuant to the Work Plan to identify with specificity and in writing the
Developed Products.

(d) The parties shall work in good faith to finalize the form of VAR
Agreement within thirty (30) days after the Effective Date.

2.2 LICENSE FEE.

(a) EA will pay MicroStrategy a license fee (the "LICENSE FEE") of
sixty five million dollars ($65,000,000) in cash and EA common stock in the
respective amounts and in accordance with the payment schedule set forth in the
Payment and Registration Rights Agreement by and between the parties dated as of
the Effective Date and attached hereto as Exhibit E (the "PAYMENT AND
REGISTRATION RIGHTS AGREEMENT"), in consideration of the rights, licenses and
obligations of the parties under this Agreement and the Exhibits hereto.

(b) Except as set forth in the foregoing paragraphs of this subsection
2.2 or as otherwise expressly provided in this Agreement, each party will bear
its own costs incurred by it to accomplish its responsibilities in the
development effort.

2.3 BUSINESS UNIT CHANGES. The parties' respective project managers shall
participate in project review meetings as mutually agreed. MicroStrategy may
change or substitute members of the Business Unit at its discretion from time to
time. Notwithstanding the foregoing, MicroStrategy shall adhere to the
then-current requirements of the Work Plan regarding the skill levels and other
qualifications of the Business Unit members.

2.4 CONFORMANCE TESTING. MicroStrategy will complete development and
delivery of the deliverable items set forth in the Work Plan in accordance with
the Milestones set forth therein. Upon completion of the Milestones, including,
without limitation, final completion of the Developed Products and the
performance of product quality and conformance testing of the G.A. version of
the Developed Products by MicroStrategy based upon testing criteria and
Specifications established by the Steering Committee, EA have the right to
confirm the results of such product quality and performance testing.

2.5 DEMONSTRATION ENVIRONMENT. MicroStrategy agrees to allocate a portion
of the Business Unit toward the development of a demonstration environment for
the Exchange

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Applications Solution and the Developed Products at EA's site. In connection
with the foregoing, MicroStrategy shall provide the MicroStrategy Software, the
Developed products and certain Business Unit personnel as selected by
MicroStrategy (collectively, the "MicroStrategy Resources"), and EA shall be
responsible for all third party software, all hardware and all costs related to
the demonstration environment, excluding those directly related to the
MicroStrategy Resources, or as otherwise specifically provided for in the Work
Plan.

2.6 TERMINATION OF VAR AGREEMENT. The parties acknowledge and agree that
this Agreement supersedes and replaces that DSS Partner Value-Added Reseller
Agreement between the parties dated June 1, 1999, which is hereby terminated
pursuant to Section 15.9 thereof. All licenses to end users granted under the
foregoing agreement will survive such termination, all obligations set forth in
Section 14.6 shall survive, and MicroStrategy's obligations under Section 9.2
thereof for support shall be pursuant to this Agreement in lieu of its support
obligations thereunder.

2.7 SOURCE CODE ESCROW. WITHIN TEN (10) DAYS AFTER the Effective Date, the
parties shall enter into a Source Code Escrow Addendum in respect of the
MicroStrategy Software in substantially the form provided to MicroStrategy's
other customers (the "SOURCE CODE ESCROW ADDENDUM").

3. JOINT MARKETING AND SALES; JOINT MARKETING AGREEMENT. The parties' respective
obligations regarding marketing and promotion of the Developed Products and
certain mutually agreed upon details regarding their relationship as embodied in
this Agreement shall be as set forth in a Joint Marketing Agreement in the form
attached hereto as Exhibit F.

4. JOINT OWNERSHIP OF DEVELOPED PRODUCTS; OEM LICENSE GRANTS TO MICROSTRATEGY
SOFTWARE.

4.1 JOINT OWNERSHIP; RESTRICTION ON SALE. MicroStrategy and EA shall
jointly own all right, title and interest worldwide in and to the Developed
Products including, without limitation, patents, copyrights, trade secrets and
any other Intellectual Property Rights (including trademarks and trade names
related to the Developed Products, but excluding any trademarks and trade names
owned individually by either party) incorporated in the Developed Products,
whether in the United States or abroad, which ownership rights shall be subject
to the restrictions set forth in Sections 4.7, 4.8 and elsewhere in this
Agreement. EA acknowledges that MicroStrategy has not filed any patent
applications nor obtained any issued patents on the Developed Products as of the
Effective Date. It is the intention of the parties that all the Intellectual
Property Rights (including any related trademarks and trade names, but excluding
those owned individually by either party) in the Developed Products shall be
jointly owned without any duty to account (except in the event of infringement
as provided in Section 4.12 or share any royalties (except as provided in
Section 11.1) based on the licensing or use of the Developed Products by the
other party. Notwithstanding the foregoing and except pursuant to Section 10.3,
during the period of time that the Business Unit obligations are continuing
hereunder and for a period of six (6) months thereafter (the "Lockup Period"),
neither party may sell, assign, transfer or encumber its ownership interest in
the Developed Products (a "Transfer of Ownership") without the other party's
prior written consent, which may be granted or withheld in such party's sole
discretion. After the Lockup Period, either party shall have the

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right to engage in a Transfer of Ownership, provided that such transfer shall
shall be a transfer of the transferring party's joint ownership interest in the
Developed Products only (subject to the restrictions set forth in this
Agreement), and shall not entail a transfer or assignment of any license or
other rights granted by MicroStrategy pursuant to this Agreement or of any
obligations of MicroStrategy hereunder.

4.2 ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS. Upon reasonable request,
each party (the "ASSISTING Party") will assist the other party (the "REQUESTING
PARTY") in every proper way to obtain and from time to time enforce, United
States and foreign Intellectual Property Rights related to the Developed
Products in any and all countries. To that end, the Assisting Party will
execute, verify and deliver such documents and perform such other acts
(including appearances as a witness) as the Requesting Party may reasonably
request for use in applying for, obtaining, perfecting, evidencing, sustaining
and enforcing such Intellectual Property Rights and the Requesting Party's joint
ownership interest therein. The Assisting Party's obligation to assist the
Requesting Party with respect to such Intellectual Property Rights relating to
the Developed Products in any and all countries shall continue for a period of
five (5) years after expiration or termination of this Agreement, which expenses
shall be shared by the parties as they may mutually agree. In addition, the
Assisting Party will execute any license agreement which is consistent with the
rights granted and the terms set forth in this Agreement requiring the names of
both co-owners to make the license granted therein enforceable.

4.3 EXECUTION OF DOCUMENTS. In the event the Requesting Party is unable for
any reason, after reasonable effort (which shall include the issuance of a final
notice pursuant to the notice provisions hereof), to secure the Assisting
Party's signature on any document needed in connection with the actions
specified in Section 4.2 above, the Assisting Party hereby irrevocably
designates and appoints the Requesting Party and its duly authorized officers
and agents as its agent and attorney in fact, which appointment is coupled with
an interest, to act for and in its behalf to execute, verify and file any such
documents and to do all other lawfully permitted acts to further the purposes of
the preceding paragraph with the same legal force and effect as if executed by
the Assisting Party.

4.4 COPYRIGHT NOTICES ON DEVELOPED PRODUCTS. EA and MicroStrategy agree
that all copies of the Developed Products and any Derivative Works, whether or
not modified, made by EA or MicroStrategy, or their respective licensees or
sublicensees, will contain applicable proprietary notices as described in
greater detail in Exhibit G. In addition, EA and MicroStrategy agree to include
an applicable copyright notice, as described in greater detail in Exhibit G, in
or on the media of all copies of the Developed Products or any Derivative Work.

4.5 DERIVATIVE WORKS. Neither party shall have the obligation to share or
disclose its own respective Derivative Works to the other party. Notwithstanding
the provisions of Section 8, either party may prepare and file a patent
application for its own Derivative Work in any country; provided that such party
(i) notifies the other party, in writing, at least sixty (60) days prior to
submitting such patent application; and (ii) describes the scope of the proposed
patent application and the countries in which it desires to seek patent
protection. The ownership of the patent on the Derivative Work and the
application therefor, excluding any patent or other intellectual property rights
related to the Developed Product underlying the Derivative Work or upon which
such Derivative Work is based, shall be vested in the party which is the
developer of

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such Derivative Work. Notwithstanding any of the foregoing, in no event shall
either party (the "Non-Creating Party") bring an action to enforce any rights to
seek remedies against the other party (the "Creating Party"), its customers or
licensees based upon a claim that the Creating Party's Derivative Works infringe
upon the Non-Creating Party's Intellectual Property Rights. Notwithstanding the
foregoing, nothing stated herein shall allow either party to create Derivative
Works in violation of its obligations with respect to Confidential Information
contained in Section 8 or to create Derivative Works which infringe upon the
other party's intellectual property rights related to the MicroStrategy Software
or the EA Products, as applicable.

4.6 TRADEMARK LICENSE. MicroStrategy hereby grants to EA an unrestricted,
terminable (pursuant to Section 10), non-exclusive, royalty-free, world-wide
license (without the right of sublicense) to use all trademarks and trade names
owned by MicroStrategy and associated with the Developed Products and the
MicroStrategy Software (herein the "TRADEMARKS") in conjunction with any
licensing and/or sublicensing, as applicable, of such products to end users in
accordance with the terms of this Agreement. EA agrees to state in appropriate
places, as designated by MicroStrategy and described in greater detail in
Exhibit H, that the Trademarks are the trademarks of MicroStrategy and to
include the symbols TM and (R) as appropriate. EA agrees to maintain the quality
of the EA Products licensed in connection with the use of the Trademarks, to use
the Trademarks in accordance with guidelines and instructions as may be
reasonably promulgated by MicroStrategy from time to time, and to provide to
MicroStrategy, upon reasonable request, representative samples of product
packaging using the Trademarks. EA agrees to take all actions reasonably
necessary or requested by MicroStrategy to protect MicroStrategy's rights in the
Trademarks.

4.7 CHANNEL DISTRIBUTION. Both parties agree to only license the Developed
Products directly to end users. Neither MicroStrategy nor EA will sell or
license the Developed Products to any third party distributor, subdistributor,
multiple tiers of subdistributors, any value-added reseller, resellers or
original equipment manufacturers (a "CHANNEL") without the express written
consent of the other party. In the event that the non-transferring party
consents to the proposed sublicensing or distribution of the Developed Products
by a Channel, the parties will negotiate in good faith the terms of a
three-party agreement providing, among other things as negotiated by the
parties, that MicroStrategy and EA would share in the revenue generated from the
sublicensing and/or distribution by the Channel of the integrated solutions that
include Developed Products, any EA Products and/or MicroStrategy Software
bundled therewith. Notwithstanding the foregoing, nothing stated herein shall
prohibit EA from sublicensing and/or distributing the Developed Products and/or
the MicroStrategy Software (subject to the other restrictions and obligations
set forth in this Agreement) using Axiom Corporation ("Axiom") as a Channel,
provided that Axiom sublicenses and/or distributes the foregoing software
products directly to End Users and not by means of a Channel. In the event of
the foregoing, the parties shall negotiate in good faith and mutually agree in
advance upon a revenue sharing arrangement that compensates MicroStrategy
adequately based upon the amount of MicroStrategy Software embedded or
integrated with each product sublicensed or distributed by Axiom.

4.8 ADDITIONAL USAGE RESTRICTIONS. Both parties acknowledge and agree that
either party may license the object code of the Developed Products and/or its
own respective Derivative Works (in object code format only) to end users in
accordance with its standard licensing practices, provided that such license
includes adequate prohibitions on obtaining Source Code

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through reverse engineering. For the purposes of this Agreement, the term
"SOURCE CODE" shall mean the human-readable coded version of the Developed
Products and all related program documentation such that a programmer reasonably
skilled in the relevant programming language could read, understand and modify
the Developed Products. For the avoidance of doubt, the parties acknowledge and
agree that the Developed Products may be used by the parties (but not their
licensees) to provide time sharing, service bureau and/or ASP services.

4.9 MICROSTRATEGY OEM LICENSE GRANTS TO MICROSTRATEGY SOFTWARE; OEM LICENSE
RESTRICTIONS.

(a) INTERNAL USE LICENSE. Subject to the fees payable hereunder,
MicroStrategy hereby agrees to grant to EA a royalty-free (except as provided in
Section 10), worldwide, limited (as provided in the License Agreement, as
defined below), non-exclusive and non-transferable license to use the
MicroStrategy Software in accordance with the terms and conditions set forth in
the form of License Agreement attached hereto as Exhibit I and hereby
incorporated by reference into this Agreement (the "LICENSE AGREEMENT"). The
foregoing license grant shall be coterminous with this Agreement and the VAR
Agreement. For the avoidance of doubt, EA may use the MicroStrategy Software in
connection with providing time sharing, service bureau and/or ASP services.

(b) DEVELOPMENT LICENSE. MicroStrategy hereby grants EA a
non-exclusive, non-transferable license to use the MicroStrategy Software in a
non-production environment for the limited purpose of establishing the
compatibility of the products included in the MicroStrategy Software with the EA
Products.

(c) LICENSE TO MARKET, SUBLICENSE AND DISTRIBUTE. MicroStrategy hereby
grants EA a license to copy (in object code form only), market, sublicense and
distribute the MicroStrategy Software and related User Documentation, including
any updates thereto provided to EA pursuant to this Agreement, in conjunction
with an Exchange Applications Solution and/or a Developed Product in the
Territory. All licenses to the MicroStrategy Software granted hereunder shall be
"ramped" or granted on a staggered basis in accordance with the delivery
schedule set forth in Exhibit J. This is not a license to market, sublicense or
distribute the MicroStrategy Software or User Documentation separately or to
copy the MicroStrategy Software for such purposes, and such action shall be a
material breach of this Agreement. EA shall sublicense and distribute the
MicroStrategy Software and User Documentation directly to end users solely
through a written sublicense agreement ("END USER LICENSE AGREEMENT") that
includes, at a minimum, contractual provisions that:

(i) Restrict use of the MicroStrategy Software solely to use with
an Exchange Applications Solution and/or a Developed Product. For purposes of
this provision, an "Exchange Applications Solution" is the combination of the EA
Products with the MicroStrategy Software in order to create a "CRM/eCRM
Application." For purposes of this subsection, a CRM/eCRM Application means an
application that contains a substantial customer-centric data model with at
least 100 elements and a reasonable number of packaged analytical reports (I.E.,
10 or more such reports). MicroStrategy acknowledges and agrees that there may
be more than one Exchange Applications Solution.

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(ii) Restrict use of the MicroStrategy Software to use in object
code form.

(iii) License the MicroStrategy Software on a named user basis
exclusively for each named end user's internal business purposes.

(iv) Prohibit transfer or duplication of the MicroStrategy Software
except for temporary transfer in the event of computer malfunction and
duplication as part of routine back-up procedures.

(v) Prohibit assignment of the MicroStrategy Software without the
prior written consent of EA.

(vi) Prohibit the use of the MicroStrategy Software by any third
party except agents and consultants of end users who have signed a
confidentiality agreement that requires at least a reasonable standard of care
in the protection of MicroStrategy Confidential Information.

(vii) Prohibit causing or permitting the reverse engineering,
disassembly or decompilation of the MicroStrategy Software.

(viii) Prohibit title to the MicroStrategy Software from passing to
end users.

(ix) Disclaim MicroStrategy's liability for damages, whether direct
or indirect, incidental or consequential, arising in connection with the End
User License Agreement.

(x) State that MicroStrategy makes no direct warranty of any kind
to end users under the End User License Agreement.

(xi) Prohibit disclosure to any third party of any results of any
benchmark tests or quantitative analyses of the MicroStrategy Software.

(xii) Require end users to use a commercially reasonable degree of
care to protect the Confidential Information of MicroStrategy and prohibit end
users from, directly or indirectly, (a) using any Confidential Information of
MicroStrategy to create any computer software program or user documentation that
is substantially similar to any MicroStrategy product or user documentation, or
(b) using or disclosing Confidential Information of MicroStrategy, except as
authorized by this Agreement.

(xiii) Disclaim MicroStrategy's liability for any taxes or duties,
however designated or levied (including, but not limited to sales, use and
personal property taxes).

(d) LICENSE TO DEMONSTRATE. MicroStrategy hereby grants to EA a license
to demonstrate the MicroStrategy Software in conjunction with an Exchange
Applications Solution and/or a Developed Product in the Territory. MicroStrategy
shall provide EA copies of the MicroStrategy Software for demonstration
purposes. EA shall take all reasonable precautions

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against unauthorized disclosure or copying of MicroStrategy Software while the
Exchange Applications Solution is being demonstrated. EA shall take all
reasonable steps to ensure that the MicroStrategy Software is inaccessible
during inactive demonstration times, delete any demonstration copies of the
MicroStrategy Software installed on the potential customer's computers upon
completion of any demonstration at a customer site and further exercise
commercially reasonable efforts to ensure the security of the MicroStrategy
Software.

(e) LICENSE TO GRANT EVALUATION LICENSES. MicroStrategy grants to EA a
license to allow Evaluations of the MicroStrategy Software in conjunction with
the EA Products in the Territory, but only pursuant to a written agreement that
contains the restrictions set forth in this Section. MicroStrategy shall provide
EA with copies of the MicroStrategy Software for Evaluations. EA shall take all
reasonable precautions against unauthorized disclosure or copying of
MicroStrategy Software during Evaluations. When an Evaluation ends, if an End
User does not license the Exchange Applications Solutions, EA shall require that
all copies of the Exchange Applications Solutions be promptly removed from such
end user's facilities and returned to EA.

(f) EA COVENANTS. In connection with the license granted in this
Section 4.9, EA covenants and agrees: (i) not to distribute the MicroStrategy
Software, except as part of an Exchange Applications Solution (as defined in
Section 4.9(c)(i)); (ii) not to distribute the MicroStrategy Software
electronically; and (iii) not to distribute the MicroStrategy Software through
Channels of distribution, except as permitted under Section 4.7.

(g) MICROSTRATEGY SOFTWARE OEM LICENSE RESTRICTIONS AND EA COVENANTS.
The rights granted in this Section 4.9 are expressly limited to and restricted
by the following:

(i) No copies may be made of MicroStrategy Software except as
explicitly authorized by this Agreement or the applicable End User License
Agreement. EA shall have no right to manufacture, modify, or copy User
Documentation. Notwithstanding the foregoing, EA shall have the right to make a
reasonable number of copies of the User Documentation for purposes consistent
with this Agreement, provided that such copies are of the same quality as the
originals as provided by MicroStrategy.

(ii) MicroStrategy reserves the right to amend, modify, enhance,
add to or delete from the list of MicroStrategy Software upon thirty (30) days'
written notice to EA so long as the list includes at all times any software
product then actively marketed by MicroStrategy in the United States, provided,
however, that such modifications to the list of MicroStrategy Software shall not
apply to proposals to end users outstanding on the notice date of such
modifications until the earlier of (i) the proposal expiration date or (ii)
sixty (60) days from the notice date, provided that EA provides a list of such
end users to MicroStrategy within thirty (30) days of the notice date. The list
of end users shall include (i) the name of the end user, (ii) the date of the
proposal, and (iii) the expiration date of the proposal. This Agreement shall
automatically cover all such amendments, modifications, or enhancements to the
list of MicroStrategy Software. MicroStrategy's support obligations for
MicroStrategy Software (for End Users and EA) that is phased out in accordance
with this subsection shall be handled pursuant to MicroStrategy's standard
support policies and procedures then in effect, but in no event, shall EA or its
end users be accorded less favorable treatment than MicroStategy's direct

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customers. Notwithstanding the foregoing, EA shall continue to retain its
license rights under this Section 4.9 for all MicroStrategy Software, including
those products that are phased out or discontinued as provided above
(collectively, the "DISCONTINUED PRODUCTS"), provided, however, that,
notwithstanding the foregoing, MicroStrategy shall have no warranty, support,
indemnification or other obligations whatsoever with respect to the Discontinued
Products, which shall be licensed on an "AS IS" basis as of the date which is
thirty (30) days after the date of written notice to EA as provided herein. EA
shall be entitled to the source code to a Discontinued Product pursuant to the
terms and restrictions of the Source Code Escrow Addendum at such time, if ever,
that MicroStrategy ceases to provide Technical Support Services (as defined in
the Source Code Escrow Addendum) for that particular Discontinued Product.

(iii) EA agrees that it will not, either directly or through a
third party, use MicroStrategy Software, the source code, or a derivative
thereof, or any Confidential Information of MicroStrategy, to create, modify or
enhance any computer software programs or user documentation which is
functionally, visually, or otherwise identical or substantially similar to any
MicroStrategy Software.

(iv) EA agrees that it will not, either directly or through a third
party, reverse engineer, disassemble or decompile any of the MicroStrategy
Software, or make any attempt to obtain or derive the source code from any
MicroStrategy Software, whether or not such product is listed in Exhibit A.

(v) EA agrees that it will not permit any End Users to rent or
lease MicroStrategy Software or use of MicroStrategy Software (I.E., timeshares
or service bureaus).

(vi) Regardless of any disclosure by EA to MicroStrategy of an
ultimate destination of MicroStrategy Software, EA shall not transfer or
re-export MicroStrategy Software, any goods created with MicroStrategy Software,
related documentation, or other related proprietary information, to anyone
outside the United States as to which export may be in violation of the United
States export laws or regulations, without first obtaining the appropriate
license from the U.S. Department of Commerce and/or any other agency or
department of the U.S. Government, as required.

4.10 RESERVED RIGHTS. Any rights to or under MicroStrategy's Intellectual
Property Rights or the MicroStrategy Software not expressly granted in this
Agreement are expressly reserved by MicroStrategy. In addition, MicroStrategy
reserves the right to amend the list of provisions that must appear in the End
User License Agreement as set forth in Section 4.9(c)(ii) through (xiii) upon
ninety (90) days' advance, written notice; provided, however, that such amended
provisions shall be commercially reasonable and apply only to End User License
Agreements executed by EA subsequent to the expiration of the ninety (90) day
notice period.

4.11 INTELLECTUAL PROPERTY MARKINGS ON MICROSTRATEGY SOFTWARE. EA will
comply with MicroStrategy's instructions regarding the marking of the
MicroStrategy Software and accompanying User Documentation with a notice
reflecting MicroStrategy's ownership of certain Intellectual Property Rights
embodied therein.

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4.12 INFRINGEMENT BY THIRD PARTIES. If either party learns of any possible
infringement or misappropriation of the other party's Intellectual Property
Rights, it shall immediately give notice thereof to the other party. Each party
agrees to cooperate with the other party's reasonable efforts to seek legal
remedies for such infringements and misappropriations. In the event of any
successful claim of infringement (a "CLAIM") of the Intellectual Property Rights
embodied in the Developed Products against a third party or any settlement
thereof involving a monetary recovery, MicroStrategy and EA agree to share
equally the net proceeds derived from the disposition or settlement of such
Claim after deducting from such proceeds each party's costs in connection
therewith to the extent that such costs are not otherwise directly covered by
the settlement amount or court award.

5. WARRANTY; DISCLAIMER OF WARRANTIES.

5.1 WARRANTY. MicroStrategy warrants to EA for a period of ninety (90) days
from the date of delivery of the MicroStrategy Software to EA that each
unmodified MicroStrategy Software product will perform in substantial
conformance with the functions described in the User Documentation. In addition,
MicroStrategy warrants to EA through December 31, 2001 that the unmodified
MicroStrategy Software products will not fail or produce incorrect results when
processing with four (4)- digit dates for the year 2000; provided, however, that
MicroStrategy makes no warranty with respect to any such failure or incorrect
result that may arise due to: (i) the quality of the data sought to be processed
with the MicroStrategy Software; (ii) the effect of other software not licensed
by MicroStrategy to EA or developed by MicroStrategy for EA; or (iii) the use of
the MicroStrategy Software in an operating environment or on a platform not
specified by MicroStrategy. MicroStrategy Software warranty claims must be
brought within the warranty period. For any breach of the warranties contained
herein, EA's exclusive remedy and MicroStrategy's entire liability shall be, at
MicroStrategy's sole discretion, the correction of the MicroStrategy Software
errors that cause breach of the warranty, replacement of the MicroStrategy
Software which is experiencing the error or return of the License Fees allocable
to the non-conforming MicroStrategy Software product (or in the case of a breach
of the warranty contained in the second sentence of this Section 5.1, a
pro-rated portion of such license fees) upon EA's return of such MicroStrategy
Software product to MicroStrategy.

5.2 MICROSTRATEGY DISCLAIMER. EXCEPT AS PROVIDED HEREIN, THE MICROSTRATEGY
SOFTWARE IS BEING LICENSED "AS IS" WITHOUT WARRANTY OF ANY KIND. EXCEPT FOR THE
RIGHT OF EA TO CONFIRM THE RESULTS OF MICROSTRATEGY'S CONFORMANCE TESTS PURSUANT
TO SECTION 2.4, THE DEVELOPED PRODUCTS ARE BEING FURNISHED "AS IS" WITHOUT
WARRANTY OF ANY KIND. EXCEPT AS EXPRESSLY PROVIDED IN THIS SECTION 5,
MICROSTRATEGY MAKES NO WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AS
TO ANY MATTER WHATSOEVER. IN PARTICULAR, ANY AND ALL WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE EXPRESSLY EXCLUDED.

5.3 EA DISCLAIMER. EXCEPT AS PROVIDED IN THIS AGREEMENT, EA MAKES NO
WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AS TO THE DEVELOPED
PRODUCTS AND/OR ITS DERIVATIVE WORKS.

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<PAGE>

6. SUPPORT, MAINTENANCE AND CONSULTING.

6.1 EA SUPPORT OPTIONS. EA will have the option of either: (i) providing
level I support to end users ("END USERS") ("LEVEL 1 SUPPORT") for all
EA-branded offerings of the Developed Products with MicroStrategy providing
level 2 support ("LEVEL 2 SUPPORT"), or (ii) MicroStrategy providing both Level
1 and Level 2 Support for such offerings. Level 1 Support will consist of (i)
initial contact with the End User to define a code or documentation problem;
(ii) provision of answers to questions about product functionality to the extent
reasonably possible; and (iii) an attempt to resolve the call. Level 2 Support
will consist of (i) receipt of problem definition and scope and all related data
and materials from first level support personnel of EA; (ii) an attempt to
provide solutions or workarounds for the problem; (iii) formulation of plans for
collection of additional data relating to the problem; (iv) the collection of
additional data relating to the problem, and (v) the provision of bug fixes
and/or patches for problems in conformance with MicroStrategy's standard support
procedures then in effect.

6.2 SUPPORT ROYALTIES. Regardless of which of the options set forth in
Section 6.1 that EA chooses, EA shall pay to MicroStrategy a royalty of eight
percent (8%) of the license fees (assuming a maintenance rate of 16% of the
applicable end user license fees) EA receives for, or that are attributable to,
the MicroStrategy Software component of the product licensed by EA. The
MicroStrategy Software component value shall be calculated based on the lesser
of: (a) thirty percent (30%) of the MicroStrategy list price then in effect for
the MicroStrategy Software which is bundled with, or included in, the Exchange
Applications Solution, or (b) fifty percent (50%) of the actual price for the
Exchange Application Solution. This arrangement will be reciprocal for support
provided by EA (I.E., MicroStrategy will pay EA an 8% royalty) in connection
with MicroStrategy-branded offerings of the Developed Products. In connection
with the foregoing, each party agrees to charge End Users an amount equal to
sixteen percent (16%) of the applicable product license fees for maintenance and
support services. The royalty payment terms in Section 11.1 shall apply to the
payment of all royalties hereunder.

7. INDEMNITIES.

7.1 INDEMNIFICATION.

(a) MicroStrategy shall indemnify, defend and hold EA harmless from and against
any and all liabilities, losses, damages, fees, costs and expenses, including
without limitation reasonable attorneys' fees, incurred by EA resulting from a
third party claim, suit, action or proceeding (a "Claim") alleging that the
MicroStrategy Software, the Developed Products or MicroStrategy's Derivative
Works (collectively, the "Indemnified Products") infringes or misappropriates a
third party U.S. patent, copyright, trade secret or other intellectual property
right; provided that EA (i) promptly notifies MicroStrategy in writing of such
Claim; (ii) provides MicroStrategy sole control of the defense or settlement of
such claim; and (iii) provides MicroStrategy assistance at MicroStrategy's
request and reasonable expense. EA may participate in the defense or settlement
of the Claim at its own expense. If a final injunction is obtained against EA
for use of the MicroStrategy Software or the Developed Products or licensing of
the Developed Products in accordance with the terms of this Agreement, or if
MicroStrategy reasonably believes that such injunction is likely, MicroStrategy
may, at its option and its expense, either (i) procure for EA the right to
continue using and/or licensing the

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<PAGE>

MicroStrategy Software or the Developed Products, as applicable, or (ii) modify
the MicroStrategy Software or the Developed Products, as applicable, or the
infringing portions thereof so that they become non-infringing. If in
MicroStrategy's opinion neither of the above is commercially feasible, EA shall
promptly cease licensing the infringing MicroStrategy Software, or the Developed
Products, as applicable, and MicroStrategy shall pay to EA an amount equal to
the License Fee, reasonably attributable to such component as a fraction of all
licenses granted hereunder depreciated on a three-and-one-half (3 1/2) year
straight line basis, calculated backwards from the date of infringing event to
the Effective Date. MicroStrategy will have no liability or obligation to
indemnify for any claim arising from (i) the combination of the Indemnified
Products with EA or third party materials or intellectual property, unless such
infringement would have occurred without such combination; (ii) the modification
or translation of the Indemnified Products or any portion of the MicroStrategy
Technology by EA or any third party not authorized to do so by MicroStrategy
(collectively, "EA Modifications"); (iii) any use by EA of the Indemnified
Products after directed by MicroStrategy to discontinue use thereof; or (iv) any
Improvements to the Indemnified Products created by a party other than, or not
specifically authorized by, MicroStrategy.

(b) EA shall indemnify, defend and hold MicroStrategy harmless from and
against any and all liabilities, losses, damages, fees, costs and expenses,
including without limitation reasonable attorneys' fees, incurred by
MicroStrategy resulting from the EA Modifications or from a Claim that the
manufacture, use or licensing by EA of the MicroStrategy Software and/or the
Developed Products other than in accordance with the terms of this Agreement or
that EA's Derivative Works infringes any patent, copyright or other proprietary
rights of any third party or misappropriates any trade secret of any third
party; provided that such Claim is not a Claim based on the Indemnified Products
for which MicroStrategy indemnifies EA pursuant to Section 7.1(a); and provided
further that MicroStrategy (i) promptly notifies EA in writing of such Claim;
(ii) provides EA sole control of the defense or settlement of such claim; and
(iii) provides EA reasonable assistance at EA's request and expense.

(c) Any failure by either party to promptly notify the other of a claim
for which indemnification may be sought or to cooperate in such claim shall only
relieve the other of its indemnity obligations hereunder to the extent that it
is prejudiced by the delay or failure to cooperate.

7.2 ENTIRE LIABILITY. The foregoing provisions of this Section 7 state the
entire liability and obligations of each party and the exclusive remedy of each
party with respect to any alleged Intellectual Property Rights infringement or
misappropriation by the MicroStrategy Software, the Developed Products, the
Derivative Works or the parties' respective Technology incorporated in the
Developed Products. Neither party shall be liable for claims by the other
party's end users relating to the Developed Products, the EA Products and/or the
Exchange Applications Solution.

8. CONFIDENTIALITY.

8.1 CONFIDENTIALITY. Each party hereto will maintain in confidence all
Confidential Information disclosed by the other party hereto. Neither party will
use, disclose or grant use of such Confidential Information except as expressly
authorized by this Agreement. To the extent

15
<PAGE>

that disclosure is authorized by this Agreement, the disclosing party will
obtain prior written agreement from its employees, agents or consultants to whom
disclosure is to be made to hold in confidence and not make use of such
information for any purpose other than those permitted by this Agreement, and
each party shall be liable for the unauthorized disclosure of the other party's
Confidential Information by such employees, agents or consultants. Each party
will use at least the same standard of care as it uses to protect its own most
confidential information to ensure that such employees, agents or consultants do
not disclose or make any unauthorized use of such Confidential Information. Each
party will promptly notify the other upon discovery of any unauthorized use or
disclosure of the Confidential Information. In no event shall either party
disclose the other party's confidential information to the disclosing party's
competitors as defined in Exhibit K (the "Competitors") even if such Competitor
is a consultant or contractor of the receiving party.

8.2 EXCEPTIONS. The obligations of confidentiality contained in Section 8.1
will not apply to the extent that such Confidential Information:

(a) was already known to the receiving party, other than under an
obligation of confidentiality to the disclosing party, at the time of disclosure
by the other party;

(b) was generally available to the public or otherwise part of the
public domain at the time of its disclosure to the other party;

(c) became generally available to the public or otherwise part of the
public domain after its disclosure and other than through any act or omission of
the receiving party in breach of this Agreement;

(d) was disclosed to the receiving party, by a third party who had no
obligation to the disclosing party not to disclose such information to others;

(e) is independently developed by the receiving party without reference
to the Confidential Information;

(f) was the subject of a court- or government-ordered disclosure,
provided that the disclosing party gives reasonable prior notice to the
non-disclosing party and limits the scope and the instances of the disclosure to
that required by the relevant order and cooperates and assists the disclosing
party in obtaining a protective order relating to such disclosure, if
applicable.

9. LIMITATION OF LIABILITY. EXCLUDING EACH PARTY'S INDEMNIFICATION OBLIGATIONS
FOR DAMAGES PAYABLE TO A THIRD PARTY FOR INFRINGEMENT OF THIRD PARTY
INTELLECTUAL PROPERTY RIGHTS AND BREACHES OF THE CONFIDENTIALITY OBLIGATIONS SET
FORTH IN SECTION 8, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY OR TO ANY
ENTITY CLAIMING THROUGH OR UNDER THE OTHER PARTY FOR ANY LOSS OF USE, PROFIT OR
INCOME, ANY LOST DATA, ANY WORK STOPPAGE, ANY EQUIPMENT DOWNTIME, OR FOR ANY
CONSEQUENTIAL, INCIDENTAL, INDIRECT, PUNITIVE, OR SPECIAL DAMAGES, WHETHER IN AN
ACTION FOR CONTRACT OR TORT OR BASED ON A WARRANTY, IN CONNECTION WITH THIS
AGREEMENT, EVEN IF SUCH PARTY HAS

16
<PAGE>

BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. EXCLUDING EACH PARTY'S
INDEMNIFICATION OBLIGATIONS FOR DAMAGES PAYABLE TO A THIRD PARTY FOR
INFRINGEMENT OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS AND BREACHES OF THE
CONFIDENTIALITY OBLIGATIONS SET FORTH IN SECTION 8, IN NO EVENT SHALL EITHER
PARTY'S LIABILITY TO THE OTHER HEREUNDER EXCEED THE LICENSE FEES PAID TO
MICROSTRATEGY PURSUANT TO THIS AGREEMENT. The foregoing limitations are
independent from all other terms and provisions of this Agreement and shall
apply notwithstanding the failure of any remedy provided herein.

10. TERM; TERMINATION BASED UPON CERTAIN OCCURRENCES.

10.1 TERM; EFFECT OF TERMINATION BY EA. This Agreement shall commence upon
the Effective Date and shall continue for an initial term of three-and-one-half
(3 1/2) years. Notwithstanding the foregoing, EA may terminate the obligations
of the Business Unit set forth in Section 2.1 and Exhibit C at any time during
the initial term upon (i) 30 days' prior notice if such notice occurs prior to
June 30, 2000, or (ii) 60 days' prior notice if such notice occurs at any time
thereafter. If EA elects to terminate the Business Unit obligations as provided
above, EA will be relieved of any payment not yet due and payable to
MicroStrategy pursuant to the Payment and Registration Rights Agreement. If EA
elects to terminate the Business Unit obligations during the first four (4)
quarters of this Agreement, then MicroStrategy shall have the right to
immediately terminate the Strategy.com Master Affiliation Agreement described in
greater detail in Section 13 hereof and to immediately cease all development,
engineering and related work hereunder, provided that MicroStrategy shall make
the Deliveries as specified in this Agreement. In addition, if EA elects to
terminate the Business Unit obligations, then this Agreement shall terminate and
be superseded by the VAR Agreement, and the Credit as defined and described in
Section 10.3 shall apply. If EA terminates this Agreement based upon a material
breach by MicroStrategy pursuant to Section 11.4, then this Agreement shall be
superseded and converted into the VAR Agreement. In addition, in the event that
this Agreement is converted into a VAR Agreement as described in the preceding
sentence, then the Credit defined and described in Section 10.3 shall apply.

10.2 RENEWAL OPTIONS. EA shall have the right to extend the OEM license
rights contained in Section 4.9 of this Agreement for an additional three (3)
year term for a fee of $30,000,000, provided that EA has not exercised its
termination rights pursuant to Section 10.1 prior to the expiration of the
initial term. In addition, EA shall have the right to extend the Business Unit
commitment set forth in Section 2.1(a) for an additional three (3) year term for
a fee of $30,000,000, provided that EA has not exercised its termination rights
pursuant to Section 10.1 prior to the expiration of the initial term.
Alternatively, the parties agree that EA may extend the term of the OEM license
rights hereunder pursuant to the VAR Agreement for additional one (1) year terms
in consideration of the payment of incremental per unit royalties for the
MicroStrategy Software (as bundled with the EA Products) equal to the thirty
percent (30%) of the then-current list prices for such software. The renewal
option described in the immediately preceding sentence shall not be exercisable
by EA in the event that MicroStrategy terminates this Agreement pursuant to
Section 11.4 based upon a material breach by EA.

17
<PAGE>

10.3 TERMINATION BASED UPON THE OCCURRENCE OF A QUALIFIED EVENT. In the
event of a Qualified Event, the party which is not the subject of such event may
terminate this Agreement, provided that such termination occurs within ninety
(90) days after the closing date of the Qualified Event. Upon any such
termination, this Agreement shall be superseded by the VAR Agreement, including,
without limitation, a provision for a credit toward future royalties payable to
MicroStrategy in an amount equal to $30 million less 30% of the list price for
all MicroStrategy Software licensed by EA prior to the date of
termination/conversion (the "CREDIT"). In the event of the foregoing, the
royalty for the MicroStrategy Software payable to MicroStrategy will be 30% of
the then-current list prices for such products until the credit is exhausted
and, thereafter, shall be 35% of the then-current list prices for such products.

11. ROYALTIES; TAXES; AUDIT; TERMINATION FOR BREACH; ADDITIONAL EFFECTS OF
TERMINATION.

11.1 MAINTENANCE ROYALTY PAYMENT TERMS. All royalties accruing in a
particular calendar quarter shall be paid within thirty (30) days after the end
of each such calendar quarter and shall be accompanied by a report detailing the
number of Exchange Applications Solutions licensed (or the nature of support
provided, if applicable pursuant to Section 6.2) during the quarter to which the
royalty payment set forth above applies, the rates at which royalties were
computed, the amount of royalties due, and all additional details reasonably
necessary to show how these amounts were determined.

11.2 TAXES. The license fees specified in this Agreement are exclusive of
any sales, use, excise, or similar taxes, and of any export and import duties,
which may be levied upon or collectible by either party as a result of the
licensing or shipment of products to end users, any services performed under
this Agreement and use of products by end users. Each party agrees to pay and
otherwise be fully responsible for, and indemnify and hold the other harmless
from and against any and all such taxes and duties, unless in lieu thereof the
party responsible for collecting such taxes provides to the other an exemption
certificate acceptable to the relevant governmental authorities. Notwithstanding
the foregoing, each party, to the extent permitted by applicable law, shall have
the right to claim any and all costs expended pursuant to this Agreement for
qualified research and development per Internal Revenue Code Section 41,
research tax credit.

11.3 AUDIT.

(a) RECORDS. EA shall keep complete and accurate records pertaining to
the licensing of the Exchange Applications Solutions. Such records will be
maintained for a five (5) year period following the year in which any license
fee and/or maintenance fee payments are made by customers pertaining to the
licensing of Exchange Applications Solutions or the provision of services
related thereto.

(b) AUDIT REQUEST. MicroStrategy will have the right to engage, at its
own expense, an independent auditor reasonably acceptable to EA, to examine EA's
records not more than twice per calendar year to determine, with respect to any
calendar year, the correctness of any report or payment made under this
Agreement. If any such audit reveals an underpayment of more than five percent
(5%) of the correct amount of royalties due hereunder, such audit will be

18
<PAGE>

at the expense of EA. If any audit shall show that EA underpaid any royalties
due to MicroStrategy as to the period subject to the audit, then EA shall
immediately pay to MicroStrategy any such deficiency with interest thereon at a
rate equal to the lower of one and a half percent per month or the highest rate
allowed by law from the date due until paid.

11.4 TERMINATION FOR BREACH. If either party materially defaults in the
performance of its obligations hereunder or under the other Operative
Agreements, the defaulting party agrees to use its commercially reasonable
efforts to correct the default within thirty (30) days after written notice of
default from the non-defaulting party. If any such default is not corrected
within the cure period, then the non-defaulting party at its option may, in
addition to any other remedies it may have, terminate this Agreement at the end
of such cure period.

11.5 ADDITIONAL EFFECTS OF TERMINATION.

(a) RETURN OF DOCUMENTATION AND CONFIDENTIAL INFORMATION. Upon any
termination of this Agreement, each party shall immediately return to the other
party all documentation, Confidential Information and any other tangible items
in its possession or under its control evidencing the know-how of the other
party, except as provided in the VAR Agreement and except with respect to
Confidential Information related to the Developed Products.

(b) LICENSE TERMINATION, MICROSTRATEGY DELIVERIES. Except as set forth
in this Agreement, upon any termination of this Agreement, all licenses granted
by either party under this Agreement shall be terminated. In the event of a
termination of this Agreement for any reason, excluding termination based on a
material breach by EA in the form of a failure to make payment as required by
the Payment and Registration Rights Agreement, MicroStrategy shall promptly make
the Deliveries (as defined in Section 2.1(a)).

(c) INVENTORY. Upon termination of this Agreement resulting from a
breach by EA, EA shall cease all marketing efforts for the Product and shall
return any and all copies of the Product to MicroStrategy. In the case of the
foregoing, MicroStrategy shall have no ongoing obligations with respect to
delivery of the Product to end user customers. Upon termination of this
Agreement resulting from a breach by MicroStrategy, MicroStrategy shall be
obligated to fulfill all orders for the delivery of Products which were licensed
to end user customers prior to the termination date of this Agreement.

(d) ONGOING SUPPORT. Upon termination of this Agreement, MicroStrategy
and/or EA shall be entitled to provide reasonable support to customers as set
forth in this Agreement; provided, however, that such support shall not include
any updates or upgrades to the Product other than minor error corrections or
repairs.

(e) SURVIVAL. Except as otherwise set forth in the applicable section,
the following sections shall survive a termination or expiration of this
Agreement : 4 (other than 4.9), 5, 7, 8, 9, 10, 11, 12 and 14.

12. EQUITABLE RELIEF. Neither party shall be precluded hereby from securing
equitable remedies in courts of any jurisdiction, including, but not limited to,
temporary restraining orders

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<PAGE>

and preliminary injunctions to protect its rights and interests but such relief
shall not be sought as a means to avoid or stay mediation or arbitration.

13. STRATEGY.COM MASTER AFFILIATION. On the Effective Date and upon the
execution by EA of a Strategy.com Master Affiliation Agreement in the form set
forth in Exhibit L, MicroStrategy shall grant EA "Master Affiliate" status for
Strategy.com as provided in such agreement.

14. GENERAL PROVISIONS.

14.1 ASSIGNMENT. Neither party may assign this Agreement or any right under
this Agreement (except as provided in Section 10.3 or Section 4.1), nor delegate
any obligation under this Agreement, without the other party's prior written
consent. The rights and obligations of the parties under this Agreement shall be
binding upon and inure to the benefit of the successors and permitted assigns of
the parties. Any attempted assignment or delegation in contravention of this
Section 14.1 shall be null and void.

14.2 FORCE MAJEURE. Neither party shall be liable to the other party, under
this Agreement or otherwise, for any delay or lack of performance (other than
non-payment) resulting from an event of Force Majeure (as defined below). If a
Force Majeure event occurs, the party prevented from performing its obligations
under this Agreement shall inform the other party as soon as possible and the
time period for performance shall be extended by a period equivalent to the
delay caused by the Force Majeure event plus any additional period reasonably
necessary to allow the prevented party to resume performance of its obligations.
The prevented party shall inform the other party as soon as possible after the
Force Majeure event ends. If the Force Majeure event lasts for more than one
hundred and twenty (120) consecutive days after the initial notice of such
event, the parties shall attempt in good faith to solve the problem of further
performance of this Agreement through friendly consultation. If the parties
cannot solve the problem of further performance within an additional sixty (60)
days, either party may terminate this Agreement without penalty. As used above,
an event of "Force Majeure" means any act of God, war, fire, typhoon, flood,
earthquake, natural disasters, governmental action, labor disruptions, materials
shortages, or any other event beyond the reasonable control of the prevented
party.

14.3 NOTICES. All notices and other communications provided for hereunder
shall be in writing and shall be mailed by first-class, registered or certified
mail, postage paid, or delivered personally, by overnight delivery service or by
facsimile, with confirmation of receipt, addressed as follows:

If to MicroStrategy: MicroStrategy Incorporated
8000 Towers Crescent Drive
Vienna, VA 22182
Attn: Adam Ruttenberg, Esq.

Fax No.: (703)848-8748

With a copy to: David M. Janet, Esq.
Cooley Godward LLP
2002 Edmund Halley Drive
Suite 300
Reston, VA 20191-3436

Fax No.: (703)262-8100

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<PAGE>

If to EA: Exchange Applications
One Lincoln Plaza
89 South Street
Boston, MA 02111
Attn: Andrew Frawley, President and
Wayne Townsend, Vice President

Fax No.: (617)790-2849

With a copy to: Neil Townsend, Esq.
Bingham, Dana LLP
150 Federal Street
Boston, MA 02110

Fax No. (617) 951-8736

Either party may, by like notice, specify or change an address to which notices
and communications shall thereafter be sent. Notices sent by facsimile shall be
effective upon confirmation of receipt, notices sent by mail or overnight
delivery service shall be effective upon receipt or upon refusal of delivery,
and notices given personally shall be effective when delivered or when delivery
is refused.

14.4 GOVERNING LAW AND VENUE. All matters arising in connection with this
Agreement or the enforcement or construction thereof shall be governed by and
resolved in accordance with the laws of State of New York, without regard to
conflict-of-laws provisions. Service of process in any suit, action or
proceeding may be made in any manner permitted by law.

14.5 CONSTRUCTION. The headings of sections and subsections of this
Agreement are for convenience only and shall not be construed to affect the
meaning of any provision of this Agreement. Any inconsistency between provisions
in this Agreement and the exhibits shall be resolved in favor of the main body
of this Agreement.

14.6 RELATIONSHIP OF THE PARTIES. Except as expressly provided herein,
neither party is, nor will be deemed to be, an agent or legal representative of
the other party for any purpose. Neither party will be entitled to enter into
any contracts in the name of or on behalf of the other party, and neither party
will be entitled to pledge the credit of the other party in any way or hold
itself out as having authority to do so. Neither party will incur any debts or
make any commitments for the other, except to the extent, if at all,
specifically provided herein.

14.7 WAIVER. No provision of the Agreement, unless such provision otherwise
provides, will be waived by any act, omission or knowledge of a party or its
agents or employees

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<PAGE>

except by an instrument in writing expressly waiving such provision and signed
by a duly authorized officer of the waiving party.

14.8 SEVERABILITY. Whenever possible, each provision of the Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of the Agreement is held to be prohibited by or invalid
under applicable law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of the
Agreement.

14.9 ENTIRE AGREEMENT; MODIFICATIONS. This Agreement, together with the
Exhibits attached hereto and the Operative Agreements, constitutes the entire
agreement between the parties and supersedes all prior oral or written
negotiations and agreements between the parties with respect to the subject
matter hereof. Any and all representations and warranties set forth in the
Exhibits and/or Schedules hereto shall be incorporated herein by reference and
be deemed a material part of this Agreement. No modification, variation or
amendment of this Agreement shall be effective unless made in writing and signed
by the parties. Any additional or different terms stated in any purchase order
or other document delivered to EA by MicroStrategy in connection with this
Agreement shall have no effect.

IN WITNESS WHEREOF, EA and MicroStrategy have each caused this Agreement to
be executed by their duly authorized representatives.

MICROSTRATEGY INCORPORATED EXCHANGE APPLICATIONS, INC.

By: By:
----------------------------- -----------------------------

Name: Name:
--------------------------- ---------------------------

Title: Title:
-------------------------- --------------------------

EXHIBIT 10.22
-------------

[LOGO]
EXCHANGE
APPLICATIONS
- --------------------------------------------------------------------------------
VALUE-ADDED RESELLER AGREEMENT

This Agreement, made as of December 28, 1999 (the "Effective
Date"), by and between EXCHANGE APPLICATIONS, INC., a Delaware corporation
having a principal place of business at One Lincoln Plaza, 89 South Street,
Boston, Massachusetts 02111 ("Exchange"), and MICROSTRATEGY INCORPORATED, a
Delaware corporation having a principal place of business at 8000 Towers
Crescent Drive, Vienna, Virginia 22182 ("Value-Added Reseller" or "VAR").

WHEREAS, Exchange has developed ceratin commercial computer software products,
including VALEX(TM) Software and eXstatic(TM) Software;

WHEREAS, VAR has developed or will develop Value-Added Products as described in
Appendix B, including Strategy.com, which VAR markets or plans to market to end
users in the industry; and

WHEREAS, VAR desires to obtain a license to market the Licensed Software and
otherwise to act as a Value Added Reseller thereof, but only in conjunction with
its Value-Added Products.

NOW, THEREFORE, in consideration of the mutual promises and covenants of the
parties as hereinafter set forth, the parties agree as follows:

1. DEFINITIONS.

For purposes of this Agreement, the following terms shall have the respective
meanings set forth below:

"Designated Computer Server" means the computer hardware and operating
system designated on the relevant Order Form for use in conjunction with a
Sublicense of VALEX Software or the V Developer License.

"Developer Licenses" means the licenses granted to VAR pursuant to the
terms of Section 2.1 of this Agreement.

"End User" means any third party to whom VAR sublicenses the Licensed
Software (a "Sublicense") pursuant to the terms of this Agreement, including,
but not limited to, the specification of the minimum provisions of the
Sublicense Agreements set forth in Section 2.3.

"Fees" means any and all fees payable by VAR to Exchange hereunder in
respect of the Developer Licenses, Reseller Licenses and Service Bureau License,
including, but not limited to, all license fees, maintenance fees, and
royalties.

"Licensed Software" means the VALEX Software and eXstatic Software
(each as more specifically described in Appendix A), in object code form, which
is owned or licensed by Exchange and for which VAR is granted a license pursuant
to this Agreement; the End User guides and manuals for use of that Software
("Documentation"); and any updates, modifications or enhancements thereto
furnished to VAR by Exchange ("Updates").

"Licenses" means the Demo License, VALEX Developer License, eXstatic
Developer License, Reseller Licenses and ASP License, collectively.

"MCIF" means the aggregate number of individual customer records, and
the aggregate number of prospect records, of an End User in the database
accessed by the VALEX Software, at the time of execution of a Sublicense for
VALEX Software.
<PAGE>

"Order Form" shall mean a written document, consistent with the
provisions of Section 4.1 of this Agreement, by which VAR orders Licensed
Software for an End User.

"Proprietary Material" shall mean Licensed Software, including, but not
limited to, all related data and Documentation (and all know-how and technology
employed or utilized in such manuals and software), and any portion thereof in
any embodiment and any other information or data received by VAR from Exchange
and identified by Exchange as proprietary or confidential, in written, graphic
or machine-readable form, including, but not limited to, designs, concepts,
ideas, improvements, know-how and technology, provided that "Proprietary
Material" shall not include information and data which:

(i) is or becomes generally available in the public domain without
the fault of VAR;

(ii) is already known to VAR prior to disclosure hereunder without
an obligation of confidentiality to Exchange;

(iii) is independently developed by VAR where VAR establishes that
such development was accomplished without access to the
Proprietary Material;or

(iv) is disclosed to VAR by a third party without restriction and
without breach of any separate confidentiality obligation owed
to Exchange.

"Reporting Quarter" means a three (3) consecutive calendar month
period: (i) December, January and February, (ii) March, April and May, (iii)
June, July and August or (iv) September, October, November.

"Strategy Affiliate" means any contractual affiliate of VAR's
Strategy.com network, and "Affiliate Subscribers" are a Strategy Affiliate's
customers who have subscribed to receive Strategy.com network services from VAR.

"Update" means any subsequent release of the Licensed Software which is
made generally available at no additional charge (other than shipping) to other
licensees of the Licensed Software who have contracted to receive maintenance
support. Updates shall not include any releases, options or future products
which Exchange licenses separately from the Licensed Software.

"Value-Added Product" means VAR's software product or service which
provides value-added capabilities in connection with Licensed Software, and
which VAR develops and/or sublicenses with the Licensed Software as part of a
VAR System.

"VAR System" means an integrated software bundle comprised of both a
Value-Added Product and VALEX Software or eXstatic Software.

2. GRANT OF LICENSES.

2.1 DEMONSTRATION LICENSE. Exchange hereby grants to VAR, during the term of the
Agreement, a non-exclusive, non-transferable and royalty-free right and license
(the "Demo License") to operate the Licensed Software, but only in conjunction
with Value-Added Products, for the sole purpose of demonstrating the VAR System
in a non-production environment. VAR shall take all reasonable and prudent
precautions against unauthorized disclosure or copying of any Licensed Software
while demonstrating the VAR System (including, without limitation, making the
Licensed Software reasonably inaccessible during inactive demonstration times,
and deleting copies of the Licensed Software from the potential customer's
computers after completing the demonstrations at the customer site).

2.2 DEVELOPMENT LICENSES.

a. AUTHORIZED USES. Exchange hereby grants to VAR, for the term of the
Agreement, a non-exclusive and non-transferable right and license to use one (1)
copy of the (a) VALEX Software on a single Designated Computer Server (the
"VALEX Developer License") and (b) eXstatic Software (the "eXstatic Developer
License"), in each case, with the applicable Documentation, in a non-production
environment and solely for the purposes of:

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(i) Developing, testing and integrating Value-Added Products with
Licensed Software in a VAR System.

(ii) Providing maintenance and technical support services to VAR's
employees and End Users in respect of the Licensed Software in
a VAR System.

b. RESTRICTIONS. VAR shall not be authorized under either Developer
License to, and VAR shall not, directly or indirectly: (i) encumber, transfer,
sublicense, rent, lease, time-share or use the Licensed Software in any service
bureau arrangement; or (ii) copy (except for archival purposes), distribute,
manufacture, adapt, create derivative works of, translate, localize, port or
otherwise modify any Licensed Software; or (iii) permit any third party to
engage in any of the acts proscribed in clauses (i) through (ii).

2.3 RESELLER LICENSES.

a. SUBLICENSING. Exchange hereby grants to VAR, for the term of this
Agreement, a non-exclusive, non-transferable right and license to market,
distribute and sublicense the (i) VALEX Software (the "V Reseller License") and
(ii) the eXstatic Software (the "X Reseller License"), in each case, together
with the applicable Documentation, only in combination with Value-Added Products
as part of a VAR System, on a non-exclusive and non-transferable basis.

b. SUBLICENSE AGREEMENTS. Every Sublicense of the Licensed Software by
VAR to an End User shall be accomplished using a written Sublicense agreement
(the "Sublicense Agreement"), executed by and between VAR and the End User,
which agreement shall specify, at a minimum, that:

(i) In the case of a VALEX Software Sublicense, the server
component of the Licensed Software will be used only on a
single Designated Computer Server.

(ii) Licensed Software shall only be used: (A) in object code form;
(B) for the End User's own internal data processing purposes;
and (C) only in combination with Value-Added Products as part
of a VAR System.

(iii) End User will not (A) use the Licensed Software or
Documentation to create any software or documentation that is
similar to any of the Licensed Software or Documentation, (B)
decompile, disassemble, reverse compile, reverse assemble,
reverse translate or otherwise reverse engineer any Licensed
Software, or use any similar means to discover the source code
of the Licensed Software or to discover the trade secrets
therein, or otherwise circumvent any technological measure
that controls access to the Licensed Software; (C) encumber,
transfer, sublicense, rent, lease, time-share or use the
Licensed Software in any service bureau arrangement; or (D)
copy (except for archival purposes), distribute, manufacture,
adapt, create derivative works of, translate, localize, port
or otherwise modify any Licensed Software; or (E) permit any
third party to engage in any of the acts proscribed in clauses
(A) through (D).

(iv) End User shall not obtain any right, title and interest in or
to the Licensed Software, except as specifically authorized by
this Agreement.

(v) Exchange (and its third party licensors) shall have no
liability for any damages to End Users arising out of or in
connection with use or performance of the Licensed Software,
regardless of the form of any claim or action, or whether the
damages are direct, indirect, incidental, special, punitive or
consequential.

(vi) The warranty in respect of the Licensed Software, and VAR's
obligations to correct or replace any materially non-compliant
Licensed Software, are not in excess of the warranty and
disclaimers of warranty provided in this Agreement.

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(vii) Upon any termination of the Sublicense, the End User will: (A)
discontinue use of the Licensed Software; (B) return the
Licensed Software, Documentation and all archival or other
copies thereof to VAR (or, at Exchange's sole option, destroy
all of the same); and (C) have an officer of End User certify
in writing that all such copies have been returned or
destroyed, as the case may be, and that all use thereof has
been discontinued.

(viii) End User shall not publish or otherwise disclose any results
of evaluations or benchmark tests of the Licensed Software,
except to Exchange.

(ix) End User shall comply in all material respects with all
relevant export control laws and regulations of the United
States and any applicable foreign jurisdictions to assure that
neither the Licensed Software and any direct, indirect or
derivative product thereof, are not exported, directly or
indirectly, in violation of United States law;

(x) Exchange is a third party beneficiary of the Sublicense
Agreement.

(xi) The Licensed Software shall be provided with "Restricted
Rights" to the U.S. Government or to any federal contractor.
Each Sublicense Agreement shall specifically state that the
Licensed Software was developed at private expense and is
licensed with Restricted Rights in accordance with DFARS
52.227.7013. (VAR will place an effective restricted rights
legend, in addition to applicable copyright notices, on any
media containing the Licensed Software or Documentation.)

(xii) The Sublicense Agreement shall be governed by the laws of the
Commonwealth of Massachusetts, or of the United States of
America.

(xiii) Prohibit the use and disclosure of the Exchange's Proprietary
Materials in a manner consistent with the provisons of this
Agreement.

2.4 SERVICE BUREAU LICENSE.

a. AUTHORIZED USE. Exchange hereby grants to VAR, for the term of this
Agreement, a non-exclusive, non-transferable right and license (the "Service
Bureau License") to host on VAR's computer server and use one (1) copy of the
eXstatic Software for the purpose of operating an electronic mail, marketing and
messaging service bureau (also commonaly known as being an application service
provider, the "Service Bureau"), but such service shall only be provided to and
for the benefit of Strategy Affiliates and solely for the purpose of marketing
Strategy.com services to Affiliate Subscribers. In connection with operation of
this Service Bureau, VAR shall not provide, disclose or sublicense the Licensed
Software to any Strategy Affiliate.

b. RESTRICTIONS. VAR shall not be authorized under the Service Bureau
License to, and VAR shall not, directly or indirectly: (i) encumber, transfer,
sublicense, rent, lease, time-share or use the Licensed Software in any service
bureau arrangement (except as expressly provided for in Section 2.4(a)); or (ii)
copy (except for archival purposes), distribute, manufacture, adapt, create
derivative works of, translate, localize, port or otherwise modify any Licensed
Software; or (iii) permit any third party to engage in any of the acts
proscribed in clauses (i) through (ii).

c. SERVICE AGREEMENTS. Provision of the service bureau services by VAR
to every Strategy Affiliate shall be accomplished using a written service
agreement (the "Service Bureau Agreement"), executed by and between VAR and the
Strategy Affiliate, which agreement shall specify, at a minimum, that:

(i) Strategy Affiliate shall not use or disclose the Licensed
Software, except in connection with receipt of services from
VAR.

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(ii) Strategy Affiliate shall not, directly or indirectly: (A)
access the Licensed Software; (B) decompile, disassemble,
reverse compile, reverse assemble, reverse translate or
otherwise reverse engineer any Licensed Software, or use any
similar means to discover the source code of the Licensed
Software or to discover the trade secrets therein, or
otherwise circumvent any technological measure that controls
access to the Licensed Software; or (C) copy, distribute,
manufacture, adapt, create derivative works of, translate,
localize, port or otherwise modify any Licensed Software.

(iii) Strategy Affiliate shall not obtain any right, title and
interest in or to the Licensed Software.

(iv) Exchange (and its third party licensors) shall have no
liability for any damages to Strategy Affiliate arising out of
or in connection with use or performance of the Licensed
Software or VAR's services, regardless of the form of any
claim or action, or whether the damages are direct, indirect,
incidental, special, punitive or consequential.

(v) VAR's services shall not be warranted in any respect with
reference to the Licensed Software.

(vi) Upon any termination of the Service Bureau License, the
Strategy Affiliate shall no longer have any right to the
provision of services by VAR that depend or rely on, in any
mannter VAR's use of Licensed Software.

3. SERVICES.

3.1 MAINTENANCE AND SUPPORT SERVICES.

a. DEVELOPER LICENSES. In connection with the Developer Licenses,
Exchange shall provide maintenance and support services for the Licensed
Software in accordance with Appendix C. Such services will be provided to VAR on
an annual basis, commencing on the Effective Date, provided that maintenance and
support services for years after the first year will only be provided (and fees
will only be payable hereunder) if such services are requested by VAR. VAR shall
pay to Exchange the applicable maintenance Fees specified in Exhibit A, for each
of the VALEX Developer License and eXstatic Developer License, within thirty
(30) days of the first anniversary of the Effective Date and every anniversary
thereafter during the term of this Agreement for which maintenance and support
services are requested by VAR. VAR shall designate no more than one (1) System
Manager, and one (1) designated alternate in the event the System Manager is not
available, for receipt of maintenance and support services from Exchange.

b. RESELLER LICENSES. In connection with each Sublicense granted
pursuant to the Reseller Licenses, Exchange shall provide maintenance and
support services for the Licensed Software in accordance with Appendix D. Such
services will be provided directly to VAR (not to any End User) on an annual
basis, commencing on the effective date of each Sublicense. VAR shall pay to
Exchange the applicable Fees specified in Exhibit A within thirty (30) days of
the Sublicense effective date and within thirty (30) days of each anniversary
thereafter. VAR shall designate no more than one (1) System Manager, and one (1)
designated alternate in the event the System Manager is not available, for
receipt of maintenance and support services from Exchange.

c. SERVICE BUREAU LICENSE. In connection with the Service Bureau
License, Exchange shall provide maintenance and support services for the
Licensed Software in accordance with Appendix E. Such services will be provided
only to VAR (not to any Strategy Affiliate) on an annual basis, commencing on
the Effective Date, provided that maintenance and support services for years
after the first year will only be provided (and fees will only be payable
hereunder) if such services are requested by VAR. VAR shall pay to Exchange the
applicable Fees specified in Exhibit A within thirty (30) days of the Effective
Date and within thirty (30) days of each anniversary thereafter. VAR shall
designate no more than one (1)

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system manager, and one (1) designated alternate in the event the System Manager
is not available, for receipt of maintenance and support services from Exchange.

d. SUPPORT FOR END USERS AND STRATEGY AFFILIATES. VAR is responsible
for providing complete support to End Users and Strategy Affiliates, as the case
may be, for its Value-Added Products, each VAR System and the Service Bureau.
VAR shall be responsible for providing first line support, skilled instructors
and technical assistance to End Users and Strategy Affiliates. First line
support shall include, but not be limited to, answering questions about using
the Licensed Software or service, ensuring that the Licensed Software or service
is used by End Users or Strategy Affiliates in accordance with the
Documentation, and determining the origin of problems. Exchange shall provide to
VAR one (1) copy of each Update, error correction, or modification to the
Licensed Software (in object code format), and to the corresponding
Documentation, if any. VAR shall be responsible for copying and distributing
Updates and other maintenance to End Users; PROVIDED, that (A) such recipient
End User has a valid Sublicense and maintenance agreement with VAR; and (B) VAR
has paid to Exchange all Sublicense and maintenance Fees due with respect to the
End User. In the event that Exchange performs maintenance services with respect
to the VAR System or Service Bureau that, pursuant to Appendix D or Appendix E,
as the case may be, should have been performed by VAR, then VAR will reimburse
Exchange for such services at Exchange's then current rates. VAR will also
reimburse Exchange for all actual and reasonable expenses incurred in the
performance of such services.

e. REMOTE ACCESS. VAR shall install and maintain for the duration of
this Agreement, a 28.8K baud or higher modem and associated dial-up telephone
line. VAR shall pay for installation, maintenance and use of such equipment and
associated telephone line use charges. Exchange, with VAR's consent, may use
this modem and telephone line in connection with error diagnosis and correction.

f. SOURCE CODE ESCROW. Promptly after the Effective Date, Exchange
shall cooperate with VAR in order that VAR shall become a preferred beneficiary
(at VAR's sole expense) and upon terms with respect to trigger events to be
mutually agreed under that certain Master Preferred Escrow Agreement, effective
as of 4 February 1997, by and between Exchange and Data Securities
International, Inc., upon and after which VAR shall have the rights and
obligations of a beneficiary in accordance with and subject to such escrow
agreement.

3.2 TRAINING. Exchange will provide training services under the Developer
License, in accordance with the terms, if any, of this Agreement. For any on
site services requested by VAR, VAR shall reimburse Exchange for actual,
reasonable travel and out-of-pocket expenses incurred. VAR may participate in
additional training relative to the Licensed Software subject to Exchange's then
current policies and prices.

3.3 PROFESSIONAL SERVICES. VAR may contract with Exchange for other professional
services which Exchange makes available. All such services will be provided in
accordance with the Master Agreement for Professional Services, attached hereto
as Exhibit C.

4. ORDERS; SHIPMENTS.

4.1 ORDERS. Upon the initial execution of each Sublicense Agreement (and any
later amendment for additional copies of the Licensed Software or to upgrade or
transfer the Licensed Software), VAR shall provide to Exchange an Order Form
consistent with the terms of this Agreement. Each Order Form shall contain at
least the following information:

a. End User's legal name, address, contact name and phone number.

b. Sublicense effective date.

c. Identification of Licensed Software components.

d. For VALEX Sublicenses, the MCIF, Designated Computer Server
and number of named users.

e. Sublicense royalty

f. Maintenance royalty

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g. Installation date

4.2 SHIPMENTS. No order shall be binding upon Exchange until accepted by an
authorized representative or agent of Exchange at its principal place of
business, which acceptance shall not be unreasonably withheld. Within five (5)
business days after acceptance, Exchange will ship the ordered Licensed Software
to VAR, for VAR's subsequent distribution to the End User.

5. FEES; REPORTS; PAYMENTS.

5.1 DEVELOPER LICENSES. Upon execution of this Agreement, VAR shall pay to
Exchange the license fees set forth for each of the VALEX Developer License and
eXstatic Developer License set forth in Exhibit A. VAR shall pay to Exchange the
annual maintenance fees specified in Exhibit A, for each of the VALEX Developer
License and eXstatic Developer License, within thirty (30) days of each
anniversary of the Effective Date during the term of this Agreement.

5.2 RESELLER LICENSES. Within thirty (30) days after execution of each
Sublicense Agreement, VAR shall pay to Exchange the applicable Sublicense
royalty and the first year's annual maintenance royalty set forth in Exhibit B.
Within thirty (30) days of every anniversary of the Sublicense effective date
during the term of this Agreement, VAR shall pay to Exchange the annual
maintenance royalty specified in Exhibit B. In the case of any eXstatic
Sublicense, VAR shall pay to Exchange monthly in arrears, the recurring
Sublicense royalty within thirty (30) days after the end of each calendar month,
based on the End User's actual email volume as set forth in Exhibit B. In the
event that an End User desires to upgrade VALEX Sublicense to a larger MCIF
capacity, or transfer the Licensed Software to another operating system, VAR
will pay transfer fee royalties to Exchange based on Exchange's transfer
policies and rates in effect at the time of reference thereto. All such transfer
fee royalties shall be due and payable within thirty (30) days of the effective
date of such transfer. Exchange reserves the right, from time to time and at any
time, to revise the published list price for any Licensed Software, which new
price shall become effective for the purposes of VAR's royalty payments
hereunder upon ninety (90) days prior written notice to VAR.

5.3 SERVICE BUREAU LICENSE. Within fifteen (15) days after the end of each
Reporting Quarter during the term of this Agreement, VAR shall report the number
of Strategy Affiliates designated by VAR for purposes of the Service Bureau
during such quarter, and pay to Exchange the applicable license fee and first
year's annual maintenance fee set forth in Exhibit B in respect of such new
Strategy Affiliates; provided, however, during the initial term of this
Agreement, VAR shall not be obligated to pay any license fees under this Section
5.3 in excess of eight million dollars ($8,000,000). At the time of such
quarterly payments, VAR shall pay the annual maintenance fee set forth in
Exhibit B in respect of each Strategy Affiliate, the anniversary of whose
designation by VAR occurred during such quarter.

5.4 PAYMENTS. All Fees are due and payable in US Dollars at Exchange's address.
All shipments by Exchange shall be FOB origin.

5.5 TAXES. All payments required by this Agreement are exclusive of federal,
state, local and foreign taxes, duties, tariffs, levies and similar assessments
and VAR agrees to bear and be responsible for the payment of all such charges
imposed upon the Licensed Software and Documentation used, copied or distributed
by VAR hereunder, excluding taxes based upon Exchange's net income, corporate
franchise, personal property or employee-related taxes.

5.6 RECORDS AND AUDITS. VAR shall maintain compete and accurate records
concerning all shipments of Licensed Software, Sublicense Agreements, Service
Bureau Agreements, and Fees payable to Exchange, including the number of
Strategy Affiliates. During the term of this Agreement and for five (5) years
after the year in which any payments are made to VAR hereunder, Exchange shall
have the right upon reasonable advance written notice, to have an independent
auditor verify VAR's marketing efforts, compliance with this Agreement and the
notices, reports and payments provided by VAR to Exchange. VAR shall make its
processors and all applicable books and records available for such inspection
during normal business hours at VAR's principal place of business. In connection
with such audit, Exchange will

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not unreasonably interfere with VAR's business. Any such audit shall be at the
expense of Exchange, unless such audit discloses an underpayment by the VAR for
the audited period in excess of five percent (5%), in which case VAR shall
reimburse Exchange for such expenses. If the audit discloses any underpayment by
VAR, VAR shall promptly make payment to Exchange of such underpayment, together
with interest thereon at the rate of 1.5% per month or, if lesser, the maximum
amount permitted by law. Exchange's rights under this Section 5.6 shall survive
any expiration or termination of this Agreement.

6. RESPONSIBILITIES OF VAR. VAR represents that within two (2) months after the
Effective Date, it will have the personnel, knowledge and skill necessary to
market (a) the Licensed Software as part of VAR Systems, (b) the Service Bureau.
VAR agrees that it shall, at its sole expense:

a. Provide installation support as well as reasonable training of
End Users and Strategy Affiliates in the day to day use and
application of the VAR System and Service Bureau,
respectively.

b. Operate a maintenance and support service to provide End Users
and Strategy Affiliates with answers to questions and other
assistance in using the VAR System or Service Bureau.

c. Serve as the sole point of contact with End Users and Strategy
Affiliates to respond to requests for maintenance services,
and to process claims for correction or replacement of any
portions of the Licensed Software incorporated in the VAR
System to the extent that such claim may involve Exchange's
warranty obligations under this Agreement.

d. Keep complete and accurate records of warranty claims and
requests for maintenance services or other assistance and of
actions taken in response thereto, and promptly make available
all such records to Exchange upon request.

e. Use commercially reasonable efforts to promote, advertise and
market the VAR Systems and Service Bureau.

f. Refrain from deceptive, misleading, illegal, or unethical
practices that may be detrimental to Exchange or Licensed
Software.

g. Not make any representations, warranties or guarantees to End
Users or Strategy Affiliates concerning the Licensed Software
that are inconsistent with or in addition to those made in
this Agreement.

h. Comply with all applicable federal, state, and local laws and
regulations in performing its duties with respect to the
Licensed Software and the Service Bureau.

i. Ensure that Value-Added Products comprise a significant
portion of every VAR System.

j. Establish its own pricing for the VAR System and Service
Bureau services, and acknowledge that Exchange is free to
establish its own prices for the Licensed Software.

k. Indemnify Exchange and hold it harmless from any loss, claim
or damage to any person arising out of VAR's unauthorized use
of the Licensed Software; PROVIDED, that (i) Exchange shall
have promptly provided VAR written notice thereof and
reasonable cooperation, information, and assistance (at VAR's
expense) in connection therewith, and (ii) VAR shall have sole
control and authority with respect to the defense, settlement,
or compromise thereof. Any failure by Exchange to promptly
notify VAR of a claim for which indemnification is sought
under this Section 6(k), or to cooperate in such claim, shall
only relieve VAR of its indemnity obligations hereunder to the
extent that it is prejudiced by such delay or failure to
cooperate.

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7. TRADEMARKS

7.1 USE OF MARKS. VAR shall use the Exchange's trademarks (including, but not
limited to, "VALEX(TM)" and "eXstatic(TM)"), service marks, the Exchange design
and logo, and the trade name "Exchange" (collectively, the "Marks") in
connection with the marketing of the Licensed Software, VAR Systems and Service
Bureau in accordance with the terms of this Agreement. Any use of the Marks by
VAR shall remain the sole property of Exchange and shall inure to the benefit of
Exchange. All right, titel and interest in and to the Marks adopted by Exchange
to identify the Licensed Software and other Exchange products and services
remain with Exchange, and VAR will have no rights in such Marks except as
expressly set forth herein. VAR's use of the Marks shall be under Exchange's
trademark policies and procedures then in effect.

7.2 NO CONFUSION. VAR agrees not to use the trademark "Exchange", "VALEX" or
"eXstatic" or any mark beginning with the letters "EXC", B+"Val", or "Exc" or
any other mark likely to cause confusion with the trademark "Exchange", as any
part of VAR's trade name, trademark for any Value-Added Product or other product
of VAR. VAR shall have the right to use the Marks solely to refer to Exchange's
products and services. VAR shall not market the Licensed Software in any way
which could reasonably be deemed to imply that the Licensed Software is the
proprietary product of VAR or of any party other than Exchange.

7.3 NOTICES. With respect to Exchange's registered trademarks, VAR shall include
in each advertisement, brochure, or other such use, the trademark symbol "(R)"
and the following statement:

__________(R)is a registered trademark of Exchange Applications
Inc., Boston, Massachusetts 02111

Unless notified otherwise in writing by Exchange, with respect to Exchange's
other trademarks, VAR shall include in each advertisement, brochure, or other
such use, the symbol "TM" and the applicable statement:

VALEX(TM)is a trademark of Exchange Applications, Inc., Boston,
Massachusetts 02111 eXstatic(TM)is a trademark of Exchange
Applications, Inc., Boston, Massachusetts 02111 __________(TM)is a
trademark of Exchange Applications, Inc., Boston, Massachusetts 02111

8. WARRANTY; WARRANTY DISCLAIMERS; LIMITAITON OF LIABILITY.

8.1 LICENSED SOFTWARE WARRANTY. Exchange warrants to VAR (and not to any End
User or Strategy Affiliate) that, during the first ninety (90) days following
the delivery (in respect of the Developer Licenses, the Service Bureau License,
and each Sublicense granted under the Reseller Licenses) of the Licensed
Software (the "Warranty Period"), the Licensed Software will conform in all
material respects to the specifications contained in the Documentation.
Exchange's sole responsibility under this warranty shall be to correct or
replace that portion of the Licensed Software which fails to conform to said
warranty; PROVIDED, that VAR has reported in writing to Exchange any defect or
error claimed to be a breach of warranty within the Warranty Period. If Exchange
is unable to correct or replace the nonconforming Licensed Software within
thirty (30) days of written notification to Exchange during the 90-day warranty
period, Exchange shall reimburse VAR for the amount of license fees paid for the
nonconforming Licensed Software, and the license for that nonconforming Licensed
Software shall be immediately terminated.

8.2 EXCLUSIONS. Exchange will have no liability under the foregoing warranty if
(i) the Licensed Software is modified by any party other than Exchange or
without Exchange's prior written consent, (ii) VAR fails to give Exchange
written notice of the claimed breach of warranty within the Warranty Period,
(iii) the failure to conform is caused in whole or part by persons other than
Exchange, or by products, equipment, databases, inputs or computer programs not
furnished by Exchange (including, but not limited to, any Value-Added Products
or any other VAR System or Service Bureau component); (iv) the Licensed

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Software is used other than in accordance with the terms of this Agreement or
exposed to environmental or operating conditions beyond those specified in
writing by Exchange; or (v) the Licensed Software is damaged, altered or
affected in any material respect by accident, neglect, misuse or other abuse
other than by Exchange's employees or agents. All Documentation and Updates are
provided without warranty, on an "AS IS" basis. Exchange does not represent or
warrant that all errors can, or will be, corrected.

8.3 NO WARRANTY FOR SERVICES. EXCHANGE MAKES NO WARRANTY OF ANY KIND, WRITTEN OR
ORAL, STATUTORY, EXPRESS OR IMPLIED, WITH RESPECT TO ANY MAINTENANCE, SUPPORT OR
OTHER SERVICE PROVIDED HEREUNDER (INCLUDING THE FIXING OF ERRORS THAT MAY BE
CONTAINED IN THE LICENSED SOFTWARE).

8.4 WARRANTY DISCLAIMERS. EXCEPT AS SPECIFICALLY PROVIDED IN THIS SECTION 8, THE
LICENSED SOFTWARE IS NOT ERROR-FREE AND IS BEING PROVIDED "AS IS" WITHOUT
WARRANTY OF ANY KIND. EXCHANGE HEREBY DISCLAIMS ALL OTHER WARRANTIES, WHETHER
EXPRESS OR IMPLIED, ORAL OR WRITTEN, WITH RESPECT TO THE LICENSED SOFTWARE
INCLUDING, WITHOUT LIMITATION, ALL IMPLIED WARRANTIES OF TITLE,
NON-INFRINGEMENT, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE AND ALL
WARRANTIES IMPLIED FROM ANY COURSE OF DEALING OR USAGE OF TRADE. EXCHANGE'S
EXPRESS WARRANTIES SHALL NOT BE ENLARGED, DIMINISHED OR AFFECTED BY, AND NO
OBLIGATION OR LIABILITY SHALL ARISE OUT OF, EXCHANGE'S RENDERING OF TECHNICAL OR
OTHER ADVICE OR SERVICE IN CONNECTION WITH LICENSED SOFTWARE. ALL THIRD PARTY
LICENSORS DISCLAIM ALL WARRANTIES, EXPRESS OR IMPLIED WITH RESPECT TO THE USE OF
THEIR MATERIALS IN CONNECTION WITH THE LICENSED SOFTWARE, INCLUDING (WITHOUT
LIMITATION) ANY WARRANTIES OF TITLE, NON-INFRINGEMENT, MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.

8.5 VAR RESPONSIBILITIES. VAR shall make no representation or warranty
concerning the quality, performance or other characteristics of the Licensed
Software, or Exchange's obligations with respect thereto, other than those which
are consistent in all respects with, and do not expand the scope of, the
warranties set forth herein.

8.6 LIMITATION OF LIABILITY. EXCEPT FOR (i) EITHER PARTY'S OBLIGATIONS IN
RESPECT OF THIRD PARTY CLAIMS UNDER SECTION 9 (INFRINGEMENT INDEMNITIES) AND
(ii) EITHER PARTY'S BREACH OF ITS OBLIGATIONS UNDER SECTION 10 (PROTECTION OF
PROPRIETARY RIGHTS), IN NO EVENT SHALL EITHER PARTY'S AGGREGATE LIABILITY FOR
ALL DAMAGES TO THE OTHER PARTY FOR ANY CAUSE WHATSOEVER, REGARDLESS OF THE FORM
OF ANY CLAIM OR ACTION, EXCEED THE License FEES OR SUBLICENSE ROYALTIES (A) IN
THE CASE OF EXCHANGE, PAID BY VAR OR (B) IN THE CASE OF VAR, THAT SHOULD HAVE
BEEN PAID BY VAR, FOR THE COPY OF THE LICENSED SOFTWARE THAT GAVE RISE TO THE
CLAIM. EXCEPT FOR (IIi) EITHER PARTY'S OBLIGATIONS IN RESPECT OF THIRD PARTY
CLAIMS UNDER SECTION 9 (INFRINGEMENT INDEMNITIES) AND (iV) EITHER PARTY'S BREACH
OF ITS OBLIGATIONS UNDER SECTION 10 (PROTECTION OF PROPRIETARY RIGHTS), IN NO
EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY LOSS OF DATA,
BUSINESS, PROFITS OR USE OF THE LICENSED SOFTWARE, OR FOR ANY SPECIAL,
INCIDENTAL, INDIRECT, PUNITIVE OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN
CONNECTION WITH THE USE OR PERFORMANCE OF THE LICENSED SOFTWARE OR OTHERWISE
UNDER THIS AGREEMENT, WITHOUT REGARD TO WHETHER SUCH PARTY HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES. THESE LIMITATIONS ARE INDEPENDENT FROM ALL
OTHER PROVISIONS OF THIS AGREEMENT AND SHALL APPLY NOTWITHSTANDING THE FAILURE
OF ANY REMEDY PROVIDED HEREIN.

9. INFRINGEMENT INDEMNITIES.

9.1 EXCHANGE'S INDEMNITY.

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a. INDEMNITY. Except as provided below, Exchange shall defend and
indemnify VAR from and against any damages, liabilities, costs and expenses
(including reasonable attorneys' fees) finally awarded against VAR and arising
out of any claim that the Licensed Software infringes a valid United States
patent or copyright or misappropriates a trade secret of a third party;
PROVIDED, that (i) VAR shall have promptly provided Exchange written notice
thereof and reasonable cooperation, information, and assistance (at Exchange's
expense) in connection therewith, and (ii) Exchange shall have sole control and
authority with respect to the defense, settlement, or compromise thereof. If any
Licensed Software becomes or, in Exchange's opinion, is likely to become the
subject of any injunction preventing its use as contemplated herein, Exchange
may, at its option, (1) procure for the VAR (and End Users and Strategy
Affiliates) the right to continue using such Licensed Software, (2) replace or
modify such Licensed Software so that it becomes non-infringing without
substantially compromising its functionality, or, if (1) and (2) are not
reasonably available to Exchange, then (3) terminate VAR's Licenses and the
Sublicenses in respect of the allegedly infringing Licensed Software and pay to
VAR an amount not to exceed thedepreciated value of the Licensed Software equal
to the license Fee paid by VAR for such Licensed Software depreciated on a
straight line basis over a three and one-half (3 1/2) year period. Exchange
shall have no obligation for any costs incurred by Licensee without Exchanges's
prior written authorization.

b. EXCLUSIONS. Exchange shall have no liability or obligation to VAR
hereunder with respect to any patent, copyright or trade secret infringement
claim based upon (i) use of the Licensed Software in an application or
environment or on a platform or with devices for which the Licensed Software was
not designed or contemplated, (ii) modifications, alterations, combinations or
enhancements of the Licensed Software not created or authorized by Exchange or
its authorized contractors or agents, (iii) use of a superseded version of the
Licensed Software if the infringement would have been avoided by using an Update
that Exchange provided to VAR; or (iv) any patent, copyright or trade secret in
which VAR (or any of its affiliates), or any End User or Strategy Affiliate, has
an interest. In accordance with Section 9.2, VAR shall indemnify and hold
Exchange harmless from all costs, damages and expenses (including reasonable
attorneys' fees) arising from any claim enumerated in clauses (i) through (iv)
above.

c. ENTIRE LIABILITY. The foregoing states the entire liability of
Exchange, and the sole and exclusive remedy of VAR, with respect to any claim of
infringement of patents, copyrights and trade secrets by the Licensed Software,
or any part thereof, or by its operation.

9.2 VAR'S INDEMNITY.

a. INDEMNITY. VAR shall defend and indemnify Exchange from and against
any damages, liabilities, costs and expenses (including reasonable attorneys'
fees) arising out of any claim that any software, product or service (including,
but not limited to, any Value-Added Product) provided in connection with any VAR
System or the Service Bureau infringes a valid United States patent or copyright
or misappropriates a trade secret of a third party; PROVIDED, that (i) Exchange
shall have promptly provided VAR written notice thereof and reasonable
cooperation, information, and assistance (at VAR's expense) in connection
therewith, and (ii) VAR shall have sole control and authority with respect to
the defense, settlement, or compromise thereof.

b. ENTIRE LIABILITY. The foregoing states the entire liability of VAR,
and the sole and exclusive remedy of Exchange, with respect to any claim of
infringement of patents, copyrights and trade secrets by VAR's software,
products and services, or any part thereof, or by their operation.

9.3 PROMPT NOTICE. The party seeking indemnification under this Section 9 will
immediately inform the indemnifying party as soon as it becomes aware of any
threatened or actual liability claim by a third party. Any failure by the party
seeking indemnification under this Section 9 to promptly notify the indemnifying
party of a claim for which indemnification is sought, or to cooperate in such
claim, shall only relieve the indemnifying party of its indemnity obligations
hereunder to the extent that it is prejudiced by such delay or failure to
cooperate.

10. PROTECTION OF PROPRIETARY RIGHTS.

11
<PAGE>

10. DEFINITION. "Proprietary Materials" shall mean, with respect to Exchange,
all Licensed Software, Updates and enhancements, modifications and translations
thereof , with respect to VAR, all Value-Added Products, and with repsect to
both parties, any other information or data disclosed by either party to the
other, in written, graphic or machine readable form which by its nature or type
should reasonably be considered proprietary or confidential or which the
disclosing party labels as being proprietary or confidential. Each party
acknowledges that the other's Proprietary Materials are confidential and
constitute valuable assets of the discolosing party (or its third party
licensors). Proprietary Material does not include:

(i) Information which is or becomes available in the public domain
other than through disclosure by the receiving party (the
"Recipient") in breach of this Agreement);

(ii) Information disclosed or made available at any time to the
Recipient by a third party without breach of any relationship
of confidentiality to the disclosing party (the "Discloser");

(iii) Information independently developed by the Recipient without
use of the Proprietary Material of the Discloser;

(iv) Information which was already known to the Recipient, without
an obligation of confidentiality to the Discloser, at the time
of disclosure hereunder.

10.2 CONFIDENTIALITY. Except for the specific rights granted by this Agreement,
Recipient shall not use, copy or disclose any Proprietary Material without the
written consent of the Discloser. Recipient shall hold all Proprietary Materials
in confidence, and use the highest commercially reasonable degree of care to
protect the Proprietary Materials, including at a minimum, those precautions
Recipient employs to protect its own confidential information, but not less than
a reasonable degree of care. Recipient shall not disclose the Proprietary
Materials except to its employees that have a need to know in connection with
Recipient's authorized uses under this Agreement and who have agreed in writing
not to disclose the Proprietary Materials. Recipient shall bear the
responsibility for any breaches of confidentiality by its employees. Within ten
(10) days after Discloser's request, and in its sole discretion, Recipient shall
either return to Discloser all originals and copies of any Proprietary Materials
and all information, records and materials developed therefrom by Recipient, or
destroy the same, other than such Proprietary Materials as to which this
Agreement expressly provides a continuing right to Recipient to retain at the
time of the request.

10.3 PROPRIETARY RIGHTS. Discloser (or its third party licensors) shall retain
all rights, title and interest in the Proprietary Materials, and Recipient shall
not take any action inconsistent with such title and ownership. VAR, End Users
and Strategy Affiliates shall not acquire any rights in Exchange's Proprietary
Materials, and Exchange shall not acquire any rights in VAR's Proprietary
Materials, except as express in this Agreement. VAR will keep records of the
number and location of all copies of Proprietary Materials and make such records
available to Exchange. Recipient shall not remove any copyright or legal notices
or proprietary rights notice included in any Proprietary Material and shall
reproduce all such notices on any copies of Proprietary Material.

10.4 NO REVERSE ENGINEERING. VAR shall not: (i) use any Licensed Software or
Documentation to create any software or documentation that is similar to or
competitive with any of the Licensed Software or Documentation; (ii) decompile,
disassemble, reverse compile, reverse assemble, reverse translate or otherwise
reverse engineer any Licensed Software, or use any similar means to discover the
source code of the Licensed Software or to discover the trade secrets therein,
or otherwise circumvent any technological measure that controls access to the
Licensed Software; or (iii) permit any third party to engage in any of the acts
proscribed in clauses (i) through (ii).

10.5 NOTICE. Recipient shall notify Discloser promptly of any unauthorized
possession, disclosure, or use of Proprietary Material or, in the case of VAR,
any violation of the confidentiality provisions included in any Sublicense
Agreement or Service Bureau Agreement of which VAR is aware. Recipient will take
such

12
<PAGE>

actions as Discloser may reasonably request (including instituting appropriate
legal proceedings) to enforce the confidentiality provisions of such agreements
and to prevent or remedy any further unauthorized possession, disclosure or use
of Proprietary Materials.

10.6 REMEDIES. Money damages will not be an adequate remedy if this Section 10
is breached and, therefore, Discloser shall, in addition to any other legal or
equitable remedies, be entitled to seek an injunction or similar equitable
relief against such breach or threatened breach without the necessity of posting
any bond.

11. TERM; TERMINATION

11.1 TERM. This Agreement shall commence on the Effective Date and continue for
a period of three and one-half (3 1/2) years thereafter. This Agreement may be
renewed for an additional term of equal duration, upon the mutual written
consent of the parties.

11.2 TERMINATION. Notwithstanding the foregoing, this Agreement may be
terminated:

a. MATERIAL BREACH. By either party, in the event the other party
materially breaches a provision of this Agreement and the breaching party fails
to cure such breach within thirty (30) days of the receipt of notice of such
breach from the non-breaching party.

b. BANKRUPTCY. By either party, immediately in the event any assignment
is made by the other party for the benefit of creditors, the party admits in
writing its inability to pay debts as they come due, or if a receiver, trustee
in bankruptcy or similar officer shall be appointed to take charge of any or all
of the other party's property, or if the other party files a voluntary petition
under federal bankruptcy laws or similar state statutes or such a petition is
filed against the other party and is not dismissed within sixty (60) days.

11.3 EFFECTS OF TERMINATION. Upon termination of this Agreement for any reason,
all rights, obligations and licenses of the parties hereunder shall cease,
except for the following obligations:

a. PAYMENTS. VAR's liability for any Fee, charges, payments or expenses
due to Exchange that accrued prior to the termination date shall not be
extinguished by termination, and such amounts (if not otherwise due on an
earlier date) shall be immediately due and payable on the termination date.

b. TERMINATION OF LICENSES. VAR shall have no further right to copy or
use any Licensed Software (except to fulfill Sublicense orders outstanding as of
the termination date) and immediately after the termination or expiration date
hereof, VAR shall deliver to Exchange, at VAR's expense, all originals and
copies of the (i) Licensed Software, (ii) Documentation, (iii) other Proprietary
Materials in the possession or under the control of VAR and (iv) render unusable
all intangible data and information. VAR shall certify in writing to Exchange
within ten (10) days following termination that it has complied with this
Section 11.3.b.

c. SURVIVAL. The provisions of Sections 5.5 (Taxes), 5.6 (Records and
Audits), 8 (Warranty; Warranty Disclaimers; Limitation of Liability), 9
(Infringement Indemnities), 10 (Protection of Proprietary Materials), 12
(Nondisclosure), 13 (Compliance with Laws), 14 (General) and this Section 11
shall survive any termination or expiration of this Agreement.

11.4 SUBLICENSES. Notwithstanding any of the foregoing, any expiration or
termination of this Agreement shall not have an impact on those Sublicense
Agreements issued under this Agreement, and all terms and conditions of such
Sublicense Agreements shall continue in full force and effect.

13
<PAGE>

12. NONDISCLOSURE. Without first obtaining the written consent of the other
party, neither party shall disclose the terms and conditions of this Agreement,
except as may be required to implement and enforce the terms of this Agreement,
or as may be required by legal procedures or by law. No other information
exchanged between the parties shall be deemed confidential unless the parties
otherwise agree in writing. VAR shall not disclose the results of benchmark
tests or the statistical performance results of any other evaluation of the
Licensed Software to any third party without Exchange's prior written approval.

13. COMPLIANCE WITH LAWS.

13.1 EXPORT. VAR shall not export or re-export, directly or indirectly
(including via remote access), Licensed Software, Documentation or other
information or materials provided by Exchange hereunder, to any country for
which the United States or any other relevant jurisdiction requires any export
license or other governmental approval at the time of export without first
obtaining such license or approval. It shall be VAR's responsibility to comply
with the latest United States export regulations, and VAR shall defend and
indemnify Exchange from and against any damages, fines, penalties, assessments,
liabilities, costs and expenses (including reasonable attorneys' fees and court
costs) arising out of any claim that Licensed Software, Documentation, or other
information or materials provided by Exchange hereunder were exported or
otherwise accessed, shipped or transported in violation of applicable laws and
regulations.

13.2 COMPLIANCE WITH LAWS OF OTHER JURISDICTIONS. VAR shall comply in all
material respects with all laws, legislation, rules, regulations, and
governmental requirements with respect to the Licensed Software, and the
performance by VAR of its obligations hereunder, of any jurisdiction in or from
which VAR directly or indirectly causes the Licensed Software to be used or
accessed. In the event that this Agreement is required to be registered with any
governmental authority, VAR shall cause such registration to be made and shall
bear any expense or tax payable in respect thereof.

14. GENERAL

14.1 FORCE MAJEURE. In the event that either party is prevented from performing,
or is unable to perform, any of its obligations under this Agreement due to any
cause beyond the reasonable control of the party invoking this provision, the
affected party's performance shall be extended for the period of delay or
inability to perform due to such occurrence.

14.2 WAIVER. The waiver by either party of a breach or a default of any
provision of this Agreement by the other party shall not be construed as a
waiver of any succeeding breach of the same or any other provision, nor shall
any delay or omission on the part of either party to exercise or avail itself of
any right, power or privilege that it has, or may have hereunder, operate as a
waiver of any right, power or privilege by such party. No remedy referred to in
this Agreement is intended to be exclusive, but each shall be cumulative and in
addition to any other remedy referred to herein or otherwise available at law or
in equity.

14.3 NO AGENCY; INDEPENDENT CONTRACTORS. Nothing contained in this Agreement
shall be deemed to constitute either party as the agent or representative of the
other party, or both parties as joint venturers or partners for any purpose. VAR
shall have no authority to vary, alter or enlarge any of Exchange's obligations
hereunder or to make representations, warranties or guarantees on behalf of
Exchange. VAR shall make all agreements with End Users and Strategy Affiliates
in its own name and for its own account and risk, and shall establish its own
prices.

14.4 GOVERNING LAW; JURISDICTION & VENUE. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, USA, without
regard to its choice of law provisions. In the event of any conflict between
foreign laws, rules and regulations and those of the United States, the laws,
rules and regulations of the United States shall govern. The United Nations
Convention on Contracts for the International Sale of Goods shall not apply to
this Agreement.

14
<PAGE>

14.5 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the Appendices and Exhibits
attached hereto constitute the entire agreement between the parties with regard
to the subject matter hereof. No representation, promise, inducement or
statement of intention has been made by either party which is not set forth in
this Agreement and neither shall be bound by or liable for any alleged
representation, promise, inducement or statement of intention not so set forth.
No waiver, consent, modification or change of terms of this Agreement shall bind
either party unless in writing signed by both parties, and then such waiver,
consent, modification or change shall be effective only in the specific instance
and for the specific purpose given. Terms set forth in any purchase order of VAR
(or other similar document) that are in addition to or at variance with the
terms of this Agreement are specifically waived by VAR. All such terms are
considered by Exchange to be proposed material alterations of this Agreement and
are rejected. VAR's purchase order is only effective as VAR's unqualified
commitment to pay for a license to the Licensed Software upon the terms (and
only the terms) set forth herein.

14.6 COSTS, EXPENSES AND ATTORNEYS' FEES. VAR shall reimburse Exchange for all
reasonable costs (including attorneys' fees) incurred by Exchange in collecting
late payments from VAR. If either party commences any action or proceeding
against the other party to enforce or interpret this Agreement, the prevailing
party in such action or proceeding shall be entitled to recover from the other
party the actual costs, expenses and attorneys' fees (including all related
costs and expenses), incurred by such prevailing party in connection with such
action or proceeding and in connection with obtaining and enforcing any judgment
or order thereby obtained.

14.7 ASSIGNMENT. This Agreement, the Licenses and all of the other rights and
obligations hereunder, may not be assigned, in whole or in part by VAR, without
the prior written consent of Exchange. Any attempt by VAR to do so without such
consent shall be null and void AB INITIO. In the case of any permitted
assignment or transfer of or under this Agreement, this Agreement or the
relevant provisions shall be binding upon, and inure to the benefit of, the
successors, executors, heirs, representatives, administrators and assigns of the
parties hereto.

14.8 NOTICES. Any notice or communication from one party to the other shall be
in writing and either personally delivered or sent certified mail, postage
prepaid, return receipt requested, addressed to such other party at the address
specified in the first paragraph of this Agreement, or at such other address as
such party may from time to time designate in a notice to the other party. All
notices shall be in English and shall be effective upon receipt.

14.9 NON SOLICITATION. For the term of this Agreement and for a period of twelve
months after any expiration or termination of this Agreement, the parties hereto
do agree and affirm to refrain from any and all attempts to solicit or recruit
the employees of the other without the prior written approval of the party whose
employee is being considered for employment. This shall in no way, however, be
construed to restrict, limit or encumber the rights of any employee granted by
law.

14.10 COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. In making proof of this Agreement, it
shall not be necessary to produce or account for more than one such counterpart.

15
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers or representatives as of the date
first written above.

EXCHANGE APPLICATIONS, INC. MICROSTRATEGY INCORPORATED

By:______________________________ By:________________________________

Name:____________________________ Name:______________________________

Title:___________________________ Title:_____________________________

Date:____________________________ Date:______________________________

_________________________________ EXHIBITS EXCLUDED

EXHIBIT 23.1
------------

Consent of Independent Public Accountants

As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statement File Nos. 333-82889 and 333-87337.

Boston, Massachusetts
March 30, 2000

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 14,678
<SECURITIES> 19,459
<RECEIVABLES> 11,704
<ALLOWANCES> 375
<INVENTORY> 0
<CURRENT-ASSETS> 43,369
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 115,065
<CURRENT-LIABILITIES> 29,823
<BONDS> 0
0
0
<COMMON> 24
<OTHER-SE> 70,712
<TOTAL-LIABILITY-AND-EQUITY> 115,065
<SALES> 43,301
<TOTAL-REVENUES> 43,301
<CGS> 10,693
<TOTAL-COSTS> 41,413
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 58
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 3,318
<INCOME-TAX> 2,220
<INCOME-CONTINUING> 1,098
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,098
<EPS-BASIC> 0.05
<EPS-DILUTED> 0.04

</TABLE>