AVENUE A INC, S-1/A, 2000-02-08

AVENUE A INC
S-1/A, 2000-02-08
BUSINESS SERVICES, NEC

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As filed with the Securities and Exchange Commission on February 8, 2000

Registration No. 333-92301
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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AVENUE A, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<CAPTION>
Washington 7319 91-1819567
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>

506 Second Avenue, 9th Floor
Seattle, Washington 98104
(206) 521-8800
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

---------------
Brian P. McAndrews
Chief Executive Officer
Avenue A, Inc.
506 Second Avenue, 9th Floor
Seattle, Washington 98104
(206) 521-8800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

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

Copies to:
David F. McShea Patrick J. Schultheis
Faith Wilson Jose F. Macias
Patrick J. Devine Richard C. Sohn
PERKINS COIE LLP WILSON SONSINI GOODRICH & ROSATI,
1201 Third Avenue, 48th Floor Professional Corporation
Seattle, Washington 98101-3099 5300 Carillon Point
(206) 583-8888 Kirkland, Washington 98033-7356
(425) 576-5800

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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.

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If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] ____________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] ____________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]

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

The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.

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- -------------------------------------------------------------------------------
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities and we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

PROSPECTUS (Subject to Completion)

Issued February 8, 2000

5,250,000 Shares

[LOGO OF AVENUE A]

COMMON STOCK

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Avenue A, Inc. is offering shares of its common stock. This is our initial
public offering and no public market currently exists for our shares. We
anticipate that the initial public offering price will be between $8 and $10
per share.

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

We have filed an application for our common stock to be quoted on the Nasdaq
National Market under the symbol "AVEA."

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

Investing in our common stock involves risks. See "Risk Factors" beginning on
page 8.

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PRICE $ A SHARE

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<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Avenue A, Inc.
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<S> <C> <C> <C>
Per Share................................. $ $ $
Total..................................... $ $ $
</TABLE>

Avenue A, Inc. has granted the underwriters the right to purchase up to an
additional 787,500 shares to cover over-allotments.

The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.

Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers
on , 2000.

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

MORGAN STANLEY DEAN WITTER

SALOMON SMITH BARNEY

THOMAS WEISEL PARTNERS LLC

, 2000
<PAGE>

Inside Front Cover:
Title: Avenue A Focuses on the Needs of Internet Advertisers
Caption 1: Advertisers seeking to take advantage of the Internet's
potential may face numerous challenges, including:
Caption 2: - The scale and complexity of the Internet
Caption 3: - Data analysis and technology requirements
Caption 4: - Operating costs and system requirements

Caption 5: Avenue A Clients
Graphic depicting Avenue A clients connected by a line flowing into the
Avenue A Logo
Caption 6: Avenue A integrates proprietary technology, media planning,
media buying and data analysis to help clients realize the potential
of Internet advertising.
Graphic depicting a line flowing from the Avenue A logo to boxes used to
represent portals, vertical portals, consent sites, ad networks and e-
commerce sites

Title: Avenue A's Systematic Data-Driven Process:
Caption: Avenue A guides its clients through each step of the process.
Graphic depicting the flow of steps leading into and out of a
central box representing "Data Collection" which contains two smaller
boxes representing "Ad Serving & Management Technology" and "Precision
E-mail." The steps leading into the central box (themselves
represented by boxes) are "Strategy", "Media Planning" and "Media
Buying." The steps leading out of the central box (also represented by
boxes) are "Online Campaign Performance Reporting," "Campaign
monitoring & Optimization" and "Data Analysis." Lines from these three
boxes flow into the graphic on right half of page depicting a cylinder
bearing the Avenue A logo and the phrase "The Avenue A Knowledge
Base." A line flows from the cylinder back to the first step of the
flow chart, "Strategy."

Title: The Result
Caption 1: Avenue A integrates Internet media planning and buying, ad
management technology, user profiling and data analysis to help
advertisers increase the effectiveness and return on investment of
their Internet advertising campaigns.

Caption 2: (on left half of page) An Example:
Caption 3: (on left half of page) Ad Management Technology. Our ad serving
systems enable our client service teams to:
Caption 4: (on left half of page) - control the frequency with which ads
are served
Caption 5: (on left half of page) - program the sequence with which ads are
viewed

Caption 6: (on left half of page) 1. Data Collection/Online Reporting:
Caption 7: (on left half of page) Avenue A tracks, stores and measures data
on users' online responses to Internet advertising. Campaign
performance reports are available online throughout the campaign.
Graphic depicting a line from Caption 6 to a graph (on right half of page)
showing response rates. The horizontal axis shows Portal, E-commerce
site 1, Vertical Portal, Content Site, E-Commerce Site 2, Ad Network 1
and Ad Network 2; the vertical axis shows response rates Low, Medium
and High.

Caption 8: (on left half of page) 2. Advertisement Monitoring
Caption 9: (on left half of page) Client service teams eliminate
under-performing advertisements from the campaign.
Graphic depicting a line from Caption 8 to a chart (on right half of page)
showing Advertisements and Response Rates (high, low and medium) in
tabular form.

Caption 10: (on left half of page) 3. Campaign Monitoring
Caption 11: (on left half of page) Client service teams identify under-
performing sites and/or placements within a site. They then adjust the
campaign by:
Caption 12: (on left half of page) - renegotiating with these sites for
lower rates
Caption 13: (on left half of page) - scheduling additional ads on better
performing sites
Caption 14: (on left half of page) - eliminating under-performing sites
from the campaign
Graphic depicting a line from Caption 10 to a graph (on right half of page)
showing the same statistics as under caption 6 with an X through those
columns with "low" response rates.

Caption 15: (on left half of page) 4. Optimization
Caption 16: (on left half of page) By monitoring and optimizing
advertisements, sites and placements within a site, Avenue A helps
advertisers increase campaign performance.
Graphic depicting a line from Caption 15 to a graph (on right half of page)
showing the same statistics as the graph under Caption 6 with the
"low" response rate columns removed.

Caption 17: (on left half of page) Data Analysis
Caption 18: (on left half of page) Once a campaign is concluded, client
service teams provide campaign analysis and recommendations for future
campaigns.

<PAGE>

TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 8
Special Note Regarding Forward-Looking Statements........................ 23
Use of Proceeds.......................................................... 24
Dividend Policy.......................................................... 24
Capitalization........................................................... 25
Dilution................................................................. 26
Selected Consolidated Financial Data..................................... 27
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 28
</TABLE>
<TABLE>
<CAPTION>
Page
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<S> <C>
Business................................................................. 37
Management............................................................... 49
Related-Party Transactions............................................... 61
Principal Shareholders................................................... 64
Description of Capital Stock............................................. 67
Shares Eligible for Future Sale.......................................... 70
Underwriters............................................................. 72
Legal Matters............................................................ 74
Experts.................................................................. 74
Where You Can Find More Information...................................... 74
Index to Consolidated Financial Statements............................... F-1
</TABLE>
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell shares of common stock
and seeking offers to buy shares of common stock only in jurisdictions where
offers and sales are permitted. The information contained in this prospectus
is accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of our common stock.

Until , 2000, 25 days after commencement of the offering, all
dealers that buy, sell or trade shares, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.

3
<PAGE>

PROSPECTUS SUMMARY

You should read the following summary together with the more detailed
information regarding Avenue A and the common stock being sold in this offering
and the consolidated financial statements and related notes appearing elsewhere
in this prospectus.

We have a history of significant losses and expect to incur substantial losses
in the future

We have a history of significant losses, including net losses of $3.9
million for the period from our inception on July 1, 1997 through December 31,
1998, and net losses of $11.9 million for the year ended December 31, 1999. As
of December 31, 1999, our accumulated deficit was $15.3 million. We anticipate
incurring substantial losses and negative operating cash flow for the
foreseeable future. For more information regarding these and other risks
involved in investing in our common stock, see "Risk Factors."

Avenue A

Avenue A provides technology-based Internet advertising services to
businesses. We integrate Internet media planning and buying, proprietary ad
management technology, user profiling and data analysis systems to help
advertisers increase the effectiveness and return on investment of their
Internet advertising campaigns. We have developed an extensive knowledge base
of Internet advertising strategies, targeting methods and media placements
which have proven effective. We believe this knowledge base grows richer and
more valuable with each additional campaign we execute and with each additional
client we serve. We focus on serving the needs of Internet advertisers, with
the objective of delivering the most successful advertising campaigns for our
clients. Our top four clients are Gateway, Microsoft, uBid and Uproar, based on
our revenue in the fourth quarter of 1999 and in fiscal year 1999.

The Internet is expected to grow rapidly as a medium for advertising and
commerce. Forrester Research, Inc. projects that online advertising
expenditures in the United States will grow from $2.8 billion in 1999 to
$22.0 billion in 2004. We believe that a number of factors have driven this
growth, including the increasing number of Internet users, the growth of e-
commerce and technological advances. The Internet enables the delivery of
advertisements which can be tailored for individual viewers and quickly
modified based on viewers' responses to the advertisements. Advertisers,
however, often must overcome significant challenges to take full advantage of
the potential of the Internet as an advertising medium. Some of these
challenges include the scale and complexity of the Internet, significant data
analysis and technology requirements and substantial operating costs.

Avenue A helps advertisers overcome these challenges. We have designed our
service offering to meet the needs of buyers of Internet advertising. Our media
planning and ad management services use our database to create and execute
highly targeted advertising campaigns. Our proprietary technology allows us to
simultaneously conduct a large number of advertising campaigns which are
delivered to a broad range of Web sites and advertising networks. Our
technology and data analysis systems measure and analyze our clients'
advertising campaigns based on criteria relevant to their specific business
objectives to help increase the return on their investments. We do not design
the content of advertisements, which is provided by the client or a third party
acting on its behalf.

Our objective is to be the leading provider of Internet and other digital
media advertising services to advertisers. To achieve this goal we plan to:

. aggressively acquire new clients and develop new markets, in particular
through our Growth Markets Division, which tailors our services to
clients with smaller online advertising budgets;

. leverage our extensive database of information from prior Internet
advertising campaigns and our data analysis expertise to improve and
extend our services;

4
<PAGE>

. provide superior client service through a comprehensive, integrated
offering of Internet advertising and marketing services, including our
recently launched Precision E-mail Service;

. continue to build, license and acquire technologies that will enable us
to plan and execute increasingly effective Internet advertising and
marketing campaigns;

. acquire complementary businesses and establish relationships with other
companies, including companies that provide traditional advertising and
media services, to increase our sales penetration, gain access to their
clients and become the preferred or exclusive provider of Internet
advertising and marketing services for these companies;

. extend our technology and capabilities to deliver targeted
advertisements through emerging digital media we choose to exploit,
which may include interactive television, Internet-enabled home
appliances, hand-held computers and cellular telephones; and

. expand our presence internationally in order to capitalize on the global
reach of the Internet.

We began operations in July 1997 and were incorporated in Washington in
February 1998. To expand our presence in the Internet advertising industry and
allow us to serve a broader client base, in September 1999 we acquired iballs
LLC, an Internet media company located in New York City. Our principal
executive offices are located at 506 Second Avenue, Seattle, Washington 98104,
and our telephone number is (206) 521-8800. Our World Wide Web site is
www.avenuea.com. The information contained on our Web site is not part of, or
incorporated by reference into, this prospectus.

"AVENUE A," "AVENUE A MEDIA," "AD CLUB NETWORK," "AXIS," "PRECISION E-MAIL,"
"PRECISION TARGETING" and the Avenue A logo are service marks of Avenue A for
which service mark applications are pending. "IBALLS" and the iballs LLC logo
are service marks of iballs LLC, a wholly owned subsidiary of Avenue A, for
which service mark applications are pending. This prospectus also includes
trademarks, trade names and service marks of other companies. Use or display by
Avenue A of other parties' trademarks, trade names or service marks is not
intended to and does not imply a relationship with, or endorsement or
sponsorship of Avenue A by, these other parties.

Unless the context requires otherwise, in this prospectus the terms "Avenue
A," "we," "us" and "our" refer to Avenue A, Inc. and its subsidiaries, and
references to "iballs LLC" refer to I-Balls LLC, a wholly owned subsidiary of
Avenue A, Inc.

5
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THE OFFERING

<TABLE>
<C> <S>
Common stock offered................................ 5,250,000 shares
Common stock to be outstanding after this offering.. 55,672,992 shares
Use of proceeds..................................... For general corporate
purposes, including
working capital. See "Use
of Proceeds."
Proposed Nasdaq National Market symbol.............. AVEA
</TABLE>

The number of shares of our common stock to be outstanding after this
offering is based upon shares outstanding as of December 31, 1999, includes
677,710 shares of common stock to be issued upon exercise of a warrant at an
exercise price of $.55 per share immediately prior to the closing of this
offering, and excludes:

. 7,173,085 shares of common stock subject to outstanding options as of
December 31, 1999, granted under our 1998 stock incentive compensation
plan at a weighted average exercise price of $1.95 per share;

. 2,610,793 shares of common stock reserved for future grants under our
1998 stock incentive compensation plan, which includes 1,650,000 shares
reserved in January 2000 subject to shareholder approval, for future
grants under that plan;

. 1,312,500 shares of common stock subject to outstanding options as of
December 31, 1999, granted outside of our stock incentive compensation
plans at a weighted average exercise price of $1.63 per share; and

. 5,250,000 shares of common stock reserved for issuance under our 1999
stock incentive compensation plan, which includes 3,750,000 shares of
common stock reserved in January 2000 subject to shareholder approval,
and 750,000 shares of common stock reserved for issuance under our 1999
employee stock purchase plan.

In addition, except as otherwise noted, all information in this prospectus
is based on the following assumptions:

. the conversion of each outstanding share of preferred stock into 1.5
shares of common stock upon the closing of this offering;

. no exercise of the underwriters' over-allotment option; and

. a 3-for-2 stock split of our common stock in the form of a common stock
dividend approved by our Board on January 18, 2000.

6
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except share and per share data)

The pro forma basic and diluted net loss per share data in the following
table reflects the conversion of all outstanding shares of preferred stock into
24,624,147 shares of common stock effective upon the closing of this offering.
See note 2 of notes to Avenue A's consolidated financial statements contained
elsewhere in this prospectus for an explanation of the determination of the
number of weighted average shares used to compute pro forma basic and diluted
net loss per share amounts.

<TABLE>
<CAPTION>
Period
From Inception
(July 1, 1997) Year Ended December 31,
to December 31, ------------------------
1997 1998 1999
--------------- ----------- -----------
<S> <C> <C> <C>
Consolidated Statements of
Operations Data:
Total revenue..................... $ 18 $ 599 $ 69,695
Loss from operations.............. (284) (3,658) (12,447)
Net loss.......................... (284) (3,646) (11,893)
Basic and diluted net loss per
share............................ $ (.34) $ (.61)
Shares used in computing basic and
diluted net loss per share....... 10,860,682 19,428,034
Pro forma basic and diluted net
loss per share................... $ (.27) $ (.31)
Shares used in computing pro forma
basic and diluted net loss per
share............................ 13,387,488 38,466,488
</TABLE>

The following table presents consolidated balance sheet data as of December
31, 1999:

. on an actual basis; and

. on an as adjusted basis to reflect the sale of 5,250,000 shares of
common stock offered by this prospectus at an assumed initial public
offering price of $9.00 per share, the receipt by Avenue A of the
estimated net proceeds after deducting estimated underwriting discounts
and commissions and estimated offering expenses, and the receipt by
Avenue A of the proceeds from the sale of 677,710 shares upon exercise
of a warrant at an exercise price of $.55 per share immediately prior to
the closing of this offering.

<TABLE>
<CAPTION>
As of December 31,
1999
-------------------
Actual As Adjusted
------- -----------
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents................................. $10,962 $ 53,478
Working capital........................................... 11,932 54,448
Total assets.............................................. 62,091 104,607
Total liabilities......................................... 40,147 40,147
Total shareholders' equity................................ 21,944 64,460
</TABLE>

7
<PAGE>

RISK FACTORS

An investment in our common stock involves a high degree of risk. You
should carefully consider the following risk factors and the other information
in this prospectus before investing in our common stock. Our business,
financial condition and operating results could be seriously harmed by any of
the following risks. The trading price of our common stock could decline due
to any of these risks, and you may lose all or part of your investment.

Risks Related to Our Company and Business

We are subject to risks frequently encountered by early-stage companies in
the Internet advertising market

Our prospects for financial and operational success must be considered in
light of the risks frequently encountered by early-stage companies in the
Internet advertising industry. These risks include the need to:

. attract new clients and maintain current client relationships;

. achieve effective advertising campaign results for our clients;

. continue to develop and upgrade our technologies to keep pace with the
growth of the Internet advertising market and changes in technology;

. continue to expand the number of services we offer;

. successfully implement our business model, which is unproven and
evolving;

. manage our expanding operations;

. maintain our reputation and build trust with our clients; and

. identify, attract, retain and motivate qualified personnel.

If we do not successfully address these risks, our business could suffer.

We have a history of losses and anticipate continued losses

We incurred net losses of $3.9 million for the period from our inception on
July 1, 1997 through December 31, 1998, and net losses of $11.9 million for
the year ended December 31, 1999. As of December 31, 1999, our accumulated
deficit was $15.3 million. We have not achieved profitability and expect to
continue to incur operating losses for the foreseeable future. We expect to
continue to make significant operating and capital expenditures and, as a
result, we will need to generate significant additional revenue to achieve and
maintain profitability. We cannot assure you that we will generate sufficient
revenue to achieve profitability. Even if we do achieve profitability, we
cannot assure you that we can sustain or increase profitability on a quarterly
or annual basis in the future. If our revenue grows more slowly than we
anticipate, or if our operating expenses exceed our expectations or cannot be
reduced, we will be unable to achieve or maintain profitability.

Our quarterly operating results are subject to fluctuations that may cause
our stock price to decline

Our quarterly operating results have fluctuated in the past and are likely
to continue to do so in the future. It is possible that in the future our
operating results in a particular quarter or quarters will not meet the
expectations of investors. If our operating results fail to meet these
expectations, the market price of our common stock could decline. We believe
that quarter-to-quarter comparisons of our operating results are not a good
indication of our future performance and should not be relied upon to predict
the future performance of our stock price.

Our revenue, expenses and operating results could vary significantly from
quarter to quarter for several reasons, including:

. fluctuating demand for our advertising services and changes in the mix
of advertisements placed and services provided;

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<PAGE>

. addition of new clients or loss of current clients;

. seasonal fluctuations in advertising spending;

. timing variations on the part of advertisers to implement advertising
campaigns;

. changes in the availability and pricing of advertising space;

. timing and amount of costs relating to the expansion of our operations;
and

. costs related to any possible future acquisitions of technologies or
businesses.

Our current and future expense estimates are based, in large part, on
estimates of future revenue, which is difficult to predict. In particular, we
plan to increase our operating expenses significantly in order to enhance our
proprietary technology, expand our client services, sales and marketing
operations and expand internationally. We may be unable to, or may elect not
to, adjust spending quickly enough to offset any unexpected revenue shortfall.
If our expenses are not accompanied by increased revenue in the same quarter,
our quarterly operating results would be harmed.

Our operating results may fluctuate seasonally, and these fluctuations may
cause our stock price to decline

Our stock price may decline due to seasonal fluctuations. We believe that
our operating results will fluctuate depending on the season because retail
advertisers generally purchase substantially more advertising space during the
fourth calendar quarter of each year than during other quarters, particularly
the first calendar quarter. Given our limited operating history, we cannot be
certain how pronounced these seasonal trends may be or what, if any, other
seasonal trends may emerge that would affect our business.

We rely on a limited number of clients, and the loss of a major client or a
reduction in a major client's Internet advertising budget could
significantly reduce our revenue

Our business would be harmed by the loss of any of our major clients, a
reduction in the Internet advertising budgets of any of these clients or any
significant reduction in revenue generated from these clients. A substantial
amount of our revenue to date has been derived from a limited number of
advertisers that use our services. In 1999, Gateway, Microsoft and uBid each
accounted for over 10% of our total revenue, and together accounted for
approximately 43% of our total revenue. In addition, in 1999 our top ten
clients collectively accounted for over 67% of our total revenue. In the
fourth quarter of 1999, Gateway and uBid each accounted for over 10% of our
total revenue, and together accounted for approximately 29% of our total
revenue. In addition, our top ten clients collectively accounted for
approximately 64% of our total revenue in this same period. Current clients
may decide not to continue purchasing advertising services from us or may
significantly reduce their advertising spending, and we may not be able to
successfully attract additional clients. In addition, the non-payment of
amounts due to us from one or more of our significant clients would harm our
business.

Our client contracts have short terms, and the loss of a significant number
of these contracts in a short period of time could harm our business

We derive substantially all of our revenue from the sale of advertising
services under short-term advertising campaign services contracts, all of
which are cancelable upon 90 days' or less notice. In addition, these
contracts generally do not contain penalty provisions for cancellation before
the end of the contract term. The non-renewal, cancellation or deferral of a
significant number of these contracts in any one period would cause an
immediate and significant decline in our revenue and harm our business.

A portion of our recent increases in revenue was due to a change in the
advertising contracts we use, and these increases should not be relied upon
to predict our future performance

A portion of our increase in revenue since the beginning of 1999 was due to
our change from the use of advertising service fee contracts to advertising
services contracts. Accordingly, this portion of the increase does

9
<PAGE>

not indicate increases in our client base, increases in the level of services
we perform for our clients or increasing demand for our services, and should
not be relied upon to predict our future performance. We estimate that the
increase in our revenue since the beginning of 1999 that was due to changing
from advertising service fee contracts to advertising services contracts was
$7.4 million. In 1998, a majority of our client contracts were advertising
service fee contracts, but during the first quarter of 1999, we replaced a
majority of these contracts with advertising services contracts.

We are substantially dependent on our ability to perform third-party ad
serving and any limitation on this ability could harm our business

We are substantially dependent on our ability to perform advertisement
delivery, or ad serving, on third-party Web sites, and any limitation on this
ability could harm our business. Our technology and advertising services have
been structured around third-party ad serving, and we currently do not plan to
shift our focus or diversify our services to diminish the relative importance
of third-party ad serving. Our business could suffer from a variety of factors
that limit or reduce our ability to perform third-party ad serving, including:

. refusal by Web sites or advertising networks to accept advertisements
served by us;

. technological changes that render our ad serving systems obsolete or
incompatible with the systems of Web sites or advertising networks;

. introduction of more advanced or lower-priced ad serving services by our
competitors;

. lawsuits or injunctions based on claims that our ad serving technologies
violate the proprietary rights of other parties;

. increases in ad serving directly from advertisers to Web sites; and

. interruptions, failures or defects in our ad serving systems.

Some of our competitors have obtained patents and have sued other parties
to enforce their rights under these patents, and we may also be subject to
patent infringement claims, including claims that our ad serving
technologies, processes or methods infringe these or other patents

Other parties may claim that our technologies, processes or methods
infringe their patents. Any such claim may cause us to incur significant
expenses and, if successfully asserted against us, may cause us to pay
substantial damages and prevent us from providing some of our services,
including our core ad serving services, which would substantially harm our
business. A U.S. patent was issued to DoubleClick Inc. in September 1999 which
may cover some of the technologies, processes or methods that we use in our ad
serving systems. DoubleClick recently brought suit against L90, Inc., one of
its competitors, claiming that L90's methods and networks for delivery,
targeting and measuring advertising over the Internet infringe this patent.
DoubleClick also recently filed a suit against Sabela Media, Inc., another of
its competitors, relating to infringement of this same patent. We cannot
assure you that we will be able to distinguish our technologies, processes or
methods from those covered under the DoubleClick patent or that the
DoubleClick patent would be invalidated if challenged. If DoubleClick were to
bring a claim against us based upon this patent and we were unable to
distinguish our technologies, processes or methods or prove that the
DoubleClick patent is invalid, we could incur significant expenses, be
required to pay substantial damages and be enjoined from providing some of our
services, including our core ad serving services.

In addition, DoubleClick and MatchLogic, Inc., a subsidiary of At Home
Corporation, have each filed patent applications that appear to cover
technologies relating to ad serving, and 24/7 Media, Inc. has announced that
it has received a notice of allowance for a U.S. patent application on its ad
delivery technology. If patents are issued pursuant to these applications, we
cannot assure you that we will be able to distinguish our technologies,
processes or methods from those covered under these patents or that the
patents would be invalidated if challenged. The patent field covering
Internet-related technologies is rapidly evolving and surrounded by a great
deal of uncertainty, and other patents or patent applications relating to the
delivery of Internet advertising may exist of which we are unaware.

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Any claims that might be brought against us relating to infringement of
patents, including patents that may be issued to DoubleClick, MatchLogic or
24/7 Media, may cause us to incur significant expenses and, if successfully
asserted against us, may cause us to pay substantial damages and limit our
ability to use the intellectual property subject to these claims. Even if we
were to prevail, any litigation could be costly and time-consuming and could
divert the attention of our management and key personnel from our business
operations. Furthermore, as a result of a patent infringement suit, we may be
prevented from providing some of our services, including our core ad serving
services, unless we enter into royalty or license agreements. We may not be
able to obtain royalty or license agreements on terms acceptable to us, if at
all.

In addition to patent infringement claims, third parties may assert other
intellectual property claims, which may cause us to incur significant
expenses, pay substantial damages and be prevented from providing our
services

In addition to patent infringement claims, third parties may claim that we
are infringing or violating their other intellectual property rights,
including their copyrights, trademarks and trade secrets, which may cause us
to incur significant expenses and, if successfully asserted against us, pay
substantial damages and be prevented from providing our services which would
substantially harm our business. Even if we were to prevail, any litigation
regarding our intellectual property could be costly and time-consuming and
divert the attention of our management and key personnel from our business
operations. Furthermore, as a result of an intellectual property infringement
suit, we may be prevented from providing some of our services or using some of
the service marks for which we have sought service mark protection, unless we
enter into royalty or license agreements. We may not be able to obtain royalty
or license agreements on terms acceptable to us, if at all.

Our use of the name "Avenue A" may result in infringement claims and other
legal challenges, which could cause us to incur significant expenses, pay
substantial damages and be prevented from using this name. We are aware of
third parties that use the name "Avenue A," one of which is a Canadian
advertising agency. We are also aware of a registration in France of the name
"Avenue A" for use in advertising services. In addition, we are aware of a
company in the United States named "Ave. A Corporation." We recently filed
claims against this company seeking to prohibit it from doing business under
any name that infringes our trademarks. It is possible that this company may
file counterclaims against us in response to our claims. There may be other
third parties using names similar to ours of whom we are unaware. We may be
subject to trademark infringement claims by third parties as a result of our
use of the name "Avenue A." In addition, we may not receive approval of our
service mark application for the name "Avenue A," and even if the application
is approved, the service mark may be challenged by third parties or
invalidated. As a result of such infringement claims or challenges, we may
incur significant expenses, pay substantial damages and be prevented from
using the name "Avenue A" unless we enter into royalty or license agreements.
We may not be able to obtain royalty or license agreements on terms acceptable
to us, if at all. Use of the name "Avenue A" or similar names by third parties
may also cause confusion to our clients and confusion in the market, which
could decrease the value of our brand and harm our reputation.

Our intellectual property may be subject to legal challenges, unauthorized
use or infringement, which could diminish the value of our services to
existing and potential clients

If we fail to successfully enforce our intellectual property rights, the
value of our services could be diminished and our business may suffer. Our
success depends in large part on our proprietary technology. We have not been
issued any patents to date and we cannot assure you that any of our patent
applications will be approved, that any future patent issued to us will not be
challenged, invalidated or circumvented, or that the rights granted under any
future patent of ours will provide competitive advantages to us. Our success
also depends on our continuing use of our service marks. We may not receive
approval of our service mark applications, and any service marks we may be
granted may be successfully challenged by others or invalidated. If our
service mark

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applications are not approved or if our service marks are invalidated because
of prior third-party registrations, our use of these marks could be restricted
unless we entered into arrangements with these third parties, which might not
be available on commercially reasonable terms, if at all.

We currently rely on a combination of copyright, trademark and trade secret
laws and confidentiality procedures to establish and protect our proprietary
rights. We may be required to spend significant resources to monitor and
enforce these rights. Third parties may obtain and use our technology without
authorization or independently develop similar technology that may infringe
our proprietary rights. We may not be able to detect such infringements or may
lose competitive position in the market before we do so. In addition,
competitors may design around our technology or develop competing technologies
substantially similar to ours. Also, unauthorized parties may attempt to
disclose, obtain or use our technology. Our precautions may not prevent
misappropriation of our intellectual property, particularly in foreign
countries where laws or law enforcement practices may not protect our
proprietary rights as fully as in the United States.

Third parties may assert claims against us relating to the collection and
use of Internet user information

Third parties may claim that our collection and use of Internet user
information violates federal or state laws, which may cause us to incur
significant expenses, pay substantial damages and be prevented from conducting
targeted advertising and aggregating data from our clients' advertising
campaigns. Several Internet-related companies, including some in the Internet
advertising industry, have recently been sued under federal and state laws
regarding the collection and use of Internet user information. Any claim by a
third party against us regarding our collection and use of Internet user
information could harm our business.

Any limitation on our ability to conduct targeted advertising could impair
our ability to retain existing clients and attract new clients

Any limitation on our ability to conduct targeted advertising for our
clients could harm our business. Targeted advertising is an essential element
of our business. As more advertisers demand targeted advertising services, we
will need to develop increasingly effective tools and larger databases that
can provide greater precision in targeted advertisement management and
delivery. The development of these tools and databases is technologically
challenging and expensive. We cannot assure you that we can develop any of
these tools or databases in a cost-effective or timely manner, if at all, and
failure to do so could limit our ability to conduct targeted advertising.
Moreover, privacy concerns may result in limitations or prohibitions on the
use of Internet user information, which could also limit our ability to
conduct targeted advertising. Any limitation or prohibition would impair our
ability to retain our existing clients and to attract new clients, which would
harm our business.

Any limitation on our ability to aggregate or use data from our clients'
advertising campaigns could decrease the value of our services, result in
significant expenditures of resources and harm our business

Any limitation on our ability to aggregate data from our clients'
advertising campaigns or to use this data could decrease the value of our
services, result in significant expenditures and harm our business. In
addition to the detailed data we collect and store for individual clients, we
aggregate non-personally identifiable data on the activity of Internet users
from the advertising campaigns of all of our clients. We rely on this data to
build user behavioral models to assist in media planning and in the targeting
of Internet advertising for our clients. Although the data we aggregate from
the campaigns of different clients is, once aggregated, not identifiable by
client, our clients might decide not to allow us to collect some or all of
this anonymous data or limit our use of this data. In addition, although our
advertising campaign services contracts generally permit us to aggregate
anonymous data from advertising campaigns, our clients might nonetheless
request that we discontinue using data from their campaigns that has already
been aggregated with other client campaign data. It would be difficult if not
impossible to comply with these requests, and such requests could result in
significant expenditures of resources. Interruptions, failures or defects in
our data collection and storage systems, as well as privacy concerns regarding
the collection of user data, could also result in limitations on our ability
to aggregate data from our clients' advertising campaigns.

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Our business model is unproven and evolving and may not succeed

Our business model is new and unproven, is continually evolving, and
ultimately may not succeed. We generate revenue by providing technology-based
Internet advertising services to our clients. The Internet has not been in
existence for a sufficient period of time to demonstrate its effectiveness as
an advertising medium. Internet banner advertising, email marketing and other
types of Internet advertising and marketing, as well as technology-based
methods for targeting advertisements and tracking the results of Internet
advertising, may not achieve broad market acceptance. Also, the intense
competition among Internet advertising service providers has led to the
creation of a number of alternative service offerings and pricing structures
for Internet advertisers. Our model for generating revenue may prove
unsuccessful in light of this competition. Our ability to generate revenue
from our clients will depend, in part, on our ability to:

. demonstrate to our clients that Internet advertising and marketing
services will add value and increase advertising or marketing
effectiveness;

. attract and retain clients by differentiating the services we offer; and

. obtain advertising space at competitive prices from a large base of Web
sites and advertising networks sufficient to meet the needs of our
clients.

If we fail to effectively manage our growth, our business could suffer

Failure to manage our growth could harm our business. We have grown
significantly since our inception and expect to grow quickly in the future. We
have increased our number of employees from 46 as of September 30, 1998 to 232
as of December 31, 1999. In addition, we have recently added 27 employees in
New York City in connection with our acquisition of iballs LLC, an Internet
media company. Because many of our executives, including our chief executive
officer, have only recently joined us, our management team has only worked
together for a short time and may not work together effectively.

Future expansion could be expensive and strain our management and other
resources. In order to effectively manage growth, we must:

. continue to develop an effective planning and management process to
implement our business strategy;

. hire, train and integrate new personnel in all areas of our business,
especially in our Client Service teams;

. improve our financial and managerial controls and accounting and
reporting systems and procedures; and

. expand our facilities and increase our capital investments.

We cannot assure you that we will be able to effectively accomplish these
tasks or otherwise effectively manage our growth.

The loss of our chief executive officer or chief financial officer, or any
inability to attract and retain additional personnel, could impair our
ability to maintain or expand our business

The loss of the services of our chief executive officer or chief financial
officer could harm our business. Our future success depends to a significant
extent on the continued service of our key management personnel, particularly
Brian P. McAndrews, our President and Chief Executive Officer, and Robert M.
Littauer, our Chief Financial Officer, Vice President, Finance and
Administration, Secretary and Treasurer. We do not maintain key person life
insurance on any of our executive officers and do not intend to purchase any
in the future. Our business could be harmed if our chief executive officer or
chief financial officer decided to join a competitor or otherwise compete with
us.

Our future success also depends on our ability to attract, retain and
motivate highly skilled personnel. In particular, we will need to hire a
significant number of client service personnel. Competition for qualified
personnel in the Internet and technology industries is intense. If we fail to
hire and retain a sufficient number of client service personnel, as well as
engineering, sales and technical personnel, we will not be able to maintain or
expand our business.

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Many of our clients have limited operating histories, are unprofitable and
may not be able to pay for our services

If any of our current or future clients is unable to pay for our services,
our business could suffer. Many of our principal clients have limited
operating histories and have not achieved profitability. In the past we have
lost clients, or have had difficulty collecting payments from clients, who
could not pay for our services because they were unable to secure ongoing
funding. The ability of many of our clients to meet their payment obligations
is affected by the risks and difficulties encountered by companies with
limited operating histories, particularly in the evolving Internet market.

We are ultimately liable for the cost of advertising space we buy from Web
sites for sale to our clients

We are ultimately responsible for the payment to Web sites for the cost of
advertising space we buy from them for sale to our clients. If our clients
fail to purchase from us advertising space that we buy from Web sites, we
nevertheless will have to pay the Web sites for the cost of the advertising
space and as a result our business could be harmed.

We have many competitors and may not be able to compete successfully in the
market for Internet advertising

The market for Internet advertising is relatively new, yet intensely
competitive. Our competitors include Internet media buyers that integrate ad
serving technology and Internet media buying, interactive advertising
agencies, enabling online advertising technology providers, advertising
networks, targeted email service providers and traditional advertising
agencies that perform Internet advertising and marketing as part of their
services to clients.

In addition, we compete with other traditional advertising agencies that
use traditional advertising media, and in general we compete with television,
radio, cable and print media for a share of advertisers' budgets.

. engage in more extensive research and development;

. undertake more far-reaching marketing campaigns;

. make more attractive offers to existing and potential employees and
clients;

. adopt more aggressive pricing policies and provide services similar to
ours at no additional cost by bundling them with their other product and
service offerings;

. develop services that are equal or superior to our services or that
achieve greater market acceptance than our services; and

. develop databases that are larger than or otherwise superior to our
databases.

Increased competition is likely to result in price reductions, reduced
gross margins and loss of market share. We cannot assure you that we will be
able to compete successfully, and competitive pressures may harm our business.

Consolidation in the Internet industry may impair our ability to retain our
clients

Many of our clients may be affected by rapid consolidation in the Internet
industry. Our business would suffer if we were to lose a substantial number of
clients or any of our significant clients as a result of

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consolidation. These clients may be required to use the advertising services
of the companies that acquire them or of other advertising service providers.

Consolidation of Internet advertising networks and large Internet portals
may impair our ability to serve advertisements, to acquire advertising
space at favorable rates and to collect campaign data

The consolidation of Internet advertising networks and large Internet
portals could harm our business. This type of consolidation is currently
occurring at a rapid pace and may eventually lead to a concentration of
desirable advertising space on a very small number of networks and large Web
sites. This type of concentration could substantially impair our ability to
serve advertisements if these networks or large Web sites decide not to permit
us to serve advertisements on their Web sites or if they develop ad placement
systems that are not compatible with our ad serving systems. These networks or
Web sites could also use their greater bargaining power to increase their
rates for advertising space or prohibit or limit our aggregation of
advertising campaign data. In addition, concentration of desirable advertising
space in a small number of networks and Web sites could diminish the value of
our advertising campaign databases, as the value of these databases depends on
the continuous aggregation of data from advertising campaigns on a variety of
different Web sites and advertising networks.

We may be unable to adequately protect our data warehouse information

Failure to adequately protect our data warehouse information could harm our
business. Other than typical security features in our systems, we do not take
additional steps to protect our data warehouse information. Our operations may
be susceptible to hacker interception, break-ins and other disruptions. These
disruptions may jeopardize the security of information stored in and
transmitted through our systems. If any of these disruptions were to happen to
our systems, we might be subject to lawsuits by the affected clients or the
users we profile, damage to our reputation among our current and potential
clients and significant expenditures of capital and other resources.

Any failure of our technology to perform satisfactorily could result in
lost revenue, damage to our reputation and expenditure of significant
resources

Any failure of our technology to perform satisfactorily could result in
lost revenue, damage to our reputation and expenditure of significant
resources. Our technology is relatively new and complex and has had, and may
have in the future, errors, defects or performance problems. For example, we
experienced a database outage that lasted for approximately 21 hours, and we
also experienced a defect in our proprietary software that, for approximately
two hours, prevented a portion of the advertisements we serve from appearing
on users' Web pages. In addition, we may encounter problems when we update our
technology to expand and enhance its capabilities. Our technology may
malfunction or suffer from currently unknown design defects that become
apparent only after further use. If our technology malfunctions or contains
such defects, our systems may be rendered incompatible with the systems used
by our clients or by the Web sites and advertising networks where we serve
advertisements. Furthermore, our services could be rendered unreliable, or be
perceived as unreliable by our clients. In such instances, we would need to
expend significant resources to address these problems, and may nonetheless be
unable to adequately remedy these problems. These problems could result in
lost revenue and damage to our reputation.

Sustained or repeated system failures could significantly impair our
operations and lead to client dissatisfaction

Sustained or repeated system failures could significantly impair our
operations and reduce the attractiveness of our services to our current and
potential clients. The continuous and uninterrupted performance of our systems
is critical to our success. Our operations depend on our ability to protect
these systems against damage from fire, power loss, water damage, earthquakes,
telecommunications failures, viruses, vandalism and other malicious

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acts, and similar unexpected adverse events. Clients may become dissatisfied by
any system failure that interrupts our ability to provide our services to them.
In particular, the failure of our ad serving systems, including failures that
delay or prevent the delivery of targeted advertisements to Web sites and
advertising networks, could reduce client satisfaction and damage our
reputation.

Our services are substantially dependent on systems provided by third
parties, over whom we have little control. Interruptions in our services could
result from the failure of telecommunications providers and other third parties
to provide the necessary data communications capacity in the time frame
required. Our ad serving systems and computer hardware are primarily located in
the Seattle, Washington metropolitan area at co-location facilities operated by
Exodus Communications, Inc. and Verio Inc. We depend on these third-party
providers of Internet communication services to provide continuous and
uninterrupted service. We also depend upon Internet service providers that
provide access to our services. In the past, we have occasionally experienced
significant difficulties delivering advertisements to Web sites and advertising
networks due to system failures unrelated to our own systems. For example,
power outages at one of our co-location facilities, including one outage that
lasted for approximately five hours, have prevented us from serving
advertisements, tracking user responses and providing performance reports to
our clients. Any disruption in the Internet access provided by third-party
providers or any failure of third-party providers to handle higher volumes of
user traffic could impair our ability to deliver advertisements and harm our
business.

If we are unable to scale our technology infrastructure, we may experience
capacity constraints that could impair our ability to provide our services
to clients

If we are unable to scale our technology infrastructure, we may experience
significant capacity constraints. Our technology infrastructure may not be able
to support higher volumes of advertisements, additional clients or new types of
Internet and digital media advertising or marketing services. The volume of
advertising delivered through our ad servers has increased from approximately
5.8 million impressions per day in January 1999 to approximately 115.6 million
impressions per day in December 1999. Heightened demand from existing or new
clients for our services will require us to accommodate large increases in the
number of advertisements we serve, the number of campaigns we manage and the
amount of data we store. We will also need to accommodate the introduction of
new and evolving types of Internet and digital media advertising and marketing
that may require greater system resources than current methods of Internet
advertising and marketing. We may not be able to continue to scale our
technology infrastructure in a timely manner or within budget to meet these
demands. Although we believe that we are currently using 50% or less of the
capacity of our ad serving and other systems, any significant increase in the
volume of advertising services provided through our systems could strain the
capacity of our technology infrastructure and ad serving systems. These
capacity constraints could lead to slower response times or system failures.
Such delays or system failures could reduce our ability to place
advertisements, reduce our revenue, damage our reputation and impair our
ability to retain clients or acquire new clients.

Acquisitions or investments may be unsuccessful and may divert our
management's attention and consume significant resources

In September 1999, we acquired iballs LLC, an Internet media company. We may
in the future acquire or make investments in other businesses as well as
products and technologies to complement our current business. Any future
acquisition or investment may require us to use significant amounts of cash,
make potentially dilutive issuances of equity securities and incur debt. In
addition, acquisitions, including the iballs LLC acquisition, involve numerous
risks, any of which could harm our business, including:

. difficulties in integrating the operations, technologies, services and
personnel of acquired businesses;

. diversion of management's attention from other business concerns;

. unavailability of favorable financing for future acquisitions;

. potential loss of key employees of acquired businesses;

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. inability to maintain the key business relationships and the reputations
of acquired businesses;

. responsibility for liabilities of acquired businesses;

. inability to maintain our standards, controls, procedures and policies;
and

. increased fixed costs.

Clients may attempt to prohibit us from providing services to their
competitors, limiting our business opportunities

To use our services more effectively, clients often provide us with
confidential business and marketing information. Many companies are wary of
third parties having access to this information, because access by third
parties increases the risk that confidential business and marketing
information may become known, even if unintentionally, to these companies'
competitors. These confidentiality concerns may prompt our clients to attempt
to contractually prohibit us from managing the Internet advertising campaigns
of their competitors. Limitation of our client base in a particular industry
in this manner could limit the growth of our business.

International expansion could impose substantial burdens on our resources
and divert management's attention from domestic operations

International expansion of our operations could impose substantial burdens
on our resources, divert management's attention from domestic operations, and
otherwise harm our business. This expansion into international markets will
require extensive management attention and resources. In addition, we may need
to rely extensively on third parties in foreign countries to help conduct our
international operations, coordinate with foreign Web sites and conduct sales
and marketing efforts. Our success in international markets will depend to a
large degree on the success of these third parties, over whom we may have
little control, and on their willingness to dedicate sufficient resources to
our relationships. Furthermore, international operations are subject to
several inherent risks, including:

. difficulties and costs of staffing and managing foreign offices;

. the impact of recessions in economies outside the United States;

. changes in regulatory requirements;

. export restrictions, including export controls relating to encryption
technology;

. more stringent rules relating to the collection and use of information
regarding Internet users;

. reduced protection of intellectual property rights;

. adverse tax consequences;

. political and economic instability;

. tariffs and other trade barriers; and

. fluctuations in currency exchange rates.

Our failure to address these risks adequately could harm our business.

Our business does not generate the cash needed to finance our operations,
and we may need additional financing in the future, which we may be unable
to obtain

Our business does not currently generate the cash needed to finance our
operations. We may need additional funds to finance our operations, as well as
to enhance our services, fund our expansion, respond to competitive pressures
or acquire complementary businesses or technologies. We may be unable to
obtain financing on terms favorable to us, if at all. Poor financial results,
unanticipated expenses or unanticipated opportunities that require

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financial commitments could give rise to additional financing requirements
sooner than we expect. If we raise additional funds through the issuance of
equity or convertible debt securities, the percentage ownership of our
existing shareholders would be reduced, and these securities might have
rights, preferences or privileges senior to those of our common stock. If
adequate funds are not available or are not available on acceptable terms, our
ability to enhance our services, fund our expansion, respond to competitive
pressures or take advantage of business opportunities would be significantly
limited, and we might need to significantly restrict our operations.

Potential year 2000 problems with our internal systems or third-party
systems could harm our business

Potential year 2000 problems with our internal systems or third-party
systems could harm our business. Many currently installed computer systems and
software products and systems worldwide are coded to accept only two-digit
entries to identify a year in the date code field. Consequently, after January
1, 2000, many of these systems could fail or malfunction because they are not
able to distinguish between the year 1900 and the year 2000. These system
failures or malfunctions could cause significant disruptions of our
operations.

As a company engaged in Internet advertising services, we rely on computer
programs and systems in connection with our services as well as with our
internal and external communication networks and systems and other business
functions. We have not engaged any third parties to independently verify our
year 2000 readiness, nor have we assessed potential costs associated with year
2000 risks or made any contingency plans to address these risks. Although we
have received assurances from some of the suppliers of our third-party
software, computer equipment and systems that their products are year 2000
compliant, to date we have generally relied on publicly available information
regarding the year 2000 compliance of their products. We also generally do not
have any contractual rights with these providers if their products fail to
function due to year 2000 issues. If these failures do occur, we may incur
unanticipated expenses to remedy any problems, including purchasing
replacement software, computer equipment and systems. Any failures of our
internally developed software or the third-party software, computer equipment
and systems that we use could result in financial loss, damage to our
reputation and legal liability.

We rely on the continued operations of the Web-based computer systems of
our clients and of the vendors whose Web sites or advertising networks host
our clients' advertisements. The successful delivery of our services for our
clients depends on the satisfactory functioning of our clients' and vendors'
computer systems. If these systems fail because they are not year 2000
compliant, we may be unable to fully deliver the services that our clients
have requested, which could harm our quarterly and annual operating results.

We also rely on the satisfactory performance and reliability of the
external communication and computer networks, systems and services integral to
the Internet, such as telecommunications providers and Internet service
providers. In particular, we rely on the satisfactory performance and
reliability of the networks, systems and services of Exodus Communications and
Verio, the Internet service providers that operate our co-location facilities.
Because these external networks, systems and services are maintained or
provided by third parties, the success of our efforts to address the year 2000
problem depends in part on parallel efforts being undertaken by these third
parties. We have initiated communications with most of these third parties to
determine the status of their year 2000 compliance efforts. We cannot,
however, assure you that they have provided accurate or complete information,
or that all of their networks, systems or services will achieve full year 2000
compliance in a timely fashion.

The most reasonably likely worst-case scenario for us resulting from the
year 2000 problem is that disruptions of the external third-party networks,
systems or services on which we depend would reduce or eliminate for a period
of time our ability to provide our Internet advertising services to our
clients. If these disruptions were frequent or long in duration, they could
seriously harm our business. The compliance of third-party networks, systems
and services, including telecommunications providers, Internet service
providers and co-location facilities, is not within our control. Accordingly,
a contingency plan for this worst-case scenario does not exist, and we do not
believe we will be able to develop one.

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Risks Related to Our Industry

Privacy concerns could lead to legislative and other limitations on our
ability to collect personal data from Internet users, including limitations
on our use of cookie technology and user profiling

Privacy concerns could lead to legislative and other limitations on our
ability to conduct targeted advertising campaigns and compile data that we use
to formulate campaign strategies for our clients. Cookies are small files of
information stored on a user's computer which allow us to recognize that
user's browser when we serve advertisements. Cookies are often placed on the
user's computer without the user's knowledge or consent. Our systems use
"cookies" to track Internet users and their online behavior to build user
profiles. We are substantially dependent on cookie technology and user
profiling to target our clients' advertising campaigns and measure their
effectiveness. Any reduction in our ability to use cookies or other means to
build user profiles could harm our business.

Governmental bodies concerned with the privacy of Internet users have
suggested limiting or eliminating the use of cookies or user profiling. United
States legislators in the past have introduced a number of bills aimed at
regulating the collection and use of personal data from Internet users and
additional similar bills may be considered during any congressional session.
Also, the Federal Trade Commission and the Department of Commerce recently
held hearings regarding user profiling, the collection of non-personally
identifiable information and online privacy. In addition, privacy concerns
have led to legal and technical limitations on the use of cookies and user
profiling in some jurisdictions. For example, the European Union recently
adopted a directive addressing data privacy that may result in limitations on
the collection and use of information regarding European Internet users. Also,
Germany has imposed its own laws limiting the use of user profiling, and other
countries may impose similar limitations. In addition, users may limit or
eliminate the placement of cookies on their computers by using third-party
software that blocks cookies, or by disabling the cookie functions of their
Internet browser software. If our ability to use cookies or build user
profiles were substantially restricted by technology, government regulation or
any other means, we would likely have to use other technology or methods that
allow the gathering of user profile data in other ways in order to provide our
services to our clients. This change in technology or methods could require
significant reengineering time and resources, and might not be done in time to
avoid negative consequences to our business. In addition, alternative
technology or methods might not be available at all, or might be prohibitively
expensive.

Legislation or regulations may be adopted that could impair our ability to
provide our services to clients

Legislation or regulations may be adopted that could impair our ability to
provide our services to clients. The legal and regulatory environment
governing the Internet is uncertain and may change. Laws and regulations may
be adopted covering issues such as privacy, pricing, acceptable content,
taxation, consumer protection and quality of products and services on the
Internet. These laws and regulations could dampen the growth in use of the
Internet generally and decrease the acceptance of the Internet as an
advertising medium. In addition, due to the global nature of the Internet, it
is possible that multiple federal, state or foreign jurisdictions might
inconsistently regulate our activities or the activities of advertising
networks or Web sites. Any of these developments could harm our business.

We may not be able to adapt to rapidly changing Internet technology trends
and evolving industry standards

The Internet and Internet advertising markets are characterized by rapidly
changing technologies, evolving industry standards, frequent new product and
service introductions, and changing client demands. The introduction of new
products and services embodying new technologies and the emergence of new
industry standards may render our services obsolete. Our future success will
depend on our ability to adapt to rapidly changing technologies, enhance our
existing Internet advertising services and develop and introduce a variety of
new services to address our clients' changing demands. We may experience
difficulties that could delay or prevent the successful design, development,
introduction or marketing of our services. In addition, any new services or
enhancements must meet the requirements of our current clients and must
achieve significant market

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acceptance. Material delays in introducing new services and enhancements may
cause clients to discontinue use of our services and use the services of our
competitors.

The Internet advertising market may develop more slowly than expected,
which could impair our ability to retain our existing clients and to
attract new clients

If the market for Internet advertising develops more slowly than we expect,
our business could suffer. Our future success is highly dependent on an
increase in the use of the Internet, the commitment of advertisers to the
Internet as an advertising medium, and on the willingness of our potential
clients to outsource their Internet advertising and marketing needs. The
Internet advertising market is new and rapidly evolving, and it cannot yet be
compared with traditional advertising media to gauge its effectiveness. As a
result, demand and market acceptance for Internet advertising services is
uncertain. Many of our current or potential clients have little or no
experience using the Internet for advertising purposes and have allocated only
a limited portion of their advertising budgets to Internet advertising. Also,
we must compete with traditional advertising media, including television,
radio, cable and print, for a share of our clients' total advertising budgets.
Our current and potential clients may find Internet advertising to be less
effective than traditional advertising media for promoting their products and
services. In addition, "filter" software programs are available that limit or
prevent advertising from being delivered to an Internet user's computer. The
widespread adoption of such software could significantly undermine the
commercial viability of Internet advertising.

We recently expanded our service offering to include email advertising and
marketing services. The market for email advertising and marketing in general
is vulnerable to the negative public perception associated with unsolicited
email. Various states have enacted legislation and several bills have been
introduced in Congress that limit or prohibit the use of unsolicited email.
Government action, public perception or press reports related to solicited or
unsolicited email could reduce the overall demand for email advertising and
marketing in general and our email services in particular.

If the Internet infrastructure is unable to effectively support the growth
in demand placed on it, our business could suffer

We depend entirely on Internet advertising services for revenue, and the
increased use of the Internet is essential for our business to grow.
Accordingly, our success will depend, in large part, on the maintenance of the
Internet infrastructure. We cannot assure you that the Internet infrastructure
will continue to effectively support the demands placed on it as the Internet
continues to experience increased numbers of users, frequency of use and
bandwidth requirements. Even if the necessary Internet infrastructure or
technologies are developed, we may have to spend considerable resources to
adapt our services accordingly. Furthermore, the Internet has experienced a
variety of outages and other delays due to damage to portions of its
infrastructure. Outages and delays could impair our ability to serve
advertisements on Web sites and advertising networks. Outages and delays could
also adversely affect our clients' Web sites and online operations and
decrease the level of user traffic on Web sites where our clients advertise.
Such occurrences could result in lost revenue.

Risks Related to This Offering

The trading prices for the stock of Internet-related companies such as ours
have been volatile

The trading prices for the stock of Internet-related companies such as ours
have experienced extreme price and volume fluctuations. These fluctuations
have often been unrelated or disproportionate to the operating performance of
these particular companies. The market price for our common stock will vary
significantly from the initial public offering price after this offering and
may prove to be especially volatile. This volatility could result in
substantial losses for investors. The market price of our common stock may
fluctuate significantly in response to a number of factors, including:

. quarterly variations in our operating results;

. announcements by us or our competitors of new products or services,
significant contracts, acquisitions or business relationships with other
companies;

20
<PAGE>

. publicity about our company, our services, our competitors, or Internet
advertising in general;

. additions or departures of key personnel;

. any future sales of our common stock or other securities; and

. stock market price and volume fluctuations of other publicly traded
companies and, in particular, those that are Internet-related.

In the past, companies that have experienced volatility in the market price
of their stock have been subject to securities class action litigation. We may
be the target of this type of litigation in the future. Securities litigation
against us could result in substantial costs and divert our management's
attention, which could seriously harm our business.

Future sales of shares by existing shareholders could affect our stock
price

If our shareholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could fall, potentially resulting in substantial losses to investors. These
sales also might make it more difficult for us to sell equity or equity-
related securities in the future at a time and price that we deem appropriate.
Based on shares outstanding as of December 31, 1999, upon completion of this
offering and upon the exercise of a warrant to purchase 677,710 shares of
common stock immediately prior to the closing of this offering, we will have
outstanding 55,672,992 shares of common stock, assuming no exercise of options
after December 31, 1999 and the conversion of all shares of outstanding
preferred stock into common stock. Holders of 47,874,451 shares are subject to
agreements with the underwriters that restrict their ability to transfer their
stock for 180 days from the date of this prospectus. After these agreements
expire, approximately 23,578,701 shares will be eligible for sale in the
public market assuming no exercise of stock options after December 31, 1999.

New shareholders will incur substantial dilution as a result of this
offering

The initial public offering price is expected to be substantially higher
than the book value per share of our outstanding common stock. As a result,
investors purchasing common stock in this offering will incur immediate and
substantial dilution in net tangible book value per share of the common stock
from the initial public offering price in the amount of $7.94 per share, based
upon an assumed initial offering price of $9.00 per share. In addition, we
have issued options to acquire common stock at prices significantly below the
assumed initial public offering price. To the extent these outstanding options
are ultimately exercised, there will be further dilution to investors in this
offering.

Because our directors and executive officers own a large percentage of our
voting stock, your voting power may be limited

Based on the number of shares outstanding as of December 31, 1999, after
this offering, it is anticipated that our executive officers and directors
will beneficially own or control, directly or indirectly, 28,605,230 shares of
common stock, which in the aggregate will represent approximately 47.9% of the
outstanding shares of common stock. As a result, if these persons act
together, they will have the ability to exert significant control over matters
submitted to our shareholders for approval, including the election and removal
of directors and the approval of any business combination. This may delay or
prevent an acquisition or affect the market price of our stock.

Our management has discretion as to the use of the net proceeds from this
offering

Our management has broad discretion as to the use of the net proceeds that
we will receive from this offering. We cannot assure you that management will
apply these funds effectively, nor can we assure you that the net proceeds
from this offering will be invested to yield a favorable return.

21
<PAGE>

We have adopted antitakeover provisions that could make the sale of Avenue
A more difficult

Our articles of incorporation and bylaws contain provisions, such as
undesignated preferred stock, which could make it more difficult for a third
party to acquire us without the consent of our board of directors. In
addition, our board of directors has approved amendments to our articles of
incorporation and bylaws, which, subject to shareholder approval, will provide
for a staggered board, removal of directors only for cause, two-thirds
shareholder approval of some types of business transactions, advance notice of
shareholder proposals and nominations and restrictions on the persons that may
call special shareholder meetings. These provisions may delay or prevent a
change of control of Avenue A even if this change of control would benefit our
shareholders.

This offering will benefit existing shareholders and option holders

This offering will provide substantial benefits to our current shareholders
and substantial potential benefits to our current holders of stock options.
Consummation of this offering is expected to create a public market for the
common stock held by our current shareholders and for common stock that may be
acquired on exercise of stock options held by our current option holders. As
of December 31, 1999, our shareholders had paid approximately $60.8 million,
or an average of $1.22 per share, for an aggregate of 49,745,282 shares of
stock and our option holders held, in the aggregate, options for 7,173,085
shares of common stock, with a weighted average exercise price of $1.95 per
share. Based on an assumed initial public offering price of $9.00 per share,
the value of the shares held by our shareholders as of December 31, 1999 would
be approximately $447.4 million, and the unrealized gain to those shareholders
resulting from this offering would be approximately $386.6 million. Based on
an assumed initial public offering price of $9.00 per share, the value of the
shares that may be acquired on exercise of options held by our option holders
as of December 31, 1999 would be approximately $64.6 million, and the in-the-
money value of these options resulting from this offering would be
approximately $50.6 million.

We recently sold stock at a substantially lower price and granted options
at a substantially lower exercise price than the assumed initial public
offering price

We recently sold stock at a substantially lower price and granted options
at a substantially lower exercise price than the assumed initial public
offering price. Accordingly, investors may pay substantially more for shares
of our common stock than the holders of these shares and stock options. In the
fourth quarter of 1999, we sold an aggregate of 630,000 shares of common stock
to shareholders for approximately $1.6 million, or approximately $2.60 per
share. Based on an assumed initial public offering price of $9.00 per share,
the value of these shares would be approximately $5.7 million and the
unrealized gain to these shareholders resulting from this offering would be
approximately $4.0 million. In this same period, we granted options for an
aggregate of 2,716,050 shares of common stock, with a weighted average
exercise price of $3.09 per share. Based on an assumed initial public offering
price of $9.00 per share, the value of the shares that may be acquired on
exercise of these options would be approximately $24.4 million, and the in-
the-money value of these options resulting from this offering would be
approximately $16.1 million.

22
<PAGE>

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases,
you can identify forward-looking statements by terminology such as may, will,
should, expect, plan, intend, anticipate, believe, estimate, predict,
potential or continue, the negative of such terms or other comparable
terminology. These statements are only predictions. Actual events or results
may differ materially. In evaluating these statements, you should specifically
consider various factors, including the risks outlined in the Risk Factors
section above. These factors may cause our actual results to differ materially
from any forward-looking statement.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of the
forward-looking statements. We are under no duty to update any of the forward-
looking statements after the date of this prospectus to conform such
statements to actual results or to changes in our expectations.

23
<PAGE>

USE OF PROCEEDS

We estimate that our net proceeds from this offering will be $42.1 million
at an assumed initial public offering price of $9.00 per share and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses. If the underwriters' over-allotment option is exercised in
full, we estimate that our net proceeds will be approximately $48.7 million.

The principal purposes of this offering are to obtain additional working
capital, establish a public market for our common stock and facilitate our
future access to public markets. We have no specific plan for the use of the
net proceeds of this offering. We expect to use the net proceeds for general
corporate purposes, including working capital to fund anticipated operating
losses. We have not, however, designated specific amounts of the anticipated
proceeds for any particular purpose. We may also use a portion of the net
proceeds to expand our operations internationally or to acquire complementary
businesses or technologies. While from time to time we evaluate potential
acquisitions of businesses or technologies, we currently have no present
understandings, commitments or agreements with respect to any such
transactions. Pending any of these uses, we intend to invest the net proceeds
of this offering in short-term, interest-bearing, investment-grade securities.

DIVIDEND POLICY

We have never declared or paid cash dividends on our capital stock. We
currently intend to retain all available funds and any future earnings for use
in the operation and expansion of our business and do not anticipate paying
any cash dividends in the foreseeable future.

24
<PAGE>

CAPITALIZATION

The following table sets forth our capitalization as of December 31, 1999:

. on an actual basis;

. on a pro forma basis to reflect the conversion of all outstanding shares
of preferred stock into 24,624,147 shares of common stock effective upon
the closing of this offering and the exercise of a warrant to purchase
677,710 shares of common stock at an exercise price of $.55 per share
immediately prior to the closing of this offering; and

. on a pro forma as adjusted basis to reflect the sale of 5,250,000 shares
of common stock offered by this prospectus at an assumed initial public
offering price of $9.00 per share, and our receipt of the estimated net
proceeds after deducting estimated underwriting discounts and
commissions and estimated offering expenses.

You should read this table in conjunction with our consolidated financial
statements and the notes thereto included elsewhere in this prospectus.

<TABLE>
<CAPTION>
December 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma as Adjusted
-------- --------- -----------
(in thousands, except share
and per share data)
<S> <C> <C> <C>
Shareholders' equity:
Convertible preferred stock, $.01 par value
per share; 37,500,000 shares authorized;
16,416,098 shares issued and outstanding,
actual; no shares issued and outstanding, pro
forma and pro forma as adjusted.............. $ 164 $ -- $ --
Common stock, $.01 par value per share;
200,000,000 shares authorized; 25,121,135
shares issued and outstanding, actual;
50,422,992 shares issued and outstanding, pro
forma; 55,672,992 shares issued and
outstanding, pro forma as adjusted........... 251 504 557
Paid-in capital............................... 60,424 60,708 102,798
Deferred stock compensation................... (22,670) (22,670) (22,670)
Subscriptions receivable...................... (965) (965) (965)
Accumulated deficit........................... (15,260) (15,260) (15,260)
-------- -------- --------
Total shareholders' equity................. $ 21,944 $ 22,317 $ 64,460
-------- -------- --------
Total capitalization..................... $ 21,944 $ 22,317 $ 64,460
======== ======== ========
</TABLE>

The information in the table above does not include:

25
<PAGE>

DILUTION

Our pro forma net tangible book value as of December 31, 1999 was
approximately $16.7 million, or $.34 per share of common stock, assuming the
conversion of all outstanding shares of preferred stock into 24,624,147 shares
of common stock. Pro forma net tangible book value per share represents the
amount of our total tangible assets reduced by the amount of our total
liabilities, divided by the pro forma number of outstanding shares of common
stock. After giving effect to the sale of the 5,250,000 shares of common stock
offered by this prospectus, at an assumed initial public offering price of
$9.00 per share, and the exercise of a warrant to purchase 677,710 shares of
common stock at an exercise price of $.55 per share immediately prior to the
closing of this offering, and after deducting estimated underwriting discounts
and commissions and estimated offering expenses, our pro forma as adjusted net
tangible book value as of December 31, 1999 would have been $59.2 million, or
$1.06 per share. This represents an immediate increase in pro forma net
tangible book value of $.72 per share to existing shareholders and an
immediate dilution of $7.94 per share to investors purchasing shares in this
offering. Dilution is determined by subtracting pro forma net tangible book
value per share after this offering from the assumed initial public offering
price per share. The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $9.00
Pro forma net tangible book value per share as of December 31,
1999........................................................... $ .34
Increase per share attributable to new investors................ .72
-----
Pro forma as adjusted net tangible book value per share after this
offering......................................................... 1.06
-----
Dilution per share to new investors............................... $7.94
=====
</TABLE>

The following table sets forth as of December 31, 1999, on the pro forma
basis described above, the difference between the number of shares of common
stock purchased from us, the total consideration paid, and the average price
per share paid by the existing shareholders, by investors purchasing shares in
this offering, based upon an assumed initial public offering price of $9.00
per share and before deducting estimated underwriting discounts and
commissions and estimated offering expenses, and by a warrant holder
exercising a warrant immediately prior to the closing of this offering:

<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ -------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders...... 49,745,282 89.4% $ 60,839,000 56.1% $1.22
New investors.............. 5,250,000 9.4 47,250,000 43.6 9.00
Warrant holder............. 677,710 1.2 372,741 .3 .55
---------- ---- ------------ ----
Total.................... 55,672,992 100% $108,461,741 100%
========== ==== ============ ====
</TABLE>

As of December 31, 1999, we had outstanding options to purchase 7,173,085
shares of common stock under our 1998 stock incentive compensation plan at a
weighted average exercise price of $1.95 per share, and options to purchase
1,312,500 shares of common stock which were granted outside of our stock
incentive compensation plans at a weighted average exercise price of $1.63 per
share. We have also reserved 2,610,793 shares of common stock for future
grants under our 1998 stock incentive compensation plan, which includes
1,650,000 shares reserved in January 2000. In addition, we have reserved
5,250,000 shares of common stock for issuance under our 1999 stock incentive
compensation plan and 750,000 shares of common stock reserved for issuance
under our 1999 employee stock purchase plan. To the extent these options are
exercised, and to the extent we issue new options or rights under our stock
plans or issue additional shares of common stock in the future, new investors
will experience further dilution.

26
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and related notes
thereto, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," included elsewhere in this prospectus. The
consolidated statements of operations data for the period from inception on
July 1, 1997 to December 31, 1997 and for the years ended December 31, 1998,
and 1999 and the consolidated balance sheet data as of December 31, 1998 and
1999, have been derived from our audited consolidated financial statements and
related notes thereto included elsewhere in this prospectus. In the opinion of
management, such unaudited consolidated financial statements have been
prepared on the same basis as the audited consolidated financial statements
referred to above and include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of results of
operations for the indicated periods.

<TABLE>
<CAPTION>
Period From
Inception Year Ended December 31,
(July 1, 1997) to ------------------------------------
December 31, 1997 1998 1999
-------------------------------------- -----------------
(in thousands, except share and per share data)
<S> <C> <C> <C>
Consolidated Statements
of Operations Data:
Revenue:
Advertising services.. $ -- $ -- $ 67,074
Advertising service
fees................. 18 599 2,621
------------ ----------------- -----------------
Total revenue....... 18 599 69,695
Expenses:
Cost of advertising
services............. 20 125 56,979
Client services....... 19 382 4,860
Technology and
operations........... -- 1,493 3,292
Selling, general and
administrative....... 263 2,257 12,330
Amortization of
deferred stock
compensation......... -- -- 4,681
------------ ----------------- -----------------
Total expenses...... 302 4,257 82,142
------------ ----------------- -----------------
Loss from operations.... (284) (3,658) (12,447)
Interest income, net.... -- 12 554
------------ ----------------- -----------------
Net loss................ $ (284) $ (3,646) $ (11,893)
============ ================= =================
Basic and diluted net
loss per share......... $ (.34) $ (.61)
Shares used in computing
basic and diluted net
loss per share......... 10,860,682 19,428,034
Pro forma basic and
diluted net loss per
share(1)............... $ (.27) $ (.31)
Shares used in computing
pro forma basic and
diluted net loss per
share(1)............... 13,387,488 38,466,488

Other Data:
Total billings(2)....... $ 18 $ 3,626 $ 80,671
</TABLE>

<TABLE>
<CAPTION>
As of December 31,
----------------------
1997 1998 1999
----- ------ -------
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents............................... $ 3 $ 847 $10,962
Working capital (deficit)............................... (338) (30) 11,932
Total assets............................................ 75 3,441 62,091
Total liabilities....................................... 359 2,431 40,147
Total shareholders' equity (deficit).................... (284) 1,010 21,944
</TABLE>
- --------

(1) See note 2 of notes to our consolidated financial statements for an
explanation of the method used to calculate pro forma basic and diluted
net loss per share.

(2) Total billings represents gross billings to customers for advertising
services. Although total billings is not a recognized method of revenue
recognition under generally accepted accounting principles, we believe
that total billings is a standard measure of advertising volume for the
Internet advertising industry that enables a meaningful comparison of
activity from period to period and from one company to another.

27
<PAGE>

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 appearing elsewhere in
this prospectus. The following discussion contains forward-looking statements
that involve risks and uncertainties. Our actual results could differ
materially from the results contemplated by these forward-looking statements
as a result of various factors, including those discussed below and elsewhere
in this prospectus.

Overview

Revenue

We generate revenue by providing Internet advertising services, which
include the procurement of Internet advertising space for our clients. Due to
a change in the way we structure our advertising contracts, we have changed
from accounting for our revenue primarily as advertising service fee revenue
to accounting for our revenue primarily as advertising services revenue.
Advertising service fee revenue, which is generated under advertising service
fee contracts, consists of commissions earned on services we provide to
clients. Advertising services revenue, which is generated under advertising
services contracts, consists of the gross value of our billings to clients and
includes the price of the advertising space we purchase from Web sites to sell
to clients. By contrast to advertising service fee contracts, under
advertising services contracts we recognize the cost of the advertising we
purchase for our clients as an expense and the payments we receive from our
clients for this advertising as revenue. Consequently, our shift from
advertising service fee contracts to advertising services contracts results in
our recognizing greater revenue and greater expenses for the same level of
client services and advertising.

We began operations in July 1997 and were incorporated in February 1998.
Through December 31, 1998, our primary source of revenue consisted of
advertising service fees. To generate advertising service fee revenue, we
purchase advertising space on behalf of our clients from Web sites that sell
advertising space, also called publisher Web sites. We earn fees based on the
dollar amount of advertising space we purchase. Under advertising service fee
contracts, our clients are ultimately responsible for paying the publisher Web
sites for the cost of the advertising space purchased. Cost of advertising
service fee revenue consists only of the cost of delivering advertisements
over the Internet.

During the first quarter of 1999, we replaced a majority of our advertising
service fee contracts with advertising services contracts. All of the clients
we acquired during 1999 have entered into advertising services contracts, and
substantially all of the contracts with clients acquired in 1997 and 1998 have
been converted to advertising services contracts. To generate advertising
services revenue, we purchase advertising space from publisher Web sites and
sell the purchased space to our clients. Under client relationships based on
advertising services contracts, we are ultimately responsible for paying
publisher Web sites for the cost of advertising space we purchase from them.
Revenue under both advertising service fee contracts and advertising services
contracts is recognized over the period that the related advertising is
delivered. Although the increase in our revenue in recent periods is a result
of an increase in our number of clients and increased total spending by
clients, revenue has increased disproportionately relative to prior periods as
a result of the recognition of gross billings to our clients as revenue in
connection with our use of advertising services contracts.

28
<PAGE>

We changed our contract structure from advertising service fee contracts to
advertising services contracts to account for revenues and expenses relating
to the purchase and sale of Web site advertising space on a basis consistent
with industry practice in the Internet advertising industry. Although we
currently derive some of our revenue from advertising service fee contracts,
we expect that the majority of our future revenue will continue to be derived
from advertising services contracts.

To expand our presence in the Internet advertising industry and allow us to
serve a broader client base, in September 1999 we acquired iballs LLC, an
Internet media company, for a combination of cash and common stock totaling
approximately $6.1 million. We are currently seeking to replace the
advertising service fee contracts between iballs LLC and its clients with
advertising services contracts.

Expenses

Cost of advertising services. Cost of advertising services consists of the
cost of advertising space that we purchase from publisher Web sites, including
inventory purchased by our AdClub, Inc. subsidiary, and the cost of delivering
advertisements over the Internet. AdClub, a reseller of advertising space,
sells advertising only to our clients and its operations are not material to
us as a whole.

Client services expenses. Client services expenses consist primarily of
salaries and related expenses for client service personnel. These employees
are organized into Client Service teams consisting of client strategists,
media buyers, account coordinators and media engineers. Client services
expenses also include the salaries and related expenses for personnel in our
data analysis group.

Technology and operations expenses. Technology and operations expenses
consist of salaries and related costs for information technology and software
development personnel. In addition, these expenses include the cost of housing
our ad servers and other equipment at third-party co-location facilities.

Selling, general and administrative expenses. Selling, general and
administrative expenses consist primarily of salaries and related expenses for
executive, sales, finance, marketing, human resource and administrative
personnel and other general corporate expenses, including amortization of
goodwill and depreciation of property and equipment. In addition, these
expenses include marketing costs such as trade shows and the costs of
advertising our services in trade publications.

Amortization of deferred stock compensation. Amortization of deferred stock
compensation consists of expenses related to employee stock option grants with
option exercise prices below the deemed fair value of our common stock as of
the date of grant. The amount of deferred stock compensation resulting from
these grants is being amortized on an accelerated basis over a four-year
period.

Net Losses

We incurred net losses of $284,000 for the period from our inception on
July 1, 1997 through December 31, 1997, $3.6 million for the year ended
December 31, 1998 and $11.9 million for the year ended December 31, 1999, and
had an accumulated deficit of $15.3 million as of December 31, 1999. We expect
operating losses and negative cash flow to continue for the foreseeable
future. We anticipate our net losses will increase from current levels, since
we expect to incur additional costs and expenses related to brand development,
marketing and other promotional activities, deferred compensation expenses,
amortization of goodwill resulting from the acquisition of iballs LLC, the
expansion of our operations, increasing investment in the systems that we use
to process client orders and payments, and the expansion of our service
offering.

We believe that our operating results will continue to be subject to
seasonal fluctuations because retail advertisers generally purchase
substantially more advertising space during the fourth calendar quarter of
each year than during other quarters, particularly the first calendar quarter.
Due to this seasonal pattern, we expect our revenue in the first quarter of
2000 to be less than those in the fourth quarter of 1999.

29
<PAGE>

Results of Operations

Selected Quarterly Results of Operations

Because we have a limited operating history, we believe that year-to-year
comparisons are less meaningful than an analysis of our recent quarterly
operating results. Accordingly, we are providing a discussion and analysis of
our results of operations for the eight quarters ended December 31, 1999.
During the quarters ended March 31, 1998 and June 30, 1998 we devoted our
resources primarily to developing our business model, which is reflected in
the following discussion and analysis of our quarterly results of operations.

The following tables present, in dollars and as a percentage of revenue,
unaudited statements of operations data for the eight quarters ended December
31, 1999. This information reflects all adjustments, consisting only of normal
recurring adjustments, that we consider necessary for a fair presentation of
such information. The results of any quarter are not necessarily indicative of
results for any future period.

<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31,
1998 1998 1998 1998 1999 1999 1999 1999
--------- --------- ------------- ------------ --------- -------- ------------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data:
Revenue:
Advertising
services............. $ -- $ -- $ -- $ -- $ 2,021 $11,369 $20,035 $33,649
Advertising service
fees................. 30 1 245 323 436 121 116 1,948
-------- --------- ------ ------- ------- ------- ------- -------
Total revenue....... 30 1 245 323 2,457 11,490 20,151 35,597
Expenses:
Cost of advertising
services............. 27 35 31 32 1,766 9,498 16,743 28,972
Client services....... 22 31 64 265 460 785 1,340 2,275
Technology and
operations........... 286 252 435 520 498 530 768 1,496
Selling, general and
administrative....... 215 402 572 1,068 1,187 2,064 3,184 5,895
Amortization of
deferred stock
compensation......... -- -- -- -- -- 3 857 3,821
-------- --------- ------ ------- ------- ------- ------- -------
Total expenses...... 550 720 1,102 1,885 3,911 12,880 22,892 42,459
-------- --------- ------ ------- ------- ------- ------- -------
Loss from operations... (520) (719) (857) (1,562) (1,454) (1,390) (2,741) (6,862)
Interest income, net... -- (4) (6) 22 22 112 201 219
-------- --------- ------ ------- ------- ------- ------- -------
Net loss............... $ (520) $ (723) $ (863) $(1,540) $(1,432) $(1,278) $(2,540) $(6,643)
======== ========= ====== ======= ======= ======= ======= =======

<CAPTION>
Three Months Ended
---------------------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31,
1998 1998 1998 1998 1999 1999 1999 1999
--------- --------- ------------- ------------ --------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As a Percentage of
Revenue:
Revenue:
Advertising
services............. -- % -- % -- % -- % 82.3 % 98.9 % 99.4 % 94.5 %
Advertising service
fees................. 100.0 100.0 100.0 100.0 17.7 1.1 .6 5.5
-------- --------- ------ ------- ------- ------- ------- -------
Total revenue....... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Expenses:
Cost of advertising
services............. 90.0 3,500.0 12.7 9.9 71.9 82.7 83.1 81.4
Client services....... 73.3 3,100.0 26.1 82.0 18.7 6.8 6.6 6.4
Technology and
operations........... 953.3 25,200.0 177.6 161.0 20.3 4.6 3.8 4.2
Selling, general and
administrative....... 716.7 40,200.0 233.4 330.7 48.3 18.0 15.8 16.6
Amortization of
deferred stock
compensation......... -- -- -- -- -- -- 4.3 10.7
-------- --------- ------ ------- ------- ------- ------- -------
Total expenses...... 1,833.3 72,000.0 449.8 583.6 159.2 112.1 113.6 119.3
-------- --------- ------ ------- ------- ------- ------- -------
Loss from operations... (1,733.3) (71,900.0) (349.8) (483.6) (59.2) (12.1) (13.6) (19.3)
Interest income, net... -- (400.0) (2.4) 6.8 .9 1.0 1.0 .6
-------- --------- ------ ------- ------- ------- ------- -------
Net loss............... (1,733.3)% (72,300.0)% (352.2)% (476.8)% (58.3)% (11.1)% (12.6)% (18.7)%
======== ========= ====== ======= ======= ======= ======= =======
</TABLE>

30
<PAGE>

Revenue. Revenue increased in each of the eight quarters ended December 31,
1999, with the exception of a decrease of $29,000 from the first quarter of
1998 to the second quarter of 1998. The increases were primarily due to the
change from the use of advertising service fee contracts to the use of
advertising services contracts and an increase in the number of our clients
from two as of March 31, 1998, to four as of June 30, 1998, 12 as of September
30, 1998, 20 as of December 31, 1998, 27 as of March 31, 1999, 35 as of June
30, 1999, 47 as of September 30, 1999 and 70 as of December 31, 1999.

Cost of advertising services. Cost of advertising services increased in each
of the eight quarters ended December 31, 1999, with the exception of a
decrease of $4,000 from the second quarter of 1998 to the third quarter of
1998. The increases were primarily due to increases in the volume of
advertising space we purchased in each quarter. Cost of advertising services
as a percentage of revenue also increased during this period. The increases
were primarily due to the change from the use of advertising service fee
contracts to the use of advertising services contracts. During the quarters
ended September 30, 1998 and December 31, 1998, revenue consisted of
commissions derived from our advertising service fee contracts with our
clients during those periods. These commissions have no associated cost of
revenue other than the cost of delivering advertisements over the Internet.
Also, under the advertising service fee contracts we did not incur expenses
for advertising space. During the quarter ended March 31, 1999, revenue
consisted of both commissions derived from advertising service fee contracts
and revenue derived from advertising services contracts. During the last three
quarters of 1999, revenue consisted primarily of revenue derived from
advertising services contracts. Cost of advertising services revenue as a
percentage of revenue did not change materially during the last three quarters
of 1999.

Client services. Client services expenses increased in each of the eight
quarters ended December 31, 1999. These increases were primarily due to the
increase in the number of our Client Service teams during this period, which
was in response to the increase in the number of our clients from two as of
March 31, 1998 to 70 as of December 31, 1999. We anticipate continued
increases in our client services expenses to accommodate growth in our client
base.

Technology and operations. Technology and operations expenses increased in
each of the eight quarters ended December 31, 1999, with the exception of a
decrease of $34,000 from the first quarter of 1998 to the second quarter of
1998, and a decrease of $22,000 from the fourth quarter of 1998 to the first
quarter of 1999. The increases were primarily due to increases in the number
of personnel in software development, production systems and information
systems. Due to our increasing volume of advertisements served during this
period, we have increased our capacity for ad serving, in part by adding
computer equipment to the data centers maintained at our co-location
facilities, resulting in increased rental charges. We anticipate continued
increases in our technology and operations expenses in future periods as we
add additional technology-based services to our service offering, supply
additional productivity tools to our Client Service teams and accommodate
additional clients.

Selling, general and administrative. Selling, general and administrative
expenses increased in each of the eight quarters ended December 31, 1999.
These increases were primarily due to increases in the number of personnel in
executive, sales, marketing, finance, accounting and administrative positions,
and the amortization of goodwill resulting from the purchase of iballs LLC in
September 1999. During this period, we added substantially to our management
team, developed an in-house accounting function, created a marketing
department and increased our recruiting efforts. We anticipate continued
growth of our selling, general and administrative expenses as we expand our
administrative and marketing staff, add new marketing programs, incur
additional costs associated with becoming a public company and record
amortization of goodwill in connection with the acquisition of iballs LLC.

Amortization of deferred stock compensation. During the quarters ended
September 30 and December 31, 1999, we recorded deferred stock compensation of
$16.9 million and $10.5 million, respectively. We have recorded aggregate
amortization of deferred stock compensation of $4.7 million through December
31, 1999. Deferred stock compensation is being amortized on an accelerated
basis over the four-year vesting period of the applicable options. The
remaining unamortized balance of $22.7 million will be fully amortized by the
quarter

31
<PAGE>

ending December 31, 2003. We expect to incur additional deferred stock
compensation and increased amortization of stock compensation in the first
quarter of 2000.

Interest income, net. Interest income, net consists of earnings on our cash
and cash equivalents. Interest income, net increased during the last three
quarters of 1999. These increases were primarily due to higher cash balances
resulting from our Series B preferred stock financing, which was completed in
February 1999, and our Series C preferred stock financing, which was completed
in May 1999.

Our quarterly and annual revenue, expenses and operating results have
fluctuated in the past and are likely to fluctuate significantly in the future
due to a variety of factors, many of which are beyond our control. Because of
these fluctuations, we believe that period-to-period comparisons are not a
good indication of our future financial performance. We may not be able to
sustain or increase our level of revenue or our rate of revenue growth on a
quarterly or annual basis. Our quarterly or annual operating results may not
meet the expectations of investors. If this happens, the price of our stock
could decline. See "Risk Factors--Our quarterly operating results are subject
to fluctuations that may cause our stock price to decline," "--Our operating
results may fluctuate seasonally, and these fluctuations may cause our stock
price to decline," "--We rely on a limited number of clients, and the loss of
a major client or a reduction in a major client's Internet advertising budget
could significantly reduce our revenue" and "--Our business model is unproven
and evolving and may not succeed."

Comparison of the Years Ended December 31, 1998 and 1999

The following table presents, for the periods indicated, statement of
operations data as a percentage of total revenue.

<TABLE>
<CAPTION>
Year Ended
December 31,
--------------
1998 1999
------ -----
<S> <C> <C>
Revenue:
Advertising services....................................... -- % 96.2 %
Advertising service fees................................... 100.0 3.8
------ -----
Total revenue............................................ 100.0 100.0
Expenses:
Cost of advertising services............................... 20.9 81.8
Client services............................................ 63.8 7.0
Technology and operations.................................. 249.2 4.7
Selling, general and administrative........................ 376.8 17.7
Amortization of deferred stock compensation................ -- 6.7
------ -----
Total expenses........................................... 710.7 117.9
------ -----
Loss from operations......................................... (610.7) (17.9)
Interest income, net......................................... 2.0 .8
------ -----
Net loss..................................................... (608.7)% (17.1)%
====== =====
</TABLE>

Revenue. Revenue increased from $599,000 for the year ended December 31,
1998 to $69.7 million for the year ended December 31, 1999. This increase was
due to the change in the majority of our contracts from advertising service
fee contracts to advertising services contracts and an increase in the number
of our clients from two as of March 31, 1998 to 70 as of December 31, 1999.

Cost of advertising services. Cost of advertising services increased from
$125,000, or 20.9% of revenue, for the year ended December 31, 1998 to $57.0
million, or 81.8% of revenue, for the year ended December 31, 1999. This
increase in cost of advertising services was primarily due to increases in the
volume of advertising space we purchased during this period. The increase in
cost of advertising services as a percentage of revenue

32
<PAGE>

was primarily due to the change from the use of advertising service fee
contracts to the use of advertising services contracts.

Client services. Client services expenses increased from $382,000, or 63.8%
of revenue, for the year ended December 31, 1998 to $4.9 million, or 7.0% of
revenue, for the year ended December 31, 1999. This increase was primarily due
to the increase in the number of our Client Service teams, which was in
response to the increase in the number of our clients from two as of March 31,
1998 to 70 as of December 31, 1999.

Technology and operations. Technology and operations expenses increased from
$1.5 million, or 249.2% of revenue, for the year ended December 31, 1998 to
$3.3 million, or 4.7% of revenue, for the year ended December 31, 1999. This
increase was primarily due to increases in the number of personnel in software
development, production systems and information systems.

Selling, general and administrative. Selling, general and administrative
expenses increased from $2.3 million, or 376.8% of revenue, for the year ended
December 31, 1998 to $12.3 million, or 17.7% of revenue, for the year ended
December 31, 1999. This increase was primarily due to increases in the number
of personnel in executive, sales, marketing, finance, accounting, human
resources and administrative positions. The increase was also due to increases
in the amount of sales commissions and increased marketing expenses.

Amortization of deferred stock compensation. Amortization of deferred stock
compensation began in the quarter ended June 30, 1999. We have recorded
aggregate deferred stock compensation of $27.4 million and recorded aggregate
amortization of deferred stock compensation of $4.7 million through December
31, 1999.

Comparison of Years Ended December 31, 1997 and 1998

We began operations in July 1997, but did not begin to generate significant
revenue until after we were incorporated in February 1998. Our total expenses
increased from $302,000 in 1997 to $4.3 million in 1998. The increase in
expenses was primarily due to increases in client services expenses,
technology and operations expenses, and selling, general and administrative
expenses as our business grew during this period.

Provision for Income Taxes

As of December 31, 1999, we had net operating loss carryforwards for federal
income tax reporting purposes of approximately $9.8 million, and research and
development tax credit carryforwards of approximately $100,000 which begin to
expire in 2001 if not utilized. The Internal Revenue Code contains provisions
that limit the use in any future period of net operating loss and credit
carryforwards upon the occurrence of specified events, including significant
change in ownership interests. We had deferred tax assets, including our net
operating loss carryforwards and tax credits, totaling approximately $5.2
million as of December 31, 1999. We have recorded a valuation allowance for
the entire deferred tax asset as a result of uncertainties regarding the
realization of the asset balance. See note 5 of the notes to our consolidated
financial statements included elsewhere in this prospectus.

Liquidity and Capital Resources

Since inception we have financed our operations primarily through the net
proceeds from private sales of equity securities, which raised approximately
$30.4 million through December 31, 1999.

As of December 31, 1999, we had cash and cash equivalents of $11.0 million.
We have a $1.0 million equipment term loan facility with Silicon Valley Bank
of which $1.0 million was utilized as of December 31, 1999.

Cash used in operating activities was $2.7 million for the year ended
December 31, 1998 and cash provided by operating activities was $2.9 million
for the year ended December 31, 1999.

Cash used in investing activities was $1.1 million for the year ended
December 31, 1998 and $19.0 million for the year ended December 31, 1999. Cash
used in investing activities for the year December 31, 1999 was

33
<PAGE>

primarily related to purchases of marketable securities, the purchase of
iballs LLC and purchases of computer equipment to expand our ad serving
capacity and to equip employees hired during that period.

Cash provided by financing activities was $4.7 million for the year ended
December 31, 1998 and $26.3 million for the year ended December 31, 1999. The
cash provided by financing activities during the year ended December 31, 1999
primarily related to the net proceeds from private sales of equity securities,
which raised approximately $25.7 million through December 31, 1999.

Accounts receivable has grown significantly during 1999 primarily due to
growth in our revenue during the fourth quarter of 1999. Fourth quarter
revenues accounted for approximately 51% of our total revenue for the year
ended December 31, 1999. In addition, through October 1999, we utilized a
billing process that frequently resulted in delayed payments and high levels
of days sales outstanding. Under this process, we billed our clients during a
campaign month based on estimated activity for that month. This process
frequently resulted in the need to reconcile the billing to actual campaign
activity before clients would remit payment. In November 1999, we began
billing clients immediately after the end of the month using actual campaign
activity, thereby greatly reducing these reconciliations. As a result, we
anticipate that our days sales outstanding will decrease in future periods.
Days sales outstanding have decreased from 82 days at September 30, 1999 to 65
days at December 31, 1999.

On October 1, 1999 we entered into a lease for our headquarters facility in
Seattle, Washington. This lease expires in October 2004 and contains one five-
year renewal option. We expect this facility to be fully utilized during the
second half of 2000 and we anticipate that we will require additional office
space.

As of December 31, 1999, we had no material commitments other than
obligations under operating leases for office space and office equipment of
$6.1 million, of which some commitments extend through 2004 and a $1.0 million
note payable to a bank which requires monthly payments through 2002. The
obligation is secured by the equipment purchased with the proceeds from the
note. Commitments under our current facility lease are $5.4 million for the
next five years. We are also committed at December 31, 1999 to pay rent of
$372,000 under our former facility sublease which ends in June 2001. However,
this commitment is offset by rental income of $357,000 from our sublease of
this facility to another tenant. On February 4, 2000, we entered into an
additional lease for our headquarters facility. This lease begins in December
2000 and expires in December 2010. Commitments under this lease are
approximately $11.1 million over the ten-year term of the lease.

Funding our operating losses will consume a material amount of our cash
resources, including a portion of the net proceeds of this offering. We intend
to invest our cash in excess of current operating requirements in short-term,
interest-bearing, investment-grade securities. We believe that our existing
cash and cash equivalents, and available bank borrowings, will be sufficient
to meet our anticipated cash needs for working capital and capital
expenditures for the next twelve months. Thereafter, we may require additional
funds to support our working capital requirements, expand internationally,
acquire complementary businesses and technologies, or for other purposes.
Future capital requirements will depend on many factors, including increases
in the number of employees and the need to expand our ad serving capacity. We
may seek to raise additional funds in the future through public or private
equity financing or from other sources. We may not, however, be able to obtain
adequate or favorable financing. Any financing we obtain may dilute your
ownership interest in us.

Year 2000 Compliance

Many currently installed computer systems and software products and systems
worldwide are coded to accept only two-digit entries to identify a year in the
date code field. Consequently, after January 1, 2000, many of these systems
could fail or malfunction because they are not able to distinguish between the
year 1900 and the year 2000. These system failures or malfunctions could cause
significant disruptions of operations, including disruptions of our Internet
advertising services. As a company engaged in Internet advertising services,
we rely on computer programs and systems in connection with our services as
well as with our internal and external

34
<PAGE>

communication networks and systems and other business functions. Any failure
to provide year 2000 compliant services to our clients could result in
financial loss, damage to our reputation and legal liability.

To date we have not experienced any problems relating to year 2000 issues.
Our internally developed software was designed to be year 2000 compliant and,
based on internal tests we have conducted, we believe that this software is
year 2000 compliant, meaning that the use or occurrence of dates after January
1, 2000 will not materially affect its performance or its ability to correctly
create, store, process and output data involving dates. Substantially all of
our third-party software, computer equipment and internal telecommunications
systems were purchased in the past twelve months. As a result, we believe that
our third-party software, computer equipment and internal telecommunications
systems are also generally year 2000 compliant. However, we cannot assure you
that our internally developed software, and the software, computer equipment
and internal telecommunications systems that we purchased from third parties,
are year 2000 compliant.

We have not, to date, incurred any costs relating to year 2000 issues
separate from the expenditures for acquiring new third-party software,
computer equipment and systems to address year 2000 issues. We do not
anticipate incurring any material costs directly related to addressing year
2000 issues, and we have not deferred any of our ongoing development efforts
to address year 2000 issues.

We have not engaged any third parties to independently verify our year 2000
readiness, nor have we assessed potential costs associated with year 2000
risks or made any contingency plans to address these risks. Although we have
received assurances from some of the suppliers of our third-party software,
computer equipment and systems that their products are year 2000 compliant, to
date we have generally relied on publicly available information regarding the
year 2000 compliance of their products. We also generally do not have any
contractual rights with these providers if their products fail to function due
to year 2000 issues. If these failures do occur, we may incur unanticipated
expenses to remedy any problems, including purchasing replacement software,
computer equipment and systems. Any failures of our internally developed
software or the third-party software, computer equipment and systems that we
use could result in financial loss, damage to our reputation and legal
liability.

35
<PAGE>

Interest Rate Risk

Our exposure to market risk is limited to interest income sensitivity,
which is affected by changes in the general level of U.S. interest rates,
particularly because the majority of our investments are in short-term,
investment-grade debt securities issued by corporations. We place our
investments with high-quality issuers and limit the amount of credit exposure
to any one issuer. Due to the nature of our short-term investments, we believe
that we are not subject to any material market risk exposure. We do not have
any foreign currency or other derivative financial instruments.

Recent Accounting Pronouncements

In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 was
effective for financial statements for years beginning after December 15,
1998. SOP 98-1 provides guidance on accounting for computer software developed
or obtained for internal use, including the requirement to capitalize specific
costs and amortization of such costs. We implemented SOP 98-1 and capitalized
approximately $452,000 of internally developed software costs. Accumulated
depreciation related to the capitalized costs was $75,000 as of December 31,
1999.

In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of
Start-Up Activities." SOP 98-5, which is effective for fiscal years beginning
after December 15, 1998, provides guidance on the financial reporting of
start-up costs and organizational costs. It requires costs of start-up
activities and organizational costs to be expensed as incurred. The
implementation of SOP 98-5 did not have a material impact on our financial
position or operating results.

In December 1999, the Staff of the Securities and Exchange Commission
released Staff Accounting Bulletin Number 101, (SAB, No. 101), "Revenue
Recognition," to provide guidance on the recognition, presentation and
disclosure of revenue in financial statements. We believe our revenue
recognition practices are in conformity with the guidelines in SAB No. 101.

36
<PAGE>

BUSINESS

Overview

Avenue A provides technology-based Internet advertising services to
businesses. We integrate Internet media planning and buying, proprietary ad
management technology, user profiling and data analysis systems to help
advertisers increase the effectiveness and return on investment of their
Internet advertising campaigns. Through this integrated approach we have
developed an extensive knowledge base of Internet advertising strategies,
targeting methods and media placements that perform effectively. We believe
this knowledge base grows richer and more valuable with each additional
campaign we execute and with each additional client we serve. We focus on
serving the needs of buyers of Internet advertising, providing a service that
harnesses the complexity, interactivity and dynamic nature of the Internet
with the objective of delivering the most successful advertising campaigns for
our clients. Our top four clients are Gateway, Microsoft, uBid and Uproar,
based on revenues in the fourth quarter of 1999 and in fiscal year 1999.

Our services for Internet advertisers include the following key elements:

. Internet media planning and buying. We use our proprietary database and
experience from past advertising campaigns to plan highly targeted
advertising campaigns for our clients. We negotiate and purchase
Internet advertising space for our clients using our status as a large
purchaser of advertising and our historical pricing and performance data
from past campaigns.

. Campaign management. We use our proprietary software and systems in ad
serving, user profiling, performance reporting and data collection and
analysis to manage and increase the effectiveness of our clients'
Internet advertising campaigns.

. Data warehousing and analysis. Our technology enables us to collect,
store and analyze extensive data from our previous and current Internet
advertising campaigns that we use to plan and improve current and future
advertising campaigns for all of our clients.

Our subsidiary, iballs LLC, provides Internet media planning and buying
services to its clients similar to those provided by Avenue A, and uses our ad
serving, user profiling, performance reporting and data collection and
analysis capabilities for some of its clients. We believe that our early entry
advantage in the Internet advertising market, our media planning and buying
expertise, our proprietary technology and our commitment to serving only
advertisers will enable us to continue to strengthen our leadership position
in Internet advertising.

Industry Background

Emergence of the Internet as an Advertising Medium

The Internet is expected to grow rapidly as a medium for advertising and
commerce. Forrester Research, Inc. projects that online advertising
expenditures in the United States will grow from $2.8 billion in 1999 to
$22.0 billion in 2004. We believe this growth is driven by a number of
factors, including the growing number of Internet users, the growth of e-
commerce and advances in online advertising technology. According to
International Data Corporation, the number of Web users worldwide is projected
to grow from approximately 196 million in 1999 to over 500 million by the end
of 2003, and consumer e-commerce spending in the United States is projected to
increase from approximately $71 billion in 1999 to over $200 billion by the
end of 2003.

Historically, the leading Internet advertisers have included technology
companies, Internet portals and e-commerce companies. However, many of the
largest advertisers in traditional media, including mass marketers such as
consumer products companies and automobile manufacturers, have begun
advertising online. Expenditures for online advertising currently represent a
small portion of all media spending, but these expenditures are expected to
grow at a much higher rate than expenditures for traditional advertising.
While traditional advertising spending is expected to increase by
approximately 27% from 1999 through 2004, online advertising spending is
expected to increase by over 690% during that period, based on data from
Forrester Research, Inc.

37
<PAGE>

Advantages of Internet Advertising

Unlike traditional advertising, Internet advertising involves the delivery
of messages which can be tailored for individual viewers, making the Internet
a revolutionary vehicle for advertisers. Because Internet advertisements are
generally delivered to individual viewers across a digital infrastructure, the
Internet has several advantages as an advertising medium, including:

Measurability. The Internet provides the ability to observe and record a
wide range of online activities, including the delivery of advertisements to a
browser, click-throughs on Internet advertisements, the completion of online
purchases and the downloading of software files. As a result, sophisticated
Internet advertisers can collect and measure data about a broad range of
consumer behaviors associated with a particular advertisement. Using this
data, advertisers can track, monitor and measure the effectiveness of their
Internet advertising campaigns.

Personalization and targeting capabilities. Because each Internet image or
message is generally delivered to one user at a time, specific advertisements
or emails can be tailored with the goal of addressing the interests and needs
of the user to increase the likelihood that the advertisement or email will
elicit the desired response from the user. Using the Internet, advertisers can
target advertising campaigns to specific geographic regions, specific
audiences, and individual consumers with specific demographic or behavioral
profiles. Advertisers can also control the number of times a user's browser
receives an advertisement and rotate sequentially the advertisements that are
delivered to that user's browser. In addition, advertisers can build highly
detailed user profiles for future advertising campaigns through the use of
transaction information, registration procedures and anonymous matching
techniques.

Rapid feedback and response. The Internet enables much more rapid
measurement of and response to the effectiveness of an advertising campaign
than most traditional media. Information on consumer responses to campaigns
can be provided promptly after they occur, allowing an advertiser to respond
quickly to that feedback. For example, an online retailer can assess which
advertisements result in greater numbers of click-throughs or sales, and
respond by eliminating under-performing advertisements from the campaign. In
addition, a traditional mass marketer that does not sell products online but
maintains a Web site to build its brand can determine which online
advertisements are resulting in the most visits to its Web site and eliminate
under-performing advertisements.

Compressed sales cycle. The Internet provides advertisers the opportunity to
accelerate a consumer's progression from awareness of a product to need
recognition to purchase. A consumer can often initiate an online purchase
simply by clicking on an Internet advertisement, and can complete the purchase
with very few intermediate steps. Advertisers therefore can conduct efficient
advertising campaigns with rapid response rates.

Efficient reach. As a medium with no geographic boundaries, the Internet
enables advertisers to reach large audiences throughout the United States and
internationally. Unlike traditional print, outdoor, television or radio
broadcast advertising, which may require advance media purchases in hundreds
of markets to reach an international audience, Internet advertisers can
quickly reach individuals worldwide with a single Internet advertising
campaign.

Challenges of Internet Advertising

Despite the capabilities of the Internet as an advertising medium,
individual advertisers seeking to take advantage of the Internet's potential
may face numerous challenges, including:

Scale and complexity. The proliferation of Web sites and the dispersed
nature of the Internet audience make it difficult for individual advertisers
and ad agencies to target, measure, analyze and optimize Internet advertising
campaigns. An advertiser seeking to conduct a campaign across a large number
of Web sites or advertising networks must be able to identify appropriate Web
sites, understand the technical capabilities of

38
<PAGE>

individual Web sites, determine available inventory of desired advertisement
placements, choose the size and location of advertisements, negotiate
placement pricing and prepare its systems to deliver advertisements and track
results. To determine the overall effectiveness of its advertising, an
advertiser managing campaigns across different Web sites and advertising
networks must reconcile reports from these multiple parties, which are often
based on different measurement methodologies and therefore are not easily
consolidated or compared.

Data analysis and technology requirements. The measurement and recording of
a wide range of online advertising responses, such as click-throughs,
purchases or software downloads, can generate large amounts of data. To
evaluate and optimize their Internet advertising campaigns, advertisers must
analyze this data, which requires access to sophisticated data aggregation,
storage and mining technology and capabilities. Individual advertisers
conducting their own campaigns may not have sufficient in-house data storage
and analysis capabilities, and accordingly the data from their advertising
campaigns may often be underutilized.

Operating costs and requirements. Developing, building and operating an
Internet advertisement management and delivery system to fully exploit the
advantages of Internet advertising is costly and time-consuming. Managing and
tracking numerous advertising campaigns that reach millions of Internet users
on hundreds of Web sites requires complex networking and computing
applications, as well as one or more large, complex data centers with back-up
capabilities. These systems must be continuously maintained to ensure reliable
performance 24 hours a day, seven days a week. For most advertisers and
advertising agencies, the operating costs associated with these systems would
constitute a substantial diversion of resources from their core businesses.

Limited services for advertising buyers. The Internet advertising market is
broadly segmented into two groups: advertisers seeking to conduct the most
effective Internet advertising campaigns at the lowest possible price, and Web
sites and advertising networks seeking to maximize the revenue generated by
their advertising inventory. We believe that while selling power has been
aggregated by large portal sites and advertising networks, there are
relatively few buyers of Internet advertising that match the scale of these
aggregated sellers. In addition, because the interests of large portals and
advertising networks may conflict with those of advertisers, advertisers may
be unwilling to share data with them in order to improve the effectiveness of
their advertising campaigns. As a result, performance reports from portals and
advertising networks are often limited to metrics that may have little value
to purchasers of advertising, such as click-throughs, rather than metrics that
are meaningful to the advertiser's business, such as sales generated, leads
generated, page views and software downloads.

Need for an Outsourced Internet Advertising Service

The rapid growth and complexity of the Internet as an advertising medium
have made the management and delivery of effective advertising extremely
important to advertisers but expensive and difficult to implement. The
technical, operational and resource challenges faced by an advertiser seeking
to independently plan, deliver and optimize its own Internet advertising
campaigns can divert the advertiser's resources and attention away from its
core business. The costs of aggregating and analyzing the large volume of data
necessary to plan, execute and dynamically refine an Internet advertising
campaign can diminish the return on the advertiser's investment. In addition,
individual advertisers may have little power to negotiate lower prices for
their advertising or obtain meaningful data from Web sites on metrics that
measure the effectiveness of their campaigns. We believe advertisers can
benefit from an outsourced advertising service that integrates media planning
expertise, media buying power, ad management technology, user profiling, and
data collection and analysis systems, and that achieves economies of scale, to
enable them to effectively and efficiently conduct Internet advertising
campaigns. By using this outsourced service, advertisers can focus on their
core businesses while realizing the potential benefits of Internet
advertising.

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<PAGE>

The Avenue A Advantage

Avenue A integrates proprietary technology and media planning and buying to
help advertisers realize the potential of Internet advertising, providing the
following benefits:

Comprehensive Internet advertising management services. We provide a full
range of services to conduct and increase the effectiveness of Internet
advertising campaigns, including media planning and buying, ad serving, ad
management and data analysis. We have designed our services to enable
advertisers to easily and cost-effectively conduct multiple advertising
campaigns across a broad range of Web sites and advertising networks.

Technology-enabled analysis, monitoring, tracking and optimization. We
collect and analyze data about hundreds of publisher Web sites, numerous
advertising campaigns and tens of millions of Web user profiles, so that our
client strategists can structure targeted advertising campaigns to achieve our
clients' desired business results. To improve campaign performance, we use our
proprietary technology and data analysis capabilities to track, store and
measure data on Web users' online responses to Internet advertisements
promptly after they occur. Based on this data, we generate detailed
performance reports which clients can view over the Internet at any time.
Using these reports, we can refine and improve our clients' advertising
campaigns while they are being conducted to increase their efficiency and
effectiveness.

Proprietary knowledge base. Because we have executed a substantial number
of Internet advertising campaigns for our clients, we have captured a large
quantity of data regarding the efficacy of online advertising campaigns and
techniques. We believe that the more data we accumulate and analyze, the
faster our rate of learning about Internet advertising grows. Our Client
Service teams draw upon our dynamically updated databases to help improve the
results of our clients' advertising campaigns. In particular, these teams use
our proprietary knowledge base to more accurately predict and understand which
techniques are the most effective, what pricing for placements is appropriate
and which targeting efforts are best suited for a particular client's needs.

Focus on Internet advertisers. Because we serve a large number of Internet
advertisers, we are a large and frequent purchaser of Internet advertising
space. We believe that our status as a large purchaser of Internet
advertising, together with our extensive knowledge of historical pricing and
performance information, enables us to negotiate efficient, cost-effective
advertising purchases for Internet advertisers.

Cost savings through economies of scale. Because we serve numerous Internet
advertisers, we are able to spread the substantial costs of developing,
building and operating Internet ad management and delivery systems and
database technologies across a large base of clients. As a result, we are able
to deliver cost-effective services to our clients.

Business Strategy

Our objective is to be the leading provider of Internet and other digital
media advertising services to advertisers. We plan to achieve this goal
through the following key strategies:

Aggressively acquire new clients and develop new markets. We intend to
expand our client base by aggressively pursuing new clients that focus their
advertising efforts on the Internet as well as clients that have historically
relied on traditional media for advertising. Our sales force is dedicated to
acquiring new clients by converting them from traditional advertising to
Internet advertising, and by demonstrating to online advertisers the benefits
of our Internet advertising services. In addition, although we currently
provide a service tailored primarily to the needs of companies with
significant online advertising budgets, we plan to expand our services to new
markets. In particular, we plan to aggressively expand our Growth Markets
Division, which tailors our services to clients with smaller online
advertising budgets.

Leverage our proprietary knowledge base. We seek to build upon and further
leverage our extensive database and our data analysis expertise to attract
additional clients and improve the quality of our services. We

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believe that by increasing the scale and diversity of our client base as well
as the number and type of advertising campaigns we conduct, we will aggregate
more statistically significant data and relevant analysis to improve our
clients' campaigns. We aggregate non-personally identifiable data from our
clients' campaigns on a client anonymous basis for use in conducting media
planning for all of our clients' campaigns. By sharing our expertise with our
clients, we believe we can provide greater value to Internet advertisers than
they would be able to obtain by conducting advertising campaigns
independently. We intend to use our proprietary knowledge base as a platform
to enhance our current services as well as to develop new services for our
clients.

Provide superior client service through a comprehensive service offering. As
part of our goal to provide our clients with superior Internet advertising and
marketing services, we plan to continue to add services that expand our
clients' abilities to advertise and market on the Internet. We recently
launched our Strategic Partnership Program, in which we negotiate and manage
exclusive or complex partnership arrangements between our clients and Web
sites or advertising networks that generally have terms ranging from six
months to a year. As of December 31, 1999, we had entered into 21 Strategic
Partnership Program contracts. In addition, we recently initiated our
Precision E-mail Service. We also intend to add services over time based on
advances in online marketing technology to provide a comprehensive, fully
integrated Internet advertising and marketing service for our clients.

Continue to improve technology. We plan to continue to build, license and
acquire technologies, including enhanced ad serving and media measurement
technologies, that will enable us to plan and execute more effective Internet
advertising and marketing campaigns for our clients. In addition, we intend to
continue to increase our investment in data analysis technology and expertise
in our efforts to realize the full potential of the data that these campaigns
generate.

Acquire complementary businesses and establish relationships with
traditional advertising and media services providers. In September 1999, we
acquired iballs LLC, an Internet media company located in New York City. We
intend to continue to aggressively pursue opportunities to acquire
complementary businesses to expand and enhance our capabilities and services
and increase our number of clients. We also intend to seek to establish
relationships with companies that provide traditional advertising and media
services, which relationships may include joint marketing arrangements and
preferred provider agreements. Through these relationships we intend to
increase our sales penetration, gain access to their clients and become the
preferred or exclusive provider of Internet advertising and marketing services
for these companies.

Exploit emerging digital media opportunities. We believe that in the future,
advertisements may be delivered through a number of digital media in addition
to the Internet, including interactive television, Internet-enabled home
appliances, hand-held computers, cellular telephones, pagers and automobile
personal computers. We plan to extend our technology and capabilities to be
able to deliver targeted advertisements through those emerging digital media
that we determine present the best business opportunities.

Expand internationally. We plan to expand our presence internationally in
order to capitalize on the global reach of the Internet. We believe there is a
significant opportunity to provide our services to companies based outside of
the United States. In addition, we intend to expand our service offering for
our domestic clients to include advertising and marketing on Web sites
operated in foreign markets.

The Avenue A Experience

We have structured our service offering to provide a smooth, efficient,
positive experience for our clients during the entire advertising campaign
process. When a client enlists our services, the client first meets with a
client strategist to discuss the client's campaign objectives. Using our
publisher Web site and user profile databases, the strategist works with the
client to determine target user groups and develop an online media strategy.
Once the client and the strategist have agreed on a media strategy, our media
buyers create a media plan by identifying appropriate placements for the
client's advertisements on a variety of Web sites and advertising networks.
The buyers negotiate placement rates and, upon authorization from the client,
purchase the advertising space. Our media engineers and account coordinators
work with the client to obtain the client's advertisements for delivery by our
ad serving systems.

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When the campaign begins, the Web sites and advertising networks on which
our media buyers have purchased space automatically request advertisements
from our ad servers. Before we serve an advertisement, our ad serving systems
can search the Web user's computer for an Avenue A "cookie," an anonymous
registration file placed by our systems on a computer the first time we serve
an advertisement to that computer. If we find a cookie when we search the Web
user's computer, our ad serving systems query our data warehouse, which might
contain data regarding prior actions conducted on that Web user's computer
that relate to our client, including responses to our client's previous
advertising campaigns and actions taken by that user on our client's Web site.
This query process generally takes less than one second. Using this
information, our systems can serve a specific, targeted advertisement to the
user based on our client's advertising objectives.

As the campaign progresses, our systems can collect data regarding users'
interactions with the advertisements served to them, e.g., banners served,
click-throughs and Web sites visited, and, if the user clicks through and
visits the Web site of the advertiser, the user's behavior on that Web site,
e.g., what sections of the Web site the user visited, whether the user got to
an order page and whether the user bought something. Using the data collected,
our systems generate comprehensive, easy-to-read performance reports that
permit both Avenue A and the client to track the progress of the campaign in
light of the client's campaign objectives. The reports are available online to
the client 24 hours a day, seven days a week, and are updated throughout the
day to provide timely statistics on the performance of the campaign.

The Client Service team reviews the performance reports with the client and,
based on the reports, adjusts the campaign to improve its performance. For
example, if the client's advertisements were initially served to 50 Web sites,
but only 40 Web sites are generating favorable cost per customer acquisition
rates, the Client Service team can take a number of actions to improve the
campaign, including narrowing the scope of the campaign to focus on the 40 Web
sites with favorable performance or negotiating lower rates for continuing
advertisement placements on the other sites. Our ad serving systems enable the
Client Service team to control the frequency with which each advertisement is
displayed, program the sequence with which advertisements are viewed and
target specific advertisements to specific browsers.

Once the campaign is concluded, we provide performance reports to the client
indicating the success of the campaign and recommendations for future
campaigns. Because our systems have automatically stored data collected from
the campaign, we can use this data in additional advertising campaigns for the
client. Using cookie technology, we can anonymously profile Web users so that
future advertisements delivered to those users' browsers in the client's
future advertising campaigns can be customized based on their user profiles.

Avenue A's Services

Core services. Our core services include media planning and buying, ad
serving, campaign analysis, optimization and data collection and aggregation.

. Media planning and buying. Our media planning and buying services are
performed by Client Service teams, which evaluate the client's needs and
objectives, outline a media strategy for the client, develop a media
plan by identifying appropriate media placements, and execute this plan
by negotiating the rates for these placements.

. Ad serving. Our media engineers coordinate and monitor the ad serving
process once an advertising campaign begins. Our ad servers receive
billions of advertisement requests each month, and process a majority of
these requests at sub-millisecond speed. Our ad serving systems allow us
to adjust advertising campaigns quickly and efficiently because changes
required to the advertisements are made on our ad serving systems rather
than on each individual Web site where the advertisements appear.

. Campaign analysis. Our proprietary ad serving systems enable us to
evaluate advertising campaigns along any dimension important to the
client, e.g., sales, leads, registrations, software downloads, etc. We
provide this campaign data to our clients in comprehensive online
performance reports generated by our system, which our client
strategists review with the clients.

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. Optimization. Our Client Service teams can quickly adjust an advertising
campaign in progress to improve its performance. If a Web site is
generating unacceptably low response rates, we can remove that Web site
from the campaign, reduce the number of impressions allocated to that
site, or negotiate a lower rate for advertisement placements on that
site. If a Web site is generating high responses, we can serve more
advertisements to that Web site.

. Data collection and aggregation. As we conduct advertising campaigns, we
collect and store data on these campaigns in our data warehouse. We
aggregate data with the data from all our advertising campaigns as we
continue to expand our data warehouse and build our user profiles.

Precision Targeting Program(TM). Our Precision Targeting Program enables us
to target tailored advertisements to the browsers of users which have
previously visited our clients' Web sites. The program is designed to
strengthen the clients' relationship with the user, improve response rates and
accelerate the sales cycle. This targeting is based on data acquired from
prior interactions conducted through that computer on the client's Web site.
For example, if the information in our data warehouse indicates that the
computer of a particular Web user was previously used to purchase a backpack
from our client, our ad serving systems can serve an advertisement to that
user's computer recommending additional, complementary purchases, such as
hiking boots, tents or fleece jackets.

Strategic Partnership Program(TM). Through our Strategic Partnership
Program, we manage exclusive or complex partnerships between our clients and
Web sites or advertising networks, such as exclusive sponsorships of specific
locations or features of a Web site, or advertising campaigns based on several
complex measurement criteria or methods of advertising. These arrangements
typically have terms ranging from six months to one year. Managers in the
Strategic Partnership Program consult with clients to determine their
objectives and to negotiate the terms of these longer-term, complex
advertising relationships with appropriate Web sites and advertising networks.
We then help manage the partnership by providing participants in the program
with ongoing advertising campaign analysis and optimization services with
respect to exclusive sponsorship links and complex advertising placement
arrangements.

Precision E-mail Service(TM). We recently launched our Precision E-mail
Service through which we deliver targeted emails to specific customer segments
based on their shopping and browsing behavior. We intend to integrate
precision email campaigns with our online advertising campaigns to enhance the
overall effectiveness of our clients' Internet advertising and marketing
campaigns.

Our subsidiary, iballs LLC, provides Internet media planning and buying
services to its clients similar to those provided by Avenue A, and uses our ad
serving, user profiling, performance reporting and data collection and
analysis capabilities for some of its clients. In addition, iballs LLC's
clients can participate in our Precision Targeting Program and Strategic
Partnership Program and use our Precision E-mail Service.

Sales, Marketing and Client Service

We acquire clients primarily through our field sales force, which works in
sales offices in Seattle, New York City and Chicago. As we continue to launch
additional services, including our Precision E-mail Service, we plan to
augment the general sales force with sales specialists that focus on those
particular services. We generate sales leads primarily through field sales,
client referrals, our Web site and responses to our public relations and
marketing efforts.

In addition, we market our services through our Client Service teams as the
services become appropriate for an individual advertiser's evolving needs. For
example, if a client has achieved its initial goal of acquiring customers
through our advertising services, the client might begin using our Precision
Targeting Program to retain these customers or use our Precision E-mail
Service to expand into email marketing.

We use a variety of marketing methods to build awareness of Avenue A and
our service offerings within our target market and to establish credibility
and leadership in the marketplace. These methods include marketing

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materials, advertising, press coverage and other public relations efforts,
direct marketing, trade shows, seminars and conferences, relationships with
recognized industry analysts, and the Avenue A Web site.

Avenue A's client service organization provides all of our primary services
to our clients. As of December 31, 1999, we had 138 employees in our Client
Service teams. Our team-focused approach is designed to encourage an
entrepreneurial spirit and greater accountability to clients' needs.

We have implemented an intensive training program and have built
information systems that are designed to enable employees to draw from our
existing knowledge base. This knowledge base includes both the historical
performance of a given client's campaigns and an aggregated knowledge base of
results from all advertising campaigns. The training program and information
systems are intended to enable new employees to quickly achieve a high
performance level by utilizing institutional knowledge and experience.

Our Clients

The number of our active clients has grown from two as of March 31, 1998 to
70 as of December 31, 1999. In 1999, Gateway, Microsoft and uBid each
accounted for over 10% of our total revenue. Our top 15 currently active
clients, based on revenue in the fourth quarter of 1999 and the fiscal year
1999, are:

. Bolt.com, Inc. . MTV Networks

. The Brodia Group . Onvia.com, Inc.

. Creative Computers, . ProFlowers.com, Inc.
Inc.
. Snowball.com, Inc.
. eBags Inc.
. Ticketmaster Online-City Search,
. Expedia, Inc. Inc.

. Family Wonder, Inc. . uBid, Inc.

. Gateway, Inc. . Uproar Ltd.

. Microsoft Corporation

We provide each of these clients with a number of services, including media
planning and buying, ad serving and campaign analysis. We have historically
sought clients that are large, sophisticated Internet advertisers spending at
least $1 million annually on Internet advertising. We plan to aggressively
expand our Growth Markets Division to provide a service offering designed for
advertisers with smaller Internet advertising budgets.

Technology

Our proprietary technology, which consists of software applications, Web-
based applications, systems and databases, delivers advertisements, tracks
users' responses, aggregates data and provides standardized reporting and data
processing support to the Client Service teams, to the Data Analytics group
and to our clients. Our systems and applications consist of several
independently scalable components: data warehousing, technological
applications for media planning, campaign management and trafficking, and ad
serving. In building these systems and applications, we have developed a
significant amount of proprietary software and techniques, and have also
leveraged leading industry-standard software and hardware.

Data warehousing. Our data warehouse is the foundation of our campaign
management, ad serving, targeting, data collection, data analysis and
performance reporting systems. These systems feed into or utilize the
warehouse for a significant portion of their overall system functionality. We
have developed a number of proprietary technologies for managing and
compressing data that allow us to keep billions of pieces of historical
campaign information online and immediately available to our other systems. We
also utilize industry-standard database technology to aggregate and store
information.

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Media planning. Our client strategists and media buyers use media planning
tools, such as historical cost databases and campaign management software
programs, to keep track of Web sites and select sites and placements during
initial media planning activities. After an advertising campaign is underway,
these tools support ongoing planning and optimization activities.

Campaign management and trafficking. Each month our media buyers make
thousands of advertisement purchases on behalf of our clients and initiate
hundreds of advertising campaigns, which are defined as advertising on one Web
site for one month on behalf of one client. We typically conduct anywhere from
10 to 25 advertising campaigns for a particular client at any given time. We
use our campaign management and trafficking tools to manage the information
from these campaigns and to assist in or automate the process of communicating
with our clients and with the Web sites on which we serve advertisements.

Ad serving. Our ad serving systems are multi-tiered applications that were
built for reliability and scalability. The systems receive billions of
advertisement requests each month and process a majority of these requests at
sub-millisecond speed. Each response to an advertisement request is based on
several factors, which may include the advertising viewing history of a user's
browser. We use standard cookie technology to anonymously track Internet
users' activity on our clients' Web sites, and on each Web site on which the
users' computers receive advertisements served by our systems. The modular
design of our ad serving systems allows us to grow capacity incrementally by
adding a single server at a time, or scale substantially by adding several
servers at a time.

Our ad serving systems are designed to operate 24 hours a day, 7 days a
week. These systems are located in two data centers in Seattle: an Exodus
Communications co-location site and a Verio co-location site. The two data
centers give us redundant capabilities in the event of a hardware failure or
loss of connectivity at one data center.

Competition

The market for Internet advertising is relatively new, yet intensely
competitive. We compete most directly with Internet media buyers that
integrate ad serving technology and Internet media buying, such as AppNet
Inc., through its i33 Communications division, and MediaPlex, Inc. We also
compete with:

. interactive advertising agencies, such as Modem Media . Poppe Tyson
Inc., Ogilvy & Mather Worldwide through its OgilvyOne division, and
Saatchi & Saatchi Advertising, through its Darwin Digital Media Services
division;

. enabling online advertising technology providers, such as At Home
Corporation, through its MatchLogic, Inc. subsidiary, CMGI, Inc.,
through its AdForce, Inc., AdKnowledge, Inc. and Engage Technologies,
Inc. subsidiaries, and DoubleClick Inc.;

. advertising networks, such as DoubleClick Inc., CMGI, Inc., through its
Flycast Communications Corporation subsidiary, L90, Inc. and 24/7 Media,
Inc.;

. targeted email service providers, such as At Home Corporation, through
its MatchLogic, Inc. subsidiary, ClickAction Inc., Digital Impact, Inc.
DoubleClick Inc. and E-Dialog, Inc.; and

. traditional advertising agencies that perform Internet advertising and
marketing as part of their services to clients, such as Ogilvy & Mather
Worldwide and Saatchi & Saatchi Advertising.

We believe that the principal competitive factors affecting our market are
ad serving technology and functionality, data analysis capabilities, client
service and price. Although we believe we currently compete

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adequately with respect to these factors, our continued ability to compete
depends on a number of circumstances, such as:

. our capability to plan advertising campaigns and serve advertisements
across a broad range of Web sites;

. our ability to respond to rapid technological change and provide feature
enhancements and expanded service offerings;

. the quality and reliability of our operations and client service and
support organizations; and

. the effectiveness of our sales and marketing efforts.

Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
client bases and significantly greater financial, technical and marketing
resources than we have. Also, many of our current and potential competitors
have established or may establish cooperative relationships among themselves
or with third parties. In addition, several of our competitors, including
AdForce, Inc., AdKnowledge, Inc. and Flycast Communications Corporation, have
combined or are in the process of combining with larger companies with greater
resources than ours. These competitors may engage in more extensive research
and development, undertake more far-reaching marketing campaigns and make more
attractive offers to existing and potential employees and clients than we do.
They could also adopt more aggressive pricing policies and may even provide
services similar to ours at no additional cost by bundling them with their
other product and service offerings. They may also develop services that are
equal or superior to our services or that achieve greater market acceptance
than our services. In addition, our competitors may develop databases that are
larger than or otherwise superior to our databases. Increased competition is
likely to result in price reductions, reduced gross margins and loss of market
share. We cannot assure you that we will be able to compete successfully, and
competitive pressures may harm our business.

Intellectual Property

To protect our proprietary rights, we rely generally on copyright,
trademark and trade secret laws, and confidentiality agreements with many of
our employees and consultants. Despite these protections, third parties might
obtain and use our technologies without authorization or develop similar
technologies independently. The steps we have taken may not prevent
misappropriation of our intellectual property, particularly in foreign
countries where laws or law enforcement practices may not protect our
proprietary rights as fully as in the United States.

We have applied for registration of the following service marks: "AVENUE
A," "AVENUE A MEDIA," "AD CLUB NETWORK," "AXIS," "IBALLS," "PRECISION E-MAIL,"
"PRECISION TARGETING," the Avenue A logo and the iballs LLC logo. We cannot
assure you that any of our service mark applications will be approved. Even if
these applications are approved, any service marks may be successfully
challenged by others or invalidated. We are aware of third parties that use
the name "Avenue A," one of which is a Canadian advertising agency. We are
also aware of a registration in France of the name "Avenue A" for use in
advertising services. In addition, we are aware of a company in the United
States named "Ave. A Corporation." We recently filed claims against this
company seeking to prohibit it from doing business under any name that
infringes our trademarks. It is possible that this company may file
counterclaims in response to our claims. There may be other third parties
using names similar to ours of whom we are unaware. If our service mark
applications are not approved or if our service marks are invalidated because
of prior third-party registrations, our use of these marks could be restricted
unless we entered into arrangements with these third parties, which might not
be available on commercially reasonable terms, if at all.

We recently filed eight provisional patent applications in the United
States for aspects of our technologies, processes and methods, but we have not
been issued any patents to date. We cannot assure you that our provisional
patent applications, or any future patent applications, will be granted, that
any future patent of ours will not be challenged, invalidated or circumvented,
or that the rights granted under any future patent of ours will provide
competitive advantages to us. If a blocking patent has issued or issues in the
future to a third party,

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and we are not able to distinguish our technologies, processes or methods from
those covered under the patent, we may need to either obtain a license or
develop noninfringing technologies, processes or methods with respect to that
patent. We may not be able to obtain a license on commercially reasonable
terms, if at all, or design around the patent, which could impair our ability
to provide our services. We also cannot assure you that any proprietary rights
with respect to our technologies will be viable or of value in the future
since the validity, enforceability and scope of protection of proprietary
rights in Internet-related industries are uncertain and still evolving.

Other persons may claim that our technologies, processes or methods
infringe their patents. Any such claims may cause us to incur significant
expenses and, if successfully asserted against us, may cause us to pay
substantial damages and prevent us from providing some of our services,
including our core ad serving services, which would substantially harm our
business.

A U.S. patent was issued to DoubleClick in September 1999 relating to a
method of delivery, targeting and measuring of advertising over networks. This
patent may cover some of the technologies, processes or methods we use in our
ad serving systems. DoubleClick recently brought suit against L90, one of its
competitors, claiming that L90's methods and networks for delivery, targeting
and measuring advertising over the Internet infringe this patent. DoubleClick
also recently filed a suit against Sabela Media, another of its competitors,
relating to infringement of this same patent. We have purchased advertising
space from DoubleClick in the past and expect to do so in the future. We are
currently evaluating the patent as it pertains to our technologies. We cannot
assure you that we will be able to distinguish our technologies, processes or
methods from those covered under the DoubleClick patent or that the
DoubleClick patent would be invalidated if challenged.

In addition, DoubleClick and MatchLogic, a subsidiary of At Home
Corporation, have each filed U.S. patent applications and related applications
under the Patent Cooperation Treaty that appear to cover technologies relating
to ad serving. In addition, 24/7 Media has announced that it has received a
notice of allowance for a U.S. patent application on its ad delivery
technology that 24/7 Media asserts relates to enabling technology currently in
use by a number of ad serving systems. If patents are issued pursuant to these
applications, we cannot assure you that we will be able to distinguish our
technologies, processes or methods from those covered under these patents or
that the patents would be invalidated if challenged.

Any claims that might be brought against us relating to intellectual
property infringement, including claims of infringement of the DoubleClick
patent and other patents that may be issued to DoubleClick, MatchLogic or 24/7
Media, may cause us to incur significant expenses and, if successfully
asserted against us, may cause us to pay substantial damages and limit our
ability to use the intellectual property subject to these claims. Even if we
were to prevail, such litigation could be costly and time-consuming and could
divert the attention of our management and key personnel from our business
operations. Furthermore, as a result of a patent infringement suit, we may be
prevented from providing some of our services, including our core ad serving
services, unless we enter into royalty or license agreements. We may not be
able to obtain royalty or license agreements on terms acceptable to us, if at
all.

Our technology enables us to collect and use data derived from user
activity on the Internet. Although we believe that we generally have the right
to use this information and to compile it in our databases, we cannot assure
you that any trade secret, copyright or other protection will be available for
this information. In addition, our clients and other parties may claim rights
to this information.

Employees

As of December 31, 1999, we had 232 employees, including 138 in client
services and support, 53 in engineering and technology, 15 in sales and
marketing, and 26 in general and administrative. In addition, as of December
31, 1999, our iballs LLC subsidiary had 27 employees. We believe that we have
good relationships with our employees. We have never had a significant work
stoppage, and none of our employees is represented under a collective
bargaining agreement or by a union. We believe that our future success will
depend in part on our ability to attract, integrate, retain and motivate
highly skilled personnel and upon the continued service of

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our senior management. Competition for qualified personnel in our industry is
intense, and we cannot assure you that we will succeed in attracting,
integrating, retaining and motivating a sufficient number of qualified
personnel to conduct our business in the future.

Facilities

Our principal executive, administrative, engineering, marketing and sales
facility currently occupies approximately 33,000 square feet of office space
in Seattle and will increase to approximately 44,000 square feet in March
2000. The lease for this facility expires in October 2004, with an option to
renew for an additional five-year term. We expect this facility will be
adequate to meet our requirements through the second quarter of 2000, but
anticipate that we will need additional space thereafter as more personnel are
hired. Additionally, we have recently signed a lease for approximately 30,000
square feet of office space in Seattle. The lease for this facility begins in
December 2000 and expires in December 2010. We also lease other sales and
services office space in offices in New York City and Chicago. In addition,
our iballs LLC subsidiary leases approximately 6,400 square feet of office
space in New York City under a lease that expires in August 2001 with an
option to renew for an additional one-year term. We use network facilities to
house our ad servers and other systems at two locations in Seattle under
agreements with Exodus Communications and Verio. Our agreement with Exodus
Communications expires in January 2000 with automatic renewal for one-year
terms. Our agreement with Verio is on a month-to-month basis.

Legal Proceedings

From time to time, we may become involved in litigation relating to claims
arising in the ordinary course of our business. We have filed a trademark
infringement claim in the United States District Court for the Central
District of California against a company named "Ave. A Corporation," seeking
to prohibit it from doing business under any name that infringes our
trademarks. The claim asserts that this company has violated our trademark and
other rights by adopting and using a confusingly similar name. It is possible
that Ave. A Corporation may file counterclaims in response to our claims.
Except for this proceeding, we are not party to any legal proceedings.

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MANAGEMENT

Executive Officers and Directors

The following table sets forth information with respect to our executive
officers and directors, and an executive officer of our subsidiary, iballs
LLC, as of February 7, 2000:

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Brian P. McAndrews...... 41 President, Chief Executive Officer and Director
Nicolas J. Hanauer(1)... 40 Chairman of the Board
Bruce Allenbaugh........ 43 Vice President, Marketing
Anna R. Collins......... 35 Vice President, Media
Michael T. Galgon....... 32 Chief Strategy Officer
Scott E. Howe........... 31 Vice President and General Manager, Client Services
Clark M. Kokich......... 48 Senior Vice President, Diversified Services
Scott E. Lipsky......... 35 Chief Technology Officer and Vice President, Engineering
Robert M. Littauer...... 51 Chief Financial Officer, Vice President, Finance & Administration,
Secretary and Treasurer
Jamison F. Marra........ 34 Vice President, Information Technology
Jeffrey J. Miller....... 52 Vice President, Corporate Development and Legal Affairs
J. Drake Pruitt......... 39 Vice President, Sales
Neve R. Savage.......... 55 President, Avenue A International Division
Sumit T. Sen............ 31 Chief Analytics Officer
Thomas M. Sperry........ 48 Vice President and General Manager, Client Services
James A. Warner......... 46 President, iballs LLC
Jason Green(2).......... 32 Director
Fredric W. Harman(1)(2). 39 Director
Gregory B. Maffei(1)(2). 39 Director
</TABLE>
- --------
(1) Member of the compensation committee.

(2) Member of the audit committee.

Brian P. McAndrews has served as our Chief Executive Officer and a director
since September 1999, and as our President since January 2000. From July 1990
to September 1999, Mr. McAndrews worked for ABC, Inc., holding executive
positions at ABC Sports, ABC Entertainment and ABC Television Network; most
recently he served as Executive Vice President and General Manager of ABC
Sports. From 1984 to 1989, Mr. McAndrews served as a product manager for
General Mills, Inc., a leading consumer products manufacturer. He holds an
M.B.A. degree from Stanford University and a B.A. degree from Harvard
University.

Nicolas J. Hanauer, a cofounder of Avenue A, has served as our Chairman of
the Board since June 1998 and as a director since Avenue A was incorporated.
He also served as our Chief Executive Officer from June 1998 to September
1999. Since January 1990, Mr. Hanauer has been the Executive Vice President,
Sales and Marketing of Pacific Coast Feather Company, a pillow and bedding
manufacturing company. Mr. Hanauer holds a B.A. degree from the University of
Washington. In addition to serving as a director of Avenue A, Mr. Hanauer
currently serves as a director of Gear.com, Inc., Museum Quality Discount
Framing, Inc. and Pacific Coast Feather Company.

Bruce Allenbaugh has served as our Vice President, Marketing since October
1999. From December 1994 to October 1999, Mr. Allenbaugh served as Vice
President, Marketing Services for NEXTLINK Communications, Inc., a
telecommunications company. From August 1985 to October 1994, he served in
various capacities for The Pepsi Cola Company, most recently as Director, New
Products. Mr. Allenbaugh holds an M.B.A. degree from Northwestern University
and a B.A. degree from the University of Washington.

Anna R. Collins has served as our Vice President, Media since August 1999.
From July 1996 to July 1999, Ms. Collins worked at CVS/Pharmacy, Inc., a
healthcare and pharmacy company, serving as a manager of

49
<PAGE>

New Business Development and most recently as Director of New Business
Development. From July 1995 to June 1996, Ms. Collins served as Director of
Business Development & Eastern Operations for Vivra Orthopaedics, Inc., an
orthopedics practice management company. In 1994, she served as a consultant
with APM Incorporated, a healthcare management consulting firm. Ms. Collins
holds an M.B.A. degree from the Harvard Business School and a B.A. degree from
Harvard University.

Michael T. Galgon, a cofounder of Avenue A, has served as our Chief
Strategy Officer since January 2000. From October 1999 to January 2000, he
served as our Senior Vice President, Marketing and Business Development. From
October 1998 to October 1999, he served as our President, and from October
1997 to October 1998, he served as our General Manager. From October 1995 to
October 1997, Mr. Galgon attended the Harvard Business School. From October
1994 to October 1995, he served as a full-time volunteer with Volunteers In
Service To America. From 1990 to 1994, Mr. Galgon served as an officer in the
U.S. Navy. Mr. Galgon holds an M.B.A. degree from the Harvard Business School
and a B.A. degree from Duke University.

Scott E. Howe has served as our Vice President and General Manager, Client
Services since October 1999. From September 1994 to September 1999, Mr. Howe
worked at Boston Consulting Group, a strategy consulting firm, serving as a
consultant from September 1994 to September 1996, Case Leader from September
1996 to February 1998 and most recently as Manager from March 1998 to
September 1999. Mr. Howe holds an M.B.A. degree from the Harvard Business
School and an A.B. from Princeton University.

Clark M. Kokich has served as our Senior Vice President, Diversified
Services since January 2000 and served as Vice President, General Manager,
Growth Markets Division from July 1999 to January 2000. From April 1996 to
October 1998, Mr. Kokich served as President and Chief Executive Officer of
Calla Bay, Inc., an apparel retailer. From January 1992 to April 1996, he
served as the Director, Sales & Marketing for AT&T Wireless Services. Mr.
Kokich holds a B.S. degree from the University of Oregon.

Scott E. Lipsky, a cofounder of Avenue A, has served as our Chief
Technology Officer and Vice President, Engineering since October 1997. From
March 1996 to September 1997, Mr. Lipsky served as Vice President of Business
Expansion for Amazon.com, Inc., an online retailer. From February 1994 to
March 1996, Mr. Lipsky served as Chief Information Officer for Barnes & Noble,
Inc., a national bookstore chain, and Chief Technology Officer for Barnes &
Noble College Bookstores, Inc., a national college bookstore chain. From
September 1991 to January 1994, Mr. Lipsky served as President and Chief
Executive Officer for Omni Information Group, Inc., a software company
providing solutions for retail chains. From September 1987 to September 1991,
Mr. Lipsky served as Vice President of MIS and Chief Technology Officer for
Babbages's, Inc., a retail company.

Robert M. Littauer has served as our Chief Financial Officer and Vice
President, Finance and Administration since August 1998, and as our Secretary
and Treasurer since January 1999. From October 1996 to June 1998, Mr. Littauer
served as Chief Financial Officer and Vice President of Finance and
Administration for Ostex International Inc., a medical diagnostics company.
From June 1987 to September 1996, Mr. Littauer served in various capacities at
NeoRx Corporation, a biotechnology company, including Senior Vice President,
Chief Financial Officer and Treasurer. From June 1982 to May 1987, Mr.
Littauer was Vice President, Finance and Treasurer of Concept, Inc., a
surgical products manufacturer. He holds M.B.A. and B.S. degrees from Cornell
University and is a Certified Public Accountant.

Jamison F. Marra has served as our Vice President, Information Technology
since November 1999. From February 1999 to November 1999, Mr. Marra served as
the Director, Information Technology, for Amazon.com, Inc. From June 1997 to
January 1999, he served as Director, Information Technology, for Laplink.com,
Inc., a provider of electronic file transfer solutions. From November 1991 to
May 1997, he served as Director, Information Technology, for Microsoft
Corporation.

Jeffrey J. Miller, Ph.D., has served as our Vice President, Corporate
Development and Legal Affairs since July 1999. From November 1997 to June
1999, Dr. Miller served as the President and Chief Executive Officer of
Reprogen, Inc., a functional genomics company. From October 1996 to October
1997, he served as Senior Vice President of Corporate Development for Ostex
International Inc. From April 1987 to September 1996,

50
<PAGE>

Dr. Miller served in various capacities at NeoRx Corporation, including Senior
Vice President, Business Development and Legal Affairs, Secretary and General
Counsel. From 1985 to April 1987, he was a partner in the Seattle law firm of
Seed and Berry. Dr. Miller holds a Ph.D. degree in biology from the University
of California at Santa Cruz, a J.D. degree from Loyola University of Los
Angeles and a B.A. degree from the University of California at Los Angeles.

J. Drake Pruitt has served as our Vice President, Sales since January 2000.
From February 1996 to April 1999, Mr. Pruitt held the position of General
Manager in the Pacific Northwest region for Nextel Communications, a wireless
telecommunications provider. Prior to that, Mr. Pruitt was a Senior Sales
Manager at Nextel from January 1995 to March 1996 and a Sales Manager for
Nextel from March 1994 to December 1994. From April 1991 to February 1994, Mr.
Pruitt served as Corporate Account Representative for Digital Systems
International, Inc., a telecommunications software company. Mr. Pruitt holds a
B.A. degree from The University of Pennsylvania.

Neve R. Savage has served as our President, Avenue A International Division
since January 2000. From November 1998 to January 2000, Mr. Savage served as
our Vice President, Client Results. From August 1994 to September 1998, Mr.
Savage served as Vice President, Marketing of AT&T Wireless Services. From
October 1988 to July 1994, Mr. Savage served as the Executive Group Director
of Ogilvy & Mather, an advertising company. Mr. Savage holds M.A. and B.A.
degrees from Oxford University.

Sumit T. Sen has served as our Chief Analytics Officer since September
1999. From December 1998 to August 1999, Mr. Sen was a Principal of Proforma
Consulting, a marketing and risk management consulting firm. From December
1997 to November 1998, Mr. Sen served as the Executive Vice President, Risk
Management for The Money Store Inc., a consumer finance company. From October
1994 to October 1997, Mr. Sen served in various capacities at Household
International Inc., a consumer loan and credit card company, including
Director, Risk Management and Director, Scoring and Analysis. Mr. Sen holds a
B.S. degree from Johns Hopkins University.

Thomas M. Sperry has served as our Vice President and General Manager,
Client Services since October 1999. From January 1999 to October 1999, Mr.
Sperry served as Managing Partner of Bozell Worldwide, Inc., a marketing
communications agency. From April 1994 to December 1998, Mr. Sperry was a co-
owner and president of CF2GS Inc., a marketing communications agency which was
acquired by Bozell Worldwide, Inc. in January 1999. Mr. Sperry holds M.A. and
B.A. degrees from the University of San Francisco.

James A. Warner has served as the President of iballs LLC since January
2000. From September 1998 through December 1999, Mr. Warner served as
President of Third Floor Enterprises, a consulting firm which provided
services to online and traditional media companies. From February 1998 to
September 1998, Mr. Warner served as President of the Magazine Division of
Primedia, Inc., a diversified media company. From February 1995 to September
1997, he served as President of the CBS Television Network, a division of CBS,
Inc., a broadcasting and communications company. Mr. Warner holds an M.B.A.
degree from the Harvard Business School and a B.A. degree from Yale
University. He currently serves as a director of LiveWave.com, Inc.

Jason Green has served as one of our directors since May 1999. Since
September 1997, Mr. Green has served as a general partner of U.S. Venture
Partners, a venture capital firm. From September 1995 to August 1997, Mr.
Green was an Ewing Marion Kauffman Fellow with Venrock Associates, a venture
capital firm. From June 1994 to August 1995, Mr. Green served as a Research
Fellow at the Harvard Business School. Mr. Green has served as a vice
president of Muzertechnika, an Eastern European computer and
telecommunications company, and as a consultant with Bain & Company, a
strategy consulting firm. Mr. Green holds an M.B.A. degree from the Harvard
Business School and a B.A. degree from Dartmouth College. He currently serves
as a director of NightFire Software Inc., PerksatWork.com Inc. and
PrintNation.com.

Fredric W. Harman has served as one of our directors since May 1999. Since
1992, Mr. Harman has managed several venture capital funds affiliated with Oak
Investment Partners, a venture capital firm. From 1991 to 1994, he served as a
general partner of Morgan Stanley Venture Capital. Mr. Harman holds an M.B.A.
degree from the Harvard Business School and B.S. and M.S. degrees from
Stanford University. Mr. Harman currently

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<PAGE>

serves as a director of ILOG, S.A., InterNAP Network Services Corporation,
Inktomi Corporation, Primus Knowledge Solutions, Inc., Quintus Corporation and
several privately held companies.

Gregory B. Maffei has served as one of our directors since September 1999.
Since December 1999, Mr. Maffei has served as the Chief Executive Officer of
Worldwide Fiber Inc., a manufacturer of fiber optic communications equipment.
From April 1997 to December 1999, Mr. Maffei served as the Chief Financial
Officer of Microsoft Corporation. From 1993 to 1997, Mr. Maffei served in
various capacities at Microsoft, including Director of Business Development &
Investment; Vice President, Corporate Development; and Treasurer. Mr. Maffei
holds an M.B.A. degree from the Harvard Business School and an A.B. degree from
Dartmouth College. He currently serves as a director of Expedia, Inc.,
Starbucks Corporation, Skytel Communications, Inc., CNET Business Services and
Ragen MacKenzie Group Incorporated.

Unless he earlier dies, resigns or is removed, each director serves for a
term expiring at the next annual meeting of shareholders, provided that each
director shall serve until his successor is elected and qualified. Effective at
the first annual meeting of shareholders following this offering, our amended
and restated articles of incorporation will provide for the division of our
board of directors into three classes, with each class serving a three year
term, and one class being elected each year by our shareholders. At the first
election of our directors to the classified board, each class 1 director will
be elected to serve until the next following annual meeting of shareholders,
each class 2 director will be elected to serve until the second following
annual meeting of shareholders and each class 3 director will be elected to
serve until the third following annual meeting of shareholders. At each annual
meeting of shareholders following the meeting at which the board would be
initially classified, the successors to directors whose terms are expiring will
be elected to serve until the third annual meeting of shareholders following
their election.

Board Committees

The board of directors has a compensation committee and an audit committee.

Compensation committee. The compensation committee's duties include
establishing, reviewing and making recommendations to the board regarding
compensation of our officers, considering compensation plans for our employees,
and carrying out other duties under our stock incentive compensation and other
plans approved by us as may be assigned to the committee by the board. The
current members of the compensation committee are Nicolas J. Hanauer, Fredric
W. Harman and Gregory B. Maffei. The current members of the compensation
committee do not meet the definition of "non-employee" directors for purposes
of SEC Rule 16(b)(3). Until the compensation committee is composed of "non-
employee" directors, the full board of directors will continue to approve stock
option grants for our officers in order to qualify the option grants for an
exemption from short-swing trading rules.

Audit committee. The audit committee recommends the selection and retention
of our independent auditors, reviews the scope and results of audits and
submits appropriate recommendations regarding audits, reviews our internal
controls and reviews procedures to ensure compliance with applicable financial
reporting requirements. The current members of the audit committee are Jason
Green, Fredric W. Harman and Gregory B. Maffei.

Compensation Committee Interlocks and Insider Participation

During the year ended December 31, 1998, Mr. Hanauer, our former chief
executive officer, served on the compensation committee of our board of
directors, as did Eric Moen and Roy Clothier, Jr., both former directors of
Avenue A. The compensation committee currently consists of Nicolas J. Hanauer,
Fredric W. Harman and Gregory B. Maffei. None of our executive officers serves
as a member of the compensation committee or board of directors of any entity
that has an executive officer serving as a member of our compensation committee
or board of directors.

Director Compensation

We reimburse our nonemployee directors for reasonable expenses they incur in
attending meetings of the board of directors and its committees. In 1998 and
1999, Mr. Hanauer devoted part of his time to Pacific Coast

52
<PAGE>

Feather Company and part of his time to Avenue A. Under an arrangement with
Pacific Coast Feather Company, we reimbursed Pacific Coast Feather Company for
$85,230 of salary paid by that company to Mr. Hanauer in 1999, which
reimbursement represented compensation for Mr. Hanauer's services as an
officer and director of Avenue A in 1999. Except for this transaction, our
directors have not and do not receive salaries for their services.

In August 1999, Mr. Maffei was granted an option to purchase 75,000 shares
of our common stock under our 1998 stock incentive compensation plan at an
exercise price of $1.27 per share. In August 1999, we authorized the sale to
Mr. Maffei of 75,000 shares of our common stock at $1.27 per share under this
plan and in October 1999, we authorized the sale to him of an additional
75,000 shares of our common stock at $2.67 per share under this plan. Both of
these sales were consummated in October 1999.

In November 1999, our board of directors adopted our stock option grant
program for nonemployee directors. The program will be administered under our
1999 stock incentive compensation plan, subject to shareholder approval of
that plan. Under this program, each nonemployee director will automatically
receive a nonqualified stock option to purchase 50,000 shares of common stock
upon initial election or appointment to the board following this offering.
One-third of this option will vest on each of the first, second and third
anniversaries of the grant date. Thereafter, beginning with the annual meeting
of shareholders in 2000, each nonemployee director who continues to serve on
the board will receive an additional option to purchase 15,000 shares of
common stock upon reelection or reappointment to the board, which will fully
vest on the first anniversary of the grant date. The exercise price for all
options granted under the program will be the fair market value of the common
stock on the grant date. Options will have a ten-year term, except that
options will expire three months after a nonemployee director ceases service
as a director, unless cessation is due to death, in which case the options
will expire one year after date of death.

Executive Compensation

The following table sets forth information concerning the compensation
received for services rendered to us in all capacities by named executive
officers for purposes of the summary compensation table, specifically, our
current chief executive officer, our former chief executive officer, our next
four most highly compensated executive officers who earned compensation in
excess of $100,000 during the fiscal year ended December 31, 1999, and one
former executive officer who earned compensation in excess of $100,000 during
the fiscal year ended December 31, 1999. The table also sets forth information
concerning compensation received by our former chief executive officer and an
executive officer who earned compensation in excess of $100,000 during the
year ended December 31, 1998.

Summary Compensation Table

<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
------------
Annual
Compensation Securities
--------------- Underlying All Other
Name and Principal Position Year Salary Bonus Options Compensation
- --------------------------- ---- -------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Brian P. McAndrews(1).......... 1999 $ 88,804 $ -- 1,845,000 $20,179
Chief Executive Officer
Nicolas J. Hanauer(2).......... 1999 85,230 -- -- --
Former Chief Executive Officer 1998 -- -- -- --
Michael T. Galgon.............. 1999 144,350 -- 150,000 --
Chief Strategy Officer
Robert M. Littauer............. 1999 199,850 -- 112,500 --
Chief Financial Officer, Vice
President of Finance and
Administration, Secretary and
Treasurer
Scott E. Lipsky................ 1999 147,475 -- 150,000 --
Chief Technology Officer and 1998
Vice President, 121,599 -- 1,084,500 --
Engineering
Neve R. Savage................. 1999 180,720 -- -- --
President, Avenue A
International Division
R. Michael Leo(3).............. 1999 169,412 70,299 375,000 1,497
Vice President, Sales and
Marketing
</TABLE>

53
<PAGE>

- --------

(1) Based on an annualized salary of $300,000. Mr. McAndrews joined Avenue A
on September 13, 1999. All other compensation represents relocation
expenses.

(2) Under an arrangement with Pacific Coast Feather Company, we reimbursed
Pacific Coast Feather Company for $85,230 of salary paid by that company
to Mr. Hanauer in 1999, which reimbursement represented compensation for
Mr. Hanauer's services as an officer and director of Avenue A in 1999.
The amount shown represents the amount of this reimbursement paid by us
to Pacific Coast Feather Company.

(3) Mr. Leo's employment with us ended on October 9, 1999. Bonus represents
sales commissions paid to Mr. Leo. All other compensation represents
relocation expenses.

Option Grants in Last Fiscal Year

The following table sets forth information regarding stock options we
granted to the named executive officers shown in the summary compensation
table during the fiscal year ended December 31, 1999.
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
------------------------------------------------ Value at Assumed
Number of Annual Rates of Stock
Securities Percent of Total Price Appreciation for
Underlying Options Granted Exercise Option Term(2)
Options to Employees in Price Expiration -----------------------
Name Granted Fiscal Year(1) Per Share Date 5% 10%
- ---- ---------- ---------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Brian P. McAndrews(3)... 1,845,000 18.2% $1.27 09/15/2009 $ 1,469,727 $ 3,724,576
Nicolas J. Hanauer...... -- -- -- -- -- --
Michael T. Galgon(4).... 150,000 1.5 2.67 10/29/2009 251,558 637,497
Robert M. Littauer(4)... 112,500 1.1 2.67 09/30/2009 188,668 478,123
Scott E. Lipsky(4)...... 150,000 1.5 2.67 10/29/2009 251,558 637,497
Neve R. Savage.......... -- -- -- -- -- --
R. Michael Leo(5)....... 375,000 3.7 2.67 01/08/2001 63,125 127,500
</TABLE>
- --------
* Less than 1%.

(1) Based on a total of 10,141,889 options granted to employees during fiscal
1999.

(2) The dollar amounts under these columns result from calculations at the 5%
and 10% rates required by the SEC regulations and are not intended to
forecast possible future appreciation, if any, of the common stock price.
The information in this table assumes that all options are exercised at
the end of each of their terms. Each option has a ten-year term, except
for the option granted to Mr. Leo, which has a fifteen-month term. Actual
gains, if any, on stock option exercises depend on factors such as the
future performance of the common stock and overall stock market
conditions. The amounts shown in this table may not be achieved.

(3) These options are fully exercisable and the shares purchasable upon
exercise of such options are subject to repurchase by Avenue A at the
original exercise price paid per share if Mr. McAndrews terminates his
employment or attempts to transfer the shares before the shares have
vested. In this context, "vested" means that the shares subject to, or
issued on exercise of, options are no longer subject to repurchase by
Avenue A. Shares subject to, or issued upon exercise of, options will
vest at the rate of 20% after one year from his date of hire and 6.66% at
the end of each quarter after one year after his date of hire until fully
vested four years after the hire date.

(4) These options are fully exercisable and the shares purchasable upon
exercise of such options are subject to repurchase by Avenue A at the
original exercise price paid per share if the optionee terminates
employment or attempts to transfer the shares before the shares have
vested. In this context, "vested" means that the shares subject to, or
issued on exercise of, options are no longer subject to repurchase by
Avenue A. Shares subject to, or issued upon exercise of, options vest at
the rate of 20% after one year from the date of the option grant and
6.66% at the end of each quarter after one year after the grant date
until fully vested four years after the grant date.

(5) Mr. Leo's option fully vests and becomes exercisable on October 9, 2000.
The option expires on January 9, 2001.

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<PAGE>

Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values

The following table sets forth for the named executive officers shown in
the summary compensation table information regarding the aggregate dollar
value realized upon exercise of stock options in the last fiscal year and the
number and value of securities underlying unexercised stock options held at
December 31, 1999 based on an assumed initial offering price of $9.00 per
share. The shares purchasable upon exercise of the options may be subject to
repurchase by Avenue A at the original exercise price paid per share if the
optionee terminates employment or attempts to transfer the shares before those
shares have vested.

<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at Fiscal Year-End Fiscal Year-End (1)
Shares Acquired -------------------------------- -------------------------
Name on Exercise Value Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- ----------------- ---------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Brian P. McAndrews(2)(3).. 533,683 $4,125,370 1,311,316 -- $10,136,473 $ --
Nicholas J. Hanauer....... -- -- -- -- -- --
Michael T. Galgon(2)(4)... 750,000 6,699,750 304,500 -- 2,290,199 --
Robert M. Littauer(2)(5).. 201,562 1,714,638 98,437 -- 623,107 --
Scott E. Lipsky(2)(6)..... 739,500 6,589,974 495,000 -- 4,013,025 --
Neve R. Savage............ 120,000 1,040,000 -- -- -- --
R. Michael Leo(7)......... 529,500 4,690,074 375,000 -- 2,373,750 --
</TABLE>
- --------
(1) Based on an assumed initial offering price of $9.00 per share, minus the
per share exercise price, multiplied by the number of shares underlying
the option.

(2) These options are fully exercisable and the shares purchasable upon
exercise of such options are subject to repurchase by Avenue A at the
original exercise price paid per share if the optionee terminates his
employment or attempts to transfer the shares before the shares have
vested. In this context, "vested" means that the shares subject to, or
issued on exercise of, options are no longer subject to repurchase by
Avenue A.

(3) Shares subject to, or issued upon exercise of, options will vest at the
rate of 20% after one year from the date of hire and 6.66% at the end of
each quarter beginning one year after the date of hire until fully vested
four years after the date of hire.

(4) Of Mr. Galgon's options granted prior to January 1, 1999 that have not
yet vested, 10% will vest on April 1, 2000 and 5.0% will vest each
quarter thereafter through October 1, 2001, after which date the option
will be fully vested.

(5) Shares subject to, or issued upon exercise of, options vest at the rate
of 20% after one year from the date of the option grant and 6.66% at the
end of each quarter beginning one year after the grant date until fully
vested four years after the grant date.

(6) Of Mr. Lipsky's options granted prior to January 1, 1999 that have not
yet vested, 8.3% will vest on April 1, 2000 and 4.2% will vest each
quarter thereafter through October 1, 2001, after which date the option
will be fully vested.

(7) Mr. Leo's option fully vests and becomes exercisable on October 9, 2000.
The option expires on January 9, 2001.

Employment Agreements and Change of Control Arrangements

Employment Agreements

Brian P. McAndrews' employment agreement provides for an initial annual
salary of $300,000. The agreement confirms we have granted Mr. McAndrews an
option, which vests over a four-year period, to purchase 1,845,000 shares of
our common stock. The agreement also provides that, upon the completion of
this offering, Mr. McAndrews will be granted an option, subject to a four-year
vesting period with vesting credit from his hire

55
<PAGE>

date, to purchase 264,000 shares of common stock at an exercise price equal to
the initial public offering price per share. Each of the options is
exercisable prior to vesting for unvested shares, which would be subject to a
right of repurchase in favor of us which would lapse according to the vesting
schedule applicable to the option. Mr. McAndrews' employment may be terminated
by him or us upon thirty days' notice. Pursuant to the agreement, if Mr.
McAndrews terminates his employment for "good reason," or he is terminated by
us other than for "cause," Mr. McAndrews' salary will continue at its then-
present rate for 12 months. If Mr. McAndrews is terminated without cause, then
the vesting schedule of his unvested stock options and unvested shares will be
accelerated by 12 months. If he terminates his employment for good reason,
then 100% of his unvested options and shares will immediately vest. The
agreement also provides that, if he terminates his employment other than for
good reason or is terminated for cause, his salary will continue for three
months. Under the agreement, "good reason" includes the occurrence after a
change of control, as defined in the agreement, of a demotion or reduction of
status or responsibilities, a reduction in salary, relocation in some
circumstances, or our failure to have the successor company in a change of
control assume our obligations under the employment agreement. Under the
agreement, "cause" includes willful misconduct, dishonesty in the performance
of his duties or other knowing violation of corporate policies which has a
material adverse effect on us, actions or omissions in bad faith that
materially impair the corporate business, goodwill or reputation, conviction
of a felony involving an act of dishonesty, moral turpitude, deceit or fraud,
or acts that could reasonably be expected to result in this kind of
conviction, use of illegal substances, or material violations of his
Confidentiality, Inventions Assignment, Noncompetition and Nonsolicitation
Agreement with us.

Brian P. McAndrews' employment agreement states that, upon a change in
control of Avenue A, fifty percent of his unvested stock options and unvested
shares of common stock will immediately vest. Under the agreement, if his
employment with a successor company is terminated without cause within one
year after a change of control of us, his salary will continue at its then
present rate for 12 months and his unvested stock options and unvested shares
will immediately fully vest.

Sumit T. Sen's employment agreement provides for an initial annual salary
of $175,000. The agreement confirms that we have granted Mr. Sen an option, to
vest over a four-year period, to purchase 450,000 shares of our common stock.
The option is immediately exercisable for unvested shares, which are subject
to a right of repurchase in favor of us which lapses in accordance with the
vesting schedule applicable to the option. Mr. Sen's employment may be
terminated by him or us upon thirty-days' notice. Pursuant to his employment
agreement, if he is terminated other than for "cause," or if he terminates his
employment for "good reason," then Mr. Sen's salary will continue at its then-
present rate for 6 months, plus an additional 3 months base salary for each
full calendar year in which he has been employed by us, up to a total possible
amount of 12 months annual base salary. In addition, he will be entitled to
receive severance payments in the amount of his monthly salary for each month
in which he remains unemployed after termination up to a maximum of 12 months.
In addition, if Mr. Sen is terminated other than for cause or if he terminates
his employment for good reason, then the vesting of his unvested stock options
and unvested shares will be accelerated by 12 months. The definitions of "good
reason" and "cause" under Mr. Sen's agreement are similar to those in Mr.
McAndrews' employment agreement. Under Mr. Sen's agreement, upon a change of
control of Avenue A, as defined in the agreement, the vesting schedule of his
unvested stock options and unvested shares will be accelerated by 12 months.

Severance Agreement

On October 8, 1999, we entered into a severance agreement and release with
R. Michael Leo, our former Vice President, Sales and Marketing. Pursuant to
that agreement, Mr. Leo will receive a severance payment of $200,000, payable
in monthly installments over a 12-month period from the date of the agreement.
Pursuant to the agreement, we granted Mr. Leo an option to purchase 375,000
shares of our common stock, which vests one year after date of grant, subject
to Mr. Leo's compliance with the Confidentiality, Inventions Assignment,
Noncompetition and Nonsolicitation Agreement between him and us. In addition,
we provided Mr. Leo with a loan of $75,000, which was applied to the exercise
of previously granted options. Under the agreement, each party agreed to
release the other from any claims arising from Mr. Leo's employment or
termination.

56
<PAGE>

Employee Benefit Plans

1999 Stock Incentive Compensation Plan

In 1999, our board of directors and shareholders approved our 1999 stock
incentive compensation plan. In January 2000, our board increased the shares
available for issuance under the 1999 plan subject to shareholder approval.
The purpose of the plan is to enhance long-term shareholder value by offering
opportunities to selected persons to participate in our growth and success,
and to encourage them to remain in the service of Avenue A and its related
corporations and to acquire and maintain ownership in our company. The plan
permits awards of stock options, shares of common stock or units denominated
in common stock, all of which may be subject to restrictions. Persons eligible
to receive awards under the plan are our officers, directors, employees,
consultants, advisors, agents and independent contractors and related
corporations, but only employees may receive incentive stock options under the
plan.

The number of shares authorized for issuance under the plan is 5,250,000
shares of common stock, plus an automatic annual increase, to be added on the
first day of our fiscal year beginning in 2001, equal to the least of (1)
5,250,000 shares, (2) 8.0% of the adjusted average common shares outstanding
as used to calculate fully diluted earnings per share as reported in our
annual report to shareholders for the preceding year and (3) a lesser amount
as may be determined by the board. In addition, shares formerly available for
issuance under our 1998 stock incentive compensation plan will become
available for issuance under the 1999 plan, as will shares subject to options
granted under the 1998 stock incentive compensation plan that expire or are
otherwise cancelled without being exercised, up to an aggregate maximum of
13,068,568 shares. The board or a committee appointed by the board will be the
plan administrator for the plan. The plan administrator selects the
individuals to receive awards under the plan. The board also may authorize one
or more senior executive officers to grant awards under the plan, within
limits set by the board. Unless the plan administrator permits otherwise, no
awards may be assigned or transferred by the holder other than by will or by
the applicable laws of descent and distribution, and, during the holder's
lifetime, awards generally may be exercised only by the holder. The board may
suspend or terminate the plan at any time. Unless the board terminates the
plan sooner, the plan will end on November 16, 2009.

Stock option grants. The plan administrator has the authority to specify
the terms and conditions of each option granted, including the vesting
schedule, the term and the exercise price, which, for incentive stock options,
must be at least equal to the fair market value of the common stock on the
grant date and, for nonqualified stock options, must not be less than 85% of
the fair market value of the common stock on the grant date. For purposes of
the plan, fair market value means the closing sales price as reported on the
Nasdaq National Market on the date of grant. Unless the plan administrator
provides otherwise, options granted under the plan will generally expire ten
years from the grant date.

Stock awards. The plan administrator is authorized to award shares of
common stock or awards denominated in units of common stock. These stock
awards may be subject to terms and conditions determined by the plan
administrator, including conditions on how the shares subject to restrictions
must be held while restricted and the circumstances under which a holder will
forfeit the shares if services with us are terminated. Holders of restricted
stock are shareholders of Avenue A and have, subject to some restrictions, all
the rights of shareholders with respect to their shares.

Adjustments. The plan administrator will make proportional adjustments to
the number of shares issuable under the plan and to outstanding awards in the
event of stock splits or other similar capital adjustments.

Corporate transactions. Unless individual letter agreements provide
otherwise, if a corporate transaction specified in the 1999 stock incentive
compensation plan, such as a merger or sale of Avenue A, occurs, each
outstanding option under the plan will be assumed, continued or replaced with
a comparable award by the successor corporation or the parent of the successor
corporation; provided, however, that if a successor corporation refuses to
assume, continue or replace outstanding options, each outstanding option will
automatically accelerate and become 100% vested and exercisable immediately
before the corporate transaction.

57
<PAGE>

Any option held by some executive officers that is assumed, continued or
replaced with a comparable award in the corporate transaction, other than in
specified related-party transactions, will accelerate if the officer's
employment or services are terminated by the successor corporation without
cause or by the officer voluntarily and with good reason within two years
after the corporate transaction. Acceleration of option vesting will not occur
if the acceleration would prevent pooling of interests accounting treatment in
a transaction for which it is available.

Stock Option Grant Program for Nonemployee Directors

In November 1999, our board of directors adopted our stock option grant
program for nonemployee directors. This program will be administered under our
1999 plan.

Under the program, each nonemployee director will automatically receive a
nonqualified stock option to purchase 50,000 shares of common stock upon his
or her initial election or appointment to the board following this offering.
One-third of this option will vest on each of the first, second and third
anniversaries of the grant date. After that, beginning with the annual meeting
of shareholders in 2000, each nonemployee director who continues to serve on
the board will receive an additional option to purchase 15,000 shares of
common stock upon reelection or reappointment to the board, which will fully
vest on the first anniversary of the grant date. The exercise price for all
options granted under the program will be the fair market value of the common
stock on the grant date. Options will have a ten-year term, except that
options will expire three months after a nonemployee director ceases service
as a director, unless cessation is due to death, in which case the options
will expire one year after the date of death.

Unless individual letter agreements provide otherwise, if specified
corporate transactions, such as a merger or sale of Avenue A, occur, each
outstanding option granted to a director under the program will automatically
accelerate and become 100% vested and exercisable immediately before the
corporate transaction. Acceleration of option vesting will not occur if the
corporate transaction is a related-party transaction specified in the plan or
if the acceleration would prevent pooling of interests accounting treatment in
a transaction for which it is available.

1999 Employee Stock Purchase Plan

In 1999, our board of directors and shareholders adopted our 1999 employee
stock purchase plan. We will implement our employee stock purchase plan upon
the effectiveness of this offering to assist employees in acquiring a stock
ownership interest in Avenue A and to encourage employees to remain in our
employ or the employ of our domestic subsidiaries. We intend for the plan to
qualify under Section 423 of the Internal Revenue Code. The plan will be
administered by our board, a committee of the board or an executive officer
appointed to administer the plan.

The board of directors has reserved a total of 750,000 shares of common
stock under the plan plus an automatic annual increase, to be added on the
first day of our fiscal year beginning in 2001, equal to the least of
(1) 1,125,000 shares, (2) 2% of the adjusted average common shares outstanding
as used to calculate fully diluted earnings per share as reported in our
annual report to shareholders for the preceding year and (3) a lesser amount
as may be determined by the board. The plan will expire ten years after it is
adopted by our board of directors, but the board may suspend or terminate the
plan at any time.

Eligibility. Employees generally will be eligible to participate in the
employee stock purchase plan if they are customarily employed by Avenue A for
20 hours or more per week and are not holders of 5% or more of our common
stock or our subsidiaries' common stock. The plan administrator may require
for future offerings that an employee work a minimum of up to five months per
year and have been an employee for some minimum period of time not to exceed
two years. Options granted under the plan are not transferable and are only
exercisable during the employee's lifetime.

58
<PAGE>

Payroll deductions. Our employee stock purchase plan permits our eligible
employees and those of our domestic subsidiaries to purchase common stock
through payroll deductions of up to 20% of their compensation. Under the plan,
no employee may purchase common stock with a fair market value of more than
$25,000 in any calendar year or purchase more than 7,500 shares of common
stock in any single purchase period.

Offering and purchase periods. We will implement the employee stock
purchase plan with one-year offering periods. Each offering period will have
two consecutive six-month purchase periods. The first offering period will
commence on the effectiveness of this offering and will end on January 31,
2001. Thereafter offerings will begin on each February 1 and August 1. The
first purchase period under the first offering period will begin on the
effectiveness of this offering and end on July 31, 2000. Subsequent purchase
periods will begin on each February 1 and August 1 and end on the next July 31
and January 31, respectively. Subject to some limitations, the plan
administrator may establish different offering and purchase periods in the
future.

The price of the common stock purchased under the plan will be the lesser
of 85% of the fair market value on the first day of an offering period and 85%
of the fair market value on the last day of the applicable purchase period.
However, the purchase price for the first offering period will be equal to the
lesser of 100% of the initial public offering price of the common stock and
85% of the fair market value on the last day of the applicable purchase
period. For purposes of the plan, fair market value means the closing sales
price as reported on the Nasdaq National Market on the applicable day.

Adjustments. The plan administrator will make proportional adjustments to
the number of shares issuable under the plan and to outstanding options in the
event of stock splits or other similar capital adjustments.

Corporate transactions. In the event of a merger, consolidation or
acquisition by another corporation of all or substantially all of our assets,
each outstanding option to purchase shares under the stock purchase plan will
be assumed or an equivalent option substituted by the successor corporation.
If the successor corporation refuses to assume or substitute for the option,
the offering period during which a participant may purchase stock will be
shortened to a specified date before the proposed transaction. Similarly, in
the event of Avenue A's proposed liquidation or dissolution, the offering
period during which a participant may purchase stock will be shortened to a
specified date before the date of the proposed event.

1998 Stock Incentive Compensation Plan

In 1998, our board of directors and shareholders approved our 1998 stock
incentive compensation plan. The plan permits awards of stock options, shares
of common stock or units denominated in common stock, all of which may be
subject to restrictions. The 1998 plan authorizes the issuance of up to
13,875,000 shares. In January 2000, our board approved the increase of shares
authorized under the plan to 15,525,000, which is subject to shareholder
approval. As of December 31, 1999, options to purchase 7,173,085 shares were
outstanding under the plan with exercise prices ranging from $.07 to $4.33 per
share, and options for 5,657,856 shares had been exercised. In addition, as of
December 31, 1999, 83,266 shares had been issued as stock awards under the
plan. We will not grant any further options or stock awards under the plan
after this offering is effective.

The plan administrator has the discretion to issue unvested shares of our
common stock upon exercise of a stock option under the plan. Any shares
acquired upon exercise of an unvested portion of an option will be unvested
shares. If an optionee's employment or services at Avenue A are terminated,
all shares issued on exercise of the option that are unvested on the date of
termination may be repurchased by Avenue A at the exercise price paid for the
shares. The terms and conditions of our repurchase right are set forth in an
agreement each optionee signs when the optionee exercises an unvested option.
The plan administrator has the discretionary authority to cancel Avenue A's
repurchase right for unvested shares. Avenue A's repurchase right will also
terminate if the vesting of outstanding options is accelerated in a corporate
transaction.

Corporate transactions. Unless individual letter agreements provide
otherwise, if a corporate transaction specified in the 1998 stock incentive
compensation plan, such as a merger or sale of Avenue A, occurs, each

59
<PAGE>

outstanding option under the plan will automatically accelerate and become
100% vested and exercisable immediately before the corporate transaction,
unless the option is assumed, continued or replaced with a comparable award by
the successor corporation or the parent of the successor corporation. If
option vesting is accelerated, any rights of repurchase held by us applicable
to the stock issued on exercise of the options will lapse. Any option or stock
award held by certain executive officers that is assumed, continued or
replaced with a comparable award in the corporate transaction, other than in
specified related-party transactions, will accelerate if the holder's
employment or services are terminated by the successor corporation without
cause or by the holder voluntarily and with good reason within two years after
the corporate transaction. Acceleration of option vesting will not occur if
the acceleration would prevent pooling of interests accounting treatment in a
transaction for which it is available. In other material respects, the terms
of the 1998 stock incentive compensation plan are the same as those in the
1999 stock incentive compensation plan.

401(k) Plan

We maintain a 401(k) plan that covers all our employees over the age of 18.
We may make an annual contribution for the benefit of eligible employees in an
amount determined by our board of directors. We have not made any contribution
to date and have no current plans to do so. Eligible employees may make pre-
tax elective contributions of up to 25% of their compensation, subject to
maximum limits on contributions prescribed by law.

Limitations on Director and Officer Liability and Indemnification

Our articles of incorporation limit the liability of directors to the
fullest extent permitted by the Washington Business Corporation Act as it
currently exists or as it may be amended in the future. Consequently, subject
to the Washington Business Corporation Act, no director will be personally
liable to us or our shareholders for monetary damages resulting from his or
her conduct as one of our directors, except liability for:

. acts or omissions involving intentional misconduct or knowing violations
of law or unlawful distributions; or

. transactions from which the director personally receives a benefit in
money, property or services to which the director is not legally
entitled.

Our bylaws also provide that we will indemnify any individual made a party
to a proceeding because that individual is or was a director or officer or, in
some circumstances, an employee of Avenue A, and will reimburse reasonable
expenses incurred by such individual in advance of the final disposition of
the proceeding to the fullest extent permitted by applicable law. Any repeal
of or modification to our articles of incorporation or bylaws may not
adversely affect any right of indemnification under the articles or bylaws of
a director or officer of Avenue A who is or was a director or officer at the
time of such repeal or modification. To the extent the provisions of our
articles of incorporation or bylaws provide for indemnification of directors
or officers for liabilities arising under the Securities Act, those provisions
are, in the opinion of the SEC, against public policy as expressed in the
Securities Act and they are unenforceable.

In addition, we intend to purchase and maintain a liability insurance
policy pursuant to which our directors and officers may be indemnified against
liability they may incur for serving in their capacities as our directors and
officers.

We believe that the limitation of liability provision in our articles of
incorporation, the indemnification provisions in our bylaws and the liability
insurance policy will help us continue to attract and retain qualified
individuals to serve as our directors and officers.

60
<PAGE>

RELATED-PARTY TRANSACTIONS

Nicolas J. Hanauer, the current chairman of our board of directors, is, and
was during 1997 through 1999, a director, officer and significant shareholder
of Pacific Coast Feather Company. During the period from our inception through
1998, Pacific Coast Feather Company paid for a portion of our operating
expenses and asset purchases, including some payroll expenses, totalling
$3,082,000. We repaid $1,794,000 of this amount in cash directly to Pacific
Coast Feather Company; we repaid $1,288,000 of this amount through the
proceeds of our sale of shares of our common stock in 1998 to Pacific Coast
Feather Company and affiliates of Pacific Coast Feather Company, including
Nicolas J. Hanauer; Gerard Hanauer, the father of Nicolas J. Hanauer; Roy
Clothier, Jr.; Eric Moen; Lenore Hanauer, the mother of Nicolas J. Hanauer;
and Adrian Hanauer, the brother of Nicolas J. Hanauer. Each of Gerard Hanauer,
Roy Clothier, Jr., Lenore Hanauer and Adrian Hanauer is and was during 1997
through 1999 an officer, director and significant shareholder of Pacific Coast
Feather Company. Mr. Moen is and was during 1997 through 1999 an officer and
shareholder of Pacific Coast Feather Company. Gerard Hanauer, Roy Clothier,
Jr. and Eric Moen served as directors of Avenue A during 1998 and part of
1999. Sales of our common stock to Pacific Coast Feather Company and its
affiliates with an aggregate purchase price in excess of $60,000 are set forth
in the table below.

Since our inception we have sold shares of our common and preferred stock
to some of our executive officers and directors and some of their affiliates.
Sales of our stock to our executive officers and directors and their
affiliates with an aggregate purchase price in excess of $60,000 are also set
forth in the table below.

<TABLE>
<CAPTION>
Total Value of
Shares at an
Assumed
Initial Public
Number of Price Aggregate Offering Price
Shares per Purchase of $9.00
Date of Purchase Purchaser Purchased Share(1) Price(1) Per Share
---------------- --------- --------- -------- ---------- --------------
<C> <S> <C> <C> <C> <C>
May 26, 1998 Roy Clothier, Jr.(2).... 1,650,000 $ .10 $ 160,996 $14,850,000
Adrian Hanauer(3)....... 1,650,000 .10 160,996 14,850,000
Gerard Hanauer(4)....... 1,650,000 .10 160,996 14,850,000
Nicolas J. Hanauer,
Chairman of the Board.. 4,950,000 .10 482,988 44,550,000
May 29, 1998 Lenore Hanauer(5)....... 1,650,000 .10 160,996 14,850,000
June 10, 1998 Pacific Coast Feather
Company................ 1,421,850 .10 138,735 12,796,650
July 2, 1998 Nicolas Hanauer......... 3,000,000 .10 300,000 27,000,000
August 5, 1998 John P. Galgon(6)....... 117,469 .55 65,000 1,057,221
March 15, 1999 R. Michael Leo(7)....... 92,142 .75 68,800 829,278
May 4, 1999 Entities affiliated with
U.S. Venture
Partners(8)(10)........ 4,639,174 1.29 6,000,000 41,752,566
Entities affiliated with
Oak Investment
Partners(9)(10)........ 7,731,958 1.29 9,990,000 69,587,622
October 8, 1999 Brian P. McAndrews,
President, Chief
Executive Officer and
Director............... 37,500 2.67 100,000 337,500
Robert M Littauer, Chief
Financial Officer, Vice
President, Finance &
Administration,
Secretary and
Treasurer.............. 37,500 2.67 100,000 337,500
Neve R. Savage,
President, Avenue A
International
Division............... 37,500 2.67 100,000 337,500
Jeffrey J. Miller, Vice
President, Corporate
Development and Legal
Affairs................ 37,500 2.67 100,000 337,500
Michael T. Galgon, Chief
Strategy Officer....... 37,500 2.67 100,000 337,500
Scott E. Lipsky, Chief
Technology Officer and
Vice President,
Engineering............ 37,500 2.67 100,000 337,500
October 25, 1999 Sumit T. Sen, Chief
Analytics Officer...... 187,500 2.67 500,000 1,687,500
October 26, 1999 Gregory B. Maffei,
Director............... 75,000 2.67 200,000 675,000
Gregory B. Maffei....... 75,000 1.27 95,000 675,000
December 15, 1999 Bruce Allenbaugh, Vice
President, Marketing... 37,500 4.33 162,500 337,500
February 4, 2000 James A. Warner,
President, iballs LLC.. 75,000 8.00 600,000 675,000
</TABLE>
- --------
(1) Price per share is rounded to the nearest cent and aggregate purchase
price is rounded to the nearest dollar. Aggregate purchase price may not
equal the number of shares purchased multiplied by the price per share
due to rounding.

61
<PAGE>

(2) Mr. Clothier was one of our directors in 1998 and part of 1999.

(3) Adrian Hanauer is the brother of Nicolas J. Hanauer, who has been a
director of Avenue A since its incorporation.

(4) Gerard Hanauer is the father of Nicolas J. Hanauer.

(5) Lenore Hanauer is the mother of Nicolas J. Hanauer.

(6) Mr. Galgon is the father of Michael T. Galgon, our Chief Strategy
Officer. Michael T. Galgon served as our General Manager at the time of
his father's purchase of shares of our Series A preferred stock. Number
of shares and price per share have been adjusted to give effect to the
conversion of each share of preferred stock into 1.5 shares of common
stock upon the closing of this offering.

(7) Mr. Leo was a Vice President of Avenue A at the time of this sale. Number
of shares and price per share have been adjusted to give effect to the
conversion of each share of preferred stock into 1.5 shares of common
stock upon the closing of this offering.

(8) Mr. Green, one of our directors, is a managing member of Presidio
Management Group VI, L.L.C. Presidio Management Group VI is the general
partner of each of U.S. Venture Partners VI, L.P., USVP VI Affiliates
Fund, L.P., 2180 Associates Fund VI, L.P. and USVP VI Entrepreneur
Partners, L.P., collectively the "USVP Entities." On May 4, 1999, the
USVP Entities purchased 3,092,783 shares of our Series C preferred stock
for $6 million. Presidio Management Group VI disclaims beneficial
interest in such shares, except as to its pecuniary interest arising as a
result of its interest in each of the USVP Entities. Mr. Green disclaims
beneficial ownership of such shares, except to the extent of his
pecuniary interest arising as a result of his interest in Presidio
Management Group VI. Number of shares and price per share have been
adjusted to give effect to the conversion of each share of preferred
stock into 1.5 shares of common stock upon the closing of this offering.

(9) Mr. Harman, one of our directors, is a managing member of Oak Associates
VIII, LLC, the general partner of Oak Investment Partners VIII, Limited
Partnership and a managing member of Oak VIII Affiliates, LLC, the
general partner of Oak VIII Affiliates Fund, Limited Partnership. On May
4, 1999, Oak Investment Partners VIII, Limited Partnership purchased
5,056,701 shares of our Series C preferred stock for $9.8 million and Oak
VIII Affiliates Fund, Limited Partnership purchased 97,938 shares of our
Series C preferred stock for $190,000. Mr. Harman disclaims beneficial
ownership of such shares, except to the extent of his pecuniary interest
arising as a result of his interest in Oak Associates VIII, LLC and
Oak VIII Affiliates, LLC. Number of shares and price per share have been
adjusted to give effect to the conversion of each share of preferred
stock into 1.5 shares of common stock upon the closing of this offering.

(10) U.S. Venture Partners VI, L.P., Oak Investment Partners VIII, Limited
Partnership and Oak VIII Affiliates Fund, Limited Partnership are
parties to an investors rights agreement with us. Pursuant to the terms
of that agreement, the holders of our Series C preferred stock have
registration rights that obligate us, under circumstances specified in
the investor rights agreement, to register shares of common stock under
the Securities Act. Number of shares and price per share have been
adjusted to give effect to the conversion of each share of preferred
stock into 1.5 shares of common stock upon the closing of this offering.

Pacific Coast Feather Company incurred obligations of approximately $13,333
in 1998 and $67,473 in 1999 for advertising services we provided, of which
$38,085 was uncollected as of December 31, 1999. In 1998 and 1999, Nicolas J.
Hanauer devoted part of his time to Pacific Coast Feather Company and part of
his time to Avenue A. Under an arrangement with Pacific Coast Feather Company,
we reimbursed Pacific Coast Feather Company for $85,230 of salary paid by it
to Mr. Hanauer in 1999, which reimbursement represented compensation for
Mr. Hanauer's services as an officer and director of Avenue A in 1999.

Nicolas J. Hanauer is also a director of Gear.com, Inc. Gear.com incurred
obligations to us of approximately $7,733 in 1998 and $641,463 in 1999 for
advertising services, of which $108,436 was uncollected as of December 31,
1999.

62
<PAGE>

Gregory B. Maffei, one of our directors, was an executive officer of
Microsoft Corporation in 1998 and 1999. Microsoft incurred obligations to us
of approximately $3,750 in 1998 and $7,610,934 in 1999 for advertising
services, of which $1,331,759 was uncollected as of December 31, 1999.

On October 8, 1999, we made loans of $100,000 to Robert M. Littauer, our
chief financial officer, vice president, finance and administration, secretary
and treasurer, and $676,000 to Brian P. McAndrews, our chief executive officer
and one of our directors, pursuant to promissory notes in connection with the
purchase of shares of common stock and the exercise of stock options by Mr.
Littauer and Mr. McAndrews, respectively. The notes bear interest at a rate
equal to the greater of (1) the applicable federal rate for a demand note as
of October 8, 1999 and as redetermined each year on the anniversary date of
the notes and (2) the lowest rate necessary to avoid the imputation of
interest under the Internal Revenue Code.

On October 8, 1999, we entered into a severance agreement and release with
R. Michael Leo. Pursuant to that agreement, Mr. Leo will receive a severance
payment of $200,000, payable in monthly installments over a 12-month period
from the date of the agreement. Pursuant to the agreement, we granted Mr. Leo
an option to purchase 375,000 shares of our common stock, subject to Mr. Leo's
compliance with the Confidentiality, Inventions Assignment, Noncompetition and
Nonsolicitation Agreement between us and him. The option has an exercise price
of $2.67 per share. In addition, we provided Mr. Leo with a loan of $75,000
which was applied to the exercise of previously granted options. Under the
agreement, each party agreed to release the other from any claims arising from
Mr. Leo's employment or termination.

63
<PAGE>

PRINCIPAL SHAREHOLDERS

The following table sets forth information regarding beneficial ownership
of our common stock as of December 31, 1999 by

. each person or group known by us to own beneficially more than 5% of
our common stock;

. each of our directors;

. our named executive officers shown in the summary compensation
table; and

. our current directors and executive officers as a group.

As of December 31, 1999, assuming conversion of all outstanding shares of
preferred stock, there were 49,745,282 shares of common stock outstanding and
354 shareholders of record of Avenue A. Beneficial ownership is determined in
accordance with SEC rules. In computing the number of shares beneficially
owned by a person or a group and the percentage ownership of that person or
group, shares of our common stock subject to options currently exercisable or
exercisable within 60 days after December 31, 1999 are deemed outstanding but
are not deemed outstanding for computing the percentage ownership of any other
person. Except as otherwise indicated in the footnotes below, we believe the
beneficial owners of the common stock listed below, based on information
furnished by them, have sole voting and investment power with respect to the
number of shares listed opposite their names, subject to community property
laws where applicable.

<TABLE>
<CAPTION>
Percentage of
Shares
Number of Number of Beneficially
Shares Shares Owned
Beneficially Beneficially -----------------
Owned Prior Owned After Prior to After
Name of Beneficial Owner to Offering Offering Offering Offering
- ------------------------ ------------ ------------ -------- --------
<S> <C> <C> <C> <C>
Entities affiliated with Oak
Investment Partners(1)........... 7,654,639 8,109,117 15.4% 14.6%
525 University Avenue, Ste. 1300
Palo Alto, CA 94301

Entities affiliated with U.S.
Venture Partners(2).............. 4,639,174 4,861,860 9.3 8.7
2180 Sand Hill Road, Ste. 300
Menlo Park, CA 94025

Jason Green(2).................... 4,639,174 4,861,860 9.3 8.7
2180 Sand Hill Road, Ste. 300
Menlo Park, CA 94025

Nicolas J. Hanauer................ 6,490,651 6,490,651 13.1 11.7
506 Second Avenue, 9th Floor
Seattle, WA 98104

Fredric W. Harman(1).............. 7,654,639 8,109,117 15.4 14.6
525 University Avenue, Ste. 1300
Palo Alto, CA 94301

Gregory B. Maffei(3).............. 225,000 225,000 * *

Brian P. McAndrews(4)............. 1,850,999 1,850,999 3.7 3.3
506 Second Avenue, 9th Floor
Seattle, WA 98104

Michael T. Galgon(5).............. 1,062,750 1,062,750 2.1 1.9

Robert M. Littauer(6)............. 614,999 614,999 1.2 1.1

Neve R. Savage(7)................. 435,000 540,000 1.0 1.0

Scott E. Lipsky(8)................ 1,534,500 1,534,500 3.1 2.8

R. Michael Leo(9)................. 934,779 934,779 1.9 1.7

Directors and executive officers
as a group (20 persons)(10).... 27,178,066 28,605,230 51.1 47.9
</TABLE>

64
<PAGE>

- --------
* less than 1%.

(1) Number of shares beneficially owned prior to offering represents
7,509,201 shares held by Oak Investment Partners VIII, Limited
Partnership and 145,438 shares held by Oak VIII Affiliates Fund, Limited
Partnership. Number of shares beneficially owned after the offering
includes the number of shares beneficially owned prior to the offering
and also includes 159,229 shares which Oak Investment Partners VIII,
Limited Partnership and 3,084 shares which Oak VIII Affiliates Fund,
Limited Partnership each will acquire from each of Roy Clothier, Jr. and
Gerard Hanauer, as well as 63,692 shares which Oak Investment Partners
VIII, Limited Partnership and 1,234 shares which Oak VIII Affiliates
Fund, Limited Partnership each will acquire from each of Lenore Hanauer
and Adrian Hanauer, immediately after the closing of this offering for a
purchase price per share equal to the initial public offering price
pursuant to stock purchase agreements. Fredric W. Harman, a director of
Avenue A, is a managing member of Oak Associates VIII, LLC, the general
partner of Oak Investment Partners VIII, Limited Partnership, and a
managing member of Oak VIII Affiliates, LLC, the general partner of Oak
VIII Affiliates Fund, Limited Partnership and thus may be deemed to share
voting and dispository power with each of the above entities. Mr. Harman
disclaims beneficial ownership of shares held by these entities, except
to the extent of his pecuniary interest in Oak Associates VIII, LLC and
Oak VIII Affiliates, LLC.

(2) Number of shares beneficially owned prior to offering represents
4,314,432 shares held by U.S. Venture Partners VI, LP, 120,618 shares
held by USVP VI Affiliates Fund, LP, 134,536 shares held by USVP VI
Entrepreneur Partners, L.P., and 69,588 shares held by 2180 Associates
Fund VI, L.P. Number of shares beneficially owned after the offering
includes the number of shares beneficially owned prior to the offering
and also includes 73,964 shares which U.S. Venture Partners VI, LP,
1,193 shares which 2180 Associates Fund VI, LP, 2,306 shares which USVP
VI Entrepreneur Partners, LP and 2,068 shares which USVP VI Affiliates
Fund, LP each will acquire from each of Roy Clothier, Jr. and Gerard
Hanauer, as well as 29,585 shares which U.S. Venture Partners VI, LP,
477 shares which 2180 Associates Fund VI, LP, 923 shares which USVP VI
Entrepreneur Partners, LP and 827 shares which USVP VI Affiliates Fund,
L.P. each will acquire from each of Lenore Hanauer and Adrian Hanauer,
immediately after the closing of this offering for a purchase price per
share equal to the initial public offering price pursuant to stock
purchase agreements. Jason Green, a director of Avenue A, is a managing
member of Presidio Management Group VI, LLC, the general partner of each
of the above entities and thus may be deemed to share voting and
dispository power with each of the above entities. Mr. Green disclaims
beneficial ownership of shares held by these entities, except to the
extent of his pecuniary interest in Presidio Management Group VI LLC.

(3) Represents (a) 150,000 shares and (b) 75,000 shares subject to options
exercisable within 60 days of December 31, 1999, which shares are
subject to repurchase by Avenue A at the original exercise price in the
event of termination of services of holder, which right lapses over time
in accordance with a vesting schedule.

(4) Represents (a) 6,000 shares, (b) 533,683 shares that are subject to
repurchase by Avenue A at the original exercise price paid for such
shares in the event of termination of services of holder, which right
lapses over time in accordance with a vesting schedule, and (c)
1,311,316 shares subject to options exercisable within 60 days of
December 31, 1999, which shares are subject to repurchase by Avenue A at
the original exercise price in the event of termination of services of
holder, which right lapses over time in accordance with a vesting
schedule.

(5) Represents (a) 458,250 shares, (b) 300,000 shares that are subject to
repurchase by Avenue A at the original exercise price paid for such
shares in the event of termination of services of holder, which right
lapses over time in accordance with a vesting schedule, and (c) 304,500
shares subject to options exercisable within 60 days of December 31,
1999, which shares are subject to repurchase by Avenue A at the original
exercise price in the event of termination of services of holder, which
right lapses over time in accordance with a vesting schedule.

(6) Represents (a) 364,999 shares, (b) 151,563 shares that are subject to
repurchase by Avenue A at the original exercise price paid for such
shares in the event of termination of services of holder, which right
lapses over

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<PAGE>

time in accordance with a vesting schedule, and (c) 98,437 shares subject
to options exercisable within 60 days of December 31, 1999, which shares
are subject to repurchase by Avenue A at the original exercise price in the
event of termination of services of holder, which right lapses over time in
accordance with a vesting schedule.

(7) Represents (a) 339,000 shares, (b) 96,000 shares that are subject to
repurchase by Avenue A at the original exercise price paid for such
shares in the event of termination of services of holder, which right
lapses over time in accordance with a vesting schedule and (c) with
respect to the number of shares beneficially owned after the offering,
105,000 shares subject to options which are immediately exercisable,
which shares are subject to repurchase by Avenue A at the original
exercise price in the event of termination of services of holder and
which right lapses over time in accordance with a vesting schedule.

(8) Represents (a) 877,500 shares, (b) 162,000 shares that are subject to
repurchase by Avenue A at the original exercise price paid for such
shares in the event of termination of services of holder, which right
lapses over time in accordance with a vesting schedule, and (c) 495,000
shares subject to options exercisable within 60 days of December 31,
1999, which shares are subject to repurchase by Avenue A at the original
exercise price in the event of termination of services of holder, which
right lapses over time in accordance with a vesting schedule.

(9) Mr. Leo's employment with the Company ended on October 9, 1999.

(10) Number of shares beneficially owned after the offering includes
1,557,415 shares subject to repurchase by Avenue A at the original
exercise price paid for such shares, which right lapses over time in
accordance with a vesting schedule. Also includes 4,077,584 shares
subject to options exercisable within 60 days of December 31, 1999,
3,923,084 shares of which are subject to repurchase by Avenue A at the
original exercise price in the event of termination of services of
holder, which right lapses over time in accordance with a vesting
schedule. Two of our current officers whose shares and options are
included in those of directors and executive officers as a group were
not officers at December 31, 1999.

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<PAGE>

DESCRIPTION OF CAPITAL STOCK

We are authorized to issue up to 200,000,000 shares of common stock, $.01
par value per share, and 37,500,000 shares of preferred stock, $.01 par value
per share. The following summary of provisions of the common stock and
preferred stock is not complete and may not contain all the information you
should consider before investing in the common stock. You should read
carefully our articles of incorporation, which are included as an exhibit to
the Registration Statement, of which this prospectus is a part.

Common Stock

As of December 31, 1999, assuming conversion of all outstanding shares of
preferred stock, there were 49,745,282 shares of common stock outstanding held
of record by 354 shareholders. Following this offering, there will be
55,672,992 shares of common stock outstanding, assuming exercise of an
outstanding warrant, assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options. The holders of common stock are
entitled to one vote per share on all matters to be voted on by the
shareholders. Our amended and restated articles of incorporation do not
authorize cumulative voting. Effective at the first annual meeting of
shareholders following this offering, our board will be classified. See "--
Antitakeover Effects of Provisions of Articles of Incorporation, Bylaws and
Washington Law--Election and removal of directors." Subject to preferences of
any outstanding shares of preferred stock, the holders of common stock are
entitled to receive ratably any dividends the board of directors declares out
of funds legally available for the payment of dividends. If Avenue A is
liquidated, dissolved or wound up, the holders of common stock are entitled to
share pro rata all assets remaining after paying liabilities and liquidation
preferences of any outstanding shares of preferred stock. Holders of common
stock have no preemptive rights or rights to convert their common stock into
any other securities. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are
fully paid and nonassessable, and the shares of common stock to be issued
following this offering will be fully paid and nonassessable.

Preferred Stock

Upon the closing of this offering, each outstanding share of Series A,
Series B and Series C preferred stock automatically will be converted into 1.5
shares of common stock. After that, pursuant to our articles of incorporation,
the board of directors will have the authority, without further action by the
shareholders, to issue up to 21,083,902 shares of preferred stock in one or
more series. The board also has the authority to fix the designations, powers,
preferences, privileges and relative, participating, optional or special
rights and the qualifications, limitations or restrictions of any preferred
stock, including dividend rights, conversion rights, voting rights, terms of
redemption and liquidation preferences, any or all of which may be greater
than the rights of the common stock. The board of directors, without
shareholder approval, can issue preferred stock with voting, conversion or
other rights that could adversely affect the voting power and other rights of
the holders of common stock. Preferred stock could thus be issued quickly with
terms that could delay or prevent a change in control of Avenue A or make
removal of management more difficult. Additionally, the issuance of preferred
stock may decrease the market price of the common stock and may adversely
affect the voting and other rights of the holders of common stock. We have no
plans at this time to issue any preferred stock.

Warrant

At December 31, 1999, we had one warrant outstanding to purchase 677,710
shares of common stock at $.55 per share which is held by Jeffrey P. Bezos.
The warrant expires in August 2003. The warrant will be exercised in full
immediately prior to the closing of this offering.

Registration Rights

After this offering, the holders of 15,506,436 shares of common stock will
be entitled to rights with respect to the registration of such shares under
the Securities Act, pursuant to the terms of an investors rights agreement
between Avenue A and the holders of Avenue A's Series C preferred stock and a
registration rights agreement

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<PAGE>

between Avenue A and the members of iballs LLC, a New York limited liability
company acquired by Avenue A in September 1999.

Antitakeover Effects of Provisions of Articles of Incorporation, Bylaws and
Washington Law

Issuance of preferred stock. As noted above, our board of directors,
without shareholder approval, has the authority under our articles of
incorporation to issue preferred stock with rights superior to the rights of
the holders of common stock. As a result, preferred stock could be issued
quickly and easily, could adversely affect the rights of holders of common
stock and could be issued with terms calculated to delay or prevent a change
in control of Avenue A or make removal of management more difficult.

Election and removal of directors. Upon the closing of this offering and
effective at the first annual meeting of shareholders following this offering,
our amended and restated articles of incorporation will provide for the
division of our board of directors into three classes, as nearly as equal in
number as possible. At the first election of our directors to the classified
board, each class 1 director will be elected to serve until the next following
annual meeting of shareholders, each class 2 director will be elected to serve
until the second following annual meeting of shareholders and each class 3
director will be elected to serve until the third following annual meeting of
shareholders. At each annual meeting of shareholders following the meeting at
which the board would be initially classified, the successors to directors
whose terms are expiring will be elected to serve until the third annual
meeting of shareholders following their election. Directors serve until their
successors are elected and qualified or until their death, resignation or
removal from office. Our directors can be removed from office only for cause
and only by a two-thirds vote of the shareholders. Because this system of
electing and removing directors generally makes it more difficult for
shareholders to replace a majority of the board of directors, it may
discourage a third party from making a tender offer or otherwise attempting to
gain control of Avenue A and may maintain the incumbency of the board.

Approval for business combinations. Upon the closing of this offering, our
articles will require that specified business combinations, including a
merger, share exchange and the sale, lease, exchange, mortgage, pledge,
transfer or other disposition or encumbrance of a substantial part of assets
other than in the usual and regular course of business, be approved by the
holders of not less than two-thirds of the outstanding shares, unless such a
business combination has been approved by the board of directors, in which
case the affirmative vote required shall be a majority of the outstanding
shares.

Shareholder meetings. Upon the closing of this offering, our articles and
bylaws will provide that our shareholders may call a special meeting only upon
the written request of holders of at least 25% of the outstanding shares
delivered to us at least 20 days prior to the date of the meeting.
Additionally, the board of directors, the chairman of the board, the chief
executive officer and the president may call special meetings of shareholders.

Requirements for advance notification of shareholder nominations and
proposals. Upon the closing of this offering, our bylaws will establish
advance notice procedures with respect to shareholder proposals and the
nomination of candidates for election as directors, other than nominations
made by or at the direction of the board of directors or a committee thereof.

Washington law. Washington law imposes restrictions on some transactions
between a corporation and significant shareholders. With some exceptions,
Chapter 23B.19 of the Washington Business Corporation Act prohibits a "target
corporation" from engaging in specified "significant business transactions"
with an "acquiring person." An acquiring person is defined as a person or
group of persons that beneficially owns 10% or more of the voting securities
of the target corporation. "Significant business transactions," as defined in
Chapter 23B.19, may not occur for a period of five years after the acquiring
person acquires the securities, unless the transaction or acquisition of
shares is approved by a majority of the members of the target corporation's
board of directors prior to the time of acquisition. "Significant business
transactions" include, among other things,

. a merger or consolidation with, disposition of assets to, or issuance or
redemption of stock to or from, the acquiring person;

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<PAGE>

. termination of 5% or more of the employees of the target corporation as
a result of the acquiring person's acquisition of 10% or more of the
shares; or

. allowing the acquiring person to receive any disproportionate benefit as
a shareholder.

After the five-year period, a "significant business transaction" may occur,
as long as it complies with "fair price" provisions specified in the statute. A
corporation may not "opt out" of this statute. This provision may have the
effect of delaying, deterring or preventing a change in control of Avenue A.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C.

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<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for Avenue A common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect prevailing market prices. Furthermore, since only a limited
number of shares will be available for sale shortly after this offering
because of contractual and legal restrictions on resale, sales of substantial
amounts of our common stock in the public market after the restrictions lapse
could adversely affect prevailing market prices and our ability to raise
equity capital in the future.

Upon completion of this offering, we will have 55,672,992 shares of common
stock outstanding, assuming no exercise of options after December 31, 1999,
assuming exercise of an outstanding warrant and assuming the conversion of all
shares of outstanding preferred stock into common stock, based on shares
outstanding as of December 31, 1999. Of these shares, the 5,250,000 shares
sold in this offering, plus any shares issued upon exercise of the
underwriters' over-allotment option, will be freely transferable without
restriction or registration under the Securities Act, except for shares
purchased by any of our existing "affiliates," which generally includes
officers, directors or 10% shareholders, as that term is defined in Rule 144
under the Securities Act. The remaining 50,422,992 shares of common stock
outstanding upon completion of this offering are "restricted securities"
within the meaning of Rule 144 under the Securities Act. These shares may be
sold in the public market only if registered, or if they qualify for an
exemption from registration under Rule 144, 144(k) or 701 promulgated under
the Securities Act, which are summarized below.

Including our directors and officers, holders of a total of approximately
47,874,451 shares of common stock, including shares issuable upon automatic
conversion of the outstanding preferred stock and shares issuable upon
exercise of an outstanding warrant, have entered into lock-up agreements
generally providing that they will not, without the prior written consent of
Morgan Stanley & Co. Incorporated, offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, lend or otherwise transfer or
dispose of, directly or indirectly, any shares of common stock or any
securities convertible into or exercisable or exchangeable for common stock
for a period of 180 days after the date of this prospectus. Avenue A has
entered into a similar agreement with Morgan Stanley. As a result of
these contractual restrictions, notwithstanding possible earlier eligibility
for sale under the provisions of Rules 144, 144(k) and 701, shares subject to
lock-up agreements will not be eligible for sale until these agreements expire
or are waived by Morgan Stanley. Taking into account the lock-up agreements,
and assuming Morgan Stanley does not release the parties from these
agreements, the following shares will be eligible for sale in the public
market at the following times:

. Beginning on the effective date of this offering, only the shares sold
in this offering will be immediately available for sale in the public
market.

. Beginning 180 days after the effective date of this offering, the
expiration date of the lock-up agreements, approximately 23,578,701
shares will be eligible for sale pursuant to Rules 144, 144(k) and 701.

. An additional 24,559,153 shares will become eligible for sale pursuant
to Rule 144 beginning approximately one year after the date of this
prospectus. Shares eligible to be sold by affiliates pursuant to Rule
144 are subject to the volume restrictions described below.

In general, under Rule 144 as currently in effect, a person, or persons
whose shares are aggregated, who has beneficially owned restricted securities
for at least one year is entitled to sell within any three-month period a
number of shares that does not exceed the greater of: (1) 1% of our then
outstanding shares of common stock, approximately 556,729 shares immediately
after this offering, or (2) the average weekly trading volume of our common
stock on the Nasdaq Stock Market during the four calendar weeks preceding the
date on which notice of the sale is filed with the SEC. Sales under Rule 144
also are subject to manner of sale provisions, notice requirements and the
availability of current public information about us. Under Rule 144(k), a
person who is not deemed to have been one of our affiliates at any time during
the three months preceding a sale, and who has

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<PAGE>

beneficially owned the shares proposed to be sold for at least two years, may
sell such shares without complying with the manner of sale, public
information, volume limitation, or notice provisions of Rule 144.

The holders of approximately 15,506,436 shares of common stock or their
transferees are also entitled to various rights with respect to the
registration of their shares of common stock for offer or sale to the public.
If these holders, by exercising their registration rights, cause a large
number of shares to be registered and freely transferable in the public
market, the sales could have a material adverse effect on the market price of
our common stock.

Beginning 90 days after the effective date of this prospectus, subject to
contractual restrictions, any of our employees, consultants or advisors who
purchased shares from us prior to the closing of this offering pursuant to a
written compensatory plan or contract may be entitled to rely on the resale
provisions of Rule 701. Rule 701 permits affiliates to sell their Rule 701
shares under Rule 144 without complying with the holding period requirements
of Rule 144. Rule 701 further provides that persons other than affiliates may
sell shares in reliance on Rule 144 without having to comply with the holding
period, public information, volume limitation, or notice provisions of Rule
144.

As of December 31, 1999, options to purchase 7,173,085 shares of common
stock pursuant to our 1998 stock incentive compensation plan were outstanding
and exercisable, and options to purchase 1,312,500 shares of common stock
outside of our 1998 stock incentive compensation plan were outstanding and
exercisable. At December 31, 1999, an additional 2,610,793 shares of common
stock were available for future grants under the 1998 stock incentive
compensation plan and, in January 2000, an additional 1,650,000 shares were
reserved for issuances under that plan. In addition, we have reserved
5,250,000 shares of common stock for future issuance under our 1999 stock
incentive compensation plan and 750,000 shares of common stock for future
issuance under our 1999 employee stock purchase plan. No shares have been
issued to date under this plan.

After the closing of this offering, we intend to file registration
statements under the Securities Act to register shares to be issued pursuant
to our stock plans. Such registration statements are expected to become
effective immediately upon filing, and shares covered by such registration
statements will then become eligible for sale in the public market. As a
result, shares issued pursuant to our 1998 stock incentive compensation plan,
our 1999 stock incentive compensation plan and our 1999 employee stock
purchase plan, after the effectiveness of such registration statements, also
will be freely transferable in the public market, subject to Rule 144
limitations applicable to affiliates, vesting restrictions and expiration of
lock-up agreements.

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<PAGE>

UNDERWRITERS

Under the terms and subject to the conditions contained in the underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, Salomon Smith Barney Inc. and Thomas
Weisel Partners LLC are acting as representatives, have severally agreed to
purchase, and we have agreed to sell to them, the respective number of shares
of common stock set forth opposite the names of the underwriters below:

<TABLE>
<CAPTION>
Number of
Name Shares
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated..................................
Salomon Smith Barney Inc...........................................
Thomas Weisel Partners LLC.........................................
---------
Total............................................................ 5,250,000
=========
</TABLE>

The underwriters are offering the shares subject to their acceptance of the
shares from us and subject to prior sale. The underwriting agreement provides
that the obligations of the several underwriters to pay for and accept
delivery of the shares of common stock offered by us in this offering are
subject to the approval of legal matters by their counsel and to other
conditions.

The underwriters are obligated to take and pay for all of the shares of
common stock offered by this prospectus, other than those covered by the over-
allotment option described below, if any of these shares are taken. Morgan
Stanley Dean Witter Online, an affiliate of Morgan Stanley & Co. Incorporated,
is acting as a selected dealer in connection with this offering and will be a
distributor of shares of common stock over the Internet to its eligible
account holders.

The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the
cover page of this prospectus and part to some dealers at a price that
represents a concession not in excess of $ per share under the public
offering price. Any underwriters may allow, and any of these dealers may
reallow, a concession not in excess of $ per share to other underwriters
or to some other dealers. After the initial offering of the shares of common
stock, the offering price and other selling terms may from time to time be
varied by the representatives of the underwriters.

We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to an aggregate of 787,500
additional shares of common stock at the public offering price set forth on
the cover page of this prospectus, less underwriting discounts and
commissions. The underwriters may exercise this option solely for the purpose
of covering over-allotments, if any, made in connection with this offering of
common stock. To the extent this over-allotment option is exercised, each
underwriter will become obligated, subject to specified conditions, to
purchase approximately the same percentage of additional shares of common
stock as the number set forth next to that underwriter's name in the preceding
table bears to the total number of shares of common stock set forth next to
the names of all underwriters in the preceding table.

The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by us and the estimated per
share and total other expenses of issuance and distribution which are payable
by us. These amounts are shown assuming both no exercise and full exercise of
the underwriters' over-allotment option.

<TABLE>
<CAPTION>
Per Share Total
------------------------- --------------------------
No
Exercise Full Exercise No Exercise Full Exercise
---------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Underwriting discounts
and commissions paid by
us..................... $ $ $ $
Estimated expenses
payable by us.......... $ $ $1,800,000 $1,800,000
</TABLE>

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<PAGE>

At our request, the underwriters have reserved up to 525,000 shares of
common stock to be issued by us and offered hereby for sale, at the initial
public offering price, to employees, business associates and related persons
of us. The number of shares of common stock available for sale to the general
public will be reduced to the extent these individuals purchase such reserved
shares. Any reserved shares not so purchased will be offered by the
underwriters to the general public on the same basis as the other shares
offered by this prospectus.

Avenue A, our directors and officers, and a substantial majority of the
shareholders of Avenue A have agreed that, without the prior written consent
of Morgan Stanley & Co. Incorporated on behalf of the underwriters, during the
period ending 180 days after the date of this prospectus, they will not:

. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of
any shares of common stock or any securities convertible into or
exercisable or exchangeable for common stock, or

. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of
common stock.

The restrictions described above do not apply to:

. the sale to the underwriters of the shares of common stock under the
underwriting agreement;

. the issuance by Avenue A of shares of common stock upon exercise of any
options or warrants or the conversion of any securities outstanding on
the date of this prospectus which is described in this prospectus;

. transactions by any person other than Avenue A relating to shares of
common stock or other securities acquired in open market transactions
after the completion of this offering;

. issuances of shares of common stock or options to purchase shares of
common stock pursuant to our employee benefit plans as in existence on
the date of this prospectus; or

. some issuances by us of shares of common stock in connection with
mergers or acquisitions, provided, among other things, the holder of
such shares agrees to be bound by the restrictions contained in the
previous paragraph.

The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed 5% of the total number of shares of common
stock offered by them.

In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with this offering, creating a short position in the common stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the common stock, the underwriters may bid for, and purchase,
shares of common stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an underwriter or a dealer for
distributing the common stock in this offering if the syndicate repurchases
previously distributed shares of common stock in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the common
stock above independent market levels. The underwriters are not required to
engage in these activities and may end any of these activities at any time.

We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $1,800,000.

We and the underwriters have agreed to indemnify each other against some
liabilities, including liabilities under the Securities Act.

Due to the fact that one of the representatives of the underwriters was
organized within the last three years, we are providing the following
information. Thomas Weisel Partners LLC, one of the representatives of the
underwriters, was organized and registered as a broker-dealer in December
1998. Since December 1998, Thomas Weisel Partners LLC has been named as a lead
or co-manager of, or as a syndicate member in, numerous public

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<PAGE>

offerings of equity securities. Thomas Weisel Partners LLC does not have any
material relationship with us or any of our officers, directors or other
controlling persons.

Pricing of the Offering

Prior to this offering, there has been no public market for the shares of
common stock. The initial public offering price will be determined by
negotiations between us and the representatives. Among the factors to be
considered in determining the initial public offering price are:

. our future prospects and those of our industry in general;

. our sales, earnings and other financial and operating information in
recent periods; and

. the price-earnings ratios, price-sales ratios, market prices of
securities and financial and operating information of companies engaged
in activities similar to ours.

LEGAL MATTERS

Avenue A is being represented by Perkins Coie LLP, Seattle, Washington. An
attorney at Perkins Coie LLP beneficially owns 13,393 shares of our series A
preferred stock. The underwriters are being represented by Wilson Sonsini
Goodrich & Rosati, Professional Corporation, Kirkland, Washington.

EXPERTS

The consolidated financial statements and schedules of Avenue A, Inc. and
its subsidiaries included in this prospectus and elsewhere in the registration
statement, to the extent and for the periods indicated in their reports, have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of Arthur Andersen LLP as experts in accounting
and auditing in giving said reports.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the shares of common stock offered in this
prospectus. This prospectus, which forms a part of the registration statement,
does not contain all of the information included in the registration
statement. Some information is omitted and you should refer to the
registration statement and its exhibits for that information. With respect to
references made in this prospectus to any contract or other document of Avenue
A, such references are not necessarily complete and you should refer to the
exhibits attached to the registration statement for copies of the actual
contract or document. You may review a copy of the registration statement,
including exhibits and the schedule filed with it, at the SEC's public
reference facilities in Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the SEC located at 7
World Trade Center, Suite 1300, New York, New York 10048, and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You may also
obtain copies of such materials from the Public Reference Room of the SEC,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. You may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a Web
site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants, such as Avenue A, that
file electronically with the SEC.

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<PAGE>

AVENUE A, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
AVENUE A, INC.
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Operations.................................... F-4
Consolidated Statements of Shareholders' Equity (Deficit)................ F-5
Consolidated Statements of Cash Flows.................................... F-6
Notes to Consolidated Financial Statements............................... F-7

I-BALLS L.L.C.
Report of Independent Public Accountants................................. F-20
Balance Sheets........................................................... F-21
Statements of Operations................................................. F-22
Statements of Members' Equity............................................ F-23
Statements of Cash Flows................................................. F-24
Notes to Financial Statements............................................ F-25

Unaudited Pro Forma Combined Financial Statements of Avenue A, Inc. and
I-Balls L.L.C. ......................................................... F-28
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders
of Avenue A, Inc.:

We have audited the accompanying consolidated balance sheets of Avenue A, Inc.
and subsidiaries as of December 31, 1998 and 1999, and the related
consolidated statements of operations, shareholders' equity (deficit) and cash
flows for the period from inception (July 1, 1997) to December 31, 1997 and
for each of the two 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Avenue A, Inc. and its
subsidiaries as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for the period from inception to December 31,
1997 and for each of the two years in the period ended December 31, 1999, in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Seattle, Washington,

February 6, 2000

F-2
<PAGE>

AVENUE A, INC.

CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share amounts)

<TABLE>
<CAPTION>
Pro Forma
Shareholders'
December 31, Equity at
----------------- December 31,
1998 1999 1999
------- -------- -------------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.................... $ 847 $ 10,962
Short-term investments....................... -- 11,803
Accounts receivable, net of allowance of $70
and $1,594 in 1998 and 1999, respectively... 1,545 28,295
Other receivable............................. -- 183
Prepaid expenses and other current assets.... 9 153
------- --------
Total current assets........................... 2,401 51,396
------- --------
Property and equipment, net.................... 1,027 4,625
Intangible assets, net......................... -- 5,221
Other assets................................... 13 849
------- --------
Total assets................................... $ 3,441 $ 62,091
======= ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable............................. $ 2,078 $ 36,075
Accrued expenses............................. 187 3,066
Due to affiliates............................ 75 --
Deferred revenue............................. 91 20
Note payable, current portion................ -- 303
------- --------
Total current liabilities...................... 2,431 39,464
------- --------
Long-term note payable......................... -- 683
------- --------
Total liabilities.............................. 2,431 40,147
------- --------
Commitments and contingencies (Note 7)
Shareholders' equity:
Convertible preferred stock, $0.01 par value,
aggregate liquidation preferences of $25,293
at December 31, 1999
Authorized 37,500,000
Outstanding 3,998,474 and 16,416,098 at
December 31,1998 and 1999.................. 40 164 $ --
Common stock, $0.01 par value
Authorized 200,000,000
Outstanding 18,059,700 and 25,121,135 at
December 31,1998 and 1999; 49,745,282
shares outstanding pro forma............... 181 251 497
Paid-in-capital............................... 4,156 60,424 60,342
Deferred stock compensation................... -- (22,670) (22,670)
Subscriptions receivable...................... -- (965) (965)
Accumulated deficit........................... (3,367) (15,260) (15,260)
------- -------- -------
Total shareholders' equity..................... 1,010 21,944 $21,944
------- -------- =======
Total liabilities and shareholders' equity..... $ 3,441 $ 62,091
======= ========
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.

F-3
<PAGE>

AVENUE A, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share and per share amounts)

<TABLE>
<CAPTION>
Period from Year Ended
Inception December 31,
(July 1, 1997) to ----------------------
December 31, 1997 1998 1999
----------------- ---------- ----------
<S> <C> <C> <C>
Revenue:
Advertising services.............. $ -- $ -- $ 67,074
Advertising service fees.......... 18 599 2,621
------ ---------- ----------
Total revenue................... 18 599 69,695
------ ---------- ----------

Expenses:
Cost of advertising services...... 20 125 56,979
Client services................... 19 382 4,860
Technology and operations......... -- 1,493 3,292
Selling, general and
administrative................... 263 2,257 12,330
Amortization of deferred stock
compensation..................... -- -- 4,681
------ ---------- ----------
Total expenses.................. 302 4,257 82,142
------ ---------- ----------
Loss from operations................ (284) (3,658) (12,447)
Interest income, net................ -- 12 554
------ ---------- ----------
Loss before provision for income
taxes.............................. (284) (3,646) (11,893)
Provision for income taxes.......... -- -- --
------ ---------- ----------
Net loss............................ $ (284) $ (3,646) $ (11,893)
====== ========== ==========
Basic and diluted net loss per
share.............................. $ (.34) $ (.61)
========== ==========
Shares used in computing basic and
diluted net loss per share......... 10,860,682 19,428,034
========== ==========
Pro forma basic and diluted net loss
per share.......................... $ (.31)
==========
Shares used in computing pro forma
basic and diluted net loss
per share.......................... 38,466,488
==========
</TABLE>

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

F-4
<PAGE>

AVENUE A, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(in thousands, except share data)

<TABLE>
<CAPTION>
Convertible Accumulated
Preferred Stock Common Stock Deficit
----------------- ----------------- Paid-In Deferred Stock Subscriptions Prior to Accumulated
Shares Amount Shares Amount Capital Compensation Receivable Incorporation Deficit
---------- ------ ---------- ------ ------- -------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, July 1,
1997............. -- $ -- -- $ -- $ -- $ -- $ -- $ -- $ --
Net loss........ -- -- -- -- -- -- -- (284) --
---------- ----- ---------- ----- ------- -------- ----- ----- --------
BALANCES,
December 31,
1997............. -- -- -- -- -- -- -- (284) --
Net loss prior
to incorporation
on February 27,
1998............ -- -- -- -- -- -- -- (279) --
Issuance of
common stock to
affiliates for
cash, conversion
of payable and
satisfaction of
payable......... -- -- 18,000,000 180 857 -- -- 563 --
Exercise of
common stock
options......... -- -- 59,700 1 3 -- -- -- --
Issuance of
convertible
preferred stock
and issuance of
common stock
warrants for
cash, net of
offering costs
of approximately
$165............ 3,998,474 40 -- -- 3,271 -- -- -- --
Compensation
expense
associated with
stock option
grants.......... -- -- -- -- 25 -- -- -- --
Net loss from
February 27,
1998 to December
31, 1998........ -- -- -- -- -- -- -- -- (3,367)
---------- ----- ---------- ----- ------- -------- ----- ----- --------
BALANCES,
December 31,
1998............. 3,998,474 40 18,059,700 181 4,156 -- -- -- (3,367)
Issuance of
preferred stock,
net of offering
costs of
approximately
$170............ 12,417,624 124 -- -- 21,755 -- -- -- --
Deferred stock
compensation
related to stock
options......... -- -- -- -- 27,351 (27,351) -- -- --
Amortization of
deferred stock
compensation.... -- -- -- -- -- 4,681 -- -- --
Issuance of
common stock in
connection with
the I-Balls
acquisition..... -- -- 750,000 8 2,492 -- -- -- --
Issuance of
common stock for
services........ -- -- 83,266 1 166 -- -- -- --
Issuance of
common stock
options to
consultants..... -- -- -- -- 153 -- -- -- --
Exercise of
common stock
options and sale
of restricted
stock........... -- -- 6,228,169 61 4,374 -- (965) -- --
Unrealized loss
on investment... -- -- -- -- (23) -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- (11,893)
---------- ----- ---------- ----- ------- -------- ----- ----- --------
BALANCES,
December 31,
1999............. 16,416,098 $ 164 25,121,135 $ 251 $60,424 $(22,670) $(965) $ -- $(15,260)
========== ===== ========== ===== ======= ======== ===== ===== ========
<CAPTION>
Total
Shareholders'
Equity
(Deficit)
-------------
<S> <C>
BALANCES, July 1,
1997............. $ --
Net loss........ (284)
-------------
BALANCES,
December 31,
1997............. (284)
Net loss prior
to incorporation
on February 27,
1998............ (279)
Issuance of
common stock to
affiliates for
cash, conversion
of payable and
satisfaction of
payable......... 1,600
Exercise of
common stock
options......... 4
Issuance of
convertible
preferred stock
and issuance of
common stock
warrants for
cash, net of
offering costs
of approximately
$165............ 3,311
Compensation
expense
associated with
stock option
grants.......... 25
Net loss from
February 27,
1998 to December
31, 1998........ (3,367)
-------------
BALANCES,
December 31,
1998............. 1,010
Issuance of
preferred stock,
net of offering
costs of
approximately
$170............ 21,879
Deferred stock
compensation
related to stock
options......... --
Amortization of
deferred stock
compensation.... 4,681
Issuance of
common stock in
connection with
the I-Balls
acquisition..... 2,500
Issuance of
common stock for
services........ 167
Issuance of
common stock
options to
consultants..... 153
Exercise of
common stock
options and sale
of restricted
stock........... 3,470
Unrealized loss
on investment... (23)
Net loss........ (11,893)
-------------
BALANCES,
December 31,
1999............. $ 21,944
=============
</TABLE>

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

F-5
<PAGE>

AVENUE A, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

<TABLE>
<CAPTION>
Period from
Inception
(July 1, 1997) Year Ended
to December 31,
December 31, -----------------
1997 1998 1999
-------------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................... $(284) $(3,646) $(11,893)
Adjustments to reconcile net loss to net
cash used in operating activities--
Depreciation and amortization............. 2 155 1,504
Amortization of deferred stock
compensation............................. -- -- 4,681
Noncash compensation expense.............. -- 25 320
Changes in assets and liabilities, net of
acquisition:
Accounts receivable..................... (8) (1,537) (25,368)
Other receivables and other current
assets................................. (10) 1 (326)
Other assets............................ (4) (9) (799)
Accounts payable........................ 5 2,073 32,126
Accrued expenses........................ 19 168 2,848
Deferred revenue........................ -- 91 (208)
----- ------- --------
Net cash (used in) provided by operating
activities................................. (280) (2,679) 2,885
----- ------- --------
Cash flows from investing activities:
Purchases of property and equipment......... (52) (1,132) (4,439)
Purchase of I-Balls, LLC.................... -- -- (3,601)
Proceeds from sale of marketable
securities................................. -- -- 2,084
Purchase of marketable securities........... -- -- (13,887)
Cash acquired in I-Balls acquisition........ -- -- 812
----- ------- --------
Net cash used in investing activities....... (52) (1,132) (19,031)
----- ------- --------
Cash flows from financing activities:
Borrowings on note payable.................. -- -- 1,000
Payments on note payable.................... -- -- (14)
Proceeds from issuance of common stock,
net........................................ -- 1,471 1,643
Proceeds from issuance of convertible
preferred stock............................ -- 3,311 21,879
Proceeds from the exercise of common stock
options.................................... -- 4 1,829
Advances from (payments to) affiliate, net.. 335 (131) (76)
----- ------- --------
Net cash provided by financing activities... 335 4,655 26,261
----- ------- --------
Net increase in cash and cash equivalents... 3 844 10,115
Cash and cash equivalents, beginning of
period..................................... -- 3 847
----- ------- --------
Cash and cash equivalents, end of period.... $ 3 $ 847 $ 10,962
===== ======= ========
Supplemental disclosure of noncash
activities:
Affiliate payable converted to common
stock...................................... $ -- $ 139 $ --
===== ======= ========
Conversion of accumulated deficit prior to
incorporation to contributed capital....... $ -- $ (563) $ --
===== ======= ========
Common stock issued in I-Balls acquisition.. $ -- $ -- $ 2,500
===== ======= ========
Subscriptions receivable.................... $ -- $ -- $ 965
===== ======= ========
Deferred stock compensation................. $ -- $ -- $ 27,351
===== ======= ========
</TABLE>

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

F-6
<PAGE>

AVENUE A, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1999
(in thousands except share and per share data)

1. Organization and Operations of the Company

Avenue A, Inc. (the Company) is an Internet advertising services company
that was founded on July 1, 1997. During the early stages of the Company,
Pacific Coast Feather Company (PCF) provided loans to fund operations and
provided certain accounting services. As of December 31, 1999, all of the
loans were either repaid or converted to common stock in the Company and all
services provided by PCF were paid for. On February 27, 1998, the Company was
incorporated.

On September 2, 1999, the Company completed the acquisition of I-Balls LLC
(I-Balls) a full service interactive media planner and buyer. The acquisition
was recorded under the purchase method of accounting and, therefore, the
results of operations of I-Balls and the fair value of the acquired assets and
liabilities were included in the Company's consolidated financial statements
beginning on the acquisition date (Note 3).

The Company is subject to a number of risks similar to other companies in a
comparable stage of development including reliance on key personnel,
competition from other companies with greater financial, technical and
marketing resources, and the risk relating to the ability to secure adequate
financing.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.

Use of Estimates in the Preparation of Financial Statements

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

Cash and Cash Equivalents

Cash and cash equivalents include demand deposits, money market accounts
and all highly liquid debt instruments with an original maturity date of three
months or less.

Stock Split

In January 2000, the Board of Directors approved a 3-for-2 stock split in
the form of a common stock dividend of the Company's common stock. The related
common stock, per-share data and preferred stock conversion ratios in the
accompanying financial statements have been retroactively adjusted to reflect
the stock split.

Short-Term Investments

The Company's short-term investments consist primarily of investment-grade
marketable securities, which are classified as available for sale and recorded
at fair value.

At December 31, 1998, all short-term investments had a contractual maturity
of one year or less.

F-7
<PAGE>

AVENUE A, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1999
(in thousands except share and per share data)

Financial Instruments and Concentrations of Credit Risk

Financial instruments that potentially subject the Company to
concentrations of credit risk consist of cash and cash equivalents, short-term
investments, accounts receivable and accounts payable. Fair values of cash and
cash equivalents and short-term investments approximate cost due to the short
period of time to maturity. The fair values of financial instruments that are
short-term and/or that have little or no market risk are considered to have a
fair value equal to book value. Assets and liabilities that are included in
this category are accounts receivable and accounts payable.

The Company performs initial and ongoing evaluations of its customers'
financial position, and generally extends credit on open account, requiring
collateral as deemed necessary. The Company maintains allowances for potential
credit losses.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets, of
three to five years. Leasehold improvements are amortized over the shorter of
the remaining lease term or the estimated useful lives of the improvements
using the straight-line method.

Intangible Assets

As of December 31, 1999, intangible assets consisted of the following:

<TABLE>
<S> <C>
Customer Base...................................................... $5,745
Skilled workforce.................................................. 127
------
5,872
Less: Accumulated Amortization..................................... (651)
------
$5,221
======
</TABLE>

The Company identifies and records impairment losses on intangible and
other assets when events and circumstances indicate that such assets might be
impaired. The Company considers factors such as significant changes in the
regulatory or business climate and projected future cash flows from the
respective asset. Impairment losses are measured as the amount by which the
carrying amount of the asset exceeds the fair value of the asset.

Subscriptions Receivable

In conjunction with the exercise of certain stock options by several
executives of the Company, the Company received full recourse promissory notes
in the amount of approximately $965. The notes are due on demand and bear
interest at a rate equal to the greater of the applicable federal rate for a
demand note or the lowest rate allowable by the Internal Revenue Code of 1986.

Revenue Recognition

Revenue consists of both advertising services revenue and advertising
service fee revenue. Advertising services revenue consists of the gross value
of the Company's billings to the Company's clients, which includes the price
of the advertising space that the Company purchases from Web sites to resell
to its clients. Under

F-8
<PAGE>

AVENUE A, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1999
(in thousands except share and per share data)

advertising services contracts, the Company purchases advertising space from
publisher Web sites and sells the purchased space to the Company's clients.
Under advertising services arrangements, the Company is ultimately responsible
for payment to Web sites for the cost of space the Company purchases.
Advertising service fees revenue consists of commissions earned on services
the Company provides to its clients. To generate revenue from advertising
service fees, the Company buys advertising space from publisher Web sites on
behalf of its clients and earns fees based on the dollar amount of advertising
space the Company purchases. Under the advertising service fee arrangements,
the Company's clients are ultimately responsible for payment to the publisher
Web sites for the cost of the advertising space purchased. Revenue under both
advertising services and advertising service fees is recognized over the
period that the related advertising is delivered.

Revenue is deferred in cases where the Company has not yet earned
advertising revenue due to billing the customer or receiving payment from the
customer prior to providing the services.

The percentage of sales to customers representing more than 10% of
consolidated revenues is as follows:

<TABLE>
<CAPTION>
December 31,
----------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Customer A................................................. * * 17%
Customer B................................................. * * 15%
Customer C................................................. * * 11%
Customer D................................................. * 19% *
Customer E................................................. * 17% *
Customer F................................................. * 14% *
Customer G................................................. * 10% *
Customer H................................................. 100% * *
</TABLE>
- --------
* Less than 10%

Computation of Basic and Diluted Net Loss Per Share and Pro Forma Basic and
Diluted Net Loss Per Share

Historical net loss per share has been calculated under Statement of
Financial Accounting Standards No. 128 "Earnings per Share." Basic net loss
per share on a historical basis is computed using the weighted average number
of shares of common stock outstanding. Unvested outstanding shares subject to
repurchase rights are excluded from the calculation. No diluted loss per share
information has been presented in the accompanying consolidated statements of
operations since potential common shares from conversion of preferred stock,
stock options, and warrants are antidilutive.

Pro forma basic and diluted net loss per share has been calculated assuming
the conversion of preferred stock into 1.5 shares of common stock as if the
shares had converted on the dates of their issuance.

Income Taxes

The Company recognizes deferred income tax assets and liabilities for the
expected future income tax consequences of temporary differences between the
financial reporting and tax bases of assets, liabilities and tax
carryforwards. Deferred tax assets are then reduced, if deemed necessary, by a
valuation allowance for the amount of any tax benefits which, more likely than
not based on current circumstances, are not expected to be realized (see Note
5).

F-9
<PAGE>

AVENUE A, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1999
(in thousands except share and per share data)

Costs of Advertising Services, Costs of Advertising Service Fees, Client
Services, and Technology and Operations

Cost of advertising services consist of the costs of advertising space that
the Company purchases from publisher's Web sites and the costs of delivering
the advertisements over the Internet.

Cost of advertising service fees revenue consists only of the costs of
delivering advertisements over the Internet.

Client services expenses consist primarily of salaries and related expenses
for client service personnel. Also included in client services costs are the
salaries and related expenses of personnel in the Company's data analysis
group.

Technology and operations expenses consist of salaries and related costs
for information technology and software development personnel. In addition,
these expenses include the cost of housing the Company's ad serving equipment
at third-party co-location facilities.

Stock-Based Compensation

The Company has elected to apply the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS 123). In accordance with the provisions of SFAS 123,
the Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25), and related interpretations in
accounting for its stock option plan.

Unaudited Pro Forma Shareholders' Equity

If the offering contemplated by this prospectus is consummated, all of the
preferred stock outstanding as of the closing date will automatically be
converted into 1.5 shares of common stock. Unaudited pro forma shareholders'
equity at December 31, 1999, as adjusted for the conversion of preferred
stock, is presented in the accompanying consolidated balance sheet.

Comprehensive Income

In 1999, the Company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income (SFAS 130)." SFAS 130 requires
companies to report a new, additional measure of income on the income
statement or to create a new financial statement that shows the new measure of
income. Comprehensive income includes foreign currency translation gains and
losses and unrealized gains and losses on equity securities that have been
previously excluded from net income and reflected instead in equity. A
separate statement was not included as SFAS 130 did not have a material impact
on the Company's results of operations.

Segment Reporting

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 131 changes the way
companies report selected segment information in annual financial statements
and requires companies to report selected segment information in interim
financial reports to shareholders. SFAS 131 is effective for Avenue A's year
ending December 31, 1999. Avenue A operates solely in one segment, providing
Internet advertising services. As of December 31, 1998, and 1999, the
Company's assets are located solely in

F-10
<PAGE>

AVENUE A, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1999
(in thousands except share and per share data)

the United States. The Company has no sales to international customers and
therefore the Company has no international revenue.

Recent Accounting Pronouncements

In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 was
effective for financial statements for years beginning after December 15,
1998. SOP 98-1 provides guidance over accounting for computer software
developed or obtained for internal use including the requirement to capitalize
specific costs and amortization of such costs. The Company implemented SOP 98-
1 and capitalized approximately $452 of internally developed software costs.
Accumulated depreciation related to the capitalized costs was approximately
$75 at December 31, 1999.

In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of
Start-Up Activities." SOP 98-5, which is effective for fiscal years beginning
after December 15, 1998, provides guidance on the financial reporting of
start-up costs and organization costs. It requires costs of start-up
activities and organization costs to be expensed as incurred. The
implementation of SOP 98-5 did not have a material impact on the Company's
financial position or results of operations.

In December 1999, the Staff of the Securities and Exchange Commission
released Staff Accounting Bulletin 101 (SAB 101), "Revenue Recognition" to
provide guidance on the recognition, presentation and disclosure of revenue in
financial statements. The Company believes their revenue recognition practices
are in conformity with the guidelines in SAB 101.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current
year presentation.

3. Acquisitions

Effective September 2, 1999, the Company acquired I-Balls, a New York
based, full service interactive media planning and buying company. In
connection with the acquisition, the Company issued 750,000 shares of common
stock and paid $3.5 million in cash in exchange for all of the outstanding
members' equity. The deemed fair value of the common stock issued in the
acquisition, for accounting purposes, was approximately $2.5 million. The
Company also incurred $101 in acquisition costs, for a total purchase price of
$6,101. At the date of closing, $500 of the cash payment was deposited in an
escrow account. The acquisition was accounted for as a purchase and,
accordingly, the results of operations of I-Balls have been included in the
consolidated financial statements commencing on the date of acquisition. The
excess of the purchase price over the value of the net assets acquired of
approximately $5,872 was allocated to customer base and skilled workforce,
which is being amortized on a straight-line basis over a useful life of three
years. Accumulated amortization was approximately $651 at December 31, 1999.

In connection with the acquisition, net assets acquired were as follows:

<TABLE>
<S> <C>
Cash, receivables and other current assets........................ $2,194
Property and equipment, and other noncurrent assets............... 74
Current liabilities............................................... (2,039)
------
$ 229
======
</TABLE>

F-11
<PAGE>

AVENUE A, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1999
(in thousands except share and per share data)

The following table presents the unaudited pro forma results assuming that
the Company had acquired I-Balls at the beginning of fiscal year 1998. This
information may not necessarily be indicative of the future combined results
of operations of the Company.

<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------
1998 1999
------- --------
<S> <C> <C>
Total revenue............................................ $ 1,607 $ 71,197
Net loss................................................. $(5,244) $(12,455)
Basic net loss per share................................. $ (.68) $ (.62)
</TABLE>

4. Property and Equipment

<TABLE>
<CAPTION>
December 31,
--------------
1998 1999
------ ------
<S> <C> <C>
Computer equipment........................................... $1,161 $4,368
Furniture and fixtures....................................... 23 355
Software costs............................................... -- 452
Leasehold improvements....................................... -- 427
------ ------
1,184 5,602
Less: Accumulated depreciation and amortization.............. (157) (977)
------ ------
$1,027 $4,625
====== ======
</TABLE>

5. Federal Income Taxes

The Company did not provide any current or deferred U.S. federal or state
income tax provision or benefit for any of the periods presented because it
has experienced operating losses since inception, and has provided full
valuation allowances on deferred tax assets because of uncertainty regarding
their realizability.

The difference between the statutory federal tax rate of 34% and the tax
provision of zero recorded by the Company is primarily due to the Company's
full valuation allowance against its deferred tax assets.

At December 31, 1999, the Company had net operating loss carryforwards of
approximately $9.8 million related to U.S federal and state jurisdictions.
Utilization of net operating loss carryforwards are subject to certain
limitations under Section 382 of the Internal Revenue Code of 1986, as
amended, as a result of the Series C preferred financing transaction in 1999.
The Company's use of losses is limited to approximately $1.8 million per year
on net operating losses incurred prior to May 1999. These carryforwards will
begin to expire at various times commencing in 2018.

F-12
<PAGE>

AVENUE A, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1999
(in thousands except share and per share data)

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred taxes were as follows:

<TABLE>
<CAPTION>
Year Ended
December 31,
----------------
1998 1999
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 1,032 $ 3,322
Other..................................................... 46 296
------- -------
Total deferred assets................................... 1,078 3,618
Deferred tax liabilities:
Property and equipment.................................... (30) (156)
Intangible assets......................................... -- (1,775)
Valuation allowance for deferred tax assets............... (1,048) (1,687)
------- -------
Net deferred taxes...................................... $ -- $ --
======= =======
</TABLE>

6. Shareholders' Equity

Convertible Preferred Stock

As of December 31, 1999, the Company was authorized to issue 37.5 million
shares of preferred stock. Shares of preferred stock may be issued from time
to time in one or more series, with designations, rights, preferences and
limitations established by the Company's Board of Directors.

As of December 31, 1999, the Company had designated three series of
convertible preferred stock (Series A through C).

The rights and privileges of the Preferred Stock are as follows:

Dividends--Holders of Series A, B and C are entitled to receive
dividends of $0.05, $0.05 and $0.10, respectively, per share per annum,
when and if declared by the Board of Directors. Such dividends are not
cumulative. As of December 31, 1999, no dividends have been declared.

Conversion--Each share of Series A and B is convertible, at the option
of the holders or upon the vote of two-thirds of the Series A and B
shareholders, respectively, into 1.5 shares of common stock. Each share of
Series C is convertible at the option of the shareholders into 1.5 shares
of common stock. Each share of Series A and B automatically converts into
common stock upon the closing of a public offering that meets certain
conditions. Each share of Series C automatically converts into common stock
upon the closing of a public offering with an aggregate offering price of
not less than $20 million (the "Proceeds Target"). In the event the Company
closes a public offering which meets the Proceeds Target but is at a per
share price to the public which is less than $2.59, each share of Series C
preferred stock shall, upon the closing of such offering, be converted into
the number of shares of common stock which equals $2.59 divided by the per
share price to the public in such offering.

Liquidation Preferences--The Series A, B and C shares have liquidation
preferences of $.83, $1.12 and $1.94 per share, respectively, plus all
declared but unpaid dividends.

F-13
<PAGE>

AVENUE A, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1999
(in thousands except share and per share data)

If the value of the Company on liquidation is insufficient to pay the
entire preferential amount, distribution shall be made pro rata to all
preferred shareholders in proportion to the preferential amount the
preferred shareholder is otherwise entitled to receive.

Any assets remaining after the preferential distribution will be paid to
holders of common stock in proportion to shares held by each.

Voting Rights--The holders of each share of preferred stock shall be
entitled to the number of votes equal to the number of shares of common
stock into which such shares could be converted, and have voting rights
equal to holders of common stock.

Stock Option Plan

As of December 31, 1999, the Company has reserved 15,525,000 shares of
common stock for issuance under its 1998 Stock Incentive Compensation Plan
(the Plan) to employees and consultants of the Company. Under the Plan, either
incentive or nonqualified options to purchase the Company's common stock may
be granted to full-time employees and consultants at prices determined by the
Board of Directors. Options granted under the Plan are exercisable at such
times and under such conditions as determined by the Board of Directors, but
the term of the options and the right of exercise may not exceed 10 years from
the date of grant. The stock options typically vest 20% in the first year and
ratably over the following twelve quarters. The Plan permits the exercise of
unvested options. Unvested common stock purchased under the Plan may be
subject to repurchase by the Company at the option exercise price in the event
of termination of employment. At December 31, 1999, 3,147,285 of the shares
acquired under the Plan were subject to the Company's repurchase rights. The
Company accounts for the Plan under APB 25 for which approximately $25 and
$4,681 has been recognized as compensation expense for the issuance of non-
qualified stock options for the years ending December 31, 1998 and 1999,
respectively. Had compensation expense for the Plan been determined consistent
with SFAS 123, the Company's net loss would have been increased as follows:

<TABLE>
<CAPTION>
December 31,
------------------------
1997 1998 1999
----- ------- --------
<S> <C> <C> <C>
Net Loss:
As reported..................................... $(284) $(3,646) $(11,893)
Pro forma....................................... $(3,649) $(12,011)

Basic and Diluted Net Loss Per Share:
As reported..................................... $ (.34) $ (.61)
Pro forma....................................... $ (.34) $ (.62)
</TABLE>

To determine compensation expense under SFAS 123, the Company used the
following assumptions:

<TABLE>
<CAPTION>
December 31,
----------------
1998 1999
------ ---------
<S> <C> <C>
. Weighted average risk-free interest rate................... 5.26 5.62
. Expected lives............................................. 1 year 1-4 years
. Expected dividend yields................................... -- --
. Expected volatility........................................ -- --
</TABLE>

F-14
<PAGE>

AVENUE A, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1999
(in thousands except share and per share data)

Option activity under the Plan was as follows:

<TABLE>
<CAPTION>
Weighted Weighted
Options Average Average
Available Options Exercise Grant Date
for Grant Outstanding Price Fair Value
---------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Balances, December 31, 1997... -- -- --
Authorized.................. 5,250,000 -- --
Granted..................... (4,774,575) (4,774,575) $ .14 $ .03
Exercised................... -- (59,700) .07
Cancelled................... 36,000 (36,000) .13
---------- ----------
Balances, December 31, 1998... 511,425 4,678,875 $ .14
Authorized.................. 10,275,000 --
Granted..................... (8,829,389) 8,829,389 $1.87 $1.87
Exercised................... -- (5,681,422) .52
Cancelled................... 653,757 (653,757) .29
---------- ----------
Balances, December 31, 1999... 2,610,793 7,173,085 $1.95
========== ==========
</TABLE>

The following information is provided for options outstanding and
exercisable at December 31, 1999:

<TABLE>
<CAPTION>
Outstanding Exercisable
-------------------------- -----------
Weighted Average
Remaining
Exercise Number of Contractual Life Number of
Price Options (Years) Options
-------- --------- ---------------- -----------
<S> <C> <C> <C>
$ .07 359,675 8.48 359,675
.33 402,429 8.74 402,429
.52 475,132 9.15 475,132
1.03 189,000 9.47 189,000
1.27 2,176,147 9.68 2,176,147
2.67 2,640,901 8.55 2,640,901
3.33 426,551 9.92 426,551
4.33 503,250 9.96 503,250
</TABLE>

The options outstanding at December 31, 1999 have a weighted average
remaining contractual life of approximately 9.14 years. Of these options,
2,593,837 are fully vested and 7,173,085 are exercisable as of December 31,
1999 with exercise prices ranging from $.07 to $4.33. In addition to the
shares noted above, the Company has granted 1,312,500 options outside of the
Plan at exercise prices ranging from $1.27 to $1.67 to employees of I-Balls.

In November 1999, the Board of Directors and shareholders approved the
adoption of the Company's 1999 Stock Incentive Compensation Plan (the 1999
Plan). In January 2000, the Board of Directors increased the shares available
for issuance under the 1999 Plan, subject to shareholder approval. The Company
has reserved 1.5 million shares of common stock for issuance under the 1999
Plan with a proposed increase to 5,250,000 shares. No issuances have been made
under the 1999 Plan as of December 31, 1999. The shares under the 1999 Plan
will increase annually on the first day of the Company's fiscal year beginning
in 2001 by an

F-15
<PAGE>

AVENUE A, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1999
(in thousands except share and per share data)

amount equal to the lesser of (i) 5,250,000 shares, (ii) 8% of the adjusted
average common shares outstanding of the Company used to calculate fully
diluted earnings per share for the preceding year or (iii) a lesser amount
determined by the Board of Directors. Any shares not yet issued under the
Company's 1998 Stock Incentive Compensation Plan as of the date of the
Company's proposed initial public offering, as well as shares subject to
options under the 1998 Plan that expire or are cancelled without being
exercised, will be available for grant under the 1999 Plan. The exercise price
for incentive stock options may not be less than 100% of the fair value of the
Company's common stock on the date of grant (85% for nonstatutory options).
The 1999 Plan terms and conditions are substantially the same as the 1998
Stock Incentive Compensation Plan.

Employee Stock Purchase Plan

On November 16, 1999, the Board of Directors approved the adoption of the
Company's 1999 Employee Stock Purchase Plan (the 1999 Purchase Plan), subject
to shareholder approval. A total of 750,000 shares of common stock has been
reserved for issuance under the 1999 Purchase Plan. The shares under the 1999
Purchase Plan will increase annually on the first day of the Company's fiscal
year beginning in 2001 by an amount equal to the lessor of (i) 1,125,000
shares of common stock, (ii) 2% of the adjusted average common shares
outstanding of the Company used to calculate fully diluted earnings per share
for the preceding year, or (iii) a lesser amount determined by the Board of
Directors. The 1999 Purchase Plan permits eligible employees to acquire shares
of the Company's common stock through periodic payroll deductions of up to 20%
of base cash compensation. Each offering period will have a maximum duration
of 12 months. The price at which the common stock may be purchased is 85% of
the lesser of the fair market value of the Company's common stock on the first
day of the applicable offering period or on the last day of the respective
purchase period. The initial offering period will commence on the
effectiveness of the initial public offering and will end on January 31, 2001.

Deferred Stock Compensation

In connection with the grant of certain stock options to employees and
consultants during the year ended December 31, 1999, the Company recorded
deferred stock compensation of approximately $27.4 million representing the
difference between the deemed fair value of the common stock for accounting
purposes and the option exercise price of such options at the date of grant.
Such amount is presented as a reduction of shareholders' equity and amortized,
in accordance with Financial Accounting Standards Board Interpretation No. 28,
on an accelerated basis over the vesting period of the applicable options
(generally 4 years). Under this method, approximately 52% of the Deferred
Stock Compensation is recognized in the first twelve months, 27% in the second
twelve months, 15% in the third twelve months and 6% in the fourth twelve
months.

During 1999, the Company amortized approximately $4,681. Compensation
expense is decreased in the period of forfeiture for any accrued but unvested
compensation arising from the early termination of an option holder's
services.

Equity Instruments Issued to Non-employees

In connection with the sale of Series A preferred stock, the Company issued
a warrant to purchase 677,710 shares of common stock at an exercise price of
$.55 per share. The warrant had a grant date fair value of $.23 per share and
expires in August 2003. To determine the grant date fair value, the Company
used a risk free interest rate of 5.6%, expected life of five years, expected
dividend yields of 0%, and expected volatility of 105%. The Company recorded
expense of $157 during the year ended December 31, 1998 related to the
warrant.

F-16
<PAGE>

AVENUE A, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1999
(in thousands except share and per share data)

During 1999, the Company granted options to purchase 257,025 shares of the
Common Stock at exercise prices ranging from $.52 to $1.27 per share to
consultants for past services. The two option grants had grant date fair
values of $.23 and $.74 per share, respectively, and expire in 2009. To
determine the grant date fair value, the Company used a risk free interest
rate of 4.4% and 4.8%, respectively, expected life of two years, expected
dividend yields of 0%, and expected volatility of 111%. The Company expensed
approximately $153 during the year ended December 31, 1999 related to the
options.

Reserved for Future Issuance

The following shares of common stock have been reserved for future issuance
as of December 31, 1999:

<TABLE>
<S> <C>
Employee stock options........................................ 7,173,085
Stock options issued outside of the Plan...................... 1,312,500
Convertible Preferred Stock................................... 24,624,147
Warrants...................................................... 677,710
----------
33,787,442
==========
</TABLE>

7. Commitments and Contingencies

Operating Leases

The Company has various operating leases, including building and equipment,
that expire at various times through 2010. Future minimum lease payments as of
December 31, 1999 are as follows:

Rent expense under operating leases totaled approximately $0, $182 and $601
for the years ended December 31, 1997, 1998 and 1999 respectively.

The above future minimum lease payments include a commitment of
approximately $21 per month expiring on June 30, 2001, which has been
subleased at a loss. The loss of approximately $54 has been recognized in the
statement of operations.

The Company has multiple agreements with third-parties to house the
Company's ad serving equipment. One of the agreements is on a month-to-month
basis and the other agreement is on a year-to-year basis. For the year ended
December 31, 1999, total expense under these agreements approximated $240.

F-17
<PAGE>

AVENUE A, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1999
(in thousands except share and per share data)

8. Related Party Transactions

Prior to incorporation on February 27, 1998, the Company relied on non-
interest bearing loans from PCF to fund operations. During 1998, PCF converted
approximately $139 of the debt to 1,421,850 shares of the Company's common
stock. Subsequent to year-end, the Company repaid all loans to PCF. The
accompanying statement of operations includes allocations from PCF for certain
accounting services. These allocations totaled approximately $32 and $1 in
1997 and 1998, respectively, and were based on estimates of time and effort
spent by PCF personnel on behalf of the Company. Additionally, PCF paid the
Company approximately $36 and $33 during 1998 and 1999, respectively, for
advertising services. At December 31, 1997 and 1998, amounts due to PCF were
approximately $335 and $75, respectively.

9. Earnings Per Share

The following is a reconciliation of the numerators and denominators used
in computing basic and diluted earnings per share:

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1997 1998 1999
----- ---------- ----------
<S> <C> <C> <C>
Net Loss (numerator for basic and diluted)... $(284) $ (3,646) $ (11,893)
===== ========== ==========
Shares (denominator for basic and diluted):
Gross weighted average common shares
outstanding............................... 10,860,682 20,536,376
Less:
Weighted average common shares subject to
repurchase............................... -- 1,108,342
---------- ----------
Shares used in computation................... 10,860,682 19,428,034
========== ==========
Basic and diluted net loss per share......... $ (.34) $ (.61)
========== ==========
</TABLE>

The following is a reconciliation between historical and pro forma shares
used in computing basic and diluted net loss per share:

<TABLE>
<CAPTION>
Year Ended
December 31,
---------------------
1998 1999
---------- ----------
<S> <C> <C>
Historical weighted average shares used in computing
basic and diluted net loss per share................. 10,860,682 19,428,034
Add:
Weighted average preferred stock that will convert
upon the closing of a public offering.............. 2,526,806 19,038,454
---------- ----------
Pro forma shares used in computing basic and diluted
net loss per share................................... 13,387,488 38,466,488
========== ==========
</TABLE>

At December 31, 1999, options to purchase 7,173,085 shares of common stock,
warrants to purchase 677,710 shares of common stock, 16,416,098 shares of
convertible preferred stock to purchase 24,624,147 shares of common stock and
3,147,285 shares of common stock subject to repurchase rights were outstanding
but were not included in the computation of diluted earnings per share as
their inclusion would be antidilutive.

F-18
<PAGE>

AVENUE A, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1999

(in thousands except share and per share data)

10. Note Payable

During November and December 1999, the Company borrowed a total of
$1,000,000 under an equipment term loan facility. The loan is secured by the
equipment and is payable in monthly installments of principal and interest of
approximately $32. Interest is accrued on the outstanding balance at a per
annum rate of one percentage point above the Prime Rate. As of December 31,
1999, the interest rate was 9.5%.

Minimum principal payments are as follows:

11. Subsequent Event

On February 4, 2000, the Company entered into a ten-year facilities lease
to commence on December 1, 2000. The payments under the lease commitment total
approximately $11,060,000.

F-19
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Members of I-Balls L.L.C.:

We have audited the accompanying balance sheets of I-Balls L.L.C. as of
December 31, 1997 and 1998, and the related statements of operations, members'
equity and cash flows for the period January 28, 1997 to December 31, 1997 and
the year ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of I-Balls L.L.C. as of
December 31, 1997 and 1998, and the results of its operations and its cash
flows for the period January 28, 1997 to December 31, 1997 and the year ended
December 31, 1998, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

New York, New York
October 29, 1999

F-20
<PAGE>

I-BALLS L.L.C.
(a limited liability company)

BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
------------------- September 2,
1997 1998 1999
-------- ---------- ------------
(Unaudited)
<S> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents................... $ 49,730 $ 494,505 $ 811,610
Accounts receivable, net of allowance for
doubtful accounts of $4,100, $59,900 and
$123,600, respectively..................... 438,395 992,172 1,151,264
Unbilled receivables........................ -- 181,572 230,087
Prepaids and other current assets........... 4,070 8,054 1,000
-------- ---------- ----------
Total current assets.......................... 492,195 1,676,303 2,193,961
Equipment and leasehold improvements, net..... 14,607 16,958 36,672
Other assets.................................. 6,208 6,167 37,500
-------- ---------- ----------
Total assets.................................. $513,010 $1,699,428 $2,268,133
======== ========== ==========
Liabilities and Members' Equity
Current liabilities:
Accounts payable and accrued expenses....... $412,098 $1,276,354 $1,886,149
Capital lease obligation current portion.... 6,365 9,436 9,136
Employee loan............................... 38,345 -- --
Deferred revenue............................ 38,228 54,992 137,723
-------- ---------- ----------
Total current liabilities..................... 495,036 1,340,782 2,033,008
-------- ---------- ----------
Long-term debt:
Capital lease obligation long-term portion.. 7,997 1,715 5,625
-------- ---------- ----------
Commitments and contingencies (Note 5)
Members' equity:
Members' interest........................... 1,000 1,000 1,000
Retained earnings........................... 8,977 355,931 228,500
-------- ---------- ----------
Total members' equity......................... 9,977 356,931 229,500
-------- ---------- ----------
Total liabilities and members' equity......... $513,010 $1,699,428 $2,268,133
======== ========== ==========
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-21
<PAGE>

I-BALLS L.L.C.
(a limited liability company)

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
For the Periods Ended
-------------------------
January 28, Year January 1
Through Ended Through
December 31, December 31, September 2,
1997 1998 1999
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
Advertising service fees................. $115,854 $1,008,022 $1,501,943
Expenses:
Sales and marketing.................... 66,687 409,100 581,586
General and administrative............. 40,190 256,137 162,575
-------- ---------- ----------
Total expenses....................... 106,877 665,237 744,161
-------- ---------- ----------
Income from operations................... 8,977 342,785 757,782
Interest income.......................... -- 10,435 19,693
Income taxes............................. -- -- 35,062
-------- ---------- ----------
Net income............................... $ 8,977 $ 353,220 $ 742,413
======== ========== ==========
</TABLE>

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

F-22
<PAGE>

I-BALLS L.L.C.
(a limited liability company)

STATEMENTS OF MEMBERS' EQUITY

<TABLE>
<CAPTION>
Total
Members' Retained Members'
Interest Earnings Equity
-------- -------- --------
<S> <C> <C> <C>
Initial Capital Contribution, January 28, 1997.... $1,000 $ -- $ 1,000
Net income........................................ -- 8,977 8,977
------ -------- --------
Balance, December 31, 1997........................ 1,000 8,977 9,977
Distributions..................................... -- (6,266) (6,266)
Net income........................................ -- 353,220 353,220
------ -------- --------
Balance, December 31, 1998........................ 1,000 355,931 356,931
Distributions (unaudited)......................... -- 869,844 869,844
Net income (unaudited)............................ -- 742,413 742,413
------ -------- --------
Balance, September 2, 1999 (unaudited)............ $1,000 $228,500 $229,500
====== ======== ========
</TABLE>

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

F-23
<PAGE>

I-BALLS L.L.C.
(a limited liability company)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
January 28, January 1,
Through Year Ended Through
December 31, 1997 December 31, 1998 September 2, 1999
----------------- ----------------- -----------------
(unaudited)
<S> <C> <C> <C>
Cash flows from
operating activities:
Net income.............. $ 8,977 $ 353,220 $ 742,413
Adjustments to reconcile
net income to net cash
provided by operating
activities-
Depreciation.......... 3,652 6,979 6,720
Amortization of
intangible assets.... 292 541 1,667
Changes in assets and
liabilities-
Accounts
receivable......... (438,395) (553,777) (159,092)
Unbilled
receivables........ -- (181,572) (48,515)
Prepaid expenses and
other current
assets............. (2,070) (4,984) 8,054
Other assets........ (6,500) (500) (33,000)
Accounts payable and
accrued expenses... 412,098 864,256 609,795
Deferred revenue.... 38,228 16,764 82,731
--------- --------- ----------
Net cash provided by
operating activities... 16,282 500,927 1,210,773
--------- --------- ----------
Cash flows from
investing activities:
Capital expenditures.... -- (2,572) (22,824)
Cash flows from
financing activities:
Proceeds (repayment) of
member loans........... 38,345 (38,345) --
Repayment of capital
lease obligation....... (3,897) (9,969) --
Employee (loan)
receivable/payment..... (1,000) 1,000 (1,000)
Member distributions.... -- (6,266) (869,844)
--------- --------- ----------
Net cash provided by
(used in) financing
activities............. 33,448 (53,580) (870,844)
--------- --------- ----------
Net increase in cash and
cash equivalents....... 49,730 444,775 317,105
Cash and cash
equivalents, beginning
of period.............. -- 49,730 494,505
--------- --------- ----------
Cash and cash
equivalents, end of
period................. $ 49,730 $ 494,505 $ 811,610
========= ========= ==========
</TABLE>

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

F-24
<PAGE>

I-BALLS L.L.C.
(a limited liability company)

NOTES TO FINANCIAL STATEMENTS

1. Business and Summary of Significant Accounting Policies

Business

I-Balls L.L.C. (the "Company"), a New York limited liability company, was
incorporated on January 28, 1997. The Company is a full-service interactive
media planner and buyer.

Use of Estimates

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

Revenue Recognition

Revenue consists of fees charged to customers. The Company acts as an agent
for clients and purchases space from publisher websites on their behalf.
Advertising service fees earned under fee based contracts reflect the amount
of the commission earned. Revenue is recognized over the period the
advertising is delivered. Deferred revenue represents billings issued in
advance of the service period. Unbilled receivables represents fees earned but
not billed. All contracts in process are expected to be billed and collected
within one year.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original
maturity from the date of purchase of three months or less to be cash
equivalents.

Equipment and Leasehold Improvements

Equipment and leasehold improvements are stated at cost, net of accumulated
depreciation and amortization. Equipment is depreciated on the double-
declining method over estimated useful lives ranging from five to seven years.
Leasehold improvements are amortized over the life of the current office
lease. The lease expires on August 14, 2001.

Income Taxes

The Company is a limited liability company taxed as a partnership for
federal and state income tax purposes and, as a result, the earnings of the
Company are taxable directly to the members. The Company remains liable for
the New York City Unincorporated Business Tax.

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, due
from members, due to members, and accounts payable approximate fair value due
to the short-term maturity of these instruments.

New Accounting Pronouncements

In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"),

F-25
<PAGE>

I-BALLS L.L.C.
(a limited liability company)

NOTES TO FINANCIAL STATEMENTS--(Continued)

which provides guidance for determining whether computer software is internal-
use software and on accounting for the proceeds of computer software
originally developed or obtained for internal use and then subsequently sold
to the public. It also provides guidance on capitalization of the costs
incurred for computer software developed or obtained for internal use. SOP 98-
1 is effective for fiscal years beginning after December 31, 1998. The Company
does not expect the adoption of SOP 98-1 to have a material effect on its
financial statements.

2. Equipment and Leasehold Improvements

Equipment consisted of the following:

<TABLE>
<CAPTION>
December 31,
--------------- September 2,
1997 1998 1999
------- ------- ------------
(Unaudited)
<S> <C> <C> <C>
Computer equipment.............................. $18,259 $27,589 $44,073
Leasehold improvements.......................... -- -- 9,950
------- ------- -------
Total equipment............................... 18,259 27,589 54,023
Less--Accumulated depreciation.................. 3,652 10,631 17,351
------- ------- -------
Equipment and leaseholds, net................. $14,607 $16,958 $36,672
======= ======= =======
</TABLE>

Depreciation expense aggregated $3,652, $6,979 and $6,720 (unaudited) for
the period January 28, 1997 to December 31, 1997 and the year ended December
31, 1998 and for the period from January 1, 1999 through September 2, 1999,
respectively.

3. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:

<TABLE>
<CAPTION>
December 31,
------------------- September 2,
1997 1998 1999
-------- ---------- ------------
(Unaudited)
<S> <C> <C> <C>
Accounts payable.......................... $393,906 $1,269,930 $1,643,805
Accrued bonuses........................... 11,500 -- 211,838
Accrued payroll........................... 6,692 6,424 --
Accrued tax payable....................... -- -- 30,506
-------- ---------- ----------
Total accounts payable and accrued
expenses............................... $412,098 $1,276,354 $1,886,149
======== ========== ==========
</TABLE>

4. Members' Equity

Initial Capital Contribution

On June 1, 1997, the founding members entered into a Limited Liability
Company Operating Agreement by which they pledged a total capital contribution
of $1,000.

Distributions

The Company distributes earnings to its members based upon a formula in the
members' agreement, which takes into consideration, among other things,
ownership percentages, and other subjective allocations.

F-26
<PAGE>

I-BALLS L.L.C.
(a limited liability company)

NOTES TO FINANCIAL STATEMENTS--(Continued)

5. Commitments and Contingencies

Leases

The Company is committed under operating leases for office space and fixed
assets. Rent expense was $10,325, $27,275 and $24,750 (unaudited) for the
period January 28, 1997 to December 31, 1997 and the year ended December 31,
1998 and for the period from January 1, 1999 through September 2, 1999,
respectively. Operating lease expense related to fixed assets was $3,010,
$8,408 and $6,870 (unaudited) for the period January 28, 1997 to December 31,
1997 and the year ended December 31, 1998 and for the period from January 1,
1999 through September 2, 1999, respectively. Future minimum lease payments
under the terms of noncancelable operating lease are as follows:

<TABLE>
<CAPTION>
Lease
Payments
--------
<S> <C>
Years ending December 31:
1999............................................................. $ 81,377
2000............................................................. 161,867
2001............................................................. 82,290
2002............................................................. 1,180
--------
$326,714
========
</TABLE>

6. Business Concentrations and Credit Risk

Financial instruments, which subject the Company to concentrations of
credit risk, consisted primarily of cash and cash equivalents and trade
accounts receivable. The Company maintains cash and cash equivalents with
various financial institutions. The Company performs periodic evaluations of
the relative credit standing of these institutions. The Company's clients are
primarily concentrated in the United States. The Company performs ongoing
credit evaluations, generally does not require collateral, and establishes an
allowance for doubtful accounts based upon factors surrounding the credit risk
of customers, historical trends and other information. To date, such losses
have been within management's expectations.

For the period January 28, 1997 to December 31, 1997, three clients
accounted for 52%, 23% and 16%, respectively, of total revenue.

For the year ended December 31, 1998, three clients accounted for 28%, 20%
and 18%, respectively, of total revenue.

For the period from January 1, 1999 through September 2, 1999 (unaudited),
three clients accounted for 34%, 17% and 11%, respectively, of total revenue.

As of December 31 1997 four clients accounted for 37%, 26%, 17% and 11%,
respectively, of total accounts receivable.

As of December 31, 1998, two clients accounted for 49% and 15%,
respectively, of total accounts receivable.

As of September 2, 1999 (unaudited), one client accounted for 53% of total
accounts receivable.

7. Sale of Members' Interest

On September 2, 1999, the members of the Company sold 100% of their
interest in the Company to Avenue A, Inc. ("Avenue A"). As a result of this
transaction, the Company became a wholly owned subsidiary of Avenue A.

F-27
<PAGE>

AVENUE A, INC.

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

On September 2, 1999, Avenue A, Inc. (the "Company" or "Avenue A")
completed the acquisition of I-Balls L.L.C. ("I-Balls"), a full service
interactive media planner and buyer. The acquisition of I-Balls has been
accounted for as a purchase. Accordingly, the results of operations of I-Balls
have been included in the consolidated statement of operations of Avenue A
commencing on the date of acquisition.

The accompanying unaudited pro forma combined statement of operations of
Avenue A, Inc. for the year ended December 31, 1999 assumes that the
acquisition took place as of January 1, 1999.

The unaudited pro forma combined statements of operations are presented for
informational purposes only and do not purport to represent what the Company's
results of operations for the year ended December 31, 1999 would actually have
been had the acquisitions, in fact, occurred on January 1, 1999, or the
Company's results of operations for any future period. The unaudited pro forma
combined statements of operations should be read in conjunction with the
financial statements and related notes thereto included elsewhere in this
prospectus and the information set forth in "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

F-28
<PAGE>

AVENUE A, INC.

UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)

<TABLE>
<CAPTION>
January 1-
December 31, September 2, Pro
1999 1999 Forma Pro Forma
Avenue A I-Balls Adjustments Combined
------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
Revenue:
Advertising services.. $ 67,074 $ -- $ -- $ 67,074
Advertising service
fees................. 2,621 1,502 -- 4,123
---------- ------ ------- ----------
Total revenue....... 69,695 1,502 -- 71,197
---------- ------ ------- ----------
Expenses:
Cost of advertising
services revenue..... 56,979 -- -- 56,979
Client services....... 4,860 -- -- 4,860
Technology and
operations........... 3,292 -- -- 3,292
Selling, general and
administrative....... 11,680 745 -- 12,425
Amortization of
intangible assets.... 650 -- 1,304 (a) 1,954
Amortization of
deferred stock
compensation......... 4,681 -- -- 4,681
---------- ------ ------- ----------
Total expenses...... 82,142 745 1,304 84,191
---------- ------ ------- ----------
Income (loss) from
operations......... (12,447) 757 (1,304) (12,994)
Interest income......... 554 20 -- 574
---------- ------ ------- ----------
Income (loss) before
provision for income
taxes.................. (11,893) 777 (1,304) 12,420
Provision for income
tax.................... -- 35 -- 35
---------- ------ ------- ----------
Net income (loss)....... $ (11,893) $ 742 $(1,304) $ (12,455)
========== ====== ======= ==========
Basic and diluted net
loss per share......... $ (.61) $ (.62)(b)
========== ==========
Shares used in computing
basic and diluted net
loss per share......... 19,428,034 19,931,459 (b)
========== ==========
Pro forma basic and
diluted net loss per
share.................. $ (.31) $ (.32)(b)
========== ==========
Shares used in computing
pro forma basic and
diluted net loss per
share.................. 38,466,488 38,969,913 (b)
========== ==========
</TABLE>

The accompanying notes are an integral part of this combined financial
statement.

F-29
<PAGE>

AVENUE A, INC.

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

1. Basis of Presentation

The unaudited pro forma combined statement of operations for the year ended
December 31, 1999 gives effect to the acquisition of I-BALLS, LLC as if this
transaction had occurred January 1, 1999.

The pro forma combined financial statements are presented for illustrative
purposes only and should not be construed to be indicative of the actual
combined results of operations as may exist in the future. The pro forma
adjustments are based on the cash and common stock consideration exchanged by
Avenue A for the fair value of the assets acquired and liabilities assumed.

2. Pro Forma Adjustments

Certain pro forma adjustments have been made to the accompanying unaudited
pro forma combined statements of operations as described below:

(a) Reflects eight months amortization of the excess of the purchase price
over the fair value of net assets acquired, which is being amortized
over three years.

(b) Basic and diluted net loss per share is computed by dividing net loss
by the weighted average number of shares outstanding during the period
assuming that shares issued for the acquisition were outstanding for
the entire period. Pro forma basic and diluted net loss per share has
been computed assuming the conversion of preferred stock into an
equivalent number of common shares, as if the shares had converted on
the dates of their issuance, and based on the weighted average number
of shares outstanding giving effect to shares issued in the acquisition
as if they were outstanding for the entire period.

3. Purchase Price Allocation

In connection with the acquisition, the Company issued 750,000 shares of
common stock and paid $3.5 million in cash in exchange for all of the
outstanding member's equity for a total purchase price of $6.1 million. The
acquisition was accounted for as a purchase and, accordingly, the results of
operations of I-Balls have been included in the consolidated financial
statements commencing on the date of acquisition. The excess purchase price of
approximately $5.9 million was allocated to customer base and skilled
workforce and is being amortized on a straight-line basis over a useful life
of three years.

F-30
<PAGE>

Back Cover:

Graphic in center of page depicting a large Avenue A logo

Graphic in lower-left corner of page depicting a small Avenue A logo

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following table sets forth the costs and expenses, other than the
underwriting discounts and commissions, payable by the registrant in
connection with the sale of the common stock being registered hereby. All
amounts shown are estimates, except the Securities and Exchange Commission
registration fee, the NASD filing fee and the Nasdaq National Market listing
fee.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee........... $ 15,939
NASD filing fee............................................... 6,538
Nasdaq National Market listing fee............................ 95,000
Blue Sky fees and expenses.................................... 10,000
Printing and engraving expenses............................... 200,000
Legal fees and expenses....................................... 550,000
Accounting fees and expenses.................................. 450,000
Directors' and officers' insurance............................ 440,000
Transfer Agent and Registrar fees............................. 10,000
Miscellaneous expenses........................................ 22,523
----------
Total......................................................... $1,800,000
==========
</TABLE>

Item 14. Indemnification of Directors and Officers

Sections 23B.08.500 through 23B.08.600 of the Washington Business
Corporation Act (the "WBCA") authorize a court to award, or a corporation's
board of directors to grant, indemnification to directors and officers on
terms sufficiently broad to permit indemnification under certain circumstances
for liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). Section 10 of the registrant's Amended and Restated Bylaws
(Exhibit 3.2 hereto) provides for indemnification of the registrant's
directors and officers (and, in certain instances, employees and agents) to
the maximum extent permitted by Washington law.

Section 23B.08.320 of the WBCA authorizes a corporation to limit a
director's liability to the corporation or its shareholders for monetary
damages for acts or omissions as a director, except in certain circumstances
involving intentional misconduct, knowing violations of law or illegal
corporate loans or distributions, or any transaction from which the director
personally receives a benefit in money, property or services to which the
director is not legally entitled. Article 9 of the registrant's Amended and
Restated Articles of Incorporation (Exhibit 3.1 hereto) contains provisions
implementing, to the fullest extent permitted by Washington law, such
limitations on a director's liability to the registrant and its shareholders.
Article 10 of the registrant's Amended and Restated Articles of Incorporation
provides for the indemnification of any individual made a party to a
proceeding because that individual is or was a director of the registrant and
provides for the advancement or reimbursement of reasonable expenses incurred
by that individual in advance of the final disposition of the proceeding.
Section 10 of the registrant's Amended and Restated Bylaws provides for
indemnification of the registrant's directors and officers (and, in certain
instances, employees and agents) to the maximum extent permitted by Washington
law. The directors and officers of the registrant also may be indemnified
against liability they may incur for serving in that capacity pursuant to a
liability insurance policy maintained by the registrant for such purpose.

The Underwriting Agreement (Exhibit 1.1 hereto) provides for
indemnification by the underwriters of the registrant and its executive
officers and directors, and by the registrant of the underwriters, for certain
liabilities, including liabilities arising under the Securities Act, in
connection with matters specifically provided in writing by the underwriters
for inclusion in this Registration Statement.

II-1
<PAGE>

Item 15. Recent Sales of Unregistered Securities

The information in this Item 15 has not been adjusted to reflect our 3-for-
2 stock split on January 19, 2000. Since its inception in July 1997, the
registrant has issued and sold unregistered securities as follows:

1. On February 27, 1998 and March 9, 1998, the registrant issued an
aggregate of 1,200,000 shares of common stock to Gerard L. Hanauer,
Lenore Hanauer, Adrian Hanauer, Roy A. Clothier, Jr., Eric A. Moen and
Nicholas Hanauer, each of whom is an "accredited investor" under Rule 501
promulgated under the Securities Act, for a consideration of $.01 per
share, or an aggregate of $12,000. The sale and issuance of these
securities were exempt from registration under the Securities Act
pursuant to Section 4(2) of the Securities Act, on the basis that the
transaction did not involve a public offering.

2. On May 26, 1998, the registrant issued an aggregate of 7,700,000 shares
of common stock to Gerard L. Hanauer, Lenore Hanauer, Adrian Hanauer, Roy
A. Clothier, Jr. and Nicholas Hanauer, each of whom is an "accredited
investor" under Rule 501 promulgated under the Securities Act. The
consideration was $.14636 per share, or an aggregate of $1,127,000. The
sale and issuance of these securities were exempt from registration under
the Securities Act pursuant to Section 4(2) of the Securities Act, on the
basis that the transaction did not involve a public offering.

3. On June 10, 1998, the registrant issued an aggregate of 1,100,000 shares
of common stock to Nicholas Hanauer and Pacific Coast Feather Company,
each of whom is an accredited investor. The consideration was $.14636 per
share, or an aggregate of $161,000. The sale and issuance of these
securities were exempt from registration under the Securities Act
pursuant to Section 4(2) of the Securities Act, on the basis that the
transaction did not involve a public offering.

4. On July 2, 1998, the registrant issued an aggregate of 2,000,000 shares
of common stock to Nicholas Hanauer, an accredited investor, for a
consideration of $.15 per share, or an aggregate of $300,000. The sale
and issuance of these securities were exempt from registration under the
Securities Act pursuant to Section 4(2) of the Securities Act, on the
basis that the transaction did not involve a public offering.

5. In July and August 1998, the registrant issued an aggregate of 3,998,474
shares of Series A preferred stock to Eric E. Dillion, Nicholas S. Eitel,
Charles Kellogg, Gaylord M. Kellogg, Louise M. Kellogg, Matthew Kellogg,
Paul Pigott and Maureen Pigott, Vernon L. Vennes, Timothy Flaherty,
Shamrock Trust, Ronald J. Bland, Raymond P. Dornbusch, Thomas W. Moebius,
Tom A. Alberg, Robert Collins, Peter B. Kellner, Stanton Reed Koch,
Ruthann Lorentzen, Pac-Fung Securities, Ltd., Gentle Boss Investments
Ltd., King Ying Development Limited, Linco International Ltd, Yen Ji
Ling, Kenneth Sai Kit Chen, Cheung Chi Sing, Yip Po Chu, Lee Ching Yin,
Poon Tat Wing, Jiang Guangzhi, Daniel Kral, U.S. Trust Company, N.A.
Trustee FBO John E. von Schlegell SEP-IRA Acct. #752-623-40, Jeffrey
Block, Maureen Block, Jeffrey P. Bezos, Anne Dinning, William and Emily
Heston, Cedar Grove Investments LLC, Keith Grinstein, John P. Galgon,
Jeff J. Lehman, Uri Silberstein and Anna R. Collins, each of whom is an
accredited investor, for a consideration of $.83 per share, or an
aggregate of $3,318,733. The sale and issuance of these securities were
exempt from registration under the Securities Act pursuant to Section
4(2) of the Securities Act, on the basis that the transaction did not
involve a public offering.

6. On August 7, 1998, the registrant issued a warrant for the purchase of
451,807 shares of common stock, with an exercise price of $.83 per share,
to Jeffrey P. Bezos, an accredited investor. The sale and issuance of
these securities were exempt from registration under the Securities Act
pursuant to Section 4(2) of the Securities Act, on the basis that the
transaction did not involve a public offering.

7. In February and March 1999, the registrant issued an aggregate of
2,580,000 shares of Series B preferred stock to Cedar Grove Investments,
LLC, Tony Chang, Stephen Man Cheung, Stephen Wing Cheung Chow, Robert J.
Collins, Eric E. Dillon, Raymond P. Dornbusch, Michele M. Dupre, Durham
Investments, Ltd., Maria S. Eitel, Trustee, Maria S. Eitel Revocable
Living Trust, Nicholas S. Eitel, Elliott Associates, L.P., Timothy P.
Flaherty, Gary I. Furukawa, John P. Galgon, Gentle Boss Investments Ltd.,
Nicholas J. Hanauer, Frank M. Higgins, David B. Johnston, Peter B.
Kellner, Matthew K. Kellogg, King Ying Development Limited, Stanton Reed
Koch, Benjamin Y. Lam, Stanley J. Lampert, Robert Leo, Rosemary Dupre
Littlefield, Pac-Fun Securities Ltd, Shamrock Trust, U.S. Trust Company,
N.A. Trustee FBO John E.

II-2
<PAGE>

von Schlegell SEP-IRA Acct. #752-632-40, Vernon L. Vennes, Dale J. Vogel,
Westgate International, L.P., Stuart Vance Williams, R. Michael Leo and
Linco International Limited, each of whom is an accredited investor, for a
consideration of $1.12 per share, or an aggregate of $2,889,600. The sale
and issuance of these securities were exempt from registration under the
Securities Act pursuant to Section 4(2) of the Securities Act, on the basis
that the transaction did not involve a public offering.

8. On May 4, 1999, the registrant issued an aggregate of 9,837,624 shares of
Series C preferred stock to Voyager Capital Fund I, L.P., Voyager Capital
Founders Fund, L.P., Oak Investment Partners VIII, L.P., Oak VIII
Affiliates Fund, L.P., U.S. Venture Partners VI, L.P., Kirlan Venture
Partners II, L.P., Norman H. Nie, Trustee, Norman H. Nie Revocable Trust
Dated 3/15/91, Media Partners, The Phoenix Partners IV Limited
Partnership, R. Michael Leo and InSight Venture Associates LLC, each of
whom is an accredited investor for a consideration of $1.94 per share, or
an aggregate of $19,084,991. The sale and issuance of these securities
were exempt from registration under the Securities Act pursuant to
Section 4(2) of the Securities Act, on the basis that the transaction did
not involve a public offering.

9. On June 10, 1999, the registrant issued an aggregate of 35,511 shares of
common stock to seven employees in lieu of sales commissions under the
registrant's 1998 stock incentive compensation plan. The sale and
issuance of these securities was exempt from registration under the
Securities Act pursuant to Rule 701 promulgated thereunder on the basis
that these securities were sold or issued either pursuant to a written
compensatory plan or pursuant to written contracts relating to
consideration, as provided by Rule 701.

10. On July 1, 1999 and August 16, 1999, the registrant issued an aggregate
of 20,000 shares of common stock to two consultants in exchange for
services under the registrant's 1998 stock incentive compensation plan.
The sale and issuance of these securities was exempt from registration
under the Securities Act pursuant to Rule 701 promulgated thereunder on
the basis that these securities were sold or issued either pursuant to a
written compensatory plan or pursuant to written contracts relating to
consideration, as provided by Rule 701.

11. On September 2, 1999, pursuant to a purchase agreement among the
registrant and the members of I-Balls LLC, the registrant issued an
aggregate of 500,000 shares of common stock to the 6 members of I-Balls
LLC as partial consideration for the registrant's acquisition of all the
membership interests of I-Balls LLC. The sale and issuance of these
securities were exempt from registration under the Securities Act
pursuant to Section 4(2) of the Securities Act, on the basis that the
transaction did not involve a public offering.

12. On September 2, 1999 and September 22, 1999, in connection with the
registrant's acquisition of all the membership interests of I-Balls LLC,
the registrant granted stock options to purchase 875,000 shares of common
stock, with exercise prices ranging from $1.90 to $2.50 per share, to two
employees who were former members of I-Balls LLC, outside of the
registrant's 1998 stock incentive compensation plan. Of these options, no
shares have been exercised or canceled without being exercised and
875,000 shares remain outstanding. The sale and issuance of these
securities were exempt from registration under the Securities Act
pursuant to Section 4(2) of the Securities Act, on the basis that the
transaction did not involve a public offering.

13. From June 23, 1998 through February 7, 2000, the registrant granted stock
options to employees to purchase 4,851,446 shares of common stock, with
exercise prices ranging from $.10 to $9.00 per share, under the
registrant's 1998 stock incentive compensation plan. The sale and
issuance of these securities were exempt from registration under the
Securities Act pursuant to Rule 701 promulgated under the Securities Act
on the basis that these securities were sold or issued either pursuant to
a written compensatory plan or pursuant to written contracts relating to
consideration, as provided by Rule 701.

14. From June 23, 1998 through February 7, 2000, the registrant granted stock
options to executive officers, employees and consultants to purchase
6,347,603 shares of common stock, with exercise prices ranging from $.10
to $9.00 per share. The sale and issuance of these securities were exempt
from registration under the Securities Act pursuant to Section 4(2) of
the Securities Act on the basis that the transaction did not involve a
public offering.

II-3
<PAGE>

15. On October 8, 1999, the registrant issued an aggregate of 170,000 shares
of common stock to eight of its executive officers for a consideration of
$4.00 per share, or an aggregate of $680,000. The sale and issuance of
these securities were exempt from registration under the Securities Act
pursuant to Section 4(2) of the Securities Act, on the basis that the
transaction did not involve a public offering.

16. On October 25, 1999, the registrant issued 125,000 shares of common stock
to one of its executive officers for a consideration of $4.00 per share,
or an aggregate of $500,000. The sale and issuance of these securities
were exempt from registration under the Securities Act pursuant to
Section 4(2) of the Securities Act, on the basis that the transaction did
not involve a public offering.

17. On October 26, 1999, the registrant issued 50,000 shares of common stock
to one of its directors for a consideration of $1.90 per share, or an
aggregate of $95,000, and 50,000 shares of common stock to that same
director for a consideration of $4.00 per share, or an aggregate of
$200,000. The sale and issuance of these securities were exempt from
registration under the Securities Act pursuant to Section 4(2) of the
Securities Act, on the basis that the transaction did not involve a
public offering.

18. On December 22, 1999, the registrant issued 25,000 shares of common stock
to one of its executive officers, an accredited investor, for a
consideration of $6.50 per share, or an aggregate of $162,500. The sale
and issuance of these securities was exempt from registration under the
Securities Act pursuant to Rule 701 promulgated under the Securities Act
on the basis that these securities were sold or issued either pursuant to
a written compensatory plan or pursuant to written contracts relating to
consideration, as provided by Rule 701.

19. On January 3, 2000, the registrant issued 20,000 shares of common stock
to one of its consultants, an accredited investor, for a consideration of
$5.00 per share, or an aggregate of $100,000. The sale and issuance of
these securities was exempt from registration under the Securities Act
pursuant to Rule 701 promulgated under the Securities Act on the basis
that these securities were sold or issued either pursuant to a written
compensatory plan or pursuant to written contracts relating to
consideration, as provided by Rule 701.

20. On February 4, 2000, the registrant issued 75,000 shares of common stock
to an officer of one of the registrant's subsidiaries, an accredited
investor, for a consideration of $8.00 per share, or an aggregate of
$600,000. The sale and issuance of these securities were exempt from
registration under the Securities Act pursuant to Rule 701 promulgated
under the Securities Act, on the basis that these securities were sold or
issued either pursuant to a written compensatory plan or pursuant to
written contracts relating to consideration, as provided by Rule 701.

No underwriter was used in connection with any of the foregoing sales and
issuances.

Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits

II-4
<PAGE>

<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.8+ Series C Preferred Stock Purchase Agreement between the registrant and
Voyager Capital Fund I, L.P., Voyager Capital Founders Fund, L.P., Oak
Investment Partners VI, L.P., Kirlan Venture Partners II, L.P., Norman
H. Nie, Trustee, Norman H. Nie Revocable Trust dated 3/15/91, Media
partners, the Phoenix Partners IV Limited Partnership, R. Michael Leo
and Insight Venture Associates LLC dated May 4, 1999
10.9+ Investors Rights Agreement between the registrant and Voyager Capital
Fund I, L.P., Voyager Capital Founders Fund, L.P., Oak Investment
Partners VI, L.P., Kirlan Venture Partners II, L.P., Norman H. Nie,
Trustee, Norman H. Nie Revocable Trust dated 3/15/91, Media Partners,
the Phoenix Partners IV Limited Partnership, R. Michael Leo and Insight
Venture Associates LLC dated May 4, 1999
10.10+ Form of Promissory Note between the registrant and the executive
officers listed on Schedule A thereto dated October 8, 1999
10.11+ Form of Stock Purchase Agreement between the registrant and the
executive officers listed on Schedule A thereto dated October 8, 1999
10.12+ Stock Purchase Agreement between the registrant and Gregory B. Maffei
dated October 26, 1999
10.13+ Stock Purchase Agreement between the registrant and Gregory B. Maffei
dated October 26, 1999
10.14+ Stock Purchase Agreement between the registrant and Sumit T. Sen dated
October 25, 1999
10.15+ Purchase Agreement among the registrant and Stephen D. Klein, Michael
Cohen, Jonathan Bond, Richard Kirshenbaum, Margaret Boyer and Daniel
DeWolf dated September 2, 1999
10.16+ Employment Agreement between the registrant and Michael Cohen dated
September 2, 1999
10.17+ Employment Agreement between the registrant and Stephen D. Klein dated
September 2, 1999
10.18+ Employment Agreement between the registrant and Sumit T. Sen dated
September 29, 1999
10.19+ Employment Agreement between the registrant and Brian P. McAndrews
dated January 20, 2000
10.20+ Registration Rights Agreement between the registrant and Stephen D.
Klein, Michael Cohen, Jonathan Bond, Richard Kirshenbaum, Margaret
Boyer and Daniel DeWolf dated September 2, 1999
10.21+ Severance Agreement between the registrant and R. Michael Leo dated
October 8, 1999
10.22 Restated 1999 Stock Incentive Compensation Plan
10.23+ Stock Option Grant Program for Nonemployee Directors under the 1999
Stock Incentive
Compensation Plan
10.24+ 1999 Employee Stock Purchase Plan
10.25 Restated 1998 Stock Incentive Compensation Plan
10.26+ Loan and Security Agreement between the registrant and Silicon Valley
Bank dated May 25, 1999
10.27+ Lease Agreement between the registrant and Samis Foundation dated July
16, 1999
10.28 Lease Agreement between the registrant and Samis Foundation dated
January 31, 2000
10.29+ Internet Data Center Services Agreement between the registrant and
Exodus Communications, Inc. dated January 23, 1998
10.30+ Service Agreement between the registrant and Verio, Inc.
10.31 Stock Purchase Agreement between the registrant and James A. Warner
dated February 4, 2000
21.1+ Subsidiaries of the registrant
23.1 Consent of Arthur Andersen LLP, independent public accountants
23.2+ Consent of Perkins Coie LLP (contained in the opinion filed as Exhibit
5.1)
24.1+ Power of Attorney
27.1+ Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
+ Previously filed.

(b) Financial Statement Schedules

Schedule II--Valuations and Qualifying Accounts

All other schedules are omitted because they are inapplicable or the
requested information is shown in the consolidated financial statements of the
registrant or related notes thereto.

II-5
<PAGE>

Item 17. Undertakings

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that, in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

The undersigned registrant hereby undertakes to provide to the
underwriters, at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II- 6
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 2 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Seattle, State of Washington, on the 8th day of February, 2000.

AVENUE A, INC.

/s/ Brian P. McAndrews
By: _________________________________
Brian P. McAndrews
Chief Executive Officer and
President

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 to Registration Statement has been signed by the following
persons in the capacities indicated below on the 8th day of February, 2000.

<TABLE>
<S> <C>
*Nicolas J. Hanauer Chairman of the Board
______________________________________
Nicolas J. Hanauer

*Brian P. McAndrews Chief Executive Officer, President and
______________________________________ Director (Principal Executive Officer)
Brian P. McAndrews

/s/ Robert M. Littauer Vice President, Finance and
______________________________________ Administration, Chief Financial
Robert M. Littauer Officer, Secretary and Treasurer
(Principal Financial and
Accounting Officer)

*Jason Green Director
______________________________________
Jason Green

*Fredric W. Harman Director
______________________________________
Fredric W. Harman

*Gregory B. Maffei Director
______________________________________
Gregory B. Maffei

/s/ Robert M. Littauer
*By: _________________________________
Robert M. Littauer
Attorney-in-Fact
</TABLE>

II-7
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE

To the Board of Directors and Shareholders of
Avenue A, Inc.:

We have audited in accordance with generally accepted auditing standards,
the financial statements of Avenue A, Inc. and subsidiaries included in this
registration statement and have issued our report thereon dated February 6,
2000. Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying schedule listed in the
index of financial statements is presented for purposes of complying with the
Securities and Exchanges Commissions rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.

/s/ Arthur Andersen LLP

Seattle, Washington

February 6, 2000
<PAGE>

AVENUE A, INC.

Schedule II--Valuation and Qualifying Accounts
(in thousands)

<TABLE>
<CAPTION>
Deductions,
Balance at Additions- Returns and Balance at
Description Beginning of Year Provisions Write-offs End of Year
- ----------- ----------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts
Year ending December 31,
1999.................... $ 70 $1,564 $ 40 $1,594
Year ending December 31,
1998.................... $ 1 $ 69 $-- $ 70
Year ending December 31,
1997.................... $-- $ 1 $-- $ 1
</TABLE>
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1 Form of Underwriting Agreement
3.1+ Amended and Restated Articles of Incorporation of the registrant
3.2+ Amended and Restated Bylaws of the registrant
4.1+ Form of Warrant to purchase common stock
5.1+ Opinion of Perkins Coie LLP
10.1+ Form of Series A Purchase Agreement between the registrant and the
investors listed on Schedule A thereto
10.2+ Warrant Agreement dated August 7, 1998
10.3+ Form of Series B Purchase Agreement between the registrant and the
investors listed on Schedule A thereto
10.4+ Share Purchase Agreement between the registrant and Nicolas J. Hanauer
dated July 2, 1998
10.5+ Share Purchase Agreement between the registrant and Nicolas J. Hanauer
dated June 10, 1998
10.6+ Share Purchase Agreement between the registrant and Nicolas J. Hanauer
dated May 26, 1998
10.7+ Share Purchase Agreement between the registrant and Nicolas J. Hanauer
dated March 9, 1998
10.8+ Series C Preferred Stock Purchase Agreement between the registrant and
Voyager Capital Fund I, L.P., Voyager Capital Founders Fund, L.P., Oak
Investment Partners VI, L.P., Kirlan Venture Partners II, L.P., Norman
H. Nie, Trustee, Norman H. Nie Revocable Trust dated 3/15/91, Media
partners, the Phoenix Partners IV Limited Partnership, R. Michael Leo
and Insight Venture Associates LLC dated May 4, 1999
10.9+ Investors Rights Agreement between the registrant and Voyager Capital
Fund I, L.P., Voyager Capital Founders Fund, L.P., Oak Investment
Partners VI, L.P., Kirlan Venture Partners II, L.P., Norman H. Nie,
Trustee, Norman H. Nie Revocable Trust dated 3/15/91, Media partners,
the Phoenix Partners IV Limited Partnership, R. Michael Leo and Insight
Venture Associates LLC dated May 4, 1999
10.10+ Form of Promissory Note between the registrant and the executive
officers listed on Schedule A thereto dated October 8, 1999
10.11+ Form of Stock Purchase Agreement dated October 8, 1999 between the
registrant and the executive officers listed on Schedule A thereto
10.12+ Stock Purchase Agreement between the registrant and Gregory B. Maffei
dated October 26, 1999
10.13+ Stock Purchase Agreement between the registrant and Gregory B. Maffei
dated October 26, 1999
10.14+ Stock Purchase Agreement between the registrant and Sumit T. Sen dated
October 25, 1999
10.15+ Purchase Agreement among the registrant and Stephen D. Klein, Michael
Cohen, Jonathan Bond, Richard Kirshenbaum, Margaret Boyer and Daniel
DeWolf dated September 2, 1999
10.16+ Employment Agreement between the registrant and Michael Cohen dated
September 2, 1999
10.17+ Employment Agreement between the registrant and Stephen D. Klein dated
September 2, 1999
10.18+ Employment Agreement between the registrant and Sumit T. Sen dated
September 29, 1999
10.19+ Employment Agreement between the registrant and Brian P. McAndrews
dated January 20, 2000
10.20+ Registration Rights Agreement between the registrant and Stephen D.
Klein, Michael Cohen, Jonathan Bond, Richard Kirshenbaum, Margaret
Boyer and Daniel DeWolf dated September 2, 1999
10.21+ Severance Agreement between the registrant and R. Michael Leo dated
October 8, 1999
10.22 Restated 1999 Stock Incentive Compensation Plan
10.23+ Stock Option Grant Program for Nonemployee Directors under the 1999
Stock Incentive Compensation Plan
10.24+ 1999 Employee Stock Purchase Plan
10.25 Restated 1998 Stock Incentive Compensation Plan
10.26+ Loan and Security Agreement between the registrant and Silicon Valley
Bank dated May 25, 1999
10.27+ Lease Agreement between the registrant and Samis Foundation dated July
16, 1999
10.28 Lease Agreement between the registrant and Samis Foundation dated
January 31, 2000
10.29+ Internet Data Center Services Agreement between the registrant and
Exodus Communications, Inc. dated January 23, 1998
10.30+ Service Agreement between the registrant and Verio, Inc.
10.31 Stock Purchase Agreement between the registrant and James A. Warner
dated February 4, 2000
21.1+ Subsidiaries of the registrant
23.1 Consent of Arthur Andersen LLP, independent public accountants
23.2+ Consent of Perkins Coie LLP (contained in the opinion filed as Exhibit
5.1)
24.1+ Power of Attorney
27.1+ Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
+ Previously filed.

<PAGE>
EXHIBIT 1.1

5,250,000 Shares

AVENUE A, INC.

Common Stock, par value $0.01 per share

UNDERWRITING AGREEMENT

__________, 2000
<PAGE>

_____________, 2000

Morgan Stanley & Co. Incorporated
Salomon Smith Barney Inc.
Thomas Weisel Partners LLC
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036

Dear Sirs and Mesdames:

Avenue A, Inc., a Washington corporation (the "Company"), proposes to issue
and sell to the several Underwriters named in Schedule I hereto (the
"Underwriters") 5,250,000 shares of its common stock, $0.01 par value per share
(the "Firm Shares"). The Company also proposes to issue and sell to the several
Underwriters not more than an additional 787,500 shares of its common stock,
$0.01 par value per share (the "Additional Shares"), if and to the extent that
you, as Managers of the offering, shall have determined to exercise, on behalf
of the Underwriters, the right to purchase such shares of common stock granted
to the Underwriters in Section 2 hereof. The Firm Shares and the Additional
Shares are hereinafter collectively referred to as the "Shares." The shares of
common stock, $0.01 par value per share, of the Company to be outstanding after
giving effect to the sales contemplated hereby are hereinafter referred to as
the "Common Stock."

The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, including a prospectus, relating to the
Shares. The registration statement as amended at the time it becomes effective,
including the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Registration Statement;" the prospectus in the form first
used to confirm sales of Shares is hereinafter referred to as the "Prospectus."
If the Company has filed an abbreviated registration statement to register
additional shares of Common Stock pursuant to Rule 462(b) under the Securities
Act (the "Rule 462 Registration Statement"), then any reference herein to the
term "Registration Statement" shall be deemed to include such Rule 462
Registration Statement.

Morgan Stanley & Co. Incorporated ("Morgan Stanley") and its affiliates
have agreed to reserve a portion of the Shares to be purchased by it under this
Agreement for sale to the Company's employees and business associates and other
parties related to the Company (collectively, "Participants"), as described in
the Prospectus under the heading "Underwriters" (the "Directed Share Program").
The Shares to be sold by Morgan Stanley and its affiliates pursuant to the
Directed Share Program are referred to hereinafter as the "Directed Shares."
Any Directed Shares not orally confirmed for purchase by any Participants by the
end of the business day on which this Agreement is executed will be offered to
the public by the Underwriters as set forth in the Prospectus.
<PAGE>

1. Representations and Warranties. The Company represents and warrants
to and agrees with each of the Underwriters that:

(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect, and no
proceedings for such purpose are pending before or, to the Company's knowledge,
threatened by the Commission.

(b) (i) The Registration Statement, when it became effective, did
not contain and, as amended or supplemented, if applicable, will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading,
(ii) the Registration Statement and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the
Securities Act and the applicable rules and regulations of the Commission
thereunder (the "Rules") and (iii) the Prospectus does not contain and, as
amended or supplemented, if applicable, will not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except that the representations and warranties set forth
in this paragraph do not apply to statements or omissions in the Registration
Statement or the Prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein.

(c) The Company has been duly incorporated, is validly existing as a
corporation under the laws of the State of Washington, has the corporate power
and authority to own its property and to conduct its business as described in
the Prospectus and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the Company and its subsidiaries, taken as a whole.

(d) Each corporate subsidiary of the Company has been duly
incorporated, is validly existing as a corporation under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to own
its property and to conduct its business as described in the Prospectus and is
duly qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse effect on the
Company and its subsidiaries, taken as a whole; all of the issued shares of
capital stock of each corporate subsidiary of the Company have been duly and
validly authorized and issued, are fully paid and non-assessable and are owned
directly by the Company, free and clear of all liens, encumbrances, equities or
claims. Each subsidiary of the Company that is a limited liability company has
been duly organized, is validly existing as a limited liability company in good
standing under the laws of the jurisdiction of its formation, has the power and
authority to own its property and to conduct its business as described in the
Prospectus and is duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that the
failure to be so qualified or be in good standing would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole; all of the
membership units of each such subsidiary of the Company

-2-
<PAGE>

have been duly and validly authorized and issued, are fully paid and non-
assessable and are owned directly by the Company, free and clear of all liens,
encumbrances, equities or claims.

(e) This Agreement has been duly authorized, executed and delivered
by the Company.

(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus. Other than the
1,149,225 shares of Common Stock it holds, Pacific Coast Feather Company, a
Washington corporation ("PCF"), does not hold any right, title or interest in
the Company, its assets or its capital stock. Other than such shares and other
than shares of Common Stock held by shareholders of PCF in their capacity as
shareholders of the Company as reflected in the stock records of the Company,
neither PCF nor its shareholders hold any right, title or interest in the
Company, its assets or its capital stock as a result of the activities performed
or advances made by PCF on behalf of the Company.

(g) The shares of Common Stock outstanding prior to the issuance of
the Shares have been duly authorized and are validly issued, fully paid and non-
assessable.

(h) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will not
be subject to any preemptive or similar rights.

(i) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement will not contravene any
provision of applicable law or the amended and restated articles of
incorporation or amended and restated bylaws of the Company or any agreement or
other instrument binding upon the Company or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a whole, or any judgment,
order or decree of any governmental body, agency or court having jurisdiction
over the Company or any subsidiary, and no consent, approval, authorization or
order of, or qualification with, any governmental body or agency is required for
the performance by the Company of its obligations under this Agreement, except
such as may be required by the Commission and the National Association of
Securities Dealers, Inc. (the "NASD"), and the securities or Blue Sky laws of
the various states in connection with the offer and sale of the Shares.

(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the condition,
financial or otherwise, or in the earnings, business or operations of the
Company and its subsidiaries, taken as a whole, from that set forth in the
Prospectus (exclusive of any amendments or supplements thereto subsequent to the
date of this Agreement).

(k) There are no legal or governmental proceedings pending or, to the
knowledge of the Company, threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the Company or any
of its subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or any
statutes, regulations, contracts or other documents that are required to be
described in the Registration

-3-
<PAGE>

Statement or the Prospectus or to be filed as exhibits to the Registration
Statement that are not described or filed as required.

(l) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.

(m) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) the Company and its
subsidiaries have not incurred any material liability or obligation, direct or
contingent, nor entered into any material transaction not in the ordinary course
of business; (ii) the Company has not purchased any of its outstanding capital
stock, nor declared, paid or otherwise made any dividend or distribution of any
kind on its capital stock other than ordinary and customary dividends; and (iii)
there has not been any material change in the capital stock, short-term debt or
long-term debt of the Company and its subsidiaries, except in each case as
described in the Prospectus.

(n) The Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as are described in the Prospectus or such as do not materially
affect the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and its subsidiaries; and
any real property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
subsidiaries, in each case except as described in the Prospectus.

(o) Except as otherwise described in the Prospectus, the Company and
its subsidiaries own or possess, or can acquire on reasonable terms, all
material patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service marks and
trade names currently employed by them in connection with the business now
operated by them, and, except as described in the Prospectus, neither the
Company nor any of its subsidiaries has received any notice of infringement of
or conflict with asserted rights of others with respect to any of the foregoing
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a material adverse affect on the Company and its
subsidiaries, taken as a whole.

(p) No material labor dispute with the employees of the Company or
any of its subsidiaries exists, except as described in the Prospectus, or, to
the knowledge of the Company, is imminent; and, without conducting any
independent investigations, the Company is not aware of any existing, threatened
or imminent labor disturbance by the employees of any of its principal
suppliers, manufacturers or contractors that could have a material adverse
effect on the Company and its subsidiaries, taken as a whole.

-4-
<PAGE>

(q) The Company and its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which they are
engaged; neither the Company nor any of its subsidiaries has been refused any
insurance coverage sought or applied for; and neither the Company nor any of its
subsidiaries has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a material adverse effect on the Company
and its subsidiaries, taken as a whole, except as described in the Prospectus.

(r) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective business, and
neither the Company nor any of its subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a material adverse effect on
the Company and its subsidiaries, taken as a whole, except as described the
Prospectus.

(s) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.

(t) Arthur Andersen LLP are independent public accountants with
respect to the Company and its subsidiaries as required by the Securities Act.

(u) The consolidated financial statements included in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto), together with related schedules and notes, present fairly the
consolidated financial position, results of operations and changes in financial
position of the Company and its subsidiaries on the basis stated therein at the
respective dates or for the respective periods to which they apply; such
statements and related schedules and notes have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved, except as disclosed therein; the supporting schedules, if any,
included in the Registration Statement present fairly in accordance with
generally accepted accounting principles the information required to be stated
therein; and the other financial and statistical information and data set forth
in the Registration Statement and the Prospectus (and any amendment or
supplement thereto) are, in all material respects, accurately presented and
prepared on a basis not inconsistent with such financial statements or the books
and records of the Company.

(v) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described in
the Prospectus, will not be required

-5-
<PAGE>

to register as an "investment company" as such term is defined in the Investment
Company Act of 1940, as amended.

(w) The Company and its subsidiaries (i) are in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in compliance with all terms and conditions
of any such permit, license or approval, except where such noncompliance with
Environmental Laws, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a material
adverse effect on the Company and its subsidiaries, taken as a whole.

(x) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with Environmental
Laws or any permit, license or approval, any related constraints on operating
activities and any potential liabilities to third parties) which would, singly
or in the aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.

(y) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the Company to
file a registration statement under the Securities Act with respect to any
securities of the Company or to require the Company to include such securities
with the Shares registered pursuant to the Registration Statement, except such
as have been described in the Prospectus or validly waived.

(z) The Company has reviewed its operations and that of its
subsidiaries to evaluate the extent to which the business or operations of the
Company or any of its subsidiaries will be affected by the Year 2000 Problem
(that is, any significant risk that computer hardware or software applications
used by the Company and its subsidiaries will not, in the case of dates or time
periods occurring after December 31, 1999, function at least as effectively as
in the case of dates or time periods occurring prior to January 1, 2000); as a
result of such review, (i) the Company has no reason to believe, and does not
believe, that (A) there are any issues related to the Company's preparedness to
address the Year 2000 Problem that are of a character required to be described
or referred to in the Registration Statement or Prospectus which have not been
accurately described in the Registration Statement or Prospectus and (B) the
Year 2000 Problem will have a material adverse effect on the condition,
financial or otherwise, or on the earnings, business or operations of the
Company and its subsidiaries, taken as a whole, or result in any material loss
or interference with the business or operations of the Company and its
subsidiaries, taken as a whole; and (ii) the Company reasonably believes that
the suppliers, vendors, customers or other material third parties used or served
by the Company and such subsidiaries are addressing or will address the Year
2000 Problem in a timely manner, except to the extent that a failure to address
the Year 2000 Problem by any supplier, vendor, customer or material third party
would not have a material adverse effect on the

-6-
<PAGE>

condition, financial or otherwise, or on the earnings, business or operations of
the Company and its subsidiaries, taken as a whole.

(aa) The Nasdaq Stock Market, Inc. has approved the Common Stock for
listing on the Nasdaq National Market, subject only to official notice of
issuance.

(bb) Except for the Shares, at least __% of the outstanding shares of
Common Stock and shares of Common Stock issuable upon conversion, exercise or
exchange of securities convertible into or exercisable or exchangeable for
Common Stock, are subject to "lock-up" agreements substantially in the form of
Exhibit A hereto (collectively, the "Lock-up Agreements") that restrict the
holders thereof from selling, making any short sale of, granting any option for
the purchase of, or otherwise transferring or disposing of, any of such shares
of Common Stock, or any such securities convertible into or exercisable or
exchangeable for Common Stock, for a period of 180 days after the date of the
Prospectus without the prior written consent of Morgan Stanley & Co.
Incorporated.

(cc) The Company (i) has notified each holder of a currently
outstanding option issued under the 1998 Stock Incentive Compensation Plan (the
"Option Plan") who is not a party to a Lock-up Agreement and whose option under
the Option Plan is or will be exercisable without restriction during the period
ending 180 days from the date of the Prospectus that, pursuant to the terms of
the Option Plan, none of such options or shares issuable upon exercise of such
options may be sold or otherwise transferred or disposed of for a period of 180
days after the date of the Prospectus and (ii) has imposed a stop-transfer
instruction with the Company's transfer agent in order to enforce the foregoing
lock-up provisions imposed pursuant to the Option Plan.

(dd) The Company (i) has notified each shareholder who is party to the
Investor Rights Agreement dated May 4, 1999, (the "Investor Rights Agreement")
or the Registration Rights Agreement dated September 2, 1999 (the "Registration
Rights Agreement"), that pursuant to the terms of the Investor Rights Agreement
or the Registration Rights Agreement, as the case may be, none of the shares of
the Company's capital stock held by such stockholder or capital stock into which
such shares are convertible may be sold or otherwise transferred or disposed of
for a period of 180 days after the date of the Prospectus and (ii) has imposed a
stop-transfer instruction with the Company's transfer agent in order to enforce
the foregoing lock-up provision imposed pursuant to the Registration Rights
Agreement.

(ee) The Registration Statement, the Prospectus and any preliminary
prospectus comply, and any amendments or supplements thereto will comply, with
any applicable laws or regulations of foreign jurisdictions in which the
Prospectus or any preliminary prospectus, as amended or supplemented, if
applicable, are distributed in connection with the Directed Share Program.

(ff) No consent, approval, authorization or order of, or qualification
with, any governmental body or agency, other than those obtained, is required in
connection with the offering of the Directed Shares in any jurisdiction where
the Directed Shares are being offered.

-7-
<PAGE>

(gg) The Company has not offered, or caused Morgan Stanley or its
affiliates to offer, Shares to any person pursuant to the Directed Share Program
with the intent to unlawfully influence (i) a customer or supplier of the
Company to alter the customer's or supplier's level or type of business with the
Company, or (ii) a trade journalist or publication to write or publish favorable
information about the Company or its products.

2. Agreements to Sell and Purchase. The Company hereby agrees to sell to
the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company the respective numbers of Firm Shares set forth in Schedule I hereto
opposite the Underwriter's name at $______ a share (the "Purchase Price").

On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the Underwriters the Additional Shares, and the Underwriters shall have a
one-time right to purchase, severally and not jointly, up to ______ Additional
Shares at the Purchase Price. If you, on behalf of the Underwriters, elect to
exercise such option, you shall so notify the Company in writing not later than
30 days after the date of this Agreement, which notice shall specify the number
of Additional Shares to be purchased by the Underwriters and the date on which
such shares are to be purchased. Such date may be the same as the Closing Date
(as defined below) but not earlier than the Closing Date nor later than ten
business days after the date of such notice. Additional Shares may be purchased
as provided in Section 4 hereof solely for the purpose of covering over-
allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each Underwriter agrees, severally and
not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Additional Shares to be purchased as the
number of Firm Shares set forth in Schedule I hereto opposite the name of such
Underwriter bears to the total number of Firm Shares.

The Company hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period ending 180
days after the date of the Prospectus, (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, lend, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
or (ii) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (i) or (ii) above is to
be settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to (A) the Shares to be sold
hereunder, (B) the issuance by the Company of shares of Common Stock upon the
exercise of an option or warrant or the conversion of a security outstanding on
the date hereof of which the Underwriters have been advised in writing, (C) any
securities, including, without limitation, shares of Common Stock and options
issued, granted or exercised pursuant to any of the Company's employee benefit
plans described in the Prospectus (including, without limitation, the Company's
1998 Incentive Compensation Plan, 1999 Incentive Compensation Plan and 1999
Employee Stock Purchase Plan) or (D) the issuance by the Company of shares of
Common Stock in connection with a merger or acquisition by the

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<PAGE>

Company, if (i) the holder(s) of such shares of Common Stock execute(s) a lock-
up agreement substantially in the form attached hereto as Exhibit A, (ii) the
aggregate number of shares of Common Stock issued under this clause (D) for a
particular merger or acquisition does not exceed 1,000,000 shares of Common
Stock and (iii) the aggregate number of all shares of Common Stock issued under
this clause (D) does not exceed 4,000,000 shares of Common Stock.

3. Terms of Public Offering. The Company is advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Company is further
advised by you that the Shares are to be offered to the public initially at
$_____________ a share (the "Public Offering Price") and to certain dealers
selected by you at a price that represents a concession not in excess of $______
a share under the Public Offering Price, and that any Underwriter may allow, and
such dealers may reallow, a concession, not in excess of $_____ a share, to any
Underwriter or to certain other dealers.

4. Payment and Delivery. Payment for the Firm Shares shall be made to
the Company in Federal or other funds immediately available in New York City
against delivery of such Firm Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on _________, 2000, or at such
other time on the same or such other date, not later than _________, 2000, as
shall be designated in writing by you. The time and date of such payment are
hereinafter referred to as the "Closing Date."

Payment for any Additional Shares shall be made to the Company in Federal
or other funds immediately available in New York City against delivery of such
Additional Shares for the respective accounts of the several Underwriters at
10:00 a.m., New York City time, on the date specified in the notice described in
Section 2 or at such other time on the same or on such other date, in any event
not later than _______, 2000, as shall be designated in writing by you. The
time and date of such payment are hereinafter referred to as the "Option Closing
Date."

Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.

5. Conditions to the Underwriters' Obligations. The obligations of the
Company to sell the Shares to the Underwriters and the several obligations of
the Underwriters to purchase and pay for the Shares on the Closing Date and the
Option Closing Date, as the case may be, are subject to the condition that the
Registration Statement shall have become effective not later than [_____] (New
York City time) on the date hereof.

The several obligations of the Underwriters are subject to the following
further conditions:

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<PAGE>

(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:

(i) there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential downgrading or of any
review for a possible change that does not indicate the direction of the
possible change, in the rating accorded any of the Company's securities by any
"nationally recognized statistical rating organization," as such term is defined
for purposes of Rule 436(g)(2) under the Securities Act; and

(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations of the Company and its
subsidiaries, taken as a whole, from that set forth in the Prospectus (exclusive
of any amendments or supplements thereto subsequent to the date of this
Agreement) that, in your judgment, is material and adverse and that makes it, in
your judgment, impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.

(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of the
Company, to the effect set forth in Section 5(a)(i) above and to the effect that
the representations and warranties of the Company contained in this Agreement
are true and correct as of the Closing Date and that the Company has complied
with all of the agreements and satisfied all of the conditions on its part to be
performed or satisfied hereunder on or before the Closing Date.

The officer signing and delivering such certificate may rely upon the best
of his or her knowledge as to proceedings threatened.

(c) The Underwriters shall have received on the Closing Date an
opinion of Perkins Coie llp, outside counsel to the Company, dated the Closing
Date, to the effect that:

(i) the Company has been duly incorporated, is validly
existing as a corporation under the laws of the State of Washington, has the
corporate power and authority to own its property and to conduct its business as
described in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the Company and its subsidiaries, taken as a whole;

(ii) each corporate subsidiary of the Company has been duly
incorporated, is validly existing as a corporation under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to own
its property and to conduct its business as described in the Prospectus and is
duly qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse effect on the
Company and its subsidiaries, taken as a whole;

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<PAGE>

(iii) I-Balls LLC, a subsidiary of the Company ("I-Balls LLC"),
has been duly organized, is validly existing as a limited liability company in
good standing under the laws of the jurisdiction of its formation, has the power
and authority to own its property and to conduct its business as described in
the Prospectus and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the Company and its subsidiaries, taken as a whole;

(iv) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus under the
caption "Description of Capital Stock";

(v) the shares of Common Stock outstanding prior to the
issuance of the Shares have been duly authorized and are validly issued, non-
assessable and, to such counsel's knowledge, fully paid;

(vi) all of the issued shares of capital stock of each
corporate subsidiary of the Company and all of the issued membership interests
of I-Balls LLC have been duly and validly authorized and issued, are fully paid
and non-assessable and are owned directly by the Company, free and clear of all
liens, encumbrances, equities or claims;

(vii) the Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will not
be subject to any preemptive or similar rights pursuant to the Company's amended
and restated articles of incorporation or amended and restated bylaws or, to
such counsel's knowledge, any agreement or instrument binding upon the Company;

(viii) this Agreement has been duly authorized, executed and
delivered by the Company;

(ix) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement will not
contravene any provision of applicable federal or Washington state law or the
amended and restated articles of incorporation or amended and restated bylaws of
the Company or, to such counsel's knowledge, any agreement or other instrument
binding upon the Company or any of its subsidiaries that is material to the
Company and its subsidiaries, taken as a whole, or, to such counsel's knowledge,
any judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Company or any subsidiary, and no consent, approval,
authorization or order of, or qualification with, any governmental body or
governmental agency is required for the performance by the Company of its
obligations under this Agreement, except such as may be required by the
Commission, the NASD, and the securities or Blue Sky laws of the various states
in connection with the offer and sale of the Shares (as to which such counsel
need not opine);

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<PAGE>

(x) the statements (A) in the Prospectus under the captions
"Risk Factors--Risks Related to this Offering--Future sales of shares by
existing shareholders could affect our stock price," "Management--Employment
Agreements and Change of Control Agreements," "Management--Employee Benefit
Plans," "Management--Limitation of Director and Officer Liability and
Indemnification," "Description of Capital Stock," "Shares Eligible for Future
Sale" and "Underwriters" (with respect to such statements under the caption
"Underwriters" which relate to this Agreement) and (B) in the Registration
Statement in Items 14 and 15, in each case insofar as such statements constitute
summaries of the legal matters, documents or proceedings referred to therein,
fairly present the information called for with respect to such legal matters,
documents and proceedings and fairly summarize the matters referred to therein;

(xi) such counsel does not know of any legal or governmental
proceedings pending or threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the Company or any
of its subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or of any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed as
required;

(xii) the Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be required to register as an "investment
company" as such term is defined in the Investment Company Act of 1940, as
amended; and

(xiii) such counsel (A) is of the opinion that the Registration
Statement and Prospectus (except for financial statements and schedules included
therein and financial and statistical data included in the Registration
Statement or Prospectus and derived from the financial statements or schedules,
as to which such counsel need not express any opinion) comply as to form in all
material respects with the Securities Act and the Rules, (B) has no reason to
believe that (except for financial statements and schedules included therein and
financial and statistical data included in the Registration Statement or
Prospectus and derived from the financial statements or schedules, as to which
such counsel need not express any belief) the Registration Statement and the
prospectus included therein at the time the Registration Statement became
effective contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading and (C) has no reason to believe that (except
for financial statements and schedules included therein and financial and
statistical data included in the Registration Statement or Prospectus and
derived from the financial statements or schedules, as to which such counsel
need not express any belief) the Prospectus contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.

(d) The Underwriters shall have received on the Closing Date an
opinion of Blakely, Sokoloff, Taylor and Zafman LLP, intellectual property
counsel to the Company, dated the Closing Date, to the effect that such counsel
has reviewed the statements in the Prospectus under the captions "Risk Factors--
Risks Related to Our Company and Business--Some of our competitors

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<PAGE>

have obtained patents and have sued other parties to enforce their rights under
these patents, and we may also be subject to patent infringement claims,
including claims that our ad serving technologies, processes or methods infringe
these or other patents," and "Business--Intellectual Property", and, insofar as
such statements constitute summaries of the legal matters, documents or
proceedings referred to therein, these statements are accurate and fairly and
completely present the information called for with respect to such legal matters
and fairly summarize the matters referred to therein.

(e) The Underwriters shall have received on the Closing Date an
opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel
for the Underwriters, dated the Closing Date, covering the matters referred to
in Sections 5(c)(vi), 5(c)(vii), 5(c)(ix) (but only as to the statements in the
Prospectus under "Description of Capital Stock" and "Underwriters") and
5(c)(xiii) above.

With respect to Section 5(c)(xiii) above, Perkins Coie LLP and Wilson
Sonsini Goodrich & Rosati, Professional Corporation, may state that their
opinion and belief are based upon their participation in the preparation of the
Registration Statement and Prospectus and any amendments or supplements thereto
and review and discussion of the contents thereof, but are without independent
check or verification, except as specified.

The opinions of Perkins Coie LLP and Blakely, Sokoloff, Taylor and Zafman
LLP described in Section 5(c) and Section 5(d) above, respectively, shall be
rendered to the Underwriters at the request of the Company and shall so state
therein.

(f) The Underwriters shall have received, on each of the date hereof
and the Closing Date, a letter dated the date hereof or the Closing Date, as the
case may be, in form and substance satisfactory to the Underwriters, from Arthur
Andersen LLP, independent public accountants, containing statements and
information of the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus; provided
that the letter delivered on the Closing Date shall use a "cut-off date" not
earlier than the date hereof.

(g) The Lock-up Agreements between you and the securityholders,
officers and directors of the Company relating to sales and certain other
dispositions of shares of Common Stock or certain other securities, delivered to
you on or before the date hereof, shall be in full force and effect on the
Closing Date.

The several obligations of the Underwriters to purchase Additional Shares
hereunder are subject to the delivery to you on the Option Closing Date of such
documents as you may reasonably request with respect to the existence of the
Company, the due authorization and issuance of the Additional Shares and other
matters related to the issuance of the Additional Shares.

6. Covenants of the Company. In further consideration of the agreements
of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:

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<PAGE>

(a) To furnish to you, without charge, five (5) signed copies of the
Registration Statement (including exhibits thereto) and for delivery to each
other Underwriter a conformed copy of the Registration Statement (without
exhibits thereto) and to furnish to you in New York City, without charge, prior
to 3:00 p.m. New York City time on the business day next succeeding the date of
this Agreement and during the period mentioned in Section 6(c) below, as many
copies of the Prospectus and any supplements and amendments thereto or to the
Registration Statement as you may reasonably request.

(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to which
you reasonably object, and to file with the Commission within the applicable
period specified in Rule 424(b) under the Securities Act any prospectus required
to be filed pursuant to such Rule.

(c) If, during such period after the first date of the public
offering of the Shares as in the reasonable opinion of counsel for the
Underwriters the Prospectus is required by law to be delivered in connection
with sales by an Underwriter or dealer, any event shall occur or condition exist
as a result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if, in the opinion of
counsel for the Underwriters, it is necessary to amend or supplement the
Prospectus to comply with applicable law, forthwith to prepare, file with the
Commission and furnish, at its own expense, to the Underwriters and to the
dealers (whose names and addresses you will furnish to the Company) to which
Shares may have been sold by you on behalf of the Underwriters and to any other
dealers upon request, either amendments or supplements to the Prospectus so that
the statements in the Prospectus as so amended or supplemented will not, in the
light of the circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will comply
with law.

(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.

(e) To make generally available to the Company's security holders and
to you as soon as practicable an earning statement covering the twelve-month
period ending March 31, 2001 that satisfies the provisions of Section 11(a) of
the Securities Act and the Rules.

(f) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, the Company agrees to pay or
cause to be paid all expenses incident to the performance of its obligations
under this Agreement, including: (i) the fees, disbursements and expenses of the
Company's counsel and the Company's accountants in connection with the
registration and delivery of the Shares under the Securities Act and all other
fees or expenses in connection with the preparation and filing of the
Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing costs
associated therewith, and the mailing and delivering of copies thereof to the
Underwriters and dealers, in the quantities hereinabove specified, (ii) all
costs and expenses related to the transfer and delivery of the Shares to the
Underwriters, including any transfer or other

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<PAGE>

taxes payable thereon, (iii) the cost of printing or producing any Blue Sky
memorandum in connection with the offer and sale of the Shares under state
securities laws and all expenses in connection with the qualification of the
Shares for offer and sale under state securities laws as provided in Section
6(d) hereof, including filing fees and the reasonable fees and disbursements of
counsel for the Underwriters in connection with such qualification and in
connection with the Blue Sky memorandum, (iv) all filing fees and the reasonable
fees and disbursements of counsel to the Underwriters incurred in connection
with the review and qualification of the offering of the Shares by the NASD, (v)
all fees and expenses in connection with the preparation and filing of the
registration statement on Form 8-A relating to the Common Stock and all costs
and expenses incident to listing the Shares on the Nasdaq National Market, (vi)
the cost of printing certificates representing the Shares, (vii) the costs and
charges of any transfer agent, registrar or depositary, (viii) the costs and
expenses of the Company relating to investor presentations on any "road show"
undertaken in connection with the marketing of the offering of the Shares,
including, without limitation, expenses associated with the production of road
show slides and graphics, fees and expenses of any consultants engaged in
connection with the road show presentations with the prior approval of the
Company, travel and lodging expenses of the representatives and officers of the
Company and any such consultants, and the cost of any aircraft chartered in
connection with the road show, (ix) all reasonable fees and disbursements of
counsel incurred by the Underwriters in connection with the Directed Share
Program and stamp duties, similar taxes or duties or other taxes, if any,
incurred by the Underwriters in connection with the Directed Share Program, and
(x) all other costs and expenses incident to the performance of the obligations
of the Company hereunder for which provision is not otherwise made in this
Section. It is understood, however, that except as provided in this Section,
Section 7 entitled "Indemnity and Contribution," Section 8 entitled "Directed
Share Program Indemnification," and the last paragraph of Section 10 below, the
Underwriters will pay all of their costs and expenses, including fees and
disbursements of their counsel, stock transfer taxes payable on resale of any of
the Shares by them and any advertising expenses connected with any offers they
may make.

(g) To place stop transfer orders on any Directed Shares that have
been sold to Participants subject to the three month restriction on sale,
transfer, assignment, pledge or hypothecation imposed by NASD Regulation, Inc.
under its Interpretative Material 2110-1 on free-riding and withholding to the
extent necessary to ensure compliance with the three month restrictions.

(h) To comply with all applicable securities and other applicable
laws, rules and regulations in each jurisdiction in which the Directed Shares
are offered in connection with the Directed Share Program.

(i) That the Company will not amend or terminate or waive any right
under the Option Plan or give its written consent to any optionee or stockholder
(or the Company's transfer agent for the benefit of any optionee or stockholder)
that would allow any holder of Common Stock or securities convertible into or
exercisable or exchangeable for Common Stock under the Option Plan to sell or
otherwise transfer or dispose of shares of Common Stock issued pursuant to the
Option Plan during the period ending 180 days after the date of the Prospectus.
The Company further agrees

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<PAGE>

to maintain stop-transfer instructions with the Company's transfer agent to
enforce the lock-up provisions imposed pursuant to the Option Plan.

7. Indemnity and Contribution.

(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), from and
against any and all losses, claims, damages and liabilities (including, without
limitation, any legal or other expenses reasonably incurred in connection with
defending or investigating any such action or claim) caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, any preliminary prospectus or
the Prospectus (as amended or supplemented if the Company shall have furnished
any amendments or supplements thereto), or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon information
relating to any Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use therein; provided, however, that the
foregoing indemnity agreement with respect to any preliminary prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
such losses, claims, damages or liabilities purchased Shares, or any person
controlling such Underwriters, if a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Underwriter to such
person, if required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Shares to such person, and if the Prospectus (as
amended or supplemented) would have cured the defect giving rise to such losses,
claims, damages or liabilities, unless such failure is the result of
noncompliance by the Company with Section 6(a) hereof.

(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from the Company to
such Underwriter, but only with reference to information relating to such
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto.

(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to Section 7(a) or 7(b), such person (the "indemnified party")
shall promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing and the indemnifying party, upon request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees

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<PAGE>

and expenses of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party and the indemnified party shall have mutually
agreed to the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying party
and the indemnified party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them. It is understood that the indemnifying party shall not, in respect of the
legal expenses of any indemnified party in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the fees and
expenses of more than one separate firm (in addition to any local counsel) for
all such indemnified parties and that all such fees and expenses shall be
reimbursed as they are incurred. Such firm shall be designated in writing by
Morgan Stanley, in the case of parties indemnified pursuant to Section 7(a), and
by the Company, in the case of parties indemnified pursuant to Section 7(b). The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. Notwithstanding the foregoing sentence, if at
any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as contemplated
by the second and third sentences of this paragraph, the indemnifying party
agrees that it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more than 30
days after receipt by such indemnifying party of the aforesaid request and (ii)
such indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.

(d) To the extent the indemnification provided for in Section 7(a) or
7(b) is unavailable to an indemnified party or insufficient in respect of any
losses, claims, damages or liabilities referred to therein, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Underwriters on the
other hand from the offering of the Shares or (ii) if the allocation provided by
clause 7(d)(i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
7(d)(i) above but also the relative fault of the Company on the one hand and of
the Underwriters on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Underwriters on the other hand in
connection with the offering of the Shares shall be deemed to be in the same
respective proportions as the net proceeds from the offering of the Shares
(before deducting expenses) received by the Company and the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the aggregate Public
Offering Price of the Shares. The relative fault of the

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<PAGE>

Company on the one hand and the Underwriters on the other hand shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or by the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The
Underwriters' respective obligations to contribute pursuant to this Section 7
are several in proportion to the respective number of Shares they have purchased
hereunder, and not joint.

(e) The Company and the Underwriters agree that it would not be just
or equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in Section 7(d). The amount paid or payable
by an indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 7 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.

(f) The indemnity and contribution provisions contained in this
Section 7 and the representations, warranties and other statements of the
Company contained in this Agreement shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter or by or on behalf of the Company, its officers or directors or
any person controlling the Company and (iii) acceptance of and payment for any
of the Shares.

8. Directed Share Program Indemnification. Contribution.

(a) The Company agrees to indemnify and hold harmless Morgan Stanley,
its affiliates and each person, if any, who controls Morgan Stanley or its
affiliates within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act ("Morgan Stanley Entities"), from and against any
and all losses, claims, damages and liabilities (including, without limitation,
any legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) (i) caused by any untrue statement or
alleged untrue statement of a material fact contained in any material prepared
by or with the consent of the Company for distribution to Participants in
connection with the Directed Share Program, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) caused by the
failure of any Participant to pay for

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<PAGE>

and accept delivery of Directed Shares that the Participant has agreed to
purchase; or (iii) related to, arising out of, or in connection with the
Directed Share Program other than losses, claims, damages or liabilities (or
expenses relating thereto) that are finally judicially determined to have
resulted from the bad faith or gross negligence of Morgan Stanley Entities.

(b) In case any proceeding (including any governmental investigation)
shall be instituted involving any Morgan Stanley Entity in respect of which
indemnity may be sought pursuant to Section 8(a), the Morgan Stanley Entity
seeking indemnity shall promptly notify the Company in writing and the Company,
upon request of the Morgan Stanley Entity, shall retain counsel reasonably
satisfactory to the Morgan Stanley Entity to represent the Morgan Stanley Entity
and any others the Company may designate in such proceeding and shall pay the
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any Morgan Stanley Entity shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Morgan Stanley Entity unless (i) the Company shall have agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the Company and the Morgan
Stanley Entity and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. The
Company shall not, in respect of the legal expenses of the Morgan Stanley
Entities in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one separate firm
(in addition to any local counsel) for all Morgan Stanley Entities. Any such
firm for the Morgan Stanley Entities shall be designated in writing by Morgan
Stanley. The Company shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the Company agrees to indemnify the
Morgan Stanley Entities from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time a
Morgan Stanley Entity shall have requested the Company to reimburse it for fees
and expenses of counsel as contemplated by the second and third sentences of
this paragraph, the Company agrees that it shall be liable for any settlement of
any proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by the Company of the aforesaid
request and (ii) the Company shall not have reimbursed the Morgan Stanley Entity
in accordance with such request prior to the date of such settlement. The
Company shall not, without the prior written consent of Morgan Stanley, effect
any settlement of any pending or threatened proceeding in respect of which any
Morgan Stanley Entity is or could have been a party and indemnity could have
been sought hereunder by such Morgan Stanley Entity, unless such settlement
includes an unconditional release of the Morgan Stanley Entities from all
liability on claims that are the subject matter of such proceeding.

(c) To the extent the indemnification provided for in Section 8(a) is
unavailable to a Morgan Stanley Entity or insufficient in respect of any losses,
claims, damages or liabilities referred to therein, then the Company, in lieu of
indemnifying the Morgan Stanley Entity thereunder, shall contribute to the
amount paid or payable by the Morgan Stanley Entity as a result of such losses,
claims, damages or liabilities (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Morgan Stanley Entities on the other hand from the offering of the Directed
Shares or (ii) if the allocation provided by clause 8(c)(i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative

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<PAGE>

benefits referred to in clause 8(c)(i) above but also the relative fault of the
Company on the one hand and of the Morgan Stanley Entities on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Morgan Stanley Entities on the other hand in connection with the
offering of the Directed Shares shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Directed Shares (before
deducting expenses) and the total underwriting discounts and commissions
received by the Morgan Stanley Entities for the Directed Shares, bear to the
aggregate Public Offering Price of the Shares. If the loss, claim, damage or
liability is caused by an untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact, the relative fault
of the Company on the one hand and the Morgan Stanley Entities on the other hand
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement or the omission or alleged omission relates to
information supplied by the Company or by the Morgan Stanley Entities and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.

(d) The Company and the Morgan Stanley Entities agree that it would
not be just or equitable if contribution pursuant to this Section 8 were
determined by pro rata allocation (even if the Morgan Stanley Entities were
treated as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to in
Section 8(c). The amount paid or payable by the Morgan Stanley Entities as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
the Morgan Stanley Entities in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section 8, no
Morgan Stanley Entity shall be required to contribute any amount in excess of
the amount by which the total price at which the Directed Shares distributed to
the public were offered to the public exceeds the amount of any damages that
such Morgan Stanley Entity has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. The remedies
provided for in this Section 8 are not exclusive and shall not limit any rights
or remedies which may otherwise be available to any Morgan Stanley Entity at law
or in equity.

(e) The indemnity and contribution provisions contained in this
Section 8 shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on behalf
of any Morgan Stanley Entity or the Company, its officers or directors or any
person controlling the Company and (iii) acceptance of and payment for any of
the Directed Shares.

9. Termination. This Agreement shall be subject to termination by notice
given by you to the Company, if (a) after the execution and delivery of this
Agreement and prior to the Closing Date (i) trading generally shall have been
suspended or materially limited on or by, as the case may be, any of the New
York Stock Exchange, the American Stock Exchange, the National Association of
Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on

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<PAGE>

commercial banking activities in New York shall have been declared by either
Federal or New York State authorities or (iv) there shall have occurred any
outbreak or escalation of hostilities or any change in financial markets or any
calamity or crisis that, in your judgment, is material and adverse and (b) in
the case of any of the events specified in clauses 9(a)(i) through 9(a)(iv),
such event, singly or together with any other such event, makes it, in your
judgment, impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.

10. Effectiveness; Defaulting Underwriters. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.

If, on the Closing Date or the Option Closing Date, as the case may be, any
one or more of the Underwriters shall fail or refuse to purchase Shares that it
has or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of the Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm Shares set forth
opposite their respective names in Schedule I bears to the aggregate number of
Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as you may specify, to purchase the
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase on such date; provided that in no event shall the number of
Shares that any Underwriter has agreed to purchase pursuant to this Agreement be
increased pursuant to this Section 10 by an amount in excess of one-ninth of
such number of Shares without the written consent of such Underwriter. If, on
the Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of Firm
Shares to be purchased, and arrangements satisfactory to you and the Company for
the purchase of such Firm Shares are not made within 36 hours after such
default, this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter or the Company. In any such case either you or the
Company shall have the right to postpone the Closing Date, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. If, on the Option Closing Date, any Underwriter
or Underwriters shall fail or refuse to purchase Additional Shares and the
aggregate number of Additional Shares with respect to which such default occurs
is more than one-tenth of the aggregate number of Additional Shares to be
purchased, the non-defaulting Underwriters shall have the option (i) to
terminate their obligation hereunder to purchase Additional Shares or (ii) to
purchase not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.

If this Agreement shall be terminated by the Underwriters, or any of them,
because of any failure or refusal on the part of the Company to comply with the
terms or to fulfill any of the conditions of this Agreement, or if for any
reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all

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<PAGE>

out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.

11. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.

12. Applicable Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.

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<PAGE>

13. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.

Very truly yours,

AVENUE A, INC.

By:
-----------------------------------------
Brian P. McAndrews
Chief Executive Officer

Accepted as of the date hereof

Morgan Stanley & Co. Incorporated
Salomon Smith Barney Inc.
Thomas Weisel Partners LLC

Acting severally on behalf
of themselves and the
several Underwriters named
in Schedule I hereto.

By: Morgan Stanley & Co. Incorporated

By:
----------------------------------
Name:
Title:
<PAGE>

SCHEDULE I

Underwriter Number of Shares to be
Purchased
- -------------------------------------------- -------------------------
Morgan Stanley & Co. Incorporated

Salomon Smith Barney Inc.

Thomas Weisel Partners LLC

----------------
Total................
<PAGE>

Exhibit A

Lock-up Agreement
-----------------

Morgan Stanley & Co. Incorporated
Salomon Smith Barney
Thomas Weisel Partners LLC
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036

Dear Sirs and Mesdames:

The undersigned understands that Morgan Stanley & Co. Incorporated ("Morgan
Stanley") proposes to enter into an Underwriting Agreement (the "Underwriting
Agreement") with Avenue A, Inc., a Washington corporation (the "Company"),
providing for the public offering (the "Public Offering") by the several
Underwriters, including Morgan Stanley (the "Underwriters"), of shares (the
"Shares") of the Common Stock ($0.01 par value per share) of the Company (the
"Common Stock").

To induce the Underwriters that may participate in the Public Offering to
continue their efforts in connection with the Public Offering, the undersigned
hereby agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 180 days after the date of the final prospectus relating
to the Public Offering (the "Prospectus"), (1) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, lend, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
or (2) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (1) or (2) above is to
be settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to (a) the sale of any Shares
to the Underwriters pursuant to the Underwriting Agreement or (b) transactions
relating to shares of Common Stock or other securities acquired in open market
transactions after the completion of the Public Offering.

In addition, notwithstanding the foregoing, the following transfers shall
not be restricted by this agreement.

(1) if the undersigned is an individual, any transfer by the undersigned of
shares of Common Stock or securities convertible into or exchangeable or
exercisable for Common Stock (a) by bona fide gift, or (b) either during
the undersigned's lifetime or on death by will or intestacy to the
undersigned's immediate family or to a trust, the beneficiaries of which
are exclusively the undersigned and/or a member or members of the
undersigned's immediate family, or

(2) if the undersigned is a corporation, partnership or other business entity,
any transfer by the undersigned of shares of Common Stock or securities
convertible into or exchangeable or exercisable for Common Stock (a) in
connection with the sale or other bona fide transfer in a single
transaction of all or substantially all of the undersigned's assets not
undertaken for the purpose of avoiding the restrictions
<PAGE>

imposed hereby; (b) to another corporation, partnership or other business
entity if the transferee and the undersigned are direct or indirect
affiliates or otherwise related; or (c) as a part of a distribution without
consideration from the undersigned to its equity holders on a pro rata
basis;

provided that (x) the donee or transferee agrees in writing to be bound by the
foregoing in the same manner as it applies to the undersigned and (y) if the
donor or transferor is a reporting person subject to Section 16(a) of the
Securities Exchange Act of 1934 (the "Exchange Act"), any gifts or transfers
made in accordance with this paragraph shall not require such person to, and
such person shall not voluntarily, file a report of such transaction on Form 4
under the Exchange Act. "Immediate family" shall mean spouse, lineal
descendants, father, mother, brother or sister of the transferor and father,
mother, brother or sister of the transferor's spouse.

The undersigned further agrees that, without the prior written consent of
Morgan Stanley on behalf of the Underwriters, it will not, during the period
commencing on the date hereof and ending 180 days after the date of the
Prospectus, make any demand for or exercise any right with respect to, the
registration of any shares of Common Stock or any security convertible into or
exercisable or exchangeable for Common Stock.

Whether or not the Public Offering actually occurs depends on a number of
factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters. It is understood that if
(1) the registration statement on Form S-1 relating to the Prospectus does not
become effective by August 31, 2000 or ceases to be effective, (2) the Public
Offering does not close by August 31, 2000, or (3) for any reason the
Underwriting Agreement (other than the provisions thereof that survive
termination) shall terminate or be terminated prior to payment for and delivery
of the shares that are the subject of the Public Offering, then in any such case
this agreement will automatically terminate and be of no further force or
effect.

Very truly yours,

----------------------------
(Signature)

----------------------------
(Name--Please print clearly)

----------------------------
(Address)

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

<PAGE>

EXHIBIT 10.22

AVENUE A, INC.

RESTATED 1999 STOCK INCENTIVE COMPENSATION PLAN

SECTION 1. PURPOSE

The purpose of the Avenue A, Inc. 1999 Stock Incentive Compensation Plan
(the "Plan") is to enhance the long-term shareholder value of Avenue A, Inc., a
Washington corporation (the "Company"), by offering opportunities to selected
persons to participate in the Company's growth and success, and to encourage
them to remain in the service of the Company and its Related Corporations (as
defined in Section 2) and to acquire and maintain stock ownership in the
Company.

SECTION 2. DEFINITIONS

For purposes of the Plan, the following terms shall be defined as set forth
below:

"Award" means an award or grant made pursuant to the Plan, including,
without limitation, awards or grants of Stock Awards and Options, or any
combination of the foregoing.

"Board" means the Board of Directors of the Company.

"Cause" means dishonesty, fraud, misconduct, unauthorized use or disclosure
of confidential information or trade secrets, or conviction or confession of a
crime punishable by law (except minor violations), in each case as determined by
the Plan Administrator, and its determination shall be conclusive and binding.

"Code" means the Internal Revenue Code of 1986, as amended from time to
time.

"Common Stock" means the common stock, par value $0.01 per share, of the
Company.

"Corporate Transaction" has the meaning set forth in Section 12.3.1.

"Disability," unless otherwise defined by the Plan Administrator, means a
mental or physical impairment of the Participant that is expected to result in
death or that has lasted or is expected to last for a continuous period of 12
months or more and that causes the Participant to be unable, in the opinion of
the Company, to perform his or her duties for the Company or a Related
Corporation and to be engaged in any substantial gainful activity.

"Effective Date" has the meaning set forth in Section 16.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Fair Market Value" shall be as established in good faith by the Plan
Administrator or (a) if the Common Stock is listed on the Nasdaq National
Market, the closing sales price for the Common Stock as reported by the Nasdaq
National Market for a single trading day or (b) if the Common Stock is listed on
the New York Stock Exchange or the American Stock Exchange, the

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<PAGE>

closing sales price for the Common Stock as such price is officially quoted in
the composite tape of transactions on such exchange for a single trading day. If
there is no such reported price for the Common Stock for the date in question,
then such price on the last preceding date for which such price exists shall be
determinative of Fair Market Value.

"Good Reason" means the occurrence of any of the following events or
conditions and the failure of the Successor Corporation to cure such event or
condition within 30 days after receipt of written notice from the Participant:

(a) a change in the Participant's status, title, position or
responsibilities (including reporting responsibilities) that, in the
Participant's reasonable judgment, represents a substantial reduction in the
status, title, position or responsibilities as in effect immediately prior
thereto; the assignment to the Participant of any duties or responsibilities
that, in the Participant's reasonable judgment, are materially inconsistent with
such status, title, position or responsibilities; or any removal of the
Participant from or failure to reappoint or reelect the Participant to any of
such positions, except in connection with the termination of the Participant's
employment for Cause, for Disability or as a result of his or her death, or by
the Participant other than for Good Reason;

(b) a reduction in the Participant's annual base salary;

(c) the Successor Corporation's requiring the Participant (without the
Participant's consent) to be based at any place outside a 35-mile radius of his
or her place of employment prior to a Corporate Transaction, except for
reasonably required travel on the Successor Corporation's business that is not
materially greater than such travel requirements prior to the Corporate
Transaction;

(d) the Successor Corporation's failure to (i) continue in effect any
material compensation or benefit plan (or the substantial equivalent thereof) in
which the Participant was participating at the time of a Corporate Transaction,
including, but not limited to, the Plan, or (ii) provide the Participant with
compensation and benefits substantially equivalent (in terms of benefit levels
and/or reward opportunities) to those provided for under each material employee
benefit plan, program and practice as in effect immediately prior to the
Corporate Transaction;

(e) any material breach by the Successor Corporation of its
obligations to the Participant under the Plan or any substantially equivalent
plan of the Successor Corporation; or

(f) any purported termination of the Participant's employment or
services for Cause by the Successor Corporation that does not comply with the
terms of the Plan or any substantially equivalent plan of the Successor
Corporation.

"Grant Date" means the date on which the Plan Administrator completes the
corporate action relating to the grant of an Award and all conditions precedent
to the grant have been satisfied, provided that conditions to the exercisability
or vesting of Awards shall not defer the Grant Date.

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<PAGE>

"Incentive Stock Option" means an Option to purchase Common Stock granted
under Section 7 with the intention that it qualify as an "incentive stock
option" as that term is defined in Section 422 of the Code.

"Nonqualified Stock Option" means an Option to purchase Common Stock
granted under Section 7 other than an Incentive Stock Option.

"Option" means the right to purchase Common Stock granted under Section 7.

"Option Term" has the meaning set forth in Section 7.3.

"Parent," except as otherwise provided in Section 8.3 in connection with
Incentive Stock Options, means any entity, whether now or hereafter existing,
that directly or indirectly controls the Company.

"Participant" means (a) the person to whom an Award is granted; (b) for a
Participant who has died, the personal representative of the Participant's
estate, the person(s) to whom the Participant's rights under the Award have
passed by will or by the applicable laws of descent and distribution, or the
beneficiary designated in accordance with Section 11; or (c) the person(s) to
whom an Award has been transferred in accordance with Section 11.

"Plan Administrator" means the Board or any committee or committees
designated by the Board or any person to whom the Board has delegated authority
to administer the Plan under Section 3.1.

"Related Corporation" means any Parent or Subsidiary of the Company.

"Related Party Transaction" means (a) a merger of the Company in which the
holders of shares of Common Stock immediately prior to the merger hold at least
a majority of the shares of Common Stock in the surviving corporation or parent
thereof immediately after the merger; (b) a mere reincorporation of the Company
or; (c) a transaction undertaken for the sole purpose of creating a holding
company.

"Retirement" means retirement as of the individual's normal retirement date
under the Company's 401(k) plan or other similar successor plan applicable to
salaried employees, unless otherwise defined by the Plan Administrator from time
to time for purposes of the Plan.

"Securities Act" means the Securities Act of 1933, as amended.

"Stock Award" means shares of Common Stock or units denominated in Common
Stock granted under Section 9, the rights of ownership of which may be subject
to restrictions prescribed by the Plan Administrator.

"Subsidiary," except as otherwise provided in Section 8.3 in connection
with Incentive Stock Options, means any entity that is directly or indirectly
controlled by the Company.

"Successor Corporation" has the meaning set forth in Section 12.3.2.

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<PAGE>

"Termination Date" has the meaning set forth in Section 7.6.

SECTION 3. ADMINISTRATION

3.1 Plan Administrator

The Plan shall be administered by the Board and/or a committee or
committees (which term includes subcommittees) appointed by, and consisting of
two or more members of, the Board (a "Plan Administrator"). If and so long as
the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act,
the Board shall consider in selecting the members of any committee acting as
Plan Administrator, with respect to any persons subject or likely to become
subject to Section 16 of the Exchange Act, the provisions regarding (a) "outside
directors" as contemplated by Section 162(m) of the Code and (b) "nonemployee
directors" as contemplated by Rule 16b-3 under the Exchange Act.
Notwithstanding the foregoing, the Board may delegate the responsibility for
administering the Plan with respect to designated classes of eligible persons to
different committees consisting of two or more members of the Board, subject to
such limitations as the Board deems appropriate. Committee members shall serve
for such term as the Board may determine, subject to removal by the Board at any
time. To the extent consistent with applicable law, the Board may authorize one
or more senior executive officers of the Company to grant Awards to designated
classes of eligible persons, within the limits specifically prescribed by the
Board.

3.2 Administration and Interpretation by Plan Administrator

Except for the terms and conditions explicitly set forth in the Plan, the
Plan Administrator shall have exclusive authority, in its discretion, to
determine all matters relating to Awards under the Plan, including the selection
of individuals to be granted Awards, the type of Awards, the number of shares of
Common Stock subject to an Award, all terms, conditions, restrictions and
limitations, if any, of an Award and the terms of any instrument that evidences
the Award. The Plan Administrator shall also have exclusive authority to
interpret the Plan and the terms of any instrument evidencing the Award and may
from time to time adopt and change rules and regulations of general application
for the Plan's administration. The Plan Administrator's interpretation of the
Plan and its rules and regulations, and all actions taken and determinations
made by the Plan Administrator pursuant to the Plan, shall be conclusive and
binding on all parties involved or affected. The Plan Administrator may
delegate administrative duties to such of the Company's officers as it so
determines.

SECTION 4. STOCK SUBJECT TO THE PLAN

4.1 Authorized Number of Shares

Subject to adjustment from time to time as provided in Section 12.1, the
number of shares of Common Stock that shall be available for issuance under the
Plan shall be

(a) 5,250,000 shares plus;

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<PAGE>

(b) an annual increase to be added on the first day of the Company's fiscal
year beginning in 2001 equal to the least of (i) 5,250,000 shares; (ii) 8% of
the adjusted average common shares outstanding of the Company used to calculate
fully diluted earnings per share as reported in the annual report to
shareholders for the preceding year; or (iii) a lesser amount determined by the
Board; provided that any shares from any such increases in previous years that
are not actually issued shall be added to the aggregate number of shares
available for issuance under the Plan; plus

(c) as of the effective date of the Company's initial public offering, (i)
any authorized shares not issued or subject to outstanding awards under the
Company's 1998 Stock Incentive Compensation Plan (the "Prior Plan") and (ii) any
shares subject to outstanding awards under the Prior Plan that cease to be
subject to such awards (other than by reason of exercise or payment of the
awards to the extent they are exercised for or settled in vested and
nonforfeitable shares), up to an aggregate maximum of 13,068,568 shares, which
shares shall cease, as of the date of the initial public offering, to be
available for grant and issuance under the Prior Plan, but shall be available
for issuance under the Plan.

Shares issued under the Plan shall be drawn from authorized and unissued
shares or shares now held or subsequently acquired by the Company.

4.2 Reuse of Shares

Any shares of Common Stock that have been made subject to an Award that
cease to be subject to the Award (other than by reason of exercise or payment of
the Award to the extent it is exercised for or settled in vested and
nonforfeitable shares) shall again be available for issuance in connection with
future grants of Awards under the Plan.

SECTION 5. ELIGIBILITY

Awards may be granted under the Plan to those officers, directors and
employees of the Company and its Related Corporations as the Plan Administrator
from time to time selects. Awards may also be made to consultants, agents,
advisors and independent contractors who provide services to the Company and its
Related Corporations; provided, however, that such Participants render bona fide
services that are not in connection with the offer and sale of the Company's
securities in a capital-raising transaction and do not directly or indirectly
promote or maintain a market for the Company's securities.

SECTION 6. AWARDS

6.1 Form and Grant of Awards

The Plan Administrator shall have the authority, in its sole discretion, to
determine the type or types of Awards to be made under the Plan. Such Awards
may include, but are not limited to, Incentive Stock Options, Nonqualified Stock
Options and Stock Awards. Awards may be granted singly or in combination.

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<PAGE>

6.2 Settlement of Awards

The Company may settle Awards through the delivery of shares of Common
Stock, cash payments, the granting of replacement Awards or any combination
thereof as the Plan Administrator shall determine. Any Award settlement,
including payment deferrals, may be subject to such conditions, restrictions and
contingencies as the Plan Administrator shall determine. The Plan Administrator
may permit or require the deferral of any Award payment, subject to such rules
and procedures as it may establish, which may include provisions for the payment
or crediting of interest, or dividend equivalents, including converting such
credits into deferred stock equivalents. The Plan Administrator may at any time
offer to buy out, for a payment in cash or Common Stock, an Award previously
granted based on such terms and conditions as the Plan Administrator shall
establish and communicate to the Participant at the time such offer is made.

6.3 Acquired Company Awards

Notwithstanding anything in the Plan to the contrary, the Plan
Administrator may grant Awards under the Plan in substitution for awards issued
under other plans, or assume under the Plan awards issued under other plans, if
the other plans are or were plans of other acquired entities ("Acquired
Entities") (or the parent of the Acquired Entity) and the new Award is
substituted, or the old award is assumed, by reason of a merger, consolidation,
acquisition of property or stock, reorganization or liquidation (the
"Acquisition Transaction"). In the event that a written agreement pursuant to
which the Acquisition Transaction is completed is approved by the Board and said
agreement sets forth the terms and conditions of the substitution for or
assumption of outstanding awards of the Acquired Entity, said terms and
conditions shall be deemed to be the action of the Plan Administrator without
any further action by the Plan Administrator, except as may be required for
compliance with Rule 16b-3 under the Exchange Act, and the persons holding such
awards shall be deemed to be Participants.

SECTION 7. AWARDS OF OPTIONS

7.1 Grant of Options

The Plan Administrator is authorized under the Plan, in its sole
discretion, to issue Options as Incentive Stock Options or as Nonqualified Stock
Options, which shall be appropriately designated.

7.2 Option Exercise Price

The exercise price for shares purchased under an Option shall be as
determined by the Plan Administrator, but shall not be less than 100% of the
Fair Market Value of the Common Stock on the Grant Date with respect to
Incentive Stock Options and not less than 85% of the Fair Market Value of the
Common Stock on the Grant Date with respect to Nonqualified Stock Options. For
Incentive Stock Options granted to a more than 10% shareholder, the Option
exercise price shall be as specified in Section 8.2.

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<PAGE>

7.3 Term of Options

The term of each Option (the "Option Term") shall be as established by the
Plan Administrator or, if not so established, shall be ten years from the Grant
Date. For Incentive Stock Options, the maximum Option Term shall be as
specified in Sections 8.2 and 8.4.

7.4 Exercise of Options

The Plan Administrator shall establish and set forth in each instrument
that evidences an Option the time at which, or the installments in which, the
Option shall vest and become exercisable, which provisions may be waived or
modified by the Plan Administrator at any time. If not so established in the
instrument evidencing the Option, the Option shall vest and become exercisable
according to the following schedule, which may be waived or modified by the Plan
Administrator at any time:

<TABLE>
<CAPTION>
Period of Participant's Continuous Employment or
Service With the Company or Its Related Corporations Percent of Total Option
From the Option Grant Date That Is Vested and Exercisable

<S> <C>
After 1 year 20%

Each additional three-month period of An additional 6.667%
continuous service completed thereafter

After 4 years 100%
</TABLE>

The Plan Administrator may adjust the vesting schedule of an Option held by
a Participant who works less than "full-time" as that term is defined by the
Plan Administrator.

To the extent that an Option has vested and become exercisable, the Option
may be exercised from time to time by delivery to the Company of a written stock
option exercise agreement or notice, in a form and in accordance with procedures
established by the Plan Administrator, setting forth the number of shares with
respect to which the Option is being exercised, the restrictions imposed on the
shares purchased under such exercise agreement, if any, and such representations
and agreements as may be required by the Plan Administrator, accompanied by
payment in full as described in Section 7.5. An Option may not be exercised for
less than a reasonable number of shares at any one time, as determined by the
Plan Administrator.

7.5 Payment of Exercise Price

(a) cash or check;

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<PAGE>

(b) tendering (either actually or, if and so long as the Common Stock is
registered under Section 12(b) or 12(g) of the Exchange Act, by attestation)
shares of Common Stock already owned by the Participant for at least six months
(or any shorter period necessary to avoid a charge to the Company's earnings for
financial reporting purposes) having a Fair Market Value on the day prior to the
exercise date equal to the aggregate Option exercise price;

(c) if and so long as the Common Stock is registered under Section 12(b) or
12(g) of the Exchange Act, delivery of a properly executed exercise notice,
together with irrevocable instructions, to (i) a brokerage firm designated by
the Company to deliver promptly to the Company the aggregate amount of sale or
loan proceeds to pay the Option exercise price and any withholding tax
obligations that may arise in connection with the exercise and (ii) the Company
to deliver the certificates for such purchased shares directly to such brokerage
firm, all in accordance with the regulations of the Federal Reserve Board; or

(d) such other consideration as the Plan Administrator may permit.

In addition, to assist a Participant (including a Participant who is an
officer or a director of the Company) in acquiring shares of Common Stock
pursuant to an Award granted under the Plan, the Plan Administrator, in its sole
discretion, may authorize, either at the Grant Date or at any time before the
acquisition of Common Stock pursuant to the Award, (i) the payment by a
Participant with a full-recourse promissory note, (ii) the payment by the
Participant of the purchase price, if any, of the Common Stock in installments,
or (iii) the guarantee by the Company of a loan obtained by the Participant from
a third party. Subject to the foregoing, the Plan Administrator shall in its
sole discretion specify the terms of any loans, installment payments or loan
guarantees, including the interest rate and terms of and security for repayment.

7.6 Post-Termination Exercises

The Plan Administrator shall establish and set forth in each instrument
that evidences an Option whether the Option shall continue to be exercisable,
and the terms and conditions of such exercise, if a Participant ceases to be
employed by, or to provide services to, the Company or its Related Corporations,
which provisions may be waived or modified by the Plan Administrator at any
time. If not so established in the instrument evidencing the Option, the Option
shall be exercisable according to the following terms and conditions, which may
be waived or modified by the Plan Administrator at any time:

(a) Any portion of an Option that is not vested and exercisable on the date
of termination of the Participant's employment or service relationship (the
"Termination Date") shall expire on such date.

(b) Any portion of an Option that is vested and exercisable on the
Termination Date shall expire upon the earliest to occur of

(i) the last day of the Option Term;

(ii) if the Participant's Termination Date occurs for reasons other
than Cause, death, Disability or Retirement, the three-month anniversary of such
Termination Date; and

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<PAGE>

(iii) if the Participant's Termination Date occurs by reason of
death, Disability or Retirement, the one-year anniversary of such Termination
Date.

Notwithstanding the foregoing, if the Participant dies after the
Termination Date while the Option is otherwise exercisable, the portion of the
Option that is vested and exercisable on such Termination Date shall expire upon
the earlier to occur of (y) the last day of the Option Term and (z) the first
anniversary of the date of death, unless the Plan Administrator determines
otherwise.

Also notwithstanding the foregoing, in case of termination of the
Participant's employment or service relationship for Cause, the Option shall
automatically expire upon first notification to the Participant of such
termination, unless the Plan Administrator determines otherwise. If a
Participant's employment or service relationship with the Company is suspended
pending an investigation of whether the Participant shall be terminated for
Cause, all the Participant's rights under any Option likewise shall be suspended
during the period of investigation.

A Participant's transfer of employment or service relationship between or
among the Company and its Related Corporations, or a change in status from an
employee to a consultant, agent, advisor or independent contractor, shall not be
considered a termination of employment or service relationship for purposes of
this Section 7. The effect of a Company-approved leave of absence on the terms
and conditions of an Option shall be determined by the Plan Administrator, in
its sole discretion.

SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS

To the extent required by Section 422 of the Code, Incentive Stock Options
shall be subject to the following additional terms and conditions:

8.1 Dollar Limitation

To the extent the aggregate Fair Market Value (determined as of the Grant
Date) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time during any calendar year (under the Plan and all
other stock option plans of the Company) exceeds $100,000, such portion in
excess of $100,000 shall be treated as a Nonqualified Stock Option. In the
event the Participant holds two or more such Options that become exercisable for
the first time in the same calendar year, such limitation shall be applied on
the basis of the order in which such Options are granted.

8.2 More Than 10% Shareholders

If an individual owns more than 10% of the total voting power of all
classes of the Company's stock, then the exercise price per share of an
Incentive Stock Option shall not be less than 110% of the Fair Market Value of
the Common Stock on the Grant Date and the Option Term shall not exceed five
years. The determination of more than 10% ownership shall be made in accordance
with Section 422 of the Code.

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<PAGE>

8.3 Eligible Employees

Individuals who are not employees of the Company or one of its parent
corporations or subsidiary corporations may not be granted Incentive Stock
Options. For purposes of this Section 8.3, "parent corporation" and "subsidiary
corporation" shall have the meanings attributed to those terms for purposes of
Section 422 of the Code.

8.4 Term

Except as provided in Section 8.2, the Option Term shall not exceed ten
years.

8.5 Exercisability

An Option designated as an Incentive Stock Option shall cease to qualify
for favorable tax treatment as an Incentive Stock Option to the extent it is
exercised (if permitted by the terms of the Option) (a) more than three months
after the Termination Date for reasons other than death or Disability, (b) more
than one year after the Termination Date by reason of Disability, or (c) after
the Participant has been on a leave of absence for more than 90 days, unless the
Participant's reemployment rights are guaranteed by statute or contract.

For purposes of this Section 8.5, Disability shall mean "disability" as
that term is defined for purposes of Section 422 of the Code.

8.6 Taxation of Incentive Stock Options

In order to obtain certain tax benefits afforded to Incentive Stock Options
under Section 422 of the Code, the Participant must hold the shares issued upon
the exercise of an Incentive Stock Option for two years after the Grant Date and
one year from the date of exercise. A Participant may be subject to the
alternative minimum tax at the time of exercise of an Incentive Stock Option.
The Participant shall give the Company prompt notice of any disposition of
shares acquired by the exercise of an Incentive Stock Option prior to the
expiration of such holding periods.

8.7 Promissory Notes

The amount of any promissory note delivered pursuant to Section 7.5 in
connection with an Incentive Stock Option shall bear interest at a rate
specified by the Plan Administrator, but in no case less than the rate required
to avoid imputation of interest (taking into account any exceptions to the
imputed interest rules) for federal income tax purposes.

SECTION 9. STOCK AWARDS

9.1 Grant of Stock Awards

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<PAGE>

achievement of performance goals), as the Plan Administrator shall determine, in
its sole discretion, which terms, conditions and restrictions shall be set forth
in the instrument evidencing the Award. The terms, conditions and restrictions
that the Plan Administrator shall have the power to determine shall include,
without limitation, the manner in which shares subject to Stock Awards are held
during the periods they are subject to restrictions and the circumstances under
which forfeiture of the Stock Award shall occur by reason of termination of the
Participant's employment or service relationship.

9.2 Issuance of Shares

Upon the satisfaction of any terms, conditions and restrictions prescribed
in respect to a Stock Award, or upon the Participant's release from any terms,
conditions and restrictions of a Stock Award, as determined by the Plan
Administrator, the Company shall release, as soon as practicable, to the
Participant or, in the case of the Participant's death, to the personal
representative of the Participant's estate or, as the appropriate court directs,
the appropriate number of shares of Common Stock.

9.3 Waiver of Restrictions

Notwithstanding any other provisions of the Plan, the Plan Administrator
may, in its sole discretion, waive the forfeiture period and any other terms,
conditions or restrictions on any Stock Award under such circumstances and
subject to such terms and conditions as the Plan Administrator shall deem
appropriate.

SECTION 10. WITHHOLDING

The Company may require the Participant to pay to the Company the amount of
any withholding taxes that the Company is required to withhold with respect to
the grant, vesting or exercise of any Award. Subject to the Plan and applicable
law, the Plan Administrator may, in its sole discretion, permit the Participant
to satisfy withholding obligations, in whole or in part, (a) by paying cash, (b)
by electing to have the Company withhold shares of Common Stock (up to the
minimum required federal tax withholding rate) or (c) by transferring to the
Company shares of Common Stock (already owned by the Participant for the period
necessary to avoid a charge to the Company's earnings for financial reporting
purposes), in such amounts as are equivalent to the Fair Market Value of the
withholding obligation. The Company shall have the right to withhold from any
Award or any shares of Common Stock issuable pursuant to an Award or from any
cash amounts otherwise due or to become due from the Company to the Participant
an amount equal to such taxes. The Company may also deduct from any Award any
other amounts due from the Participant to the Company or a Related Corporation.

SECTION 11. ASSIGNABILITY

Awards granted under the Plan and any interest therein may not be assigned,
pledged or transferred by the Participant and may not be made subject to
attachment or similar proceedings otherwise than by will or by the applicable
laws of descent and distribution, and, during the Participant's lifetime, such
Awards may be exercised only by the Participant. Notwithstanding the foregoing,
and to the extent permitted by Section 422 of the Code, the Plan Administrator,
in its

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<PAGE>

sole discretion, may permit such assignment, pledge, transfer and exercisability
and may permit a Participant to designate a beneficiary who may exercise the
Award or receive compensation under the Award after the Participant's death;
provided, however, that any Award so assigned, pledged or transferred shall be
subject to all the same terms and conditions contained in the instrument
evidencing the Award.

SECTION 12. ADJUSTMENTS

12.1 Adjustment of Shares

In the event that, at any time or from time to time, a stock dividend,
stock split, spin-off, combination or exchange of shares, recapitalization,
merger, consolidation, distribution to shareholders other than a normal cash
dividend, or other change in the Company's corporate or capital structure
results in (a) the outstanding shares, or any securities exchanged therefor or
received in their place, being exchanged for a different number or class of
securities of the Company or of any other corporation or (b) new, different or
additional securities of the Company or of any other corporation being received
by the holders of shares of Common Stock of the Company, then the Plan
Administrator shall make proportional adjustments in (i) the maximum number and
kind of securities subject to the Plan as set forth in Section 4.1 and (ii) the
number and kind of securities that are subject to any outstanding Award and the
per share price of such securities, without any change in the aggregate price to
be paid therefor. The determination by the Plan Administrator as to the terms
of any of the foregoing adjustments shall be conclusive and binding.
Notwithstanding the foregoing, a dissolution or liquidation of the Company or a
Corporate Transaction shall not be governed by this Section 12.1 but shall be
governed by Sections 12.2 and 12.3, respectively.

12.2 Dissolution or Liquidation

In the event of the proposed dissolution or liquidation of the Company, the
Plan Administrator shall notify each Participant as soon as practicable prior to
the effective date of such proposed transaction. The Plan Administrator in its
discretion may permit a Participant to exercise an Option until ten days prior
to such transaction with respect to all vested and exercisable shares of Common
Stock covered thereby and with respect to such number of unvested shares as the
Plan Administrator shall determine. In addition, the Plan Administrator may
provide that any forfeiture provision or Company repurchase option applicable to
any Award shall lapse as to such number of shares as the Plan Administrator
shall determine, contingent upon the occurrence of the proposed dissolution or
liquidation at the time and in the manner contemplated. To the extent an Option
has not been previously exercised, the Option shall terminate automatically
immediately prior to the consummation of the proposed action. To the extent a
forfeiture provision applicable to a Stock Award has not been waived by the Plan
Administrator, the Stock Award shall be forfeited automatically immediately
prior to the consummation of the proposed action.

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<PAGE>

12.3 Corporate Transaction

12.3.1 Definition

"Corporate Transaction" means either of the following events:

(a) Consummation of any merger or consolidation of the Company with or into
another corporation or

(b) Consummation of any sale, lease, exchange or other transfer in one
transaction or a series of related transactions of all or substantially all the
Company's outstanding securities or all or substantially all the Company's
assets other than a transfer of the Company's securities or assets to a
majority-owned subsidiary corporation (as defined in Section 8.3) of the
Company.

12.3.2 Options

(a) In the event of a Corporate Transaction, except as otherwise provided
in the instrument evidencing the Award, each outstanding Option shall be assumed
or continued or an equivalent option or right substituted by the surviving
corporation, the successor corporation or its parent corporation, as applicable
(the "Successor Corporation"). In the event that the Successor Corporation
refuses to assume, continue or substitute for the Option, the Participant shall
fully vest in and have the right to exercise the Option as to all the shares of
Common Stock subject thereto, including shares as to which the Option would not
otherwise be vested or exercisable. If an Option will become fully vested and
exercisable in lieu of assumption or substitution in the event of a Corporate
Transaction, the Plan Administrator shall notify the Participant in writing or
electronically that the Option shall be fully vested and exercisable for a
specified time period after the date of such notice, and the Option shall
terminate upon the expiration of such period, in each case conditioned on the
consummation of the Corporate Transaction. For the purposes of this Section
12.3, the Option shall be considered assumed if, following the Corporate
Transaction, the option or right confers the right to purchase or receive, for
each share of Common Stock subject to the Option, immediately prior to the
Corporate Transaction, the consideration (whether stock, cash, or other
securities or property) received in the merger or sale of assets by holders of
Common Stock for each share held on the effective date of the transaction (and
if holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding shares); provided,
however, that if such consideration received in the Corporate Transaction is not
solely common stock of the Successor Corporation, the Plan Administrator may,
with the consent of the Successor Corporation, provide for the consideration to
be received upon the exercise of the Option, for each share of Common Stock
subject thereto, to be solely common stock of the Successor Corporation equal in
fair market value to the per share consideration received by holders of Common
Stock in the Corporate Transaction. All Options shall terminate and cease to
remain outstanding immediately following the consummation of the Corporate
Transaction, except to the extent assumed by the Successor Corporation. Any
such Options granted to an "executive officer" (as that term is defined for
purposes of Section 16 of the Exchange Act) of the Company that are assumed or
replaced in the Corporate Transaction, and do not otherwise accelerate at that
time shall be accelerated in the event that the Participant's employment or
services subsequently terminate

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<PAGE>

within two years following such Corporate Transaction, unless such employment or
services are terminated by the Successor Corporation for Cause or by the
Participant voluntarily without Good Reason. Notwithstanding the foregoing, such
acceleration shall not occur if the Corporate Transaction was a Related Party
Transaction.

(b) Options shall not so accelerate under this Section 12.3.2 if, in the
opinion of the Company's outside accountants, acceleration would render
unavailable "pooling of interest" accounting for a Corporate Transaction that
would otherwise qualify for such accounting treatment.

12.3.3 Stock Awards

In the event of a Corporate Transaction, except as otherwise provided in
the instrument evidencing the Award, the vesting of shares subject to Stock
Awards shall accelerate, and the forfeiture provisions to which such shares are
subject shall lapse, if and to the same extent that the vesting of outstanding
Options accelerates in connection with the Corporate Transaction. If unvested
Options are to be assumed, continued or substituted by a Successor Corporation
without acceleration upon the occurrence of a Corporate Transaction, the
forfeiture provisions to which such Stock Awards are subject shall continue with
respect to shares of the Successor Corporation that may be issued in exchange
for such shares.

12.4 Further Adjustment of Awards

Subject to Sections 12.2 and 12.3, the Plan Administrator shall have the
discretion, exercisable at any time before a sale, merger, consolidation,
reorganization, liquidation or change in control of the Company, as defined by
the Plan Administrator, to take such further action as it determines to be
necessary or advisable, and fair and equitable to the Participants, with respect
to Awards. Such authorized action may include (but shall not be limited to)
establishing, amending or waiving the type, terms, conditions or duration of, or
restrictions on, Awards so as to provide for earlier, later, extended or
additional time for exercise, lifting restrictions and other modifications, and
the Plan Administrator may take such actions with respect to all Participants,
to certain categories of Participants or only to individual Participants. The
Plan Administrator may take such action before or after granting Awards to which
the action relates and before or after any public announcement with respect to
such sale, merger, consolidation, reorganization, liquidation or change in
control that is the reason for such action.

12.5 Limitations

The grant of Awards shall in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.

12.6 Fractional Shares

In the event of any adjustment in the number of shares covered by any
Award, each such Award shall cover only the number of full shares resulting from
such adjustment.

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SECTION 13. MARKET STANDOFF

In connection with any underwritten public offering by the Company of its
equity securities pursuant to an effective registration statement filed under
the Securities Act, including the Company's initial public offering, a person
shall not sell, make any short sale of, loan, hypothecate, pledge, grant any
option for the purchase of, or otherwise dispose of or transfer for value or
otherwise agree to engage in any of the foregoing transactions with respect to
any shares issued pursuant to an Award granted under the Plan without the prior
written consent of the Company or its underwriters. Such limitations shall be
in effect for such period of time as may be requested by the Company or such
underwriters and agreed to by the Company's officers and directors with respect
to their shares; provided, however, that in no event shall such period exceed
180 days. The limitations of this paragraph shall in all events terminate two
years after the effective date of the Company's initial public offering.
Holders of shares issued pursuant to an Award granted under the Plan shall be
subject to the market standoff provisions of this paragraph only if the officers
and directors of the Company are also subject to similar arrangements.

In the event of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
Company's outstanding Common Stock effected as a class without the Company's
receipt of consideration, any new, substituted or additional securities
distributed with respect to the purchased shares shall be immediately subject to
the provisions of this Section 13, to the same extent the purchased shares are
at such time covered by such provisions.

In order to enforce the limitations of this Section 13, the Company may
impose stop-transfer instructions with respect to the purchased shares until the
end of the applicable standoff period.

SECTION 14. AMENDMENT AND TERMINATION OF PLAN

14.1 Amendment of Plan

The Plan may be amended only by the Board in such respects as it shall deem
advisable; provided, however, that to the extent required for compliance with
Section 422 of the Code or any applicable law or regulation, shareholder
approval shall be required for any amendment that would (a) increase the total
number of shares available for issuance under the Plan, (b) modify the class of
persons eligible to receive Options, or (c) otherwise require shareholder
approval under any applicable law or regulation. Any amendment made to the Plan
that would constitute a "modification" to Incentive Stock Options outstanding on
the date of such amendment shall not, without the consent of the Participant, be
applicable to such outstanding Incentive Stock Options but shall have
prospective effect only.

14.2 Termination of Plan

The Board may suspend or terminate the Plan at any time. Unless sooner
terminated as provided herein, the Plan shall terminate ten years after the
earlier of the Plan's adoption by the Board and approval by the shareholders.

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<PAGE>

14.3 Consent of Participant

The amendment or termination of the Plan or the amendment of an outstanding
Award shall not, without the Participant's consent, impair or diminish any
rights or obligations under any Award theretofore granted to the Participant
under the Plan. Any change or adjustment to an outstanding Incentive Stock
Option shall not, without the consent of the Participant, be made in a manner so
as to constitute a "modification" that would cause such Incentive Stock Option
to fail to continue to qualify as an Incentive Stock Option. Notwithstanding
the foregoing, any adjustments made pursuant to Section 12 shall not be subject
to these restrictions.

SECTION 15. GENERAL

15.1 Evidence of Awards

Awards granted under the Plan shall be evidenced by a written instrument
that shall contain such terms, conditions, limitations and restrictions as the
Plan Administrator shall deem advisable and that are not inconsistent with the
Plan.

15.2 No Individual Rights

Nothing in the Plan or any Award granted under the Plan shall be deemed to
constitute an employment contract or confer or be deemed to confer on any
Participant any right to continue in the employ of, or to continue any other
relationship with, the Company or any Related Corporation or limit in any way
the right of the Company or any Related Corporation to terminate a Participant's
employment or other relationship at any time, with or without Cause.

15.3 Registration

Notwithstanding any other provision of the Plan, the Company shall have no
obligation to issue or deliver any shares of Common Stock under the Plan or make
any other distribution of benefits under the Plan unless such issuance, delivery
or distribution would comply with all applicable laws (including, without
limitation, the requirements of the Securities Act), and the applicable
requirements of any securities exchange or similar entity.

The Company shall be under no obligation to any Participant to register for
offering or resale or to qualify for exemption under the Securities Act, or to
register or qualify under state securities laws, any shares of Common Stock,
security or interest in a security paid or issued under, or created by, the
Plan, or to continue in effect any such registrations or qualifications if made.
The Company may issue certificates for shares with such legends and subject to
such restrictions on transfer and stop-transfer instructions as counsel for the
Company deems necessary or desirable for compliance by the Company with federal
and state securities laws.

To the extent that the Plan or any instrument evidencing an Award provides
for issuance of stock certificates to reflect the issuance of shares of Common
Stock, the issuance may be effected on a noncertificated basis, to the extent
not prohibited by applicable law or the applicable rules of any stock exchange.

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<PAGE>

15.4 No Rights as a Shareholder

No Option or Stock Award denominated in units shall entitle the Participant
to any cash dividend, voting or other right of a shareholder unless and until
the date of issuance under the Plan of the shares that are the subject of such
Award.

15.5 Compliance With Laws and Regulations

Notwithstanding anything in the Plan to the contrary, the Plan
Administrator, in its sole discretion, may bifurcate the Plan so as to restrict,
limit or condition the use of any provision of the Plan to Participants who are
officers or directors subject to Section 16 of the Exchange Act without so
restricting, limiting or conditioning the Plan with respect to other
Participants. Additionally, in interpreting and applying the provisions of the
Plan, any Option granted as an Incentive Stock Option pursuant to the Plan
shall, to the extent permitted by law, be construed as an "incentive stock
option" within the meaning of Section 422 of the Code.

15.6 Participants in Foreign Countries

The Plan Administrator shall have the authority to adopt such
modifications, procedures and subplans as may be necessary or desirable to
comply with provisions of the laws of foreign countries in which the Company or
its Related Corporations may operate to assure the viability of the benefits
from Awards granted to Participants employed in such countries and to meet the
objectives of the Plan.

15.7 No Trust or Fund

The Plan is intended to constitute an "unfunded" plan. Nothing contained
herein shall require the Company to segregate any monies or other property, or
shares of Common Stock, or to create any trusts, or to make any special deposits
for any immediate or deferred amounts payable to any Participant, and no
Participant shall have any rights that are greater than those of a general
unsecured creditor of the Company.

15.8 Severability

If any provision of the Plan or any Award is determined to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person, or would
disqualify the Plan or any Award under any law deemed applicable by the Plan
Administrator, such provision shall be construed or deemed amended to conform to
applicable laws, or, if it cannot be so construed or deemed amended without, in
the Plan Administrator's determination, materially altering the intent of the
Plan or the Award, such provision shall be stricken as to such jurisdiction,
person or Award, and the remainder of the Plan and any such Award shall remain
in full force and effect.

15.9 Choice of Law

The Plan and all determinations made and actions taken pursuant hereto, to
the extent not otherwise governed by the laws of the United States, shall be
governed by the laws of the State of Washington without giving effect to
principles of conflicts of laws.

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SECTION 16. EFFECTIVE DATE

The Effective Date is the date on which the Plan is adopted by the Board,
so long as it is approved by the Company's shareholders at any time within 12
months of such adoption.

Adopted by the Board on November 16, 1999 and approved by the Company's
shareholders on __________, ______.

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<PAGE>

EXHIBIT 10.25

AVENUE A, INC.

RESTATED 1998 STOCK INCENTIVE COMPENSATION PLAN

SECTION 1. PURPOSE

The purpose of the Avenue A, Inc. 1998 Stock Incentive Compensation Plan
(the "Plan") is to enhance the long-term shareholder value of Avenue A, Inc., a
Washington corporation (the "Company"), by offering opportunities to employees,
directors, officers, consultants, agents, advisors and independent contractors
of the Company and its Subsidiaries (as defined in Section 2) to participate in
the Company's growth and success, and to encourage them to remain in the service
of the Company and its Subsidiaries and to acquire and maintain stock ownership
in the Company.

SECTION 2. DEFINITIONS

For purposes of the Plan, the following terms shall be defined as set forth
below:

2.1 Award

"Award" means an award or grant made pursuant to the Plan, including,
without limitation, awards or grants of Stock Awards and Options, or any
combination of the foregoing.

2.2 Board

"Board" means the Board of Directors of the Company.

2.3 Cause

2.4 Code

"Code" means the Internal Revenue Code of 1986, as amended from time to
time.

2.5 Common Stock

"Common Stock" means the common stock, par value $.01 per share, of the
Company.

2.6 Corporate Transaction

"Corporate Transaction" means any of the following events:

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<PAGE>

(a) Consummation of any merger or consolidation of the Company in
which the Company is not the continuing or surviving corporation, or pursuant to
which shares of the Common Stock are converted into cash, securities or other
property, if following such merger or consolidation the holders of the Company's
outstanding voting securities immediately prior to such merger or consolidation
own less than 51% of the outstanding voting securities of the surviving
corporation;

(b) Consummation of any sale, lease, exchange or other transfer in one
transaction or a series of related transactions of all or substantially all of
the Company's assets other than a transfer of the Company's assets to a
majority-owned subsidiary corporation (as the term "subsidiary corporation" is
defined in Section 8.3) of the Company; or

(c) Approval by the holders of the Common Stock of any plan or
proposal for the liquidation or dissolution of the Company.

2.7 Disability

"Disability" means "disability" as that term is defined for purposes of
Section 22(e)(3) of the Code.

2.8 Exchange Act

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

2.9 Fair Market Value

The "Fair Market Value" shall be as established in good faith by the Plan
Administrator or (a) if the Common Stock is listed on the Nasdaq National
Market, the closing selling price for the Common Stock as reported by the Nasdaq
National Market for a single trading day or (b) if the Common Stock is listed on
the New York Stock Exchange or the American Stock Exchange, the closing selling
price for the Common Stock as such price is officially quoted in the composite
tape of transactions on such exchange for a single trading day. If there is no
such reported price for the Common Stock for the date in question, then such
price on the last preceding date for which such price exists shall be
determinative of the Fair Market Value.

2.10 Good Reason

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<PAGE>

such positions, except in connection with the termination of the Participant's
employment for Cause, for Disability or as a result of his or her death, or by
the Participant other than for Good Reason;

(b) a reduction in the Participant's annual base salary;

(e) any material breach by the Successor Corporation of its
obligations to the Participant under the Plan or any substantially equivalent
plan of the Successor Corporation; or

2.11 Grant Date

"Grant Date" means the date the Plan Administrator adopted the granting
resolution or a later date designated in a resolution of the Plan Administrator
as the date an Award is to be granted.

2.12 Incentive Stock Option

2.13 Nonqualified Stock Option

"Nonqualified Stock Option" means an Option to purchase Common Stock
granted under Section 7 other than an Incentive Stock Option.

2.14 Option

"Option" means the right to purchase Common Stock granted under Section 7.

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<PAGE>

2.15 Participant

"Participant" means (a) the person to whom an Award is granted; (b) for a
Participant who has died, the personal representative of the Participant's
estate, the person(s) to whom the Participant's rights under the Award have
passed by will or by the applicable laws of descent and distribution, or the
beneficiary designated in accordance with Section 10; or (c) person(s) to whom
an Award has been transferred in accordance with Section 10.

2.16 Plan Administrator

"Plan Administrator" means the Board and/or any committee of the Board
designated to administer the Plan under Section 3.1.

2.17 Securities Act

"Securities Act" means the Securities Act of 1933, as amended.

2.18 Stock Award

2.19 Subsidiary

"Subsidiary," except as provided in Section 8.3 in connection with
Incentive Stock Options, means any entity that is directly or indirectly
controlled by the Company or in which the Company has a significant ownership
interest, as determined by the Plan Administrator, and any entity that may
become a direct or indirect parent of the Company.

2.20 Successor Corporation

"Successor Corporation" has the meaning set forth under Section 11.2.

SECTION 3. ADMINISTRATION

3.1 Plan Administrator

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<PAGE>

Board deems appropriate. Committee members shall serve for such term as the
Board may determine, subject to removal by the Board at any time.

3.2 Administration and Interpretation by the Plan Administrator

Except for the terms and conditions explicitly set forth in the Plan, the
Plan Administrator shall have exclusive authority, in its discretion, to
determine all matters relating to Awards under the Plan, including the selection
of individuals to be granted Awards, the type of Awards, the number of shares of
Common Stock subject to an Award, all terms, conditions, restrictions and
limitations, if any, of an Award and the terms of any instrument that evidences
the Award. The Plan Administrator shall also have exclusive authority to
interpret the Plan and may from time to time adopt, and change, rules and
regulations of general application for the Plan's administration. The Plan
Administrator's interpretation of the Plan and its rules and regulations, and
all actions taken and determinations made by the Plan Administrator pursuant to
the Plan, shall be conclusive and binding on all parties involved or affected.
The Plan Administrator may delegate administrative duties to such of the
Company's officers as it so determines.

SECTION 4. STOCK SUBJECT TO THE PLAN

4.1 Authorized Number of Shares

Subject to adjustment from time to time as provided in Section 11.1, a
maximum of 15,525,000 shares of Common Stock shall be available for issuance
under the Plan. Shares issued under the Plan shall be drawn from authorized and
unissued shares or shares now held or subsequently acquired by the Company.

4.2 Reuse of Shares

Any shares of Common Stock that have been made subject to an Award that
cease to be subject to the Award (other than by reason of exercise or payment of
the Award to the extent it is exercised for or settled in shares) shall again be
available for issuance in connection with future grants of Awards under the
Plan.

SECTION 5. ELIGIBILITY

Awards may be granted under the Plan to those officers, directors and
employees of the Company and its Subsidiaries as the Plan Administrator from
time to time selects. Awards may also be made to consultants, agents, advisors
and independent contractors who provide services to the Company and its
Subsidiaries.

SECTION 6. AWARDS

6.1 Form and Grant of Awards

The Plan Administrator shall have the authority, in its sole discretion, to
determine the type or types of Awards to be made under the Plan. Such Awards
may include, but are not

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<PAGE>

limited to, Incentive Stock Options, Nonqualified Stock Options and Stock
Awards. Awards may be granted singly or in combination.

6.2 Settlement of Awards

6.3 Acquired Company Awards

Notwithstanding anything in the Plan to the contrary, the Plan
Administrator may grant Awards under the Plan in substitution for awards issued
under other plans, or assume under the Plan awards issued under other plans, if
the other plans are or were plans of other acquired entities ("Acquired
Entities") (or the parent of the Acquired Entity) and the new Award is
substituted, or the old award is assumed, by reason of a merger, consolidation,
acquisition of property or of stock, reorganization or liquidation (the
"Acquisition Transaction"). In the event that a written agreement pursuant to
which the Acquisition Transaction is completed is approved by the Board and said
agreement sets forth the terms and conditions of the substitution for or
assumption of outstanding awards of the Acquired Entity, said terms and
conditions shall be deemed to be the action of the Plan Administrator without
any further action by the Plan Administrator, except as may be required for
compliance with Rule 16b-3 under the Exchange Act, and the persons holding such
awards shall be deemed to be Participants.

SECTION 7. TERMS AND CONDITIONS OF OPTIONS

7.1 Grant of Options

The Plan Administrator is authorized under the Plan, in its sole
discretion, to issue Options as Incentive Stock Options or as Nonqualified Stock
Options, which shall be appropriately designated.

7.2 Option Exercise Price

The exercise price for shares purchased under an Option shall not be less
than 100% of the Fair Market Value of the Common Stock on the Grant Date with
respect to both Incentive Stock Options and Nonqualified Stock Options. For
Incentive Stock Options granted to a more than 10% shareholder, the Option
exercise price shall be as specified in Section 8.2.

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<PAGE>

7.3 Term of Options

The term of each Option shall be as established by the Plan Administrator
or, if not so established, shall be 10 years from the Grant Date. For Incentive
Stock Options, the maximum Option term shall be as specified in Sections 8.2 and
8.4.

7.4 Exercise of Options

The Plan Administrator shall establish and set forth in each instrument
that evidences an Option the time at which or the installments in which the
Option shall vest and become exercisable, which provisions may be waived or
modified by the Plan Administrator at any time. If not so established in the
instrument evidencing the Option, the Option shall vest and become exercisable
according to the following schedule, which may be waived or modified by the Plan
Administrator at any time:

<TABLE>
<CAPTION>
Period of Participant's Continuous Employment or
Service With the Company or Its Subsidiaries Percent of Total Option
From the Grant Date That Is Vested and Exercisable
- ----------------------------------------------------- -----------------------------------
<S> <C>
After 1 year 20%
Each quarter thereafter an additional 6.66%
After 4 years 100%
</TABLE>

To the extent that the right to purchase shares has accrued thereunder, an
Option may be exercised from time to time by written notice to the Company, in
accordance with procedures established by the Plan Administrator, setting forth
the number of shares with respect to which the Option is being exercised and
accompanied by payment in full as described in Section 7.5. The Plan
Administrator may determine at any time that an Option may not be exercised as
to less than 100 shares at any one time (or the lesser number of remaining
shares covered by the Option).

7.5 Payment of Exercise Price

The exercise price for shares purchased under an Option shall be paid in
full to the Company by delivery of consideration equal to the product of the
Option exercise price and the number of shares purchased. Such consideration
must be paid in cash or by check or, unless the Plan Administrator in its sole
discretion determines otherwise, either at the time the Option is granted or at
any time before it is exercised, a combination of cash and/or check (if any) and
one or both of the following alternative forms: (a) tendering (either actually
or, if and so long as the Common Stock is registered under Section 12(b) or
12(g) of the Exchange Act, by attestation) Common Stock already owned by the
Participant for at least six months (or any shorter period necessary to avoid a
charge to the Company's earnings for financial reporting purposes) having a Fair
Market Value on the day prior to the exercise date equal to the aggregate Option
exercise price or (b) if and so long as the Common Stock is registered under
Section 12(b) or 12(g) of the Exchange Act, delivery of a properly executed
exercise notice, together with irrevocable instructions, to (i) a brokerage firm
designated by the Company to deliver promptly to the

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<PAGE>

Company the aggregate amount of sale or loan proceeds to pay the Option exercise
price and any withholding tax obligations that may arise in connection with the
exercise and (ii) the Company to deliver the certificates for such purchased
shares directly to such brokerage firm, all in accordance with the regulations
of the Federal Reserve Board. In addition, the exercise price for shares
purchased under an Option may be paid, either singly or in combination with one
or more of the alternative forms of payment authorized by this Section 7.5, by
such other consideration as the Plan Administrator may permit.

7.6 Post-Termination Exercises

The Plan Administrator shall establish and set forth in each instrument
that evidences an Option whether the Option shall continue to be exercisable,
and the terms and conditions of such exercise, if a Participant ceases to be
employed by, or to provide services to, the Company or its Subsidiaries, which
provisions may be waived or modified by the Plan Administrator at any time. If
not so established in the instrument evidencing the Option, the Option shall be
exercisable according to the following terms and conditions, which may be waived
or modified by the Plan Administrator at any time.

In case of termination of the Participant's employment or services with the
Company other than by reason of death or Cause, the Option shall be exercisable,
to the extent of the number of shares purchasable by the Participant at the date
of such termination, only (a) within one year after the date of such termination
if the termination is coincident with Disability or (b) within three months
after the date of such termination if the termination is for any reason other
than Disability, but in no event later than the remaining term of the Option.
Any Option exercisable at the time of the Participant's death may be exercised,
to the extent of the number of shares purchasable by the Participant at the date
of the Participant's death, by the personal representative of the Participant's
estate, the person(s) to whom the Participant's rights under the Option have
passed by will or the applicable laws of descent and distribution or the
beneficiary designated pursuant to Section 10 at any time or from time to time
within one year after the date of death, but in no event later than the
remaining term of the Option. Any portion of an Option that is not exercisable
on the date of termination of the Participant's employment or services shall
terminate on such date, unless the Plan Administrator determines otherwise. In
case of termination of the Participant's employment or services for Cause, the
Option shall automatically terminate upon first notification to the Participant
of such termination, unless the Plan Administrator determines otherwise. If a
Participant's employment or services with the Company are suspended pending an
investigation of whether the Participant shall be terminated for Cause, all the
Participant's rights under any Option likewise shall be suspended during the
period of investigation.

A transfer of employment or services between or among the Company and its
Subsidiaries shall not be considered a termination of employment or services.
The effect of a Company-approved leave of absence on the terms and conditions of
an Option shall be determined by the Plan Administrator, in its sole discretion.

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<PAGE>

7.7 Forfeiture Conditions

In case of (a) termination of the Participant's employment for Cause, (b)
the Participant's breach of such restrictive covenants (e.g., noncompetition and
confidentiality restrictions) as may apply to the Participant, or (c) the
Participant's having engaged in an activity that is detrimental to the Company
(including, without limitation, criminal activity or accepting employment or
serving as a consultant, advisor, or in any other capacity with a competitor of
the Company), the Plan Administrator may impose conditions of forfeiture on a
Participant's rights with respect to an Option. Such conditions of forfeiture
may include, in the discretion of the Plan Administrator, (i) suspension or
cancellation of the Participant's right to exercise an Option (whether or not
then otherwise exercisable) or (ii) within the period of six months following
the issuance of shares of Common Stock pursuant to an Award either (y)
cancellation of the shares so issued (and repayment to the Participant of the
full purchase price, if any, paid for such shares) or (z) requiring the
Participant to pay to the Company in cash an amount equal to the gain realized
by the Participant upon exercise of such Option (measured at the date of
exercise) or the receipt of such Award. Notwithstanding the foregoing, this
Section 7.7 shall be of no force and effect in the event of a Corporate
Transaction.

SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS

To the extent required by Section 422 of the Code, Incentive Stock Options
shall be subject to the following additional terms and conditions:

8.1 Dollar Limitation

8.2 10% Shareholders

If an individual owns more than 10% of the total voting power of all
classes of the Company's stock, then the exercise price per share of an
Incentive Stock Option shall not be less than 110% of the Fair Market Value of
the Common Stock on the Grant Date and the Option term shall not exceed five
years. The determination of 10% ownership shall be made in accordance with
Section 422 of the Code.

8.3 Eligible Employees

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<PAGE>

8.4 Term

The term of an Incentive Stock Option shall not exceed 10 years.

8.5 Exercisability

To qualify for Incentive Stock Option tax treatment, an Option designated
as an Incentive Stock Option must be exercised within three months after
termination of employment for reasons other than death, except that, in the case
of termination of employment due to total disability, such Option must be
exercised within one year after such termination. Employment shall not be
deemed to continue beyond the first 90 days of a leave of absence unless the
Participant's reemployment rights are guaranteed by statute or contract. For
purposes of this Section 8.5, "total disability" shall mean a mental or physical
impairment of the Participant that is expected to result in death or that has
lasted or is expected to last for a continuous period of 12 months or more and
that causes the Participant to be unable, in the opinion of the Company and two
independent physicians, to perform his or her duties for the Company and to be
engaged in any substantial gainful activity. Total disability shall be deemed
to have occurred on the first day after the Company and the two independent
physicians have furnished their opinion of total disability to the Plan
Administrator.

8.6 Taxation of Incentive Stock Options

In order to obtain certain tax benefits afforded to Incentive Stock Options
under Section 422 of the Code, the Participant must hold the shares issued upon
the exercise of an Incentive Stock Option for two years after the Grant Date of
the Incentive Stock Option and one year from the date of exercise. A
Participant may be subject to the alternative minimum tax at the time of
exercise of an Incentive Stock Option. The Plan Administrator may require a
Participant to give the Company prompt notice of any disposition of shares
acquired by the exercise of an Incentive Stock Option prior to the expiration of
such holding periods.

SECTION 9. STOCK AWARDS

9.1 Grant of Stock Awards

The Plan Administrator is authorized to make Awards of Common Stock or
Awards denominated in units of Common Stock on such terms and conditions and
subject to such restrictions, if any (which may be based on continuous service
with the Company or the achievement of performance goals) as the Plan
Administrator shall determine, in its sole discretion, which terms, conditions
and restrictions shall be set forth in the instrument evidencing the Award. The
terms, conditions and restrictions that the Plan Administrator shall have the
power to determine shall include, without limitation, the manner in which shares
subject to Stock Awards are held during the periods they are subject to
restrictions and the circumstances under which forfeiture of the Stock Award
shall occur by reason of termination of the Participant's employment or service
relationship.

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<PAGE>

9.2 Issuance of Shares

Upon the satisfaction of any terms, conditions and restrictions prescribed
in respect to a Stock Award, or upon the Participant's release from any terms,
conditions and restrictions of a Stock Award, as determined by the Plan
Administrator, the Company shall release, as soon as practicable, to the
Participant or, in the case of the Participant's death, to the personal
representative of the Participant's estate or as the appropriate court directs,
the appropriate number of shares of Common Stock.

9.3 Waiver of Restrictions

SECTION 10. ASSIGNABILITY

Awards granted under the Plan may not be assigned, pledged or transferred
by the Participant other than by will or by the applicable laws of descent and
distribution, and, during the Participant's lifetime, such Awards may be
exercised only by the Participant or a permitted assignee or transferee of the
Participant (as provided below). Notwithstanding the foregoing, and to the
extent permitted by Section 422 of the Code, the Plan Administrator, in its sole
discretion, may permit such assignment, transfer and exercisability and may
permit a Participant to designate a beneficiary who may exercise the Award or
receive compensation under the Award after the Participant's death; provided,
however, that any Award so assigned or transferred shall be subject to all the
same terms and conditions contained in the instrument evidencing the Award.

SECTION 11. ADJUSTMENTS

11.1 Adjustment of Shares

In the event that, at any time or from time to time, a stock dividend,
stock split, spin-off, combination or exchange of shares, recapitalization,
merger, consolidation, distribution to shareholders other than a normal cash
dividend, or other change in the Company's corporate or capital structure
results in (a) the outstanding shares, or any securities exchanged therefor or
received in their place, being exchanged for a different number or class of
securities of the Company or of any other corporation or (b) new, different or
additional securities of the Company or of any other corporation being received
by the holders of shares of Common Stock of the Company, then the Plan
Administrator shall make proportional adjustments in (i) the maximum number and
kind of securities subject to the Plan as set forth in Section 4.1 and (ii) the
number and kind of securities that are subject to any outstanding Award and the
per share price of such securities, without any change in the aggregate price to
be paid therefor. The determination by the Plan Administrator as to the terms
of any of the foregoing adjustments shall be conclusive and binding.
Notwithstanding the foregoing, a Corporate Transaction shall not be governed by
this Section 11.1 but shall be governed by Section 11.2.

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<PAGE>

11.2 Corporate Transaction

(a) Except as otherwise provided in the instrument that evidences the
Option, in the event of any Corporate Transaction, each Option that is at the
time outstanding shall automatically accelerate so that each such Option shall,
immediately prior to the specified effective date for the Corporate Transaction,
become 100% vested and exercisable.

(b) Such Option shall not so accelerate, however, if and to the extent that
such Option is, in connection with the Corporate Transaction, either to be
assumed by the successor corporation or parent thereof (the "Successor
Corporation") or to be replaced with a comparable award for the purchase of
shares of the capital stock of the Successor Corporation. The determination of
Option comparability shall be made by the Plan Administrator, and its
determination shall be conclusive and binding. Any such Options granted to an
"executive officer" (as that term is defined for purposes of Section 16 of the
Exchange Act) of the Company that are assumed or replaced in the Corporate
Transaction and do not otherwise accelerate at that time shall be accelerated in
the event that the Participant's employment or services subsequently terminate
within two years following such Corporate Transaction, unless such employment or
services are terminated by the Successor Corporation for Cause or by the
Participant voluntarily without Good Reason. Such acceleration shall not occur
if, in the opinion of the Company's outside accountants, it would render
unavailable "pooling of interest" accounting for a Corporate Transaction that
would otherwise qualify for such accounting treatment.

(c) All such Options shall terminate and cease to remain outstanding
immediately following the consummation of the Corporate Transaction, except to
the extent assumed by the Successor Corporation.

11.3 Further Adjustment of Options

Subject to Section 11.2, the Plan Administrator shall have the discretion,
exercisable at any time before a sale, merger, consolidation, reorganization,
liquidation or change in control of the Company, as defined by the Plan
Administrator, to take such further action as it determines to be necessary or
advisable, and fair and equitable to Participants, with respect to Awards. Such
authorized action may include (but shall not be limited to) establishing,
amending or waiving the type, terms, conditions or duration of, or restrictions
on, Options so as to provide for earlier, later, extended or additional time for
exercise and other modifications, and the Plan Administrator may take such
actions with respect to all Participants, to certain categories of Participants
or only to individual Participants. The Plan Administrator may take such action
before or after granting Awards to which the action relates and before or after
any public announcement with respect to such sale, merger, consolidation,
reorganization, liquidation or change in control that is the reason for such
action.

11.4 Limitations

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SECTION 12. WITHHOLDING

The Company may require the Participant to pay to the Company the amount of
any withholding taxes that the Company is required to withhold with respect to
the grant, vesting or exercise of any Award. Subject to the Plan and applicable
law, the Plan Administrator may, in its sole discretion, permit the Participant
to satisfy withholding obligations, in whole or in part, by paying cash, by
electing to have the Company withhold shares of Common Stock or by transferring
shares of Common Stock to the Company, in such amounts as are equivalent to the
Fair Market Value of the withholding obligation. The Company shall have the
right to withhold from any Award or any shares of Common Stock issuable pursuant
to an Award or from any cash amounts otherwise due or to become due from the
Company to the Participant an amount equal to such taxes. The Company may also
deduct from any Award any other amounts due from the Participant to the Company
or a Subsidiary.

SECTION 13. REPURCHASE AND FIRST REFUSAL RIGHTS

13.1 Repurchase Rights

The Plan Administrator shall have the discretion to authorize the issuance
of unvested shares of Common Stock pursuant to the exercise of an Option.
Should the Participant cease to be employed by or provide services to the
Company, then all shares of Common Stock issued upon exercise of an Option which
are unvested at the time of cessation of employment or services shall be subject
to repurchase at the exercise price paid for such shares. The terms and
conditions upon which such repurchase right shall be exercisable (including the
period and procedure for exercise) shall be established by the Plan
Administrator and set forth in the agreement evidencing such right.

All of the Company's outstanding repurchase rights under this Section 13.1
are assignable by the Company at any time. Such rights shall automatically
terminate, and all shares subject to such terminated rights shall immediately
vest in full, upon the occurrence of a Corporate Transaction, except to the
extent: (a) any such repurchase right is expressly assigned to the Successor
Corporation in connection with the Corporate Transaction or (b) such termination
is precluded by other limitations imposed by the Plan Administrator at the time
the repurchase right is issued.

The Plan Administrator shall have the discretionary authority, exercisable
either before or after the Participant's cessation of employment or services, to
cancel the Company's outstanding repurchase rights with respect to one or more
shares purchased or purchasable by the Participant under an Option and thereby
accelerate the vesting of such shares in whole or in part at any time.

13.2 First Refusal Rights

Until the date on which the initial registration of the Common Stock under
Section 12(b) or 12(g) of the Exchange Act first becomes effective, the Company
shall have the right of first refusal with respect to any proposed sale or other
disposition by the holder of any shares of Common Stock issued pursuant to an
Award granted under the Plan. Such right of first refusal

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shall be exercisable in accordance with the terms and conditions established by
the Plan Administrator and set forth in the agreement evidencing such right.

SECTION 14. MARKET STANDOFF

In connection with any underwritten public offering by the Company of its
equity securities pursuant to an effective registration statement filed under
the Securities Act, including the Company's initial public offering, a person
shall not sell, or make any short sale of, loan, hypothecate, pledge, grant any
option for the purchase of, or otherwise dispose of transfer for value or
otherwise agree to engage in any of the foregoing transactions with respect to,
any shares issued pursuant to an Award granted under the Plan without the prior
written consent of the Company or its underwriters. Such limitations shall be
in effect for such period of time as may be requested by the Company or such
underwriters and agreed to by the Company's officers and directors with respect
to their shares; provided, however, that in no event shall such period exceed
180 days. The limitations of this paragraph shall in all events terminate two
years after the effective date of the Company's initial public offering.
Holders of shares issued pursuant to an Award granted under the Plan shall be
subject to the market standoff provisions of this paragraph only if the officers
and directors of the Company are also subject to similar arrangements.

In the event of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
Company's outstanding Common Stock effected as a class without the Company's
receipt of consideration, then any new, substituted or additional securities
distributed with respect to the purchased shares shall be immediately subject to
the provisions of this Section 14, to the same extent the purchased shares are
at such time covered by such provisions.

In order to enforce the limitations of this Section 14, the Company may
impose stop-transfer instructions with respect to the purchased shares until the
end of the applicable standoff period.

SECTION 15. AMENDMENT AND TERMINATION OF PLAN

15.1 Amendment of Plan

The Plan may be amended only by the Board in such respects as it shall deem
advisable; however, to the extent required for compliance with Section 422 of
the Code or any applicable law or regulation, shareholder approval will be
required for any amendment that will (a) increase the total number of shares as
to which Awards may be granted under the Plan, (b) modify the class of persons
eligible to receive Options, or (c) otherwise require shareholder approval under
any applicable law or regulation.

15.2 Termination of Plan

The Board may suspend or terminate the Plan at any time. The Plan shall
have no fixed expiration date; provided, however, that no Incentive Stock
Options may be granted more than 10 years after the earlier of the Plan's
adoption by the Board and approval by the shareholders.

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15.3 Consent of Participant

The amendment or termination of the Plan or the amendment of an outstanding
Award shall not, without the consent of the Participant, impair or diminish any
rights or obligations under any Award theretofore granted under the Plan;
provided, however, that adjustments made pursuant to Section 11 shall not be
subject to these restrictions.

Any change or adjustment to an outstanding Incentive Stock Option shall
not, without the consent of the Participant, be made in a manner so as to
constitute a "modification" that would cause such Incentive Stock Option to fail
to continue to qualify as an Incentive Stock Option.

SECTION 16. FOREIGN PARTICIPATION

To the extent the Plan Administrator deems it necessary, appropriate or
desirable to comply with foreign law or practice and to further the purpose of
this Plan, the Plan Administrator may, without amending this Plan, (a) establish
special rules applicable to Awards granted to Participants who are foreign
nationals, are employed outside the United States, or both, including rules that
differ from those set forth in this Plan, and (b) grant Awards to such
Participants in accordance with those rules.

SECTION 17. GENERAL

17.1 Evidence of Awards

17.2 Continued Employment or Services; Rights in Awards

None of the Plan, participation in the Plan or any action of the Plan
Administrator taken under the Plan shall be construed as giving any person any
right to be retained in the employ of the Company or limit the Company's right
to terminate the employment or services of any person.

17.3 Registration

Inability of the Company to obtain, from any regulatory body having
jurisdiction, the authority deemed by the Company's counsel to be necessary for
the lawful issuance and sale of any shares hereunder or the unavailability of an
exemption from registration for the issuance and

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<PAGE>

sale of any shares hereunder shall relieve the Company of any liability in
respect of the nonissuance or sale of such shares as to which such requisite
authority shall not have been obtained.

As a condition to the exercise of an Option or the receipt of Common Stock
pursuant to an Award under the Plan, the Company may require the Participant to
represent and warrant at the time of any such exercise or receipt that such
shares are being purchased or received only for the Participant's own account
and without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any
relevant provision of the aforementioned laws. At the option of the Company, a
stop-transfer order against any such shares may be placed on the official stock
books and records of the Company, and a legend indicating that such shares may
not be pledged, sold or otherwise transferred, unless an opinion of counsel is
provided (concurred in by counsel for the Company) stating that such transfer is
not in violation of any applicable law or regulation, may be stamped on stock
certificates to ensure exemption from registration. The Plan Administrator may
also require such other action or agreement by the Participant as may from time
to time be necessary to comply with the federal and state securities laws.

17.4 No Rights as a Shareholder

17.5 Compliance With Laws and Regulations

Notwithstanding anything in the Plan to the contrary, the Board, in its
sole discretion, may bifurcate the Plan so as to restrict, limit or condition
the use of any provision of the Plan to Participants who are officers or
directors subject to Section 16 of the Exchange Act without so restricting,
limiting or conditioning the Plan with respect to other Participants.
Additionally, in interpreting and applying the provisions of the Plan, any
Option granted as an Incentive Stock Option pursuant to the Plan shall, to the
extent permitted by law, be construed as an "incentive stock option" within the
meaning of Section 422 of the Code.

17.6 No Trust or Fund

17.7 Severability

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<PAGE>

deemed amended to conform to applicable laws, or, if it cannot be so construed
or deemed amended without, in the Plan Administrator's determination, materially
altering the intent of the Plan or the Award, such provision shall be stricken
as to such jurisdiction, person or Award, and the remainder of the Plan and any
such Award shall remain in full force and effect.

SECTION 18. EFFECTIVE DATE

The Plan's effective date is the date on which it is adopted by the Board,
so long as it is approved by the Company's shareholders at any time within 12
months of such adoption.

Adopted by the Board on June 23, 1998 and approved by the Company's
shareholders on July 13, 1998 and originally named the 1998 Stock Option Plan.

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<PAGE>

APPENDIX A FOR CALIFORNIA RESIDENTS
TO THE AVENUE A, INC.
1998 STOCK INCENTIVE COMPENSATION PLAN

This Appendix to the Avenue A, Inc. 1998 Stock Incentive Compensation Plan
(the "Plan") shall have application only to Participants who are residents of
the State of California. Capitalized terms contained herein shall have the same
meanings given to them in the Plan, unless otherwise provided in this Appendix.
Notwithstanding any provision contained in the Plan to the contrary and to the
extent required by applicable law, the following terms and conditions shall
apply to all Awards granted to residents of the State of California, until such
time as the Common Stock becomes a "listed security" under the Securities Act:

1. Nonqualified Stock Options shall have an exercise price that is not
less than 85% of the Fair Market Value of the stock at the time the Option is
granted, as determined by the Board, except that the exercise price shall be
110% of the Fair Market Value in the case of any person who owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or its parent or subsidiary corporations.

2. The purchase price for any Stock Awards that may be purchased under the
Plan ("Stock Purchase Rights") shall be at least 85% of the Fair Market Value of
the Common Stock at the time the Participant is granted the Stock Purchase Right
or at the time the purchase is consummated. Notwithstanding the foregoing, the
purchase price shall be 100% of the Fair Market Value of the Common Stock at the
time the Participant is granted the Stock Purchase Right or at the time the
purchase is consummated in the case of any person who owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or its parent or subsidiary corporations.

3. Options shall have a term of not more than ten years from the date the
Option is granted.

4. Awards shall be nontransferable other than by will or the laws of
descent and distribution. Notwithstanding the foregoing, and to the extent
permitted by Section 422 of the Code, the Plan Administrator, in its discretion,
may permit distribution of an Option to an inter vivos or testamentary trust in
which the Option is to be passed to beneficiaries upon the death of the trustor
(settlor), or by gift to "immediate family" as that term is defined in Rule 16a-
1(e) of the Exchange Act.

5. Options shall become exercisable at the rate of at least 20% per year
over five years from the date the Option is granted, subject to reasonable
conditions such as continued employment. However, in the case of an Option
granted to officers, directors or consultants of the Company or any of its
affiliates, the Option may become fully exercisable, subject to reasonable
conditions such as continued employment, at any time or during any period
established by the Company or any of its affiliates.

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<PAGE>

6. Unless employment is terminated for Cause, the right to exercise an
Option in the event of termination of employment, to the extent that the
Participant is otherwise entitled to exercise an Option on the date employment
terminates, shall be

a. at least six months from the date of termination of
employment if termination was caused by death or Disability; and

b. at least 30 days from the date of termination if termination
of employment was caused by other than death or Disability;

c. but in no event later than the remaining term of the Option.

7. No Award may be granted to a resident of California more than ten years
after the earlier of the date of adoption of the Plan and the date the Plan is
approved by the shareholders.

8. Any Award exercised before shareholder approval is obtained shall be
rescinded if shareholder approval is not obtained within 12 months before or
after the Plan is adopted. Such shares shall not be counted in determining
whether such approval is obtained.

9. The Company shall provide annual financial statements of the Company to
each California resident holding an outstanding Award under the Plan. Such
financial statements need not be audited and need not be issued to key employees
whose duties at the Company assure them access to equivalent information.

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<PAGE>

EXHIBIT 10.28

Collins Building

LEASE AGREEMENT

BETWEEN

SAMIS FOUNDATION

Landlord

and

AVENUE A, INC.

Tenant
<PAGE>

LEASE AGREEMENT
COLLINS BUILDING

THIS LEASE made this 31st day of January, 2000 between Samis Foundation, a
Washington 501(c)(3) non-profit corporation ("Landlord"), and Avenue A, Inc., a
Washington corporation ("Tenant").

As parties hereto, Landlord and Tenant agree:

1. LEASE DATA AND EXHIBITS

The following terms as used herein shall have the meanings provided in this
Section l, unless otherwise specifically modified by provisions of this Lease:

(a) Building:

Known as Collins Building, or such other name as Landlord may designate
from time to time, situated on a portion of the real property more particularly
described in Section 2 hereof, with an address of 520 Second Avenue, Seattle,
Washington 98104.

(b) Premises:

Consisting of the area on the 2nd, 3rd, 4th & 5th floor(s) of the
Building, as outlined on the floor plan(s) attached hereto as Exhibit A,
including tenant improvements, if any, as described in Exhibit B.

Landlord and Tenant agree that, for purposes of this Lease, the rentable
area of the Premises is approximately 29,992 square feet, the Building total is
37,007 square feet, and Tenant's Pro Rata Share of the Building is approximately
81.0439%% The Premises will be measured per 1996 BOMA standards upon completion
of the Tenant Improvements, and the figures in the preceding sentence and the
monthly rent will be adjusted if needed based on such measurement.

In the event a portion of the Building is damaged or condemned or any
other event occurs which alters the rentable area of the Premises or the
rentable area of the Building, Landlord may adjust Tenant's Percentage of the
Building to properly reflect the proportion of the rentable area of the Building
(as altered by such event) which is attributable to the rentable area of the
Premises (as altered by such event).

(d) Basic Plans Delivery Date:

See Exhibit B.

(e) Final Plans Delivery Date:

See Exhibit B.

(f) Commencement Date:

December 1, 2000.

(g) Expiration Date:

Ten (10) years after the Commencement Date.

(h) Rent:

The monthly rental payments shall be:

Months 1-12 $71,231.00 per month
Months 13-24 $73,105.50 per month
Months 25-36 $74,980.00 per month
Months 37-48 $76,854.50 per month
Months 49-60 $78,729.00 per month
Months 61-72 $80,603.50 per month
Months 73-84 $82,478.00 per month
Months 85-96 $84,352.50 per month

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<PAGE>

Months 97-108 $86,227.00 per month
Months 109-120 $88,101.50 per month

Rent shall be adjusted from time to time pursuant to Sections 9 and 10 of the
Lease. Tenant has deposited with Landlord on the date here Seventy One Thousand
Two Hundred Thirty One Dollars and 00/100 ($71,231.00) to be applied to the
first Rent payment due hereunder.

(i) Security Deposit:

Eighty Eight Thousand One Hundred One Dollars and 50/100
($88,101.50)

(j) Base Year:

For purposes of this Lease, the Base Year for Operating Costs only
shall be: Calendar year 2001.

(k) Landlord's and Tenant's Leasing Broker/Agent:

Washington Partners Corporate Real Estate is the agent of Tenant. There
is no agent of the Landlord.

(l) Parking:

See Addendum C

(m) Notice Addresses:

Landlord: Samis Foundation
c/o Smith Tower Management Office
506 Second Avenue, Suite 1210
Seattle, WA 98104

Tenant:
506 Second Avenue, Suite 900
Seattle, WA 98104
Attn: V.P. Finance and Administration

(n) Payment Address:
Samis Foundation
208 James Street, Suite C
Seattle, WA 98104

(o) Exhibits:

The following exhibits or riders are made a part of this Lease:

Exhibit A Floor Plan of Premises
Exhibit B Tenant Improvements (Includes Exhibits B-1 & B-2)
Exhibit C Rules & Regulations

(p) Addendums:

The following addendums or riders are made a part of this Lease:

Addendum A Right of Early Occupancy
Addendum B Option to Extend
Addendum C Parking
Addendum D Walkway Between Collins Building and SmithTower

(q) Permitted Use:

Offices for data center for internet advertising business, general office
related thereto, and for no other purpose(s) whatsoever.

2. PREMISES:

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<PAGE>

Landlord does hereby lease to Tenant, and Tenant does hereby lease from
Landlord, upon the terms and conditions herein set forth, the Premises described
in Section l(b) hereof as shown on Exhibit A attached hereto and incorporated
herein, together with rights of ingress and egress over common areas in the
Building located on the land ("Land") more particularly described as:

Lot 1 and the Northerly 20 feet of Lot 4, Block 2, Boren & Denny Addition
to the City of Seattle, as recorded in Volume 1 of Plats, Page 27, Records
of King County, Washington; Less land taken for widening of streets;
Situate in the Northwest quarter of Section 5, Township 24 North, Range 4
East of the Willamette Meridian, in the City of Seattle, King County,
Washington.

3. COMMENCEMENT AND EXPIRATION DATES:

(a) Commencement Date:

Landlord and Tenant shall use their best efforts to complete tenant
improvements in the Premises in accordance with Exhibit B hereto on the date
specified in Section l(f) or as soon thereafter as practicable. The
Commencement Date shall be the date specified in Section 1(f).

(b) Delays:

In the event, due to delays from any cause other than Tenant's failure to
comply with the terms of this Lease, the Premises are not available for
occupancy by Tenant within three (3) months following the date specified in
Section 1(f), Tenant may terminate this Lease by written notice to Landlord
given within ten (10) days of said date; provided, however, (i) such three-month
period shall be extended for delays due to causes beyond the reasonable control
of Landlord; and (ii) Tenant has complied with the Work Schedule of Exhibit B on
dates for line items designated "Prepare TI Construction Documents" and
"Approval of TI Construction Documents." Termination under this Section 3(b)
shall be Tenant's sole remedy and Tenant shall have no other rights or claims
hereunder at law or in equity. Landlord shall also have the right to terminate
this Lease within the same time frame provided to Tenant above, so long as the
delay is not caused by Landlord; provided, however, such three-month period
shall be extended for delays due to causes beyond the reasonable control of
Landlord. In any event, this Lease shall terminate if the Premises are not
available for occupancy by Tenant within two (2) years from the date hereof.

In the event the Commencement Date is established as a later or earlier
date than the date provided in Section l(f) hereof, Landlord shall confirm the
same to Tenant in writing.

(d) Expiration Date:

This Lease shall expire on the date specified in Section l(g).

4. ACCEPTANCE OF PREMISES:

If this Lease shall be entered into prior to the completion of tenant
improvements in the Premises, the acceptance of the Premises by Tenant shall be
deferred until the giving of written notice by Landlord to Tenant of the
completion of such construction. Within five (5) business days ("Inspection
Period") after Landlord gives such notice, Tenant shall make such inspection of
the Premises as Tenant deems appropriate. At Landlord's or Tenant's request,
Landlord's representative shall accompany Tenant in making Tenant's inspection.
Except as otherwise specified by Tenant in writing to Landlord within seventy-
two hours after the close of the Inspection Period, and except for latent
defects not reasonably observable by Tenant, Tenant shall be deemed to have
accepted the Premises at the end of the Inspection Period. If, as a result of
such inspection, Tenant discovers minor deviations or variations from the plans
and specifications for Tenant's improvements which do not materially affect
Tenant's use of the Premises and are of a nature commonly found on a "punch
list" (as that term is used in the construction industry), Tenant shall, during
the Inspection Period, notify Landlord in writing of such deviations. Landlord
shall promptly repair all punch list items. The existence of such punch list
items shall not postpone the Commencement Date of this Lease nor the obligation
of Tenant to pay Rent.

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<PAGE>

5. RENT AND ADDITIONAL RENT:

Tenant shall pay Landlord without notice the Rent stated in Section l(h)
hereof and Additional Rent as provided in Section 9 and Section 10 and any other
payments due under this Lease without deduction or offset in lawful money of the
United States in advance on or before the first day of each month at Landlord's
Payment Address set forth in Section 1(n) hereof, or to such other party or at
such other place as Landlord may hereafter from time to time designate in
writing. Rent and Additional Rent for any partial month at the beginning or end
of the Lease term shall be prorated in proportion to the number of days in such
month. All amounts which Tenant assumes or agrees to pay to Landlord pursuant
to this Lease shall be deemed Additional Rent hereunder and, in the event of
nonpayment thereof, Landlord shall have all remedies provided for in the case of
nonpayment of Rent.

6. SECURITY DEPOSIT:

As security for the performance of this Lease by Tenant, Tenant has paid to
Landlord the Security Deposit as specified in Section l(i) hereof, receipt of
which is hereby acknowledged. Landlord may apply all or any part of the
Security Deposit to the payment of any sum in default or any other sum which
Landlord may in its reasonable discretion deem necessary to spend or incur by
reason of Tenant's default. In such event, Tenant shall, within five (5) days
of written demand therefore by Landlord, deposit with Landlord the amount so
applied. The amount of the Security Deposit then held by Landlord shall be
repaid to Tenant within thirty (30) days after the expiration or sooner
termination of this Lease. Landlord shall not be required to keep any Security
Deposit separate from its general funds and Tenant shall not be entitled to any
interest thereon.

7. PARKING:

The parking made available by Landlord to Tenant shall be subject to the
reasonable rules and regulations of the parking operator, or the city of Seattle
may publish from time to time. Tenant shall provide Landlord with thirty (30)
days prior written notice of the number of parking stalls required by Tenant, up
to the maximum number specified in Addendum D, and of any changes in those
requirements. Landlord shall provide a security person on Second Avenue and
James Street to serve as an escort from the Butler Garage and Metro bus stop on
Second Avenue, and another security person at Yesler and Third Avenue for escort
services from the Metro bus stop on Third Avenue and the Metro bus tunnel on
Yesler, or other security arrangements reasonably satisfactory to Landlord and
Tenant.

8. USES:

The Premises are to be used only for the purposes specified in Section 1(q)
hereof ("Permitted Uses"), and for no other business or purpose without the
prior written consent of Landlord, which consent may be withheld if Landlord, in
its sole discretion, determines that any proposed use is inconsistent with or
detrimental to the maintenance and operation of the Building as a first-class
office building or is inconsistent with any restriction on use of the Premises,
the Building, or the Land contained in any lease, mortgage, or other instrument
or agreement by which the Landlord is bound or to which any of such property is
subject. Tenant shall not commit any act that will increase the then existing
cost of insurance on the Building without Landlord's consent. Tenant shall
promptly pay upon demand the amount of any increase in insurance costs caused by
any act or acts of Tenant. Tenant shall not commit or allow to be committed any
waste upon the Premises, or any public or private nuisance or other act which
disturbs the quiet enjoyment of any other tenant in the Building or which is
unlawful. Tenant shall not, without the written consent of Landlord, use any
apparatus, machinery or device in or about the Premises which will cause any
substantial noise, vibration or fumes. Tenant shall not permit smoking in the
Premises; Landlord has designated all internal portions of the Building as a
smoke-free zone. If any of Tenant's office machines or equipment should disturb
the quiet enjoyment of any other tenant in the Building, then Tenant shall
provide adequate insulation, or take other action as may be necessary to
eliminate the disturbance. Tenant shall comply with all laws relating to its
use or occupancy of the Premises and shall observe such reasonable rules and
regulations (not inconsistent with the terms of this Lease) as may be adopted
and made available to Tenant by Landlord from time to time for the safety, care
and cleanliness of the Premises or the Building, and for the preservation of
good order therein.

9. SERVICES AND UTILITIES:

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<PAGE>

(a) Standard Services:

Landlord shall maintain the Premises and the public and common areas of the
Building in good order and condition consistent with the operation and
maintenance of a first-class office building in downtown Seattle, Washington.
Landlord shall furnish the Premises with electricity for normal office use,
including lighting and operation of low power usage office machines, water and
elevator service at all times during the term of the Lease. Landlord shall also
provide lamp replacement service for building standard light fixtures, toilet
room supplies, window washing at reasonable intervals, and customary building
janitorial service. No janitorial service shall be provided for Saturdays,
Sundays or legal holidays. The costs of any janitorial or other service
provided by Landlord to Tenant which are in addition to the services ordinarily
provided Building tenants shall be repaid by Tenant as Additional Rent upon
receipt of billings therefor.

(b) Normal Business Hours:

From 7:30 a.m. to 6:00 p.m. on weekdays, and from 7:30 a.m. to noon on
Saturdays, excluding legal holidays ("Normal Business Hours"), Landlord shall
furnish to the Premises heat and air conditioning. If requested by Tenant,
Landlord shall furnish heat and air conditioning at times other than Normal
Business Hours and the actual cost to Landlord of such services as reasonably
calculated by Landlord shall be paid by Tenant as Additional Rent. During other
than Normal Business Hours, Landlord may restrict access to the Building in
accordance with the Building's security system, provided that Tenant shall have
at all times during the term of this Lease (24 hours of all days) reasonable
access to the Premises.

Landlord shall not be liable for any loss, injury or damage to person or
property caused by or resulting from any variation, interruption, or failure of
any services or facilities provided by Landlord pursuant to this Lease due to
any cause whatsoever. No temporary interruption or failure of such services or
facilities incident to the making of repairs, alterations, or improvements, or
due to accident, strike or conditions or events beyond Landlord's reasonable
control shall be deemed an eviction of Tenant or relieve Tenant from any of
Tenant's obligations hereunder; provided, however, if such interruption or
failure shall continue for five (5) business days, Tenant's Rent hereunder shall
thereafter abate to the extent the Premises are thereby rendered untenantable
for Tenant's normal business operations until such services are restored.
Landlord shall use its best efforts in good faith to minimize any disruption of
Tenant's use of the Premises arising from any interruption or failure of such
services or facilities.

(d) Additional Services:

The Building mechanical system is designed to accommodate heating loads
generated by lights and equipment using up to 5 watts per square foot. Before
installing lights and equipment in the Premises which in the aggregate exceed
such amount ("Additional Lights/Equipment"), Tenant shall obtain the written
permission of Landlord. Landlord may refuse to grant such permission unless
Tenant shall agree to pay the costs of Landlord for installation of
supplementary air conditioning capacity or electrical systems as necessitated by
such Additional Lights/Equipment.

(e) Costs of Additional Services:

In addition, Tenant shall in advance, on the first day of each month during
the Lease term, pay Landlord as Additional Rent the reasonable amount estimated
by Landlord as the cost of furnishing electricity for the operation of such
Additional Lights/Equipment and the reasonable amount estimated by Landlord as
the costs of operation and maintenance of supplementary air conditioning units
necessitated by Tenant's use of such equipment or lights. Landlord shall be
entitled to install and operate at Tenant's cost a monitoring/metering system in
the Premises to measure the added demands on electricity, heating, ventilation,
and air conditioning systems resulting from such equipment or lights and from
Tenant's after-hours heating, ventilation and air conditioning service
requirements. Tenant shall comply with Landlord's reasonable instructions for
the use of drapes, blinds and thermostats in the Building.

(g) Year 2000 Compliance:

All equipment, products, systems and processes utilized by Landlord in
fulfilling its obligations under this Lease, including without limitation: all
hardware, software and networks shall be fully and effectively Year 2000
compliant.

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<PAGE>

10. COSTS OF OPERATIONS AND REAL ESTATE TAXES:

(a) Additional Rent:

Taxes:

Tenant shall pay as Additional Rent its Pro Rata Share of Taxes (see
Definition of Taxes below in 10.(b) ( i. ). Taxes shall not be included in the
Base Amount of Operating Costs but shall be a direct cost to Tenant.

Operating Costs:

Tenant shall pay as Additional Rent its Pro Rata Share of increases in
operating costs in excess of operating costs in the Base Year ("Base Amount").
Operating costs for the Base Year and each year thereafter shall be adjusted to
reflect 95% occupancy in the Building. Increases in operating costs over the
applicable Base Amount shall be determined and shall be payable separately under
this Section 10.

(b) Definitions:

(i) For the purposes of this section, "Taxes" shall mean taxes and
assessments (including special district levies) on real and personal property
payable during any calendar year or fiscal year, based on the actual assessment
period, with respect to the Land, the Building and all property of Landlord,
real or personal, used directly in the operation of the Building and located in
or on the Building, together with any taxes levied or assessed in addition to or
in lieu of any such taxes or any tax upon leasing of the Building or the rents
collected (excluding any net income or franchise tax) ("Taxes").

Due to the Historic Designation of the Collins Building, the Building
should qualify for a special tax valuation designation pursuant to the Special
Valuation of Property Act, RCW 84.26, and as a result of this Special Valuation
of Property Act, the Taxes may be reduced below the amount that would be due and
owing if the Building does not qualify for the special tax valuation. If Taxes
are reduced by this Special Valuation of Property Tax Act (or any other such
Act), Tenant will receive the benefit of any Property Tax reduction or credit.

(ii) For purposes of this Section, "Operating Costs" or "Costs" shall
mean all expenses of Landlord for maintaining, operating and repairing the Land
and Building and the personal property used in connection therewith, including
without limitation insurance premiums, utilities, customary management fees of
not more than four percent (4%) of the gross rents from the Building and other
expenses which in accordance with generally accepted accounting and management
practices would be considered an expense of maintaining, operating or repairing
the Building ("Operating Costs" or "Costs"); excluding, however, the following:

Casualties and Condemnations. Costs occasioned by casualties of a type,
and to the extent, that is covered by a fire and extended coverage (all-
risk) policy of insurance (except any deductibles), or occasioned by the
exercise of the power of eminent domain.

Capital Costs. Costs of improvements required to be capitalized in
accordance with generally accepted accounting principles, except
Operating Costs shall include amortization of capital improvements (A)
made subsequent to initial development of the Building which are designed
with a reasonable probability of improving the operating efficiency of
the Building, or providing savings in the cost of operating the Building;
or, (B) which are reasonably responsive to requirements imposed with
respect to the Building under any amendment to any applicable building,
health, safety, fire, nondiscrimination, or similar law or regulation
("law"), or any new law, or any new interpretation of an existing law
("new interpretation"), which amendment, law or new interpretation is
adopted or arose after the Commencement Date of this Lease.

Reimbursable Expenses. Costs for which Landlord has a right of
reimbursement from others.

Construction Defects. Costs to correct any construction defect in the
Premises or the Building, or to comply with any CC&R, underwriter's
requirement or law applicable to

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<PAGE>

the Premise or the Building which was in effect as of the Commencement
Date, except if the construction or compliance was obligation of Tenant.

Interior Improvements. Costs of any renovation, improvement, painting or
redecorating of any portion of the Building for other Tenants.

Leasing Expenses. Fees, commissions, attorneys' fees, auditing fees,
brokerage fees or commissions, and other costs incurred in connection
with negotiations or disputes with any other current, past, or
prospective occupant or tenant of the Land or in preparing, negotiating
or enforcing leases or lease-related documents such as guarantees,
estoppels, nondisturbance agreements, amendments, subleases, assignments,
and the like; and costs arising from the violation by Landlord or any
occupant of the Land (other than Tenant) of the terms and conditions of
any lease or other agreement, and any rental concessions or buyouts or
tenant relocations.

Mortgages. Interest charges and fees incurred on debt, payment on
mortgages and rent under ground leases; and costs expended in connection
with any sale, hypothecation, financing, refinancing, or ground lease of
the Building or Land or of the Landlord's interest therein.

Off-Site Parking. Operating expenses or subsidies paid by Landlord for
off-site parking (the Building does not have parking in it).

Reserves and Depreciation. Any depreciation of any of the real or
personal property associated with the Premises, Building or Land,
including any leasehold improvements; any reserves for any purpose; any
bad debt, rent loss, or reserves for bad debt or rent loss.

Promotion. Advertising, promotional costs, costs related to artwork, or
market study fees.

Insurance. Increases in insurance costs caused by the activities of any
other occupant of the Property.

Hazardous Materials. Costs incurred to remove or remediate any hazardous
material from the Building or Land unless caused by Tenant, its
employees, agents, contractors, subtenants, or assigns, and any
judgments, fines, penalties, or other costs incurred in connection with
any hazardous material exposure or release, except to the to extent that
the foregoing is caused by the illegal storage, use or disposal of the
hazardous material in question by Tenant, its employees, agents,
contractors, subtenant or assigns.

Management. Wages, salaries, compensation, and labor burden for any
employee not specifically responsible for the Building or above the level
of Landlord's Building manager or nay fee, profit or compensation
retained by Landlord or its affiliates for management and administration
of the Building in excess of the management fee which would be charged by
an independent professional management service for operation of
comparable projects in the vicinity; and Landlord's general overhead or
any other expense not directly related to the Building or the Land.

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Governmental Costs. Any governmental fines, penalties, or interest
imposed on Landlord unless caused by Tenant, its employees, agents,
contractors, subtenants, or assigns; any costs related to public
transportation, transit, or vanpool, unless imposed by governmental
authority or at the request of Tenant.

(iii) "Year" shall mean the calendar year.

Operating Costs:

At the beginning of each year after the Base Year, Landlord shall furnish
Tenant a written statement of estimated Operating Costs for such year; a
calculation of the amount, if any, by which such estimated Operating Costs and
Taxes will exceed the relevant Base Amounts; and a calculation of Tenant's Pro
Rata Share of any such amount. Tenant shall pay one-twelfth (1/12) of that
amount as Additional Rent for each month during the year. If at any time during
the year Landlord reasonably believes that the actual Operating Costs or Taxes
will vary from such estimated Operating Costs by more than five percent (5%),
Landlord may by written notice to Tenant revise the estimate for such year, and
Additional Rent for the balance of such year shall be paid based upon such
revised estimates.

Taxes:

At the beginning of each year, Landlord shall furnish Tenant a written
statement of estimated Real Estate Taxes for such year. Tenant shall remit to
Landlord one-half (1/2) of that amount as Additional Rent on or before April
15th of that year and the other one-half (1/2) on or before October 15th of that
year.

(d) Actual Costs:

Operating Costs:

Within ninety (90) days after the end of each year after the Base Year or
as soon thereafter as practicable, Landlord shall deliver to Tenant a written
statement setting forth Tenant's Pro Rata Share of the actual Operating Costs in
excess of the Base Amounts during the preceding year. If the actual Operating
Costs in excess of the Base Amount exceed the estimates paid by Tenant during
the year, Tenant shall pay the amount of such excess to Landlord as Additional
Rent within forty-five (45) days after receipt of such statement. If the actual
Operating Costs in excess of the Base Amount are less than the amount paid by
Tenant to Landlord, then the amount of such overpayment by Tenant shall be, at
Landlord's option, credited against any amounts owed by Tenant under this Lease,
refunded by check to Tenant, or credited against the next Rent payable by Tenant
hereunder. Notwithstanding any other provision of this Section 10, Tenant shall
not receive any credit or offset against any other amount payable under this
Lease to the extent either actual Operating Costs are less than the applicable
Base Amount.

Taxes:

Within ninety (90) days after the end of each year, or as soon thereafter
as practicable, Landlord shall deliver to Tenant a written statement setting
forth Tenant's Pro Rata Share of the actual Taxes during the preceding year. If
the actual Taxes exceed the estimate paid by Tenant during the year, Tenant
shall pay the amount of such excess to Landlord as Additional Rent within forty-
five (45) days after receipt of such statement. If the actual Taxes are less
than the amount paid by Tenant to Landlord, then the amount of such overpayment
by Tenant shall be, at Landlord's option, credited against any amounts owed by
Tenant under the Lease, refunded by check to Tenant, or credited against the
next Rent payable by Tenant under this Lease.

(e) Records and Adjustments:

Landlord shall keep records showing all expenditures made in connection with
Operating Costs and Taxes, and such records shall be available for inspection by
Tenant for a period of one hundred twenty (120) days after receipt of the
statement of actual costs ("Record Review Period"); Landlord and Tenant agree
the results of any such audit or review shall remain confidential. Tenant
hereby waives any right to any adjustment of sums paid under this Section 10
unless a claim in writing specifying the reasons therefor is delivered to
Landlord no later than sixty (60)

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days after the Record Review Period for the year for which the sums were paid.
Operating Costs and Taxes shall be prorated for any portion of a year at the
beginning or end of the term of this Lease. Notwithstanding this Section 10,
the Rent payable by Tenant shall in no event be less than the Rent specified in
Section 1(h) hereof.

(f) Personal Property Taxes:

Tenant shall pay all personal property taxes with respect to property of
Tenant located on the Premises or in the Building. "Property of Tenant" shall
include all improvements which are paid for by Tenant and "personal property
taxes" shall include all property taxes assessed against the property of Tenant,
whether assessed as real or personal property.

11. CARE OF PREMISES:

Landlord shall perform all normal maintenance and repairs reasonably
determined by Landlord as necessary to maintain the Premises and the Building as
a first-class office building; provided that Landlord shall not be required to
maintain or repair any property of Tenant or any appliances (such as
refrigerators, water heaters, microwave ovens, and the like) which are part of
the Premises. Tenant shall take good care of the Premises. Tenant shall not
make any alterations, additions or improvements ("Alterations") in or to the
Premises, or make changes to locks on doors, or add, disturb or in any way
change any plumbing or wiring ("Changes") without first obtaining the written
consent of Landlord and, where appropriate, in accordance with plans and
specifications reasonably approved by Landlord. As a condition to its approval
imposed at the time such approval is given, Landlord may require Tenant to
remove such Alterations or Changes upon the expiration or earlier termination of
the Term and to restore the Premises to the condition they were in prior to such
Alterations or Changes, including restoring any damage resulting from such
removal, all at Tenant's Expense; provided, however, that Tenant shall not be
required to remove Tenant's initial Tenant Improvements made pursuant to Exhibit
B. Any Alterations or Changes required to be made to Tenant's Premises by any
amendment to any applicable building, health, safety, fire, nondiscrimination,
or similar law or regulation ("law"), or any new law shall be made at Tenant's
sole expense and shall be subject to the prior written consent of Landlord;
provided, however, any such alterations or changes that constitute a Capital
Cost that may be included in Operating Costs pursuant to Section 10(b)(ii) above
shall not be Tenant's sole expense, but shall be included in Operating Costs.
Tenant shall reimburse Landlord for any reasonable sums expended for examination
and approval of the architectural and mechanical plans and specifications of the
Alterations and Changes and direct costs reasonably incurred during any
inspection or supervision of the Alterations or Changes. All damage or injury
done to the Premises or Building by Tenant or by any persons who may be in or
upon the Premises or (with respect to damage to the Building) by Tenant
officers, employees, contractors, agents, invitees or licensees, including but
not limited to the cracking or breaking of any glass of windows and doors, shall
be paid for by Tenant. Landlord shall cooperate with Tenant to the extent
reasonably possible to schedule janitorial service to the Premises between the
hours of 6:00 p.m. and 8:00 p.m.

12. ACCESS:

Tenant shall permit Landlord and its agents to enter into and upon the
Premises upon prior notice that is reasonable under the circumstances and
(except in case of an emergency) during Normal Business Hours and a
representative of Tenant has right to accompany Landlord (as a condition of such
entry) for the purpose of inspecting the same or for the purpose of cleaning,
repairing, altering or improving the Premises or the Building. Upon reasonable
notice, Landlord shall have the right to enter the Premises for the purpose of
showing the Premises to prospective tenants within the period of one hundred
eighty (180) days prior to the expiration or sooner termination of the Lease
term.

13. DAMAGE OR DESTRUCTION:

(a) Damage and Repair:

If the Building is damaged by fire or any other cause to such extent that
the cost of restoration, as reasonably estimated by Landlord, will equal or
exceed thirty percent (30%) of the replacement value of the Building (exclusive
of foundations) just prior to the occurrence of the damage, or if insurance
proceeds sufficient for restoration are for any reason unavailable and the cost
to repair estimated by Landlord is over $100,000, then Landlord may no later
than the sixtieth

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<PAGE>

day following the damage, give Tenant a notice of election to terminate this
Lease. If the Premises are substantially damaged, and if they cannot be
substantially repaired within 180 days as estimated by Landlord, Tenant or
Landlord has the right to cancel this Lease by giving notice within thirty (30)
days of the damage. In the event of such election, this Lease shall be deemed to
terminate on the thirtieth (30th) day after the giving of said notice, and
Tenant shall surrender possession of the Premises within a reasonable time
thereafter, and the Rent and Additional Rent shall be apportioned as of the date
of said surrender and any Rent and Additional Rent paid for any period beyond
such date shall be repaid to Tenant. If the cost of restoration as estimated by
Landlord shall amount to less than thirty percent (30%) of said replacement
value of the Building, and insurance proceeds sufficient for restoration are
available, or if Landlord does not elect to terminate this Lease, Landlord shall
restore the Building and the Premises (to the extent of improvements to the
Premises originally provided by Landlord hereunder) with reasonable promptness,
subject to delays beyond Landlord's control and delays in the making of
insurance adjustments by Landlord, and Tenant shall have no right to terminate
this Lease except as herein provided. To the extent that the Premises are
rendered untenantable, the Rent and Additional Rent shall proportionately abate,
only to the extent such abatement is of the type covered by a standard policy of
rental loss insurance to compensate Landlord for such loss. No damages,
compensation or claim shall be payable by Landlord for inconvenience, loss of
business or annoyance arising from any repair or restoration of any portion of
the Premises or of the Building. Landlord shall use its best efforts to effect
such repairs promptly.

(b) Desctruction During Renovation of Building:

Landlord warrants that the Building is fully covered by Builder's Risk
insurance and this coverage will be maintained throughout the renovation of the
Building.

In case the Building shall be substantially destroyed by fire or other
cause at any time during the last twelve months of the term of this Lease,
either Landlord or Tenant may terminate this Lease upon written notice to the
other party hereto given within sixty (60) days of the date of such destruction.

(d) Tenant Improvements:

Landlord will not carry insurance of any kind on any improvements paid for
by Tenant as provided in Exhibit B or on Tenant's furniture or furnishings or on
any fixtures, equipment, improvements or appurtenances of Tenant under this
Lease and Landlord shall not be obligated to repair any damage thereto or
replace the same.

14. WAIVER OF SUBROGATION:

Whether a loss or damage is due to the negligence of either Landlord or
Tenant, their agents or employees, or any other cause, Landlord and Tenant do
each hereby release and relieve the other, their agents or employees, from
responsibility for, and waive their entire claim of recovery (by way of
subrogation or otherwise) for (i) any loss or damage to the real or personal
property of either, or of any third party, located anywhere in the Building or
on the Land, including the Building itself, arising out of or incident to the
occurrence of any of the perils which would be covered by a fire and extended
coverage (all risk) policy of insurance, and (ii) any loss resulting from
business interruption at the Premises or loss of rental income from the
Building, arising out of or incident to the occurrence of any of the perils
which are of the type covered by a standard business interruption insurance
policy or loss of rental income insurance policy. Each party shall use best
efforts to cause its insurance carriers to consent to the foregoing waiver of
rights of subrogation against the other party.

15. INDEMNIFICATION:

(a) Tenant shall indemnify and hold Landlord harmless from and against
liabilities, damages, losses, claims, and expenses, including attorneys fees,
arising from any act, omission, or negligence of Tenant or its officers,
contractors, licensees, agents, employees, clients or customers in or about the
Building or Premises or arising from any breach or default under this Lease by
Tenant. The foregoing provisions shall not be construed to make Tenant
responsible for loss, damage, liability or expense resulting from injuries to
third parties caused by the negligence of

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<PAGE>

Landlord, or its officers, contractors, licensees, agents, employees, clients or
customers or other tenants of the Building.

(b) Landlord shall indemnify and hold Tenant harmless from and against all
liabilities, damages, losses, claims, and expenses, including attorneys' fees
arising from any act, omission, or negligence of Landlord or its officers,
contractors, licensees, agents, employees, clients, or customers in or about the
Building or Premises, or arising from any breach or default under this Lease by
Landlord. Except as provided in the foregoing sentence, Landlord shall not be
liable for any loss or damage to persons or property sustained by Tenant or
other persons, which may be caused by theft, or by any act or neglect of Tenant
or any other tenant or occupant of the Building or any third parties. Except as
provided in the foregoing sentence, in no event shall Landlord be liable to
Tenant for any damage to the Premises or for any loss, damage or injury to any
property therein or thereon occasioned by bursting, rupture, leakage or overflow
of any plumbing or other pipes (including, without limitation, water, steam
and/or refrigerant lines), sprinklers, tanks, drains, drinking fountains or
washstands or other similar cause in, above, upon or about the Premises or the
Building.

16. INSURANCE:

(a) Liability Insurance:

Tenant shall, throughout the term of this Lease and any renewal hereof, at
its own expense, keep and maintain in full force and effect, a policy of
commercial general liability (occurrence form) insurance, including contractual
liability insuring Tenant's activities upon, in or about the Premises or the
Building against claims of bodily injury or death or property damage or loss
with a combined single limit of not less than One Million Dollars ($1,000,000)
per occurrence and Three Million Dollars ($3,000,000) in the aggregate. Landlord
and the Building manager shall be named as an additional insureds.

(b) Property Insurance:

Tenant shall, throughout the term of this Lease and any renewal thereof, at
its own expense, keep and maintain in full force and effect, what is commonly
referred to as "All Risk" or "Special" coverage insurance (excluding earthquake
and flood) on Tenant's Leasehold Improvements in an amount not less than one
hundred percent (100%) of the replacement value thereof. As used in this Lease,
"Tenant's Leasehold Improvements" shall mean any alterations, additions or
improvements installed in or about the Premises by or with Landlord's permission
or otherwise permitted by this Lease, whether or not the cost thereof was paid
for by Tenant.

All insurance required under this Section 16 shall be with companies rated
AV or better by A.M. Best or otherwise reasonably approved by Landlord. No
insurance policy required under this Section 16 shall be cancelled or reduced in
coverage except after thirty (30) days prior written notice to Landlord, except
after ten (10) days prior written notice to Landlord in the case of non-payment
of premium.

(d) Certificate of Insurance:

Tenant shall deliver to Landlord prior to the Commencement Date, and from
time to time thereafter, copies of policies of such insurance or certificates
evidencing the existence and amounts of same and evidencing Landlord and the
Building manager as additional insureds thereunder. In no event shall the limits
of any insurance policy required under this Section 16 be considered as limiting
the liability of Tenant under this Lease.

(e) Primary Policies:

All policies required under Section 16(a) shall be written as primary
policies and not contributing to or in excess of any coverage Landlord may
choose to maintain.

17. ASSIGNMENT AND SUBLETTING:

(a) Assignment or Sublease:

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<PAGE>

Tenant shall not assign, mortgage, encumber or otherwise transfer this
Lease nor sublet the whole or any part of the Premises without in each case
first obtaining Landlord's prior written consent, such consent is not to be
unreasonably withheld, conditioned, or delayed except: (1) Landlord may withhold
its consent if (i) in Landlord's judgment the nature of the proposed occupant,
its business, experience or reputation in the community is not consistent with
the maintenance or operation of a first-class office building, or (ii) the
nature of the proposed occupant or its business is likely to cause disturbance
to the normal use and occupancy of the Building; (2) Landlord may withhold in
its absolute and sole discretion consent to any mortgage, hypothecation, pledge,
or other encumbrance of any interest in this Lease or the Premises by Tenant or
any subtenant; (3) Landlord may withhold its consent to the extent it deems
necessary to comply with any restriction on use of the Premises, the Building,
or the Land contained in any applicable laws or in any lease, mortgage, or other
agreement or instrument by which the Landlord is bound or to which any of such
property is subject; provided, however, that Landlord shall provide to Tenant a
complete and accurate copy of the applicable portions of such agreement or
instrument.

No such assignment, subletting or other transfer shall relieve Tenant of
any liability under this Lease. Consent to any such assignment, subletting or
transfer shall not operate as a waiver of the necessity for consent to any
subsequent assignment, subletting or transfer. No subtenant may assign its
sublease without Landlord's consent. Each request for an assignment or
subletting must be accompanied by a Processing Fee of $500 in order to reimburse
Landlord for expenses, including attorneys fees, incurred in connection with
such request ("Processing Fee"). Tenant shall provide Landlord with copies of
all assignments, subleases and assumption instruments.

Tenant may without Landlord's prior consent assign this Lease, in whole or
in part, and may lease all or any part of the Premises, to (a) a parent or
subsidiary of Tenant, the entity with which or into which Tenant may merge
(whether or not Tenant is the survivor of that merger), an entity that is
controlled by, controls or is under common control with Tenant, or an entity
which acquires all of Tenant's assets; (b) so long as Tenant (as assignor or
sublessor) is and remains principally and primarily liable for the obligations
of Tenant under this Lease, and any assignee expressly assumes Tenant's
obligations under this Lease by a written assignment provided to Landlord.

For purposes of this Section 17, the term "control" means the possession,
direct or indirect, of the power to direct or cause the direction of the
management and policies of a person or entity, or majority ownership of any
sort, whether through the ownership of voting securities, by contract or
otherwise.

(b) Tenant Transfer of Lease:

Except as to assignments, subleases or other transfers not requiring
Landlord's consent as set forth above, if a Tenant is a corporation,
partnership, or any other entity, any transfer of this Lease by merger,
consolidation or liquidation, or any change in the ownership of or power to vote
a majority of its outstanding voting stock, partnership interests, or other
ownership interests, shall constitute an assignment for the purpose of this
Section, except this provision shall not apply to publicly traded stock. If
Tenant is a partnership, conversion of Tenant to a limited liability company or
partnership or to a corporation (or to another entity by which the parties in
Tenant would be relieved of liability to any creditors of Tenant) shall
constitute an assignment for purposes of this Section. An assignment or
sublease to an affiliate or subsidiary of tenant shall not constitute a
transfer.

(d) Assignee Obligations:

As a condition to Landlord's approval, any potential assignee otherwise
approved by Landlord shall assume in writing all obligations of Tenant under
this Lease and shall be jointly and severally liable with Tenant for rental and
other payments and performance of all terms, covenants and conditions of this
Lease.

(e) Sublessee Obligations:

Any sublessee shall assume all obligations of Tenant as to that portion of
the Premises which is subleased and shall be jointly and severally liable with
Tenant for rental and other payments and performance of all terms, covenants,
and conditions of this Lease with respect to such portion of the Premises.

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<PAGE>

18. SIGNS:

Tenant shall not place or in any manner display any sign, graphics, or
other advertising matter anywhere in or about the Premises or the Building at
places visible (either directly or indirectly) from anywhere outside the
Premises without first obtaining Landlord's written consent thereto, such
consent to be at Landlord's sole discretion. Any such consent by Landlord shall
be upon the understanding and condition that Tenant shall remove the same at the
expiration or sooner termination of this Lease and Tenant shall repair any
damage to the Premises or the Building caused thereby. Landlord shall not
unreasonably withhold its consent to normal Tenant signage within the Premises
which is consistent in Landlord's opinion with the Building's image and signage
and graphics program. Signage other than Building directory or building standard
elevator lobby directory signage is at Tenant's sole expense.

19. LIENS AND INSOLVENCY:

(a) Liens:

Tenant shall keep its interest in this Lease, the Premises, the Land and
the Building free from any liens arising out of any work performed and materials
ordered or obligations incurred by or on behalf of Tenant and hereby indemnifies
and holds Landlord harmless from any liability from any such lien, including
without limitation liens arising from the work performed pursuant to Section IV
of Exhibit B hereto. In the event any lien is filed against the Building, the
Land or the Premises by any person claiming by, through or under Tenant, Tenant
shall, upon request of Landlord and at Tenant's expense, immediately cause such
lien to be released of record or furnish to Landlord a bond, in form and amount
and issued by a surety reasonably satisfactory to Landlord, indemnifying
Landlord, the Land and the Building against all liability, costs and expenses,
including attorneys fees, which Landlord may incur as a result thereof. Provided
that such bond has been furnished to Landlord, Tenant, at its sole cost and
expense and after written notice to Landlord, may contest, by appropriate
proceedings conducted in good faith and with due diligence, any lien,
encumbrance or charge against the Premises arising from work done or materials
provided to or for Tenant, if, and only if, such proceedings suspend the
collection thereof against Landlord, Tenant and the Premises and neither the
Premises, the Building nor the Land nor any part thereof or interest therein is
or will be in any danger of being sold, forfeited or lost.

(b) Insolvency:

If Tenant becomes insolvent or voluntarily or involuntarily bankrupt, or if
a receiver, assignee or other liquidating officer is appointed for the business
of Tenant, Landlord at its option may terminate this Lease and Tenant's right of
possession under this Lease and in no event shall this Lease or any rights or
privileges hereunder be an asset of Tenant in any bankruptcy, insolvency or
reorganization proceeding.

20. DEFAULT:

(a) Cumulative Remedies:

All rights of Landlord herein enumerated shall be cumulative, and none
shall exclude any other right or remedy allowed by law. In addition to the other
remedies provided in this Lease, Landlord shall be entitled to restrain by
injunction the violation or threatened violation of any of the covenants,
agreements or conditions of this Lease.

(b) Tenant's Right to Cure:

Tenant shall have a period of three (3) business days from the date of
written notice from Landlord to Tenant within which to cure any default in the
payment of Rent, Additional Rent and other sums due hereunder. Tenant shall have
a period of twenty (20) days from the date of written notice from Landlord to
Tenant within which to cure any other default hereunder; provided, however, that
with respect to any such default capable of being cured by Tenant which cannot
be cured within twenty (20) days, the default shall not be deemed to be uncured
if Tenant commences to cure within twenty (20) days and for so long as Tenant is
diligently pursuing the cure thereof.

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<PAGE>

Abandonment shall be defined as an absence from the Premises of five (5)
days or more while Tenant is in default or Landlord otherwise reasonably
determines that Tenant has abandoned the Premises and its interest under this
Lease. Any abandonment by Tenant shall be considered a default with no right to
cure, allowing Landlord to re-enter the Premises as hereinafter set forth.

(d) Landlord's Reentry:

Upon abandonment or an uncured default of this Lease by Tenant, Landlord,
in addition to any other rights or remedies it may have, at its option, may
enter the Premises or any part thereof, and expel, remove or put out Tenant or
any other persons who may be thereon, together with all personal property found
therein; and Landlord may terminate this Lease, or it may from time to time,
without terminating this Lease, relet the Premises or any part thereof for such
term or terms (which may be for a term less than or extending beyond the term
hereof) and at such rental or rentals and upon such other terms and conditions
as Landlord in its sole discretion may deem advisable, with the right to repair,
renovate, remodel, redecorate, alter and change the Premises, Tenant remaining
liable for any deficiency computed as hereinafter set forth. In the case of any
default, reentry and/or dispossession all Rent and Additional Rent shall become
due thereupon, together with such expenses as Landlord may reasonably incur for
attorneys fees, advertising expenses, brokerage fees and/or putting the Premises
in good order or preparing the same for re-rental, together with interest
thereon as provided in Section 37(f) hereof, accruing from the date of any such
expenditure by Landlord. No such re-entry or taking possession of the Premises
shall be construed as an election on Landlord's part to terminate this Lease
unless a written notice of such intention be given to Tenant.

(e) Reletting the Premises:

At the option of Landlord, rents received by Landlord from such reletting
shall be applied first to the payment of any indebtedness from Tenant to
Landlord other than Rent and Additional Rent due hereunder; second, to the
payment of any costs and expenses of such reletting and including, but not
limited to, attorneys fees, advertising fees and brokerage fees, and to the
payment of any repairs, renovations, remodeling, redecoration, alterations and
changes in the Premises; third, to the payment of Rent and Additional Rent due
and to become due hereunder, and, if after so applying said Rents there is any
deficiency in the Rent or Additional Rent to be paid by Tenant under this Lease,
Tenant shall pay any deficiency to Landlord monthly on the dates specified
herein. Any payment made or suits brought to collect the amount of the
deficiency for any month shall not prejudice in any way the right of Landlord to
collect the deficiency for any subsequent month. The failure of Landlord to
relet the Premises or any part or parts thereof shall not release or affect
Tenant's liability hereunder, nor shall Landlord be liable for failure to relet,
or in the event of reletting, for failure to collect the Rent thereof, and in no
event shall Tenant be entitled to receive any excess of net Rents collected over
sums payable by Tenant to Landlord hereunder. Notwithstanding any such
reletting without termination, Landlord may at any time elect to terminate this
Lease for such previous breach and default. Should Landlord terminate this
Lease by reason of any default, in addition to any other remedy it may have, it
may recover from Tenant the then present value of Rent and Additional Rent
reserved in this Lease for the balance of the Term, as it may have been
extended, over the then fair market rental value of the Premises for the same
period, plus all court costs and attorneys fees incurred by Landlord in the
collection of the same.

(f) Trade Fixtures:

Tenant shall have no right to, and Tenant agrees that it will not, remove
any trade fixtures or movable furniture from the Premises (without comparable
replacements) at any time while Tenant is in default hereunder.

21. PRIORITY:

(a) This Lease shall be subordinate to any first mortgage or deed of trust
(and any other mortgage or deed of trust upon the written election of Landlord)
now existing or hereafter placed upon the Land, the Building or the Premises,
created by or at the instance of Landlord, and to any and all advances to be
made thereunder and to interest thereon and all modifications, renewals and
replacements or extensions thereof ("Landlord's Mortgage"); provided, however,
that notwithstanding any such subordination, as long as Tenant performs its
obligations under this Lease, no foreclosure of, deed given in lieu of
foreclosure of, or sale under, any mortgage or deed

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<PAGE>

of trust, and no steps or procedures taken under such mortgage or deed of trust,
shall affect Tenant's rights under this Lease or disturb Tenant's peaceful
possession of the Premises.

(b) Upon request Tenant shall attorn to the Holder of any Landlord's
Mortgage or any person or persons purchasing or otherwise acquiring the Land,
Building or Premises at any sale or other proceeding under any Landlord's
Mortgage. Tenant shall properly execute, acknowledge and deliver instruments
which the holder of any Landlord's Mortgage may reasonably require to effectuate
the provisions of this Section.

22. SURRENDER OF POSSESSION:

Subject to the terms of Section 13 relating to damage and destruction, upon
expiration of the term of this Lease, whether by lapse of time or otherwise,
Tenant shall promptly and peacefully surrender the Premises to Landlord in as
good condition as when received by Tenant from Landlord or as thereafter
improved (subject to Tenant's obligation to remove any Alterations or Changes if
requested by Landlord pursuant to Section 11, above), reasonable use and wear
and tear and damage from fire and other casualty not required to be repaired by
Tenant, and from condemnation, excepted.

23. REMOVAL OF PROPERTY:

Tenant shall, prior to the expiration or earlier termination of this Lease,
remove all of its movable personal property, telephone, data and computer
cabling, and trade fixtures paid for by Tenant at the expiration or earlier
termination of this Lease, and shall pay Landlord any damages for injury to the
Premises or Building resulting from such removal. All other improvements and
additions to the Premises shall thereupon become the property of Landlord.

24. NON-WAIVER:

Waiver by Landlord or Tenant of any breach of any term, covenant or
condition herein contained shall not be deemed to be a waiver of such term,
covenant, or condition or of any subsequent breach of the same or any other
term, covenant, or condition herein contained. The subsequent acceptance of any
payment hereunder by Landlord shall not be deemed to be a waiver of any
preceding breach by Tenant of any term, covenant or condition of this Lease,
other than the failure of Tenant to pay the amount so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of acceptance of such
payment.

25. HOLDOVER:

If Tenant shall, with the written consent of Landlord, hold over after the
expiration of the term of this Lease, such tenancy shall be deemed a month-to-
month tenancy, which tenancy may be terminated as provided by applicable law.
During such tenancy, except as otherwise agreed in writing by the parties,
Tenant agrees to pay to Landlord the greater of (a) the then quoted rates for
similar space in the Building or (b) one hundred twenty-five percent (125%) of
the Rent and Additional Rent in effect upon the date of such expiration as
stated herein, and to be bound by all of the terms, covenants and conditions
herein specified, so far as applicable. Acceptance by Landlord of Rent and
Additional Rent after such expiration or earlier termination shall not result in
a renewal of this Lease. The foregoing provisions of this Section 25 are in
addition to and do not affect Landlord's right of re-entry or any rights of
Landlord hereunder or as otherwise provided by law. If Tenant shall hold over
after the expiration or earlier termination of this Lease without the written
consent of Landlord, such occupancy shall be deemed an unlawful detainer of the
Premises subject to the applicable laws of the state in which the Building is
located and, in addition, Tenant shall be liable for any costs, damages, losses
and expenses incurred by Landlord as a result of Tenant's failure to surrender
the Premises in accordance with this Lease.

26. CONDEMNATION:

(a) Entire Taking:

If all of the Premises or such portions of the Building as may be required
for the reasonable use of the Premises, are taken by eminent domain, this Lease
shall automatically terminate as of the date title vests in the condemning
authority and all Rent, Additional Rent and other payments shall be paid to that
date.

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(b) Constructive Taking of Entire Premises:

In the event of a taking of a material part of but less than all of the
Building, where Landlord shall reasonably determine that the remaining portions
of the Premises cannot be economically and effectively used by it (whether on
account of physical, economic, aesthetic or other reasons), or if, in the
opinion of Landlord, the Building should be restored in such a way as to alter
the Premises materially, Landlord shall forward a written notice to Tenant of
such determination not more than sixty (60) days after the date of taking. The
term of this Lease shall expire upon such date as Landlord shall specify in such
notice but not earlier than the taking of possession pursuant to the taking.

In case of taking of a part of the Premises, or a portion of the Building
not required for the reasonable use of the Premises, then this Lease shall
continue in full force and effect and the Rent shall be equitably reduced based
on the proportion by which the floor area of the Premises is reduced, such Rent
reduction to be effective as of the date title to such portion vests in the
condemning authority. If a portion of the Premises shall be so taken which
renders the remainder of the Premises unsuitable for continued occupancy by
Tenant under this Lease, Tenant may terminate this Lease by written notice to
Landlord within sixty (60) days after the date of such taking and the term of
this Lease shall expire upon such date as Tenant shall specify in such notice
not earlier than thirty (30) days after the date of such notice.

(d) Awards and Damages:

Landlord reserves all rights to damages to the Premises for any partial,
constructive, or entire taking by eminent domain, and Tenant hereby assigns to
Landlord any right Tenant may have to such damages or award, and Tenant shall
make no claim against Landlord or the condemning authority for damages for
termination of the leasehold interest or interference with Tenant's business.
Tenant shall have the right, however, to claim and recover from the condemning
authority compensation for any loss to which Tenant may be put for Tenant's
moving expenses, business interruption or taking of Tenant's personal property
and leasehold improvements paid for by Tenant (not including Tenant's leasehold
interest) provided that such damages may be claimed only if they are awarded
separately in the eminent domain proceedings and not out of or as part of the
damages recoverable by Landlord.

27. NOTICES:

All notices under this Lease shall be in writing and delivered in person or
sent by registered or certified mail, or nationally recognized courier (such as
Federal Express, DHL, etc.), postage prepaid, to Landlord and to Tenant at the
Notice Addresses provided in Section 1(m) and to the holder of any mortgage or
deed of trust at such place as such holder shall specify to Tenant in writing;
or such other addresses as may from time to time be designated by any such party
in writing. Notices mailed as aforesaid shall be deemed given on the date of
such mailing.

28. COSTS AND ATTORNEYS FEES:

If Tenant or Landlord shall bring any action for any relief against the
other, declaratory or otherwise, arising out of this Lease, including any suit
by Landlord for the recovery of Rent, Additional Rent or other payments
hereunder or possession of the Premises, the losing party shall pay the
substantially prevailing party a reasonable sum for attorneys fees in such suit,
at trial and on appeal, and such attorneys fees shall be deemed to have accrued
on the commencement of such action.

29. LANDLORD'S LIABILITY:

Notwithstanding anything to the contrary contained in this Lease, the
liability of Landlord (and of any successor Landlord hereunder) to Tenant shall
be limited to the interest of the Building, and Tenant agrees to look solely to
Landlord's interest in the Building for the recovery of any judgment or award
against the Landlord, it being intended that neither Landlord nor any member,
principal, partner, shareholder, officer, director or beneficiary of Landlord
shall be personally liable for any judgment or deficiency. Tenant hereby
covenants that, prior to the filing of any suit for an alleged default by
Landlord hereunder, it shall give Landlord and all mortgagees whom Tenant has
been notified hold mortgages or deed of trust liens on the Land, Building or
Premises notice and reasonable time to cure such alleged default by Landlord.

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30. ESTOPPEL CERTIFICATES:

Tenant shall, from time to time, upon written request of Landlord, execute,
acknowledge and deliver to Landlord or its designee a written statement prepared
by Landlord stating: The date this Lease was executed and the date it expires;
the date the term commenced and the date Tenant accepted the Premises; the
amount of minimum monthly Rent and the date to which such Rent has been paid;
and certifying to the extent true: That this Lease is in full force and effect
and has not been assigned, modified, supplemented or amended in any way (or
specifying the date and terms of agreement so affecting this Lease); that this
Lease represents the entire agreement between the parties as to this leasing;
that all conditions under this Lease to be performed by Landlord have been
satisfied; that all required contributions by Landlord to Tenant on account of
Tenant's improvements have been received; that on this date there are no
existing claims, defenses or offsets which Tenant has against the enforcement of
this Lease by Landlord; that the security deposit is as stated in the Lease; and
such other matters concerning the status of this Lease as Landlord may
reasonably request. It is intended that any such statement delivered pursuant
to this paragraph may be relied upon by a prospective purchaser of Landlord's
interest or the holder of any mortgage upon Landlord's interest in the Building.
If Tenant shall fail to respond within twenty (20) days of receipt by Tenant of
a written request by Landlord as herein provided, Tenant shall be deemed to have
given such certificate as above provided without modification and shall be
deemed to have admitted the accuracy of any information supplied by Landlord to
a prospective purchaser or mortgagee and that this Lease is in full force and
effect, that there are no uncured defaults in Landlord's performance, that the
security deposit is as stated in the Lease, and that not more than one month's
Rent has been paid in advance.

31. TRANSFER OF LANDLORD'S INTEREST:

In the event of any transfers of Landlord's interest in the Premises or in
the Building, other than a transfer for security purposes only, then upon
assumption by the transferee of Landlord's obligations under this Lease, the
transferor shall be automatically relieved of any and all obligations and
liabilities on the part of Landlord accruing from and after the date of such
transfer and such transferee shall have no obligation or liability with respect
to any matter occurring or arising prior to the date of such transfer. Tenant
agrees to attorn to the transferee.

32. RIGHT TO PERFORM:

If Tenant shall fail to pay any sum of money, other than Rent and
Additional Rent required to be paid by it hereunder, or shall fail to perform
any other act on its part to be performed hereunder, and such failure shall
continue for ten (10) days after notice thereof by Landlord, Landlord may, but
shall not be obligated so to do, and without waiving or releasing Tenant from
any obligations of Tenant, make such payment or perform any such other act on
Tenant's part to be made or performed as provided in this Lease. Any sums paid
by Landlord hereunder shall be immediately due and payable by Tenant to Landlord
and Landlord shall have (in addition to any other right or remedy of Landlord)
the same rights and remedies in the event of the nonpayment of sums due under
this Section as in the case of default by Tenant in the payment of Rent.

33. QUIET ENJOYMENT:

Tenant shall have the right to the peaceable and quiet use and enjoyment of
the Premises, subject to the provisions of this Lease, as long as Tenant is not
in default hereunder.

34. AUTHORITY:

If Tenant is a corporation, limited liability company, limited liability
partnership or limited or general partnership, each individual executing this
Lease on behalf of Tenant represents and warrants that he or she is duly
authorized to execute and deliver this Lease on behalf of Tenant, in accordance
with a duly adopted resolution or consents of all appropriate persons or
entities required therefor and in accordance with the formation documents of
Tenant, and that this Lease is binding upon Tenant in accordance with its terms.
At Landlord's request, Tenant shall, prior to execution of this Lease, deliver
to Landlord a copy of a resolution or consent, certified by an appropriate
officer, partner or manager of Tenant authorizing or ratifying the execution of
this Lease.

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35. HAZARDOUS MATERIALS:

(a) Tenant Obligations:

(i) Tenant shall not dispose of or otherwise allow the release of any
hazardous waste or materials in, on or under the Premises or the Building, or
any adjacent property, or in any improvements placed on the Premises, except
only ordinary and general office supplies typically used in first-class downtown
office buildings and only in such quantities or concentrations as allowed under
applicable laws, rules and regulations . Tenant represents and warrants to
Landlord that Tenant's intended use of the Premises does not involve the use,
production, disposal or bringing on to the Premises of any hazardous waste or
materials, except only ordinary and general office supplies typically used in
first-class downtown office buildings and only in such quantities or
concentrations as allowed under applicable laws, rules and regulations. As used
in this Section, the term "hazardous waste or materials" includes any substance,
waste or material defined or designated as hazardous, toxic or dangerous (or any
similar term) pursuant to any statute, regulation, rule or ordinance now or
hereafter in effect. Tenant shall promptly comply with all such statutes,
regulations, rules and ordinances, and if Tenant fails to so comply Landlord
may, after reasonable prior notice to Tenant (except in case of emergency)
effect such compliance on behalf of Tenant. Tenant shall immediately reimburse
Landlord for all costs incurred in effecting such compliance.

(ii) Tenant agrees to indemnify and hold harmless Landlord against any
and all losses, liabilities, suits, obligations, fines, damages, judgements,
penalties, claims, charges, cleanup costs, remedial actions, costs and expenses
(including, without limitation, consultant fees, attorneys' fees and
disbursements) which may be imposed on, incurred or paid by Landlord, or
asserted in connection with (i) any misrepresentation, breach of warranty or
other default by Tenant under this Section 35, or (ii) the acts or omissions of
Tenant, or any subtenant or other person for whom Tenant would otherwise be
liable, resulting in the release of any hazardous waste or materials.

(b) Landlord Obligations:

Tenant acknowledges that the Premises may contain Hazardous Substances,
and Tenant accepts the Premises and the Building notwithstanding such Hazardous
Substances subject to the provisions of this subparagraph (b). If Landlord is
required by any law to take any action to remove or abate any Hazardous
Substances, or if Landlord deems it necessary to conduct special maintenance or
testing procedures with regard to any Hazardous Substances, or to remove or
abate any Hazardous Substances, Landlord may take such action or conduct such
procedures at times and in a manner that Landlord deems appropriate under the
circumstances, and Tenant shall permit the same; provided, however, that
Landlord shall minimize any disturbance of Tenant's normal business operations.
If any abatement or removal of such Hazardous Substances is caused by the act or
omission of Tenant, or its Authorized Representative, Tenant shall bear the cost
of such abatement or removal. Landlord, at its sole cost and expense, will
remove the existing floor tiles and other materials which contain asbestos or
Hazardous Substances from within the Premises to Tenant's reasonable
satisfaction; provided, Tenant acknowledges and agrees that certain items (such
as encapsulated asbestos covering pipes within walls and lead paint on original
doors and trim) will not be removed. Landlord will indemnify Tenant from and
against damage or injury caused by pre-existing Hazardous Substances in the
Building or the premises.

36. TELECOMMUNICATIONS LINES AND EQUIPMENT:

(a) Location of Tenant's Equipment and Landlord Consent:

(i) Tenant may install, maintain, replace, remove and use communications or
computer wires, cables and related devices (collectively, the "Lines") at the
Building in or serving the Premises, only with Landlord's prior written consent,
which consent may not be unreasonably withheld. Tenant shall locate all
electronic telecommunications equipment within the Premises or within the
Building telephone closets or riser spaces, at Tenant's cost. Request for
Landlord's consent shall contain detailed plans, drawings and specifications
identifying all work to be performed, the time schedule for completion of the
work, the identity of the entity that will provide service to the Lines and the
identity of the entity that will perform the proposed work (which entity shall
be subject to Landlord's approval). Landlord shall have a reasonable time in
which to evaluate the request after it is submitted by Tenant.

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<PAGE>

(ii) Landlord will consider the following factors, among others, in making
its determination: (A) the experience, qualifications and prior work practice
of the proposed contractor and its ability to provide sufficient insurance
coverage for its work at the Building; (B) whether or not the proposed work will
interfere with the use of any then existing Lines at the Building; (C) whether
or not an acceptable number of spare Lines and space for additional Lines shall
be maintained for existing and future occupants of the Building; (D) a
requirement that Tenant remove existing abandoned Lines located in or servicing
the Premises, as a condition to permitting the installation of new lines; (E)
whether or not Tenant is in default of any of its obligations under this Lease;
(F) whether the proposed work or resulting Lines will impose new obligations on
Landlord, expose Landlord to liability of any nature or description, increase
Landlord's insurance premiums for the Building, create liabilities for which
Landlord is unable to obtain insurance protection or imperil Landlord's
insurance coverage; (G) whether Tenant's proposed service provider is willing to
pay reasonable monetary compensation for the use and occupation of the Building;
and (H) whether the work or resulting Lines would adversely affect the Land,
Building or any space in the Building in any manner.

(iii) Landlord's approval of, or requirements concerning, the Lines or any
equipment related thereto, the plans, specifications or designs related thereto,
the contractor or subcontractor, or the work performed hereunder, shall not be
deemed a warranty as to the adequacy thereof, and Landlord hereby disclaims any
responsibility or liability for the same. Landlord disclaims all responsibility
for the condition or utility of the intra-building network cabling ("INC") and
makes no representation regarding the suitability of the INC for Tenant's
intended use.

(iv) If Landlord consents to Tenant's proposal, Tenant shall (A) pay all
costs in connection therewith (including all costs related to new Lines); (B)
comply with all requirements and conditions of this Section; (C) use, maintain
and operate the Lines and related equipment in accordance with and subject to
all laws governing the Lines and equipment. Tenant shall further insure that
(I) Tenant's contractor complies with the provisions of this Section and
Landlord's reasonable requirements governing any work performed; (II) Tenant's
contractor provides all insurance required by Landlord; (III) any work performed
shall comply with all Laws; and (IV) as soon as the work in completed, Tenant
shall submit "as-built" drawings to Landlord.

(v) Landlord reserves the right to require that Tenant remove any Lines
located in or serving the Premises which are installed by Tenant in violation of
these provisions, or which are at any time in violation of any laws or present a
dangerous or potentially dangerous condition and were installed by Tenant within
three (3) days after written notice.

(vi) Upon Landlord's request, and notwithstanding anything in the above
paragraphs, Tenant shall remove any Lines located in or serving the Premises and
installed by Tenant promptly upon expiration or sooner termination of this
Lease.

(b) Landlord's Rights:

Landlord may (but shall not have the obligation to):

(i) install new lines at the Building;

(ii) create additional space for Lines at the Building; and

(iii) direct, monitor and/or supervise the installation, maintenance,
replacement and removal of, the allocation and periodic re-allocation of
available space (if any) for any Lines now or hereafter installed at the
Building by Landlord, Tenant or any other party (but Landlord shall have no
right to monitor or control the information transmitted through such Lines).

In addition to any other indemnification obligations under this Lease,
Tenant shall indemnify and hold harmless Landlord and its employees, agents,
officers, and contractors from and against any and all claims, demands,
penalties, fines, liabilities, settlements, damages, costs or expenses
(including reasonable attorneys' fees) arising out of or in any way related to
the acts and omissions of Tenant, Tenant's officers, directors, employees,
agents, contractors, subcontractors, subtenants, and invitees with respect to:
(i) any Lines or equipment related thereto installed by and serving Tenant in
the Building; (ii) any personal injury (including wrongful death) or property
damage arising out of or related to any Lines or equipment related thereto
installed by and serving Tenant in the Building; (iii) any lawsuit brought or
threatened, settlement reached, or governmental order, fine or penalty relating
to such Lines or equipment related thereto; and (iv) any violations of Laws or
demands of governmental authorities, or any reasonable policies or requirement
of Landlord, which are based upon or in any way related to such Lines or
equipment. This indemnification and hold harmless agreement shall survive the
termination of this Lease.

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<PAGE>

(d) Limitation of Liability:

Except to the extent arising from the gross negligence or willful
misconduct of Landlord or Landlord's agents or employees, Landlord shall have no
liability for damages arising from, and Landlord does not warrant that the
Tenant's use of any Lines will be free from the following (collectively called
"Line Problems"): (I) any shortages, failures, variations, interruptions,
disconnections, loss or damage caused by the installation, maintenance, or
replacement, use or removal of Lines by or for other tenants or occupants at the
Building, by any failure of the environmental conditions or the power supply for
the Building to conform to any requirement of the Lines or any associated
equipment, or any other problems associated with any Lines by any other cause;
(ii) any failure of any Lines to satisfy Tenant's requirements; or (iii) any
eavesdropping or wire-tapping by unauthorized parties. Landlord in no event
shall be liable for damages by reason of loss of profits, business interruption
or other consequential damage arising from any Line Problems. Under no
circumstances shall any Line Problems be deemed an actual or constructive
eviction of Tenant, render Landlord liable to Tenant for abatement of Rent, or
relieve Tenant from performance of Tenant's obligations under this Lease.

(e) Electromagnetic Fields:

If Tenant at any time uses any equipment that may create an electromagnetic
field exceeding the normal insulation ratings of ordinary twisted pair riser
cable or cause radiation higher than normal background radiation, Landlord
reserves the right to require Tenant to appropriately insulate the Lines
therefore (including riser cables) to prevent such excessive electromagnetic
fields or radiation.

37. GENERAL:

(a) Headings:

Titles to Sections of this Lease are not a part of this Lease and shall
have no effect upon the construction or interpretation of any part hereof.

(b) Successors and Assigns:

All of the covenants, agreements, terms and conditions contained in this
Lease shall inure to and be binding upon the Landlord and Tenant and their
respective, successors and assigns.

Landlord shall pay the commissions due those real estate brokers or agents
named in Section 1(k). If Tenant has dealt with any other person or real estate
broker with respect to leasing or renting space in the Building, Tenant shall be
solely responsible for the payment of any fee due said person or firm and Tenant
shall indemnify and hold Landlord harmless against any liability in respect
thereto, including Landlord's attorneys' fees and costs in defense of any such
claim.

(d) Entire Agreement:

This Lease contains all covenants and agreements between Landlord and
Tenant relating in any manner to the leasing, use and occupancy of the Premises,
to Tenant's use of the Building and other matters set forth in this Lease. No
prior agreements or understanding pertaining to the same shall be valid or of
any force or effect and the covenants and agreements of this Lease shall not be
altered, modified or added to except in writing signed by Landlord and Tenant.

(e) Severability:

Any provision of this Lease which shall be held invalid, void or illegal
shall in no way affect, impair or invalidate any other provision hereof and the
remaining provisions hereof shall nevertheless remain in full force and effect.

(f) Overdue Payments:

Tenant acknowledges that a late payment of Rent or other sums due hereunder
will cause Landlord to incur costs not contemplated by this Lease. Such costs
may include, but not be limited to, processing and accounting charges, and
penalties imposed by terms of any contracts, mortgages or deeds of trust
covering the Building. Therefore, in the event Tenant shall fail to pay any
Rent,

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<PAGE>

Additional Rent or other sums payable by Tenant under this Lease for seven (7)
days after such amount is due, then Tenant shall pay Landlord, as Additional
Rent, a late charge ("Late Charge") equal to 5% of such amount owing, but not in
excess of the highest rate permitted by law. In addition to any Late Charges
which may be incurred hereunder, any Rent, Additional Rent or other sums payable
by Tenant under this Lease which are more than thirty (30) days past due, shall
bear interest at a rate equal to 18% per annum but not in excess of the highest
lawful rate permitted under applicable laws, calculated from the original due
date thereof to the date of payment ("Overdue Fee"); provided, however, the
minimum Overdue Fee shall be $100.00.

In addition, if payments are received by check or draft from Tenant, and
two (2) or more of such checks or drafts are dishonored by the bank or other
financial institution they were drawn upon in any twelve (12) month period,
Landlord may thereafter require all Rent and other payments due hereunder from
Tenant to Landlord to be made by bank cashier's or bank certified check or other
similar means of payment and Landlord shall not be required to accept any checks
or drafts of Tenant which do not comply with such requirements.

(g) Consent and Discretion:

Whenever the consent of a party to this Lease is required, except where
this Lease expressly provides otherwise, such consent shall not be unreasonably
withheld, conditioned or delayed. Whenever a party exercises its discretion
under the terms of this Lease, except where this Lease provides that such party
shall be entitled to exercise its sole discretion, that discretion shall be
exercised reasonably.

(h) Force Majeure:

Except for the payment of Rent, Additional Rent and other sums payable by
Tenant, time periods for Tenant's or Landlord's performance under any provisions
of this Lease shall be extended for periods of time during which Tenant's or
Landlord's performance is prevented due to circumstances beyond Tenant's or
Landlord's reasonable control.

(i) Right to Change Public Spaces:

Landlord shall have the right at any time, without thereby creating an
actual or constructive eviction or incurring any liability to Tenant therefor,
to change the arrangement or location of such of the following as are not
contained within the Premises or any part thereof: entrances, passageways, doors
and doorways, corridors, stairs, toilets and other like public service portions
of the Building. Nevertheless, in no event shall Landlord diminish any service,
change the arrangement or location of the elevators serving the Premises, make
any change which shall diminish the area of the Premises, make any change which
shall interfere with access to the Premises or change the character of the
Building from that of a first-class office building.

(j) Governing Law:

This Lease shall be governed by and construed in accordance with the laws
of the State of Washington.

(k) Building Directory:

Landlord shall maintain in the lobby of Building a directory which shall
include the name of Tenant and any other names reasonably requested by Tenant in
proportion to the number of listings given to comparable tenants of the
Building.

(l) Building Name:

The Building shall be known by such name as Landlord may designate from
time to time.

IN WITNESS WHEREOF this Lease has been executed the day and year first above set
forth.

TENANT: Avenue A, Inc., a Washington corporation

By: /s/ Robert M. Littauer
--------------------------
Robert M. Littauer
Its: Vice President of Finance and Administration

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<PAGE>

LANDLORD: Samis Foundation,
a Washington 501(c)(3) non-profit corporation

By: /s/ Eddie I. Hasson
--------------------------
Eddie I. Hasson
Its: President

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<PAGE>

TENANT CORPORATE ACKNOWLEDGMENT

STATE OF WASHINGTON )
) ss.
COUNTY OF KING )

THIS IS TO CERTIFY that on this _________ day of ____________, 2000, before
me, the undersigned, a notary public in and for the state of Washington, duly
commissioned and sworn, personally appeared Robert M. Littauer, to me known to
be Vice President of Finance and Administration respectively, of Avenue A, Inc.,
the corporation that executed the within and foregoing instrument, and
acknowledged the said instrument to be the free and voluntary act and deed of
said corporation for the uses and purposes therein mentioned, and on oath stated
that they were authorized to execute said instrument, and that the seal affixed,
if any, is the corporate seal of said corporation.

WITNESS my hand and official seal the day and year in this certificate
first above written.

GIVEN under my hand and official seal the _____ day of ____________________,
2000.

_______________________________________
SIGNATURE

_______________________________________
PRINTED NAME

Notary Public in and for the State of ___________, residing at _________________

My Commission Expires: _________________________

LANDLORD CORPORATE ACKNOWLEDGMENTS

STATE OF WASHINGTON )
) ss.
COUNTY OF KING )

THIS IS TO CERTIFY that on this ____ day of _____________________, 2000,
before me, the undersigned, a notary public in and for the state of Washington,
duly commissioned and sworn, personally appeared Eddie I. Hasson, to me known to
be the President respectively, Samis Foundation, the corporation that executed
the within and foregoing instrument, and acknowledged the said instrument to be
the free and voluntary act and deed of said corporation for the uses and
purposes therein mentioned, and on oath stated that they were authorized to
execute said instrument, and that the seal affixed, if any, is the corporate
seal of said corporation.

WITNESS my hand and official seal the day and year in this certificate
first above written.

GIVEN under my hand and official seal the _____ day of ___________________,
2000.

_______________________________________
SIGNATURE

PRINTED NAME

Notary Public in and for the State of Washington, residing at __________________

My Commission Expires: _________________________

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ADDENDUM "A"

RIGHT OF EARLY OCCUPANCY

This Early Occupancy Addendum ("Addendum") is attached to and made a part
of that certain Lease Agreement (the "Lease") between Samis Foundation, a
Washington 501(c)(3) non-profit corporation ("Landlord ") and Avenue A, Inc., a
Washington corporation ("Tenant"). Defined terms used in this Addendum shall
have the meanings given them in the Lease. In the event of conflict between the
terms of the Lease and the terms of this Addendum, the terms of this Addendum
shall prevail.

Landlord has agreed to allow Tenant to occupy space in the Building on a
temporary basis while the tenant improvements in the Premises are being
completed, subject to the terms and conditions contained herein. Accordingly,
in consideration of the mutual covenants contained herein, Landlord and Tenant
now agree:

1. Tenant, its agents, and contractors shall be allowed access to the
premises seven (7) days prior to the Commencement Date or other designated
occupancy date, as the case may be, with no obligations to pay rent, for the
purpose of planning, measuring and installing improvements such as telephone
systems, computer cabling, etc. Landlord shall approve in writing the items to
be installed, the plan and method of installation, and timing thereof, in
advance. Tenant shall not interfere with Landlord's work taking place in or
about the Premises. Tenant shall defend, indemnify and hold Landlord harmless
from and against any and all damage, claims, causes of action or liability
(including actual attorneys' fees and costs) arising from Tenant's early
occupancy.

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<PAGE>

ADDENDUM "B"

OPTION TO EXTEND TERM

Tenant is granted the right to extend the term of this lease for a total of one
(1) term of five (5) years, (which shall be referred to herein as "Extension
Period"), on the same terms and conditions (except Rent) as set forth in this
Lease. The right to extend (hereinafter referred to as the "Option") may be
exercised only in the event the Tenant is not in default (past applicable cure
periods) at the time said Option right is exercised, at the time the Extension
Period is to commence, or more than three (3) times during the Term.

In the event Tenant wishes to exercise its Option to Extend, Tenant shall notify
Landlord in writing no later than nine (9) months before the expiration of the
then-lease term. If the above conditions are satisfied, Landlord and Tenant
shall be bound to extend the term of the Lease on the same terms and conditions
as the original Lease, except for the Minimum Monthly Rent, which shall be
Market Rent (as defined herein).

"Market Rent" as used herein shall mean the then prevailing market rental rate
on a level basis (i.e., both lease renewals and new leases) for office space of
comparable quality, design and location in the Seattle Central Business District
market area (I-5 to Elliott Bay, and from Lake Union to Union Station) for
tenants occupying 25,000 square feet or more, taking into consideration the
length of the Option term and tenant improvements paid for by Landlord and
Tenant.

The parties shall negotiate in good faith to establish the Market Rent. If the
parties are unable to agree on Market Rent within thirty (30) days after Tenant
gives Landlord its notice exercising the Option (the "Notice Date"), then the
Market Rent shall be determined by independent appraisers or by arbitration (as
applicable) and each party shall promptly appoint a disinterested, independent
appraiser who is a member of the American Institute of Real Estate Appraisers
(an "Appraiser") and has at least ten (10) years experience appraising office
rental properties in the Puget Sound area. If the Appraisers are unable to
reach agreement about Market Rent within thirty (30) days after the Notice Date,
then either party on notice to the other may request appointment of a single
arbitrator by the American Arbitration Association ("AAA") in accordance with
its then prevailing real estate valuation arbitration rules as modified by this
Section. If the AAA does not appoint an arbitrator meeting the same
qualifications of an Appraiser within thirty (30) days after the request, then
either party may apply to the presiding judge of the King County Superior Court
who, acting in his individual (not judicial) capacity, shall make the
appointment.

Once the arbitrator is appointed, each Appraiser promptly shall submit his
determination of Market Rent to the arbitrator. The arbitrator shall determine
Market Rent (applying the definition stated above) within ten (10) days based
solely on the materials submitted by the Appraisers and the determination shall
not exceed or be less than the Market Rent determinations of the Appraisers.
Each party shall bear the expense of retaining its Appraiser. The fees and
expenses of the arbitrator and other expenses of the arbitration shall be borne
equally by the parties. The arbitrator's determination of Market Rent shall be
final and binding on the parties. Judgment upon the determination of Market
Rent rendered by the arbitrator may be entered in any court having jurisdiction.

-1-
<PAGE>

ADDENDUM "C"

PARKING

PARKING:
--------

Permanent Parking:

Landlord will make available to Tenant one and one-half (1-1/2) parking
stalls per 1,000 rentable square feet of the Premises at either the
Morrison Hotel Parking Garage (also known as Smith Tower Parking Garage) or
the Butler Garage, at Tenant's election, throughout the term of the Lease
at the going market rate.

Interim Parking:

The Butler Garage will undergo a full remodel and expansion in 2000 and
early 2001. Interim parking will be provided at the Ampco Parking lot
across the street from the Smith Tower or at the Union Station parking lot,
which is the next stop south on the bus tunnel, or at a parking garage
within the area that is mutually acceptable to both Tenant and Landlord.

Permanent Parking Delayed:

If the Landlord is unable to provide all of the parking in either of the
two garages (Morrison Hotel Parking Garage-a.k.a. Smith Tower Parking
Garage or the Butler Garage) within four (4) months after the commencement
date of this Lease, then Landlord agrees to secure parking within a four
(4) block radius of the Collins Building and pay Tenant the difference
between the rate for those stalls and the rate for stalls in the Union
Station Garage.

-1-
<PAGE>

ADDENDUM "D"

WALKWAY BETWEEN COLLINS BUILDING AND SMITH TOWER

Tenant and Landlord have agreed to investigate the possibility of constructing a
walkway and/or patio on the roof of the Florence Building, which is the two-
story building between the Collins Building and the Smith Tower. This walkway
would traverse across the roof of the Florence Building.

Landlord shall take all reasonable efforts to assess the feasibility of a
walkway between the Collins Building and the Smith Tower and/or a roof patio on
the Florence Building. Landlord has also agreed to take the appropriate steps
to gain approvals from the City of Seattle and the Landmarks Board.

Costs of up to Thirty Five Thousand Dollars ($35,000.00) for the design and
construction of the walkway and/or patio (including all soft and hard costs)
shall be paid by Tenant to Landlord over the term of the Lease at an interest
rate of 10%. Tenant shall pay any additional cost in full to Landlord not later
than ten (10) days after invoice from Landlord to Tenant.
<PAGE>

EXHIBIT A

OUTLINE DRAWING OF THE PREMISES

THE ABOVE FLOOR PLAN REPRESENTS THE
FLOOR PLATE FOR FLOORS 2, 3, 4 & 5

<PAGE>

EXHIBIT B

TENANT IMPROVEMENTS

WORK LETTER AGREEMENT

(Page 1 of 3)

Work Letter Agreement ("Agreement"), dated as of the 31st day of January, 2000,
by and between Samis Foundation, a Washington 501(c)(3) non-profit corporation
("Landlord"), and Avenue A, Inc. a Washington corporation ("Tenant").

Concurrently with the execution of this Agreement, Landlord and Tenant have
entered into a lease ("Lease") covering certain premises ("Premises") more
particularly described in Exhibit A attached to the Lease.

As part of the Lease and the consideration therefore, Landlord and Tenant hereby
agree as follows:

1. COMPLETION SCHEDULE
-------------------

1.1 Attached is a schedule ("Work Schedule") setting forth a
timetable for the planning and completion of the installation of the Tenant
Improvements to be constructed in the Premises prior to the commencement
Date of the Lease. The Work Schedule sets forth each of the various items
of work to be done by or approval to be given by Landlord and Tenant in
connection with the completion of the Tenant Improvements. The Work
Schedule shall be the basis for completing the Tenant Improvement work.
Landlord and Tenant shall each exert their good faith, reasonable and
diligent efforts to achieve completion or approval of the matters described
in the Work Schedule on or before the dates set forth therein; and Landlord
and Tenant each agree to promptly and diligently respond to all questions
and concerns raised by architects, engineers and other consultants in
connection therewith.

2. TENANT IMPROVEMENTS; TENANT IMPROVEMENT PLANS
---------------------------------------------

2.1 In this Agreement "Tenant Improvements" shall include all work to
be done in the Premises, beyond the definition of Building Shell, as
outlined in Exhibit B-1 attached hereto, and pursuant to the Tenant
Improvements Plans described in and developed in accordance with this
Section 2, as modified by Tenant pursuant to Section 3. Landlord and
Tenant shall prepare Schematic Space Plan for the Tenant Improvements in
accordance with the Work Schedule, upon which Schematic Space Plan,
Landlord and Tenant shall then prepare the Tenant Improvements construction
documents, (i.e., final working drawings and specifications for the Tenant
Improvements) for the approval of Landlord and Tenant in accordance with
the Work Schedule, which Tenant Improvements construction documents shall
then constitute the "Tenant Improvements Plans".

2.2 After determination of the Tenant Improvements Plans, the same
shall be submitted to the appropriate governmental body for plan checking
and issuance of necessary permits and approvals. Landlord, with Tenant's
cooperation, shall cause to be made any changes in the Tenant Improvements
Plans necessary to obtain such permits and approvals.

3. TENANT REQUESTED CHANGES TO TENANT IMPROVEMENTS PLANS
-----------------------------------------------------

3.1 After determination of the Tenant Improvements Plans, Tenant may,
at Tenant's election, request revisions, modifications, changes and
amendments to the Tenant Improvements Plans; and, subject to Landlord's
consent and approval, in the exercise of Landlord's reasonable discretion,
the Tenant Improvements Plans shall be so revised, provided, however, that
all costs relating to re-design of the Tenant Improvements for such change,
costs for changes to the Tenant Improvements Plans, additional permitting
or fees which may be required in connection with such change, and any
increased Tenant Improvements construction costs shall be paid by Tenant.
Additionally, delays resulting from any such changes together with the time
period for the preparation of estimates and review and approval by Landlord
and Tenant shall constitute a Tenant Delay in accordance with the
provisions of Section 7 herein. If approved by Landlord, changes to the
Tenant Improvements Plans shall be evidenced by written change order signed
by Landlord, Tenant and the construction contractor. Landlord shall have
the right to decline Tenant's request for a change to the Tenant
Improvements Plans if such changes are inconsistent with the other
provisions of this Agreement or if the change would, in Landlord's opinion,
delay completion of the Tenant Improvements beyond the Commencement Date.

4. DETERMINATION OF FINAL PRICING
------------------------------

4.1 After the determination of the Tenant Improvements Plans,
Landlord shall prepare a final pricing for Tenant's approval in accordance
with the Work Schedule, taking into account any modifications which may be
required to reflect changes in the Tenant Improvements Plans required by
such governmental body in connection with the issuance of permits and
approvals.

5. CONSTRUCTION OF TENANT IMPROVEMENTS
-----------------------------------

5.1 Landlord shall cause the Tenant Improvements to be substantially
completed sufficient for the issuance of a temporary certificate of
occupancy for the Premises on or before the Commencement Date of the Lease
in accordance with the provisions set forth in this Work Letter. Landlord
shall supervise the completion of such work and shall use diligent efforts
to secure substantial completion of the work in accordance with the Work
Schedule. The cost of such work shall be paid as provided in Section 6.

5.2 In connection with the construction of the Tenant Improvements,
Landlord and Tenant shall arrange for Tenant to have access to the Premises
commencing approximately ten (10) days prior to the estimated date for
substantial completion shown on the Work Schedule, in order to allow Tenant
to install systems furniture/workstations, telephone lines and telephone
systems, fiber optics, computer cabling, and related similar matters, and,
on a "space ready" basis only, to commence installation of Tenant's trade
fixtures. Tenant shall schedule installation of such items with Landlord
and Landlord's contractor so as not to unreasonably impede, interfere with
or delay the progress of construction of the Tenant Improvements; and
Tenant shall perform such installation in accordance with guidelines
promulgated by Landlord's contractor. Delay, interference or damage arising
out of Tenant's installation of such items shall constitute a Tenant Delay
under Section 7. Any and all costs of installation of such items shall be
at Tenant's sole cost and expense.

5.3 During the period of construction of the Tenant Improvements,
Landlord shall consult with Tenant from time to time as necessary to
achieve approval of certain matters and installations related to the Tenant
Improvements. Such approvals shall be forthcoming from Tenant within a
reasonable time period as requested by Landlord, which time period shall
enable Landlord to maintain the schedule for substantial completion of the
Tenant Improvements stated in the Work Schedule. Failure of Tenant to
respond within such requested time period shall constitute a Tenant Delay.
<PAGE>

EXHIBIT B

TENANT IMPROVEMENTS

WORK LETTER AGREEMENT

(Page 2 of 3)

5.4 During the period of construction of the Tenant Improvements,
Landlord and Tenant shall meet at regular meetings occurring at least once
monthly regarding the status of the construction and occurring at least
once weekly during the final month of construction. If timely, matters
requiring Tenant's approval may be determined at such meetings and
decisions shall be reflected in the minutes of such meetings.

6. PAYMENT OF COST OF THE TENANT IMPROVEMENTS
------------------------------------------

6.1 Tenant is entitled to a "Tenant Improvement Allowance" of $30.00
per rentable square foot. Rentable square footage is identified as 29,992
square feet. Such tenant allowance shall be used for:

6.1.1 Payment of the cost of preparing the space plan and final
working drawings and specifications including mechanical, electrical,
plumbing and structural drawings and of all other aspects of the
Tenant Improvement Plans.

6.1.2 The payment of plan check, permit and license fees
relating to construction of the Tenant Improvements.

6.1.3 Construction of the Tenant Improvements, including without
limitation the following:

6.1.3.1 Installation within the Premises of all
partitioning, doors, floor coverings, ceilings, wall coverings
and painting, millwork and similar items.

6.1.3.2 All electrical wiring, installation of building
standard lighting fixtures, outlets and switches and other
electrical work to be installed within the Premises.

6.1.3.3 The furnishing and installation of all duct work,
terminal boxes, diffusers and accessories required for the
completion of the heating, ventilation and air conditioning
systems within the Premises, including the cost of meter and key
control for after hours heating, ventilation and air
conditioning.

6.1.3.4 Any additional Tenant requirements including but
not limited to odor control, special heating, ventilation and
air conditioning, noise or vibration control or other special
systems.

6.1.3.5 All fire and life safety control systems such as
fire walls, halon, fire alarms, including piping, wiring and
accessories installed within the Premises, except fire
sprinklers.

6.1.3.6 All plumbing, fixtures, pipes and accessories to be
installed within the Premises.

6.1.3.7 Testing and inspection costs.

6.1.3.8 Contractor's fees, including but not limited to any
fees based on general conditions.

6.1.3.9 All applicable Washington State sales taxes.

6.1.3.10 All demolition and patching of existing walls,
doors, relites, electrical, floor covering, lighting, etc. are
included in the allowance. Landlord shall bear the cost of
abatement of any hazardous materials disturbed as a result of
the tenant improvements.

6.2 The cost of each item shall be charged against the Tenant
Improvement Allowance. In the event that the cost of installing the Tenant
Improvements, as established by the final pricing schedule to be determined
by Landlord and Tenant, exceeds the Tenant Improvement Allowance, or if any
of the Tenant Improvements are not to be paid out of the Tenant Improvement
Allowance, then at Tenant's option, the excess of up to $10.00 per rentable
square foot or $299,920 shall be paid by Tenant to Landlord over the term
of the lease. This excess of up to $299,920 shall be amortized over the
term of the lease at an interest rate of 10%, and tenant shall pay Landlord
this monthly amortized amount as additional rent. In the event excess
Tenant Improvement costs exceed the Tenant Improvement Allowance and the
amount to amortized of $10.00 per rentable square foot, or $299,920, then
this excess shall be paid in full by Tenant to Landlord not later than ten
(10) days after invoice from Landlord to Tenant for same.

The parties acknowledge that Tenant may apply for a sales tax
exclusion or abatement available to certain businesses for certain
equipment and improvements. Landlord shall reasonably cooperate with
Tenant to apply for and implement same if it is available to Tenant.

6.3 Tenant and Landlord acknowledge that additional items have been
added to the Definition of Shell and Core (Exhibit C-1). These items are
listed in D30, D3020, D50, D5010 I. and are noted by an underscore of the
description. Tenant and Landlord shall mutually approve the design and
construction costs for these items. Tenant has agreed to reimburse
Landlord one-third (1/3) of the total cost for these items (including fees,
sales tax, etc.) not later than ten (10) days after receipt of invoice from
Landlord to Tenant.

6.4 If, after the Tenant Improvement Plans have been established and
the final pricing has occurred, Tenant shall require changes or
substitutions to the Tenant Improvement Plans, any additional costs thereof
shall be paid by Tenant to Landlord not later than ten (10) days after
invoice from Landlord to Tenant for the same. Landlord shall have the
right to decline Tenant's request for a change to the Tenant Improvement
Plans if such changes are inconsistent with the other provisions of this
Agreement or if the change would, in Landlord's opinion, delay completion
of the Tenant Improvements beyond the Commencement Date.

6.5 In the event that the cost of the Tenant Improvements increases
as set forth in Landlord's final pricing due to the requirements of any
governmental agency and such increases exceed any available remaining
amount of the Tenant Improvement Allowance, Tenant shall pay Landlord the
amount of such increase within ten (10) days after receipt of Landlord's
invoice for the same.
<PAGE>

EXHIBIT B

TENANT IMPROVEMENTS

WORK LETTER AGREEMENT

(Page 3 of 3)

7. SUBSTANTIAL COMPLETION
----------------------

7.1 The Tenant Improvements shall be deemed substantially complete
notwithstanding the fact that minor details of construction, mechanical
adjustments or decorations which do not materially interfere with Tenant's
use and enjoyment of the Premises remain to be performed (items normally
referred to as "punch list" items). Landlord shall proceed with all due
diligence to complete the punch list items as soon as reasonably possible.

8. TENANT REPRESENTATIVE
---------------------

8.1 Tenant shall appoint, within thirty (30) days of lease signing, a
Tenant's Representative to act for Tenant in all matters under this
Agreement. All inquiries, requests, instructions, authorizations and other
communications under this Agreement may be made by Landlord to Tenant's
Representative. Tenant may change the identity of Tenant Representative by
notice in writing to Landlord.

9. SIGNAGE DURING CONSTRUCTION
---------------------------

9.1 During the construction period, to the extent permitted by the
City of Seattle, Landlord may provide such signage stating the future
tenancy of Tenant as Landlord deems appropriate.

10. WARRANTIES
----------

10.1 Landlord shall obtain from all contractors and subcontractors
providing material and labor in the construction of the Tenant Improvements
all commercially reasonable warranties (including manufacturers'
warranties) for their respective materials or labor which are available
from such contractors or subcontractors. All such warranties shall be in
writing and shall run to Landlord. To the extent there exists any defect
in the Tenant Improvements, which is covered by the warranties obtained
under this Section, Landlord shall seek to enforce such warranties in
accordance with their terms.

11. GENERAL
-------

11.1 The provisions of the lease and of the Exhibits hereto are made
a part of this Agreement. The parties shall execute such further documents
and instruments and take such other further actions as may be reasonably
necessary to carry out the intent and provisions of this Agreement.
<PAGE>

EXHIBIT B
(continued)

Avenue A, Inc.

WORK SCHEDULE

<TABLE>
<CAPTION>
ACTION RESPONSIBILITY COMMENCE COMPLETE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Select Space Planner Tenant & Landlord 1-17-00 2-18-00
- -----------------------------------------------------------------------------------------------------------
Prepare Schematic Space Plans Tenant 2-21-00 3-3-00
- -----------------------------------------------------------------------------------------------------------
Approval of Schematic Space Plans Tenant & Landlord 3-6-00 3-17-00
- -----------------------------------------------------------------------------------------------------------
Contractor Budgeting based on Schematic Landlord 3-20-00 4-7-00
Space Plans
- -----------------------------------------------------------------------------------------------------------
Approval of Preliminary Budget Tenant 4-10-00 4-21-00
- -----------------------------------------------------------------------------------------------------------
Prepare TI Construction Documents Tenant 4-24-00 5-19-00
- -----------------------------------------------------------------------------------------------------------
Approval of TI Construction Documents Tenant & Landlord 5-22-00 5-26-00
- -----------------------------------------------------------------------------------------------------------
Building Permit Submittal/City Review Landlord 5-29-00 7-7-00
- -----------------------------------------------------------------------------------------------------------
Contractor Bidding Landlord 5-29-00 6-23-00
- -----------------------------------------------------------------------------------------------------------
Receive Bid(s) for TI Construction Landlord 6-27-00 6-27-00
- -----------------------------------------------------------------------------------------------------------
Approve Construction Costs Tenant 6-28-00 7-10-00
- -----------------------------------------------------------------------------------------------------------
Execute Construction Contract Landlord 7-10-00 7-17-00
- -----------------------------------------------------------------------------------------------------------
Select Carpet and other Finishes Tenant 5-19-00 5-29-00
- -----------------------------------------------------------------------------------------------------------
Construct Tenant Improvements Landlord 7-17-00 11-30-00
- -----------------------------------------------------------------------------------------------------------
Substantial Completion Landlord 11-27-00 11-30-00
- -----------------------------------------------------------------------------------------------------------
Commencement Date Tenant & Landlord 12-1-00 12-1-00
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

EXHIBIT B-1

Definition of Shell and Core
Page 1 of 5

B SHELL and CORE

B10 Structure

B1010 Floor Construction

A. Modifying existing floor system w/ new plywood diaphragm over existing
wood plank subfloor with fasteners and blocking for seismic capacity
per the structural Engineer's details.

B. New openings and headering for vertical HVAC and circulation shaft
elements including stairs and elevator, through-floor penetrations in
telephone, electrical & mechanical closets.

C. "Tie" floor system into exterior walls and lateral shear elements per
the Engineer's details.

B1020 Roof Construction

A. Modifying/repairing or providing new roof framing based on
investigation of the condition of the roof due to dry rot or other non-
usable condition.

B. New plywood roof diaphragm and blocking and `ties' into the exterior
wall per Structural Engineer's details.

C. Modifying/removing and headering existing roof structure for new
vertical circulation elements and HVAC shafts.

D. New roof structures at the elevator and stair penthouses including
framing, parapets, sheathing, and insulation.

B1025 Lateral Shear Elements

A. Lateral shear elements, which may consist of concrete walls or steel
moment frames with connections per Structural Engineer's details.

B. Fireproofing of moment frames as required per the SBC.

B20 Exterior Closure

B2010 Exterior Walls

A. Interior furring, insulation, and GWB if required to meet Washington
Seattle Energy Code and Seattle Building Code (SBC).

B. New openings for louvers in existing walls due to HVAC requirements.

C. Brace existing parapets per Structural Engineer's details.

D. New walls at roof including framing, insulation, sheathing, and
cladding for penthouse structures for a watertight installation.

E. Exterior historical work including but not limited to cleaning and
replacing bricks, tuck pointing, exterior painting, and stone sill
restoration in compliance with historic preservation techniques.
<PAGE>

EXHIBIT B-1

Definition of Shell and Core
Page 2 of 5

B2020 Exterior Windows

A. Provide new or modify/restore existing storefront system at Level 1
along 2nd Avenue and James Street per the Pioneer Square Historic
Preservation Board requirements.

B. Modify/repair/restore and finish existing windows at all facades to
operable and structurally adequate condition and replace glazing as
required. Operable windows may not be included if HVAC system includes
air conditioning.

B2030 Exterior Doors

A. Repair existing door(s) at Level 1 along 2nd Avenue, James Street and
alley per Pioneer Square Historic Preservation Board requirements.

B. New exterior doors as required for exiting.

B30 Roofing and Waterproofing

B3010 Waterproof Coverings

A. Roof System: Class 'A' or 'B' roof as required to meet SBC at existing
main roof and new stair and elevator penthouse roofs.

B. Elevator Pit: Waterproof membrane for a watertight installation.

C. Miscellaneous Sheet Membranes: Under sheet metal roof copings and as
required

D. Flashing and Sheet Metal: Copings at new and existing parapets and
gutters & downspouts.

E. Sealants: As required.

B3020 Roof Openings

A. Skylights. Providing new or restoring existing skylights including
glazing and framing for watertight installation. C10 Interior
Construction

C1010 Interior Partitions

A. Partitions: Wall framing including firestopping, blocking, and solid
backing where required and GWB finish including taping, joint compound
and sanding, for common area walls.

B. Shaft Enclosures: Wall framing including firestopping and GWB
including taping, joint compound, and sanding of shaft enclosures to
meet SBC fire resistive requirements.

C1020 Interior Doors

A. Rated and Non-rated swinging common area doors.

B. Hardware for items in `A' including building key lock system.

C1030 Interior Specialities

A. Building directory in main lobby.

B. Signage per SBC requirements.
<PAGE>

EXHIBIT B-1

Definition of Shell and Core
Page 3 of 5

C. Toilet and restroom accessories: Grab bars, toilet partitions, paper
towel dispensers, toilet paper holders, and mirrors.

C1040 Acoustic Treatments

A. Sound isolation between Level 1 retail/restaurant tenant and Level 2
office area.

C20 Stairways

C2010 Stair Construction

A. Typical Interior Exit Stairways: Reusing or modifying existing stairs
or providing new stairs in exit enclosures for egress.

B. New stair to roof.

C. Handrails and Guardrails.

C30 Interior Finishes

C3010 Finishes for common areas include:

A. Walls.

B. Floors.

C. Ceilings.

D. Finish Carpentry.

E. Interior Architectural Cabinetry.

F. Lighting.

G. Historic restoration of 2nd Avenue main lobby and wood stair.

D SERVICES

D10 Conveying Systems

D1010 Vertical Transportation Systems

A. Elevator: Re-use existing elevator cab (renovated) and shaft with
modifications required to meet City of Seattle Building Department
codes.

B. Finishes

1. Floor
2. Ceiling/Lighting
3. Walls
4. Handrails

C. Accessories including but not limited to pressurisation fan and
elevator pit ladders

D20 Plumbing Systems

Note: Restrooms and Janitors' Closets on each tenant floor will serve as
sanitary waste and water supply connection points for tenants' TI plumbing
work.

D2010 Plumbing Fixtures

A. Toilets, Sinks, Urinals, and Lavatories as required by the Uniform
Plumbing Code.
<PAGE>

EXHIBIT B-1

Definition of Shell and Core
Page 4 of 5

D2020 Domestic Water Distribution

A. Design and install in accordance with City standards and the Uniform
Plumbing Code

1. Materials: Water shall be distributed to common area rooms. All
pipes, fittings, and accessory components of the domestic water
supply system shall be acoustically isolated from the building
structure

2. Water distribution will be sub-metered for each floor.

D2030 Sanitary Waste Systems

A. Design and install in accordance with City standards and the Uniform
Plumbing Code.

1. Materials: Cast iron waste on common stacks; plastic waste
elsewhere, including plastic vents. All pipes, fittings, and
accessory components of the sanitary waste system shall be
acoustically isolated from the building structure.

D2040 Rain Water Drainage Piping System

A. Roof Drains

1. Materials: Cast iron. All pipes, fittings, and accessory components
of the roof drainage system shall be acoustically isolated from the
building structure.

D30 HVAC Systems

Note: Shell includes rooftop equipment, control system, main trunk, medium
pressure ductwork, and VAV boxes installed on the floor. Tenant shall be
responsible for ductwork and diffusers downstream of VAV boxes and installation
of control sensors.

D3010 Fuel Supply Systems

A. Gas supply to HVAC equipment as required

D3020 HVAC System

A. Boiler, for Variable Air Volume Distribution System. All floors of the
building shall be provided space heat, air conditioning, and outdoor
air in compliance with the Uniform Building Code, Washington State
Energy Code, and Washington State Ventilation and Indoor Air Quality
Code. Shell system shall include rooftop equipment, main trunk line,
exposed spiral medium pressure ducting, and VAV boxes at a ratio of 8
zones per floor with electric reheat at perimeter zones. Rooftop
equipment and VAV boxes shall have all components required for
operation and control. Ductwork and diffusers from the VAV box and
installation of control sensors shall be by tenant.

B. Gas supply to HVAC equipment as required

D3030 Exhaust System

A. Exhaust fans and shafts for restrooms.

B. Exhaust shafts for retail/restaurant/hot shop tenant.

D40 Fire Protection Systems

D4010 Fire Protection Sprinkler Systems: Building shall be protected
throughout by an approved automatic sprinkler system, complying with SBC,
including required alarms and monitoring. Sprinkler system shall be connected
to City water as required by the City.

D4020 Standpipe and Hose Systems: Building shall be provided with fire
protection standpipes, valves, hoses, and cabinets as per Downtown Fire District
and SBC requirements.
<PAGE>

EXHIBIT B-1

Definition of Shell and Core
Page 5 of 5

D4030 Fire Protection Specialities: Building shall be provided with fire
extinguishers, cabinets, and accessories per SBC requirements.

D50 Electrical Systems

Note: Electrical service brought to each tenant floor at the Electrical Closet
will be the connection point for tenants' power distribution with the exception
of general office area lighting and lighting panel..

D5010 Electrical Service and Distribution: Building shall be provided with
electrical system, which may include:

A. Main transformer and switchgear: assumed project will tap into existing
transformer located in adjacent building

B. Secondary transformer(s).

C. Main electrical switch board equipment.

D. Interior distribution transformers.

E. Branch circuit rooms and panelboards.

F. Branch wiring.

G. Interior lighting of common spaces

H. Voice and data systemsConduit (as required by US West), shall be
available to each floor.

I. General office area lighting, lighting panels, and transformers as
required, shall be provided in the shell. Light fixtures are ceiling
hung direct/indirect linear fluorescent fixtures with T-8 lamps (to
match Smith Tower building standard fixture). Light fixtures shall be
stocked on the floor in a quantity of one lineal foot of fixture per 20
s.f. of unfinished space. Installation of the fixtures and branch
wiring shall be by tenant.

J. Rough in only for security system for magnetic cart readers.

K. Electrical system to be sub metered for each floor

F DEMOLITION

F10 Demolition

F1010 Demolish existing partitions including electrical and mechanical
infrastructure, doors, and windows and equipment not scheduled to be reused;
floor/roof framing and sheathing as required for new openings; and replacement
of floor and roof framing due to deterioration or unsuitable structural
condition.

F1020 Clean-up: Remove all garbage, trash, and building materials from
building not scheduled to be reused and provide broom clean rooms ready for
tenant improvement work to begin.

F1030 Hazardous Material Abatement: Dispose of hazardous materials in
accordance with local regulations.
<PAGE>

EXHIBIT C
RULES AND REGULATIONS

1. No sign, placard, picture, advertisement, name or notice shall be installed
or displayed on any part of the exterior or in any area visible from the
exterior of the Building without the prior written consent of the Landlord,
which consent shall not be unreasonably withheld or delayed. Landlord shall
have the right to remove, at Tenant's expense and without notice, any sign
installed or displayed in violation of this rule. All signs or lettering on
doors and walls shall be printed, painted, affixed or inscribed at the
expense of Tenant. At the expiration or termination of Tenant's Lease,
Tenant, at Tenant's sole cost and expense, shall remove all tenant-
installed signage and repair and paint any and all damage resulting from
installation and/or removal of said signage.

2. Tenant shall not install any curtains, blinds, shades, screens or hanging
plants or other similar objects attached to or used in connection with any
window or door of the Premises except building-standard drapes approved by
Landlord. No awning shall be permitted on any part of the Premises. Tenant
shall not place anything against or near glass partitions or doors or
windows which may appear unsightly from outside the Premises.

3. Tenant shall not obstruct any sidewalks, lobbies, halls, passages, exits,
entrances, elevators, or stairways of the Building. The halls, passages,
exits, entrances, lobbies, elevators, and stairways are not open to the
general public. Landlord shall in all cases retain the right to control and
prevent access thereto of all persons whose presence in the judgment of
Landlord would be prejudicial to the safety, character, reputation and
interest of the Building and its Tenants; provided that nothing herein
contained shall be construed to prevent such access to persons with whom
any Tenant normally deals in the ordinary course of its business, unless
such persons are engaged in illegal activities. No Tenant and no employee
or invitee of any tenant shall go upon the roof of the Building without
Landlord's prior written consent.

4. The directory of the Building will be provided exclusively for the display
of the name and location of tenants' business only, and Landlord reserves
the right to exclude any other names therefrom.

5. All cleaning and janitorial services for the Building and the Premises,
unless otherwise provided in the Lease, shall be provided exclusively
through Landlord, and except with the written consent of Landlord, no
person or persons other than those approved by Landlord shall be employed
by Tenant or permitted to enter the Building for the purpose of cleaning
the same. Tenant shall not cause any unnecessary labor by carelessness or
indifference to the good order and cleanliness of the Premises. Landlord
shall not in any way be responsible to any tenant for any loss of property
on the Premises, however occurring, or for any damage to any tenant's
property by the janitor or any other employee or any other person.

6. Landlord shall furnish Tenant with an appropriate number of keys to each
door lock in the Premises and to the main entrance door of the Building and
Premises. Landlord may make a reasonable charge for any additional keys.
Tenant shall not make or have made additional keys, and Tenant shall not
alter any lock or install a new additional lock or bolt on any door of its
Premises. Tenant, upon termination of its tenancy, shall deliver to
Landlord all keys to all doors which have been furnished to Tenant, and in
the event of loss of any keys so furnished, shall reimburse Landlord for
the cost of any new lock(s) required due to such loss.

7. Tenant shall not install computer cabling, telephone, burglar alarm or
similar services without Landlord's approval for installation of same. Upon
termination of Tenant's tenancy, at Landlord's option, Tenant shall remove
any equipment and/or services from the Premises and shall restore the
Premises to its condition prior to such installation.

8. Freight elevator(s), if any, shall be available for use by all tenants in
the Building, subject to such reasonable scheduling as Landlord in its
discretion shall deem appropriate. No equipment, materials, furniture,
packages, supplies, merchandise or other property will be received in the
Building or carried in the passenger elevators except between such hours
and in such elevators as may be designated by Landlord.

9. Tenant shall not place a load upon any floor of the Premises which exceeds
the load per square foot which such floor was designed to carry and which
is allowed by law. Landlord shall have the right to prescribe the weight,
size and position of all equipment, materials, furniture or other property
brought into the Building. Heavy objects shall, if considered necessary by
Landlord, stand on such platforms as determined by Landlord to be necessary
to properly distribute the weight of such objects. Business machines and
mechanical equipment belonging to Tenant which cause noise or vibration
that may be transmitted to the structure of the Building or to any space
therein or to any tenants in the Building shall be placed and maintained by
Tenant, at Tenant's sole cost and expense, on vibration eliminators or
other devices sufficient to eliminate noise or vibration. Landlord will not
be responsible for loss of, or damage to, any such equipment or other
property from any cause, and all damage done to the Building by maintaining
or moving such equipment or other property shall be repaired at the expense
of Tenant.

10. Tenant shall not use or keep in the Premises any kerosene, gasoline or
inflammable or combustible fluid or material other than those limited
quantities necessary for the operation or maintenance of office equipment.
Tenant shall not use or permit to be used in the Premises any foul or
noxious gas or substance, or permit or allow the premises to be occupied or
used in a manner offensive or objectionable to Landlord or other occupants
of the Building by reason of noise, odors, or vibrations, nor shall Tenant
bring into or keep in or about the Premises any animals, including dogs
(except seeing-eye dogs)

11. Tenant shall not use any method of heating other than that supplied by
Landlord.

12. Tenant shall not waste electricity, water or air conditioning, and Tenant
agrees to cooperate fully with Landlord to assure the most effective
operation of the Building's heating and air-conditioning system and to
comply with any governmental energy-saving rules, laws or regulations, of
which Tenant has actual notice, and shall refrain from attempting to adjust
controls. Tenant shall keep corridor and exterior doors closed and shall
close windows and window coverings at the end of each business day.

13. The name of the Building is the Collins Building Building. Landlord
reserves the right, exercisable without notice and without liability to
Tenant, to change the name of the Building.

14. Landlord reserves the right to exclude from the Building between the hours
of 6:00 p.m. and 7:00 a.m. the following day, or such other hours as may be
established from time to time by Landlord, and on Sunday and legal
holiday's any person, unless that person is known to the person or employee
in charge of the Building and has a pass or is properly identified. Tenant
shall be responsible for all persons for whom it requests passes and shall
be liable to Landlord for all acts of such persons. Landlord shall not be
liable for damages for any error with regard to the Building in case of
invasion, mob, riot, public excitement or other commotion by closing the
doors or by other appropriate action.

15. Tenant shall close and lock the doors of its Premises and entirely shut off
all water faucets or other water apparatus, electricity, copiers and other
office equipment, including coffee pots, etc., before Tenant and its
employees leave the Premises. Tenant shall be responsible for any damage or
injuries sustained by other tenants or occupants of the Building or by
Landlord for noncompliance with this rule.
<PAGE>

EXHIBIT C
(Page 2 of 2)

16. The toilet rooms, toilet urinals, wash bowl and other apparatus shall not
be used for any purpose other than that for which they were constructed,
and no foreign substance of any kind whatsoever shall be thrown therein.
The expenses of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the tenant, or employees or
invitees of the tenant, who shall have caused it.

17. Tenant shall not make any room-to-room solicitation of business from other
tenants in the Building. Tenant shall not use the Premises for any business
or activity other than that specifically provided for in Tenant's Lease.

18. Canvassing, soliciting and distribution of handbills or any other written
material, and peddling in the building are prohibited, and each tenant
shall cooperate to prevent same.

19. Tenant shall not install any radio or television antenna, loudspeaker or
other device on the roof or exterior walls of the Building except as
permitted in the Lease. Tenant shall not interfere with radio or television
broadcasting or reception from or in the Building or elsewhere.

20. Landlord reserves the right to direct electricians as to where and how
telephone, computer or other wiring or cabling are to be introduced to the
Premises. Tenant shall not cut nor bore holes for wiring or cabling without
Landlord's prior written consent, said consent shall not be unreasonably
withheld. Tenant shall not affix any floor covering to the floor of the
Premises in any manner except as approved by Landlord. Tenant shall repair
any damage resulting from noncompliance with this rule.

21. Landlord reserves the right to exclude or expel from the Building any
person who, in Landlord's judgment , is intoxicated or under the influence
of alcohol or drugs or who is in violation of any of the Rules and
Regulations of the Building.

22. Tenant shall store all its trash and garbage within its Premises. Tenant
shall not place in any trash receptacle any material which cannot be
disposed of in the ordinary and customary manner of trash and garbage
disposal. All garbage and refuse disposal shall be make in accordance with
directions issued from time to time by Landlord. All garbage over and above
normal (i.e., major-delivery wrappings, etc.) shall be at Tenant's sole
cost and expense. Tenant agrees to cooperate with Landlord in recycling
programs as may be established from time to time by Landlord.

23. The Premises shall not be used for lodging nor for manufacturing of any
kind, nor shall the Premises be used for any improper, immoral or
objectionable purpose. No cooking shall be done or permitted by Tenant on
the Premises, except tenant's use of Underwriters Laboratory approved
equipment for brewing coffee, tea, hot chocolate and similar beverages, and
microwave ovens shall be permitted; that such equipment and use is in
accordance with all applicable federal, state, and city laws, codes,
ordinances, rules and regulations and does not cause objectionable odor.

24. Without the written consent of Landlord, Tenant shall not use the name of
the Building in connection with or in promoting or advertising the business
or Tenant except as Tenant's address.

25. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental
agency.

26. Tenant assumes any and all responsibility for protecting its Premises from
theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed.

27. The requirements of Tenant will be attended to only upon appropriate
application to the office of the Building by an authorized individual.
Employees of Landlord shall not perform any work or do anything outside
their regular duties unless under special instructions from Landlord, and
no employee of Landlord will admit any person (Tenant or otherwise) to any
office of the Building without special instructions from Landlord.

28. Tenant and Tenant's employees shall not park vehicles in any parking areas
designated by Landlord as reserved parking areas or as visitor parking
areas. Tenant shall not park any vehicles in the building parking areas
other than automobile, motorcycles, motor-driven or nonmotor-driven
bicycles or four-wheeler trucks.

29. Tenant and Tenant's delivery personnel shall utilize loading zones and
delivery entrances for all deliveries. Any damage to the Building or
Premises resulting from Tenant's deliveries shall be repaired at the sole
cost and expense of the Tenant.

30. Tenant and Tenant's delivery personnel shall not use in any space or in the
common areas of the Building any hand truck except those equipped with
rubber tires and side guards or such other material-handling equipment as
Landlord may approve. Tenant shall not bring vehicles of any other kind
into the Building.

31. All moving of furniture or other equipment shall be done so as to have
minimal impact on other tenants' and visitors' use of elevators, common
areas, and parking facilities.

32. The Building is a nonsmoking building. Smoking in the Building is
prohibited.

33. Landlord may waive any one or more of these Rules and Regulations for the
benefit of Tenant or any other tenant, but no such waiver by Landlord shall
be construed as a waiver of such Rules and Regulations in favor of Tenant
or any other tenant, nor prevent Landlord from thereafter enforcing any
such Rules and Regulations against any or all of the tenants of the
Building.

34. These Rules and Regulations are in addition to and shall not be construed
to in any way modify or amend, in whole or in part, the terms, covenants,
agreements and conditions of any lease of any premises in the Building.

35. Landlord reserves the right to make such other and reasonable Rules and
Regulations as, in its judgment, may from time to time be needed for safety
and security, for care and cleanliness of the Building and for the
preservation of good order therein. Tenant agrees to abide by all such
Rules and Regulations herein above stated and any additional reasonable
Rules and Regulations which are adopted.

36. Tenant shall be responsible for the observance of all of the foregoing
Rules and Regulations by Tenant's employees, agents, clients, customers,
invitees and guests.

<PAGE>
EXHIBIT 10.31

AVENUE A, INC.

STOCK PURCHASE AGREEMENT

STOCK PURCHASE AGREEMENT (this "Agreement") made as of February 3, 2000,
between AVENUE A, INC., a Washington corporation (the "Company"), and the
undersigned ("Purchaser").

1. Sale of Stock

1.1 Purchase. Purchaser hereby purchases 75,000 shares of Common Stock
(the "Shares") at the purchase price of $8.00 per share, pursuant to the terms
herein. The Shares are being issued pursuant to the Company's 1998 Stock
Incentive Compensation Plan.

1.2 Payment. The aggregate purchase price for the Shares is being paid
concurrently with the parties entrance into this Agreement.

2. Securities Law Compliance

2.1 Purchaser represents and warrants that (a) Purchaser has been
furnished with all information which Purchaser deems necessary to evaluate the
merits and risks of the purchase of the Shares; (b) Purchaser has had the
opportunity to ask questions and receive answers concerning the information
received about the Shares and the Company; and (c) Purchaser has been given the
opportunity to obtain any additional information Purchaser deems necessary to
verify the accuracy of any information obtained concerning the Shares and the
Company.

2.2 Purchaser hereby confirms that Purchaser has been informed that the
Shares have not been registered under the federal Securities Act of 1933, as
amended (the "Securities Act"), or any state securities laws pursuant to
exemptions from registration. Purchaser further confirms that Purchaser
understands that the reliance by the Company on such exemptions is predicated in
part upon the truth and accuracy of the statements by Purchaser in this
Agreement.

2.3 Purchaser hereby represents and warrants that Purchaser is purchasing
the Shares for Purchaser's own account, for investment purposes only, and not
with a view towards the distribution or public offering of all or any part of
the Shares.

2.4 Purchaser hereby confirms that Purchaser understands that because the
Shares have not been registered under the Securities Act, Purchaser must
continue to bear the economic risk of the investment for an indefinite time and
the Shares cannot be sold unless the Shares are subsequently registered or an
exemption from registration is available.

2.5 Purchaser hereby agrees that Purchaser shall in no event sell or
distribute all or any part of the Shares unless (a) there is an effective
registration statement under the

-1-
<PAGE>

Securities Act and applicable state securities laws covering any such
transaction involving the Shares or (b) the Company receives an opinion of
Purchaser's legal counsel (concurred in by legal counsel for the Company)
stating that such transaction is exempt from registration or the Company
otherwise satisfies itself that such transaction is exempt from registration.

2.6 Purchaser hereby consents to the placing of a legend on Purchaser's
certificate(s) as substantially set forth in Section 5 hereof and to the placing
of a stop-transfer order on the books of the Company and with any transfer
agents against the Shares until the Shares may be legally resold or distributed.

2.7 Purchaser hereby confirms that Purchaser understands that at the
present time Rule 144 of the Securities and Exchange Commission (the "SEC") may
not be relied on for the resale or distribution of the Shares by Purchaser.
Purchaser understands that the Company has no obligation to Purchaser to
register the Shares with the SEC and has not represented to Purchaser that it
will register the Shares.

2.8 Purchaser confirms that Purchaser has been advised, prior to
Purchaser's purchase of the Shares, that neither the offering of the Shares nor
any offering materials have been reviewed by any administrator under the
Securities Act, the Washington State Securities Act or any other applicable
securities act (the "Acts") and that the Shares have not been registered under
any of the Acts and therefore cannot be resold unless they are registered under
the Acts or unless an exemption from such registration is available.

2.9 Purchaser hereby agrees to indemnify the Company and hold it harmless
from and against any loss, claim or liability, including attorneys' fees or
legal expenses, incurred by the Company as a result of any breach by Purchaser
of, or any inaccuracy in, any representation, warranty or statement by Purchaser
in this Agreement or the breach by Purchaser of any of the terms or conditions
of this Agreement.

3. Transfer Restrictions

3.1 Restrictions on Transfer. Shares shall not be sold, transferred,
assigned, pledged, encumbered or otherwise of disposed of in contravention of
the market standoff provisions of Section 3.3 hereof or the right of first
refusal under Section 4 hereof. Except as otherwise provided herein, such
restrictions on transfer, however, shall not apply to (a) a gratuitous transfer
of the Shares, provided, and only if, Purchaser obtains the Company's prior
written consent to such transfer, (b) a transfer of title to the Shares effected
pursuant to Purchaser's will or the laws of intestate succession, or (c) a
transfer to the Company in pledge as security for any purchase-money
indebtedness incurred by Purchaser in connection with the acquisition of the
Shares.

3.2 Transferee Obligations. Each person (other than the Company) to whom
the Shares are transferred by means of one of the permitted transfers specified
in Section 3.1 hereof must, as a condition precedent to the validity of such
transfer, acknowledge in writing to the Company that such person is bound by the
provisions of this Agreement and that the

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<PAGE>

transferred shares are subject to the market standoff provisions of Section 3.3
hereof and the right of first refusal under Section 4 hereof, to the same extent
such shares would be so subject if retained by Purchaser.

3.3 Market Standoff. In connection with any underwritten public offering
by the Company of its equity securities pursuant to an effective registration
statement filed under the Securities Act, including the Company's initial public
offering, Purchaser or any transferee (either being sometimes referred to herein
as the "Holder") shall not sell, make any short sale of, loan, hypothecate,
pledge, assign, grant any option for the purchase of, or otherwise dispose or
transfer for value or otherwise agree to engage in any of the foregoing
transactions with respect to, any Shares without the prior written consent of
the Company or its underwriters. Such limitations shall be in effect for such
period of time as may be requested by the Company or such underwriters and
agreed to by the Company's officers and directors with respect to their shares
(other than any of their shares being sold pursuant to the registration
statement for the underwritten public offering); provided, however, that in no
event shall such period exceed 180 days. Holder shall be subject to the market
standoff provisions of this Section 3.3 only if and to the same extent that the
officers and directors of the Company are also subject to similar arrangements.

4. Company's Right of First Refusal

Before any Shares held by the Holder may be sold or otherwise transferred
(including any assignment, pledge, encumbrance or other disposition of the
Shares, but not including a permitted transfer under Section 3.1 hereof), the
Company or its assignee shall have an assignable right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section 4 (the
"Right of First Refusal").

4.1 Notice of Proposed Transfer. In the event any Holder of the Shares
desires to accept a bona fide third-party offer for the sale or transfer of any
or all of the Shares, the Holder shall promptly deliver to the Company a written
notice (the "Notice") stating the terms and conditions of any proposed sale or
transfer, including: (a) the Holder's bona fide intention to sell or otherwise
transfer such Shares; (b) the name of each proposed purchaser or other
transferee (the "Proposed Transferee"); (c) the number of Shares to be
transferred to each Proposed Transferee; and (d) the bona fide cash price or
other consideration for which the Holder proposes to transfer the Shares (the
"Offered Price"). The Holder shall provide satisfactory proof that the
disposition of such shares to such Proposed Transferee would not be in
contravention of the provisions of Section 3 hereof and the Holder shall offer
to sell the Shares at the Offered Price to the Company.

4.2 Exercise of Right of First Refusal. At any time within 30 days after
receipt of the Notice, the Company or its assignee may, by giving written notice
to the Holder, elect to purchase all or any portion of the Shares proposed to be
transferred to any one or more of the Proposed Transferees, at the purchase
price determined in accordance with subsection 4.3 below.

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<PAGE>

4.3 Purchase Price. The purchase price for the Shares purchased under
this Section 4 shall be the Offered Price. If the Offered Price includes
consideration other than cash, the cash equivalent value of the noncash
consideration shall be determined by the Board of Directors of the Company in
good faith.

4.4 Payment. Payment of the purchase price shall be made, at the option
of the Company or its assignee, either (a) in cash (by check), by cancellation
of all or a portion of any outstanding indebtedness of the Holder to the Company
or such assignee, or by any combination thereof within 30 days after receipt of
the Notice or (b) in the manner and at the time(s) set forth in the Notice.

4.5 Holder's Right to Transfer. If any of the Shares proposed in the
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee as provided in this Section 4, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 60 days after the date of the Notice and provided further
that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section 4 shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are
not transferred to the Proposed Transferee within such period, or if the Holder
proposes to change the price or other terms to make them more favorable to the
Proposed Transferee, a new Notice shall be given to the Company, and the Company
or its assignee shall again be offered the Right of First Refusal before any
Shares held by the Holder may be sold or otherwise transferred.

4.6 Termination of Right of First Refusal. The Right of First Refusal
under this Section 4 shall terminate as to any Shares upon the first sale of
Common Stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the SEC (other than a
registration statement solely covering an employee benefit plan or corporate
reorganization).

5. Legends

Purchaser understands and agrees that the Shares are subject to
restrictions as substantially set forth herein. Purchaser understands that the
certificate(s) representing the Shares shall bear legends in substantially the
following forms:

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON PUBLIC RESALE AND TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY
THE ISSUER AND/OR ITS ASSIGNEE(S) AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED,
ENCUMBERED OR IN ANY WAY DISPOSED OF EXCEPT AS SET FORTH IN THE CERTAIN
AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF
WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH

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<PAGE>

TRANSFER RESTRICTIONS AND RIGHTS OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF
THESE SHARES."

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER APPLICABLE
STATE SECURITIES LAWS. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD
OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT THE PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS."

6. Stop-Transfer Notices

Purchaser understands and agrees that, in order to ensure compliance with
the restrictions referred to herein, the Company may issue appropriate "stop-
transfer" instructions to its transfer agent, if any, and that, if the Company
transfers its own securities, it may make appropriate notations to the same
effect in its own records. The Company shall not be required to (a) transfer on
its books any Shares that have been sold or transferred in violation of the
provisions of this Agreement or (b) treat as the owner of the Shares, or
otherwise accord voting, dividend or liquidation rights to, any transferee to
whom the Shares have been transferred in contravention of this Agreement.

7. Independent Tax Advice

Purchaser acknowledges that determining the actual tax consequences to each
particular Purchaser of purchasing or disposing of the Shares may be
complicated. These tax consequences will depend, in part, on Purchaser's
specific situation, the resolution of currently uncertain tax law, and other
variables not within the control of the Company. Purchaser is aware that
Purchaser should consult a competent and independent tax advisor for a full
understanding of the specific tax consequences to Purchaser prior to purchasing
or disposing of the Shares. Prior to purchasing shares, Purchaser either has
consulted with a competent tax advisor independent of the Company to obtain tax
advice concerning the purchase of the Shares in light of Purchaser's specific
situation or has had the opportunity to consult with such a tax advisor but
chose not to do so.

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<PAGE>

8. General Provisions

8.1 Assignment. The Company may assign its rights hereunder to any person
or entity selected by the Company's Board of Directors, including, without
limitation, one or more shareholders of the Company.

8.2 Notices. Any notice required in connection with the Company's
exercise of its rights hereunder shall be given in writing and shall be deemed
effective upon personal delivery or upon deposit in the U.S. mail, registered or
certified, postage prepaid and addressed to the party entitled to such notice at
the address indicated below such party's signature line on this Agreement or at
such other address as such party may designate by 10 days' advance written
notice under this Section 8.2 to all other parties to this Agreement.

8.3 No Waiver. No waiver of any provision of this Agreement shall be
valid unless in writing, signed by the person against whom such waiver is sought
to be enforced, nor shall failure to enforce any right hereunder constitute a
continuing waiver of the same or a waiver of any other right hereunder.

8.4 Cancellation of Shares. If the Company (or its assignees) shall make
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Shares to be purchased by the Company
pursuant to the exercise of its rights hereunder, then, from and after such
time, the person from whom such shares are to be repurchased shall no longer
have any rights as a holder of such shares (other than the right to receive
payment of such consideration in accordance with this Agreement, as the case may
be). The Company (or its assignees) shall be deemed the owner and holder of
such shares, whether or not the certificates therefor have been delivered.

8.5 Purchaser Undertaking. Purchaser hereby agrees to take whatever
additional action and execute whatever additional documents the Company may deem
necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on either Purchaser or the Shares pursuant
to the express provisions of this Agreement.

8.6 Agreement Is Entire Contract. This Agreement constitutes the entire
contract between the parties hereto with regard to the subject matter hereof,
and no modification of any provision hereof shall be binding upon either
Purchaser or the Company unless in writing and signed by the party against whom
such modification is sought to be enforced.

8.7 Successors and Assigns. The provisions of this Agreement shall inure
to the benefit of, and be binding upon, the Company and its successors and
assigns and Purchaser and Purchaser's legal representatives, heirs, legatees,
distributees, assigns and transferees by operation of law, whether or not any
such person shall have become a party to this Agreement and agreed in writing to
join herein and be bound by the terms and conditions hereof.

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<PAGE>

8.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which, upon
execution, shall constitute one and the same instrument.

8.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington.

IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first indicated above.

AVENUE A, INC.

By: /s/ Robert M. Littauer
----------------------------
Title: Vice President
-------------------------
Address: 506 2nd Ave.
-----------------------
Seattle, WA 98104
-----------------------

PURCHASER

/s/ James A. Warner
--------------------------------
Printed Name: James A. Warner
-------------------
Address: 3 Povatain Square
-----------------------
Larchmont, NY 10538
-----------------------

By his or her signature below, the spouse of the Purchaser, if such
Purchaser is legally married as of the date of his or her execution of this
Agreement, acknowledges that he or she has read this Agreement and is familiar
with the terms and provisions hereof and thereof, and agrees to be bound by all
the terms and conditions of this Agreement.

Dated: 2/3/00 /s/ Priscilla Warner
---------------------------- --------------------------------
Spouse's Signature

Priscilla Warner
---------------------------------

Printed Name

By his or her signature below, the Purchaser represents that he or she is
not legally married as of the date of executing this Agreement.

Dated:
---------------------------- --------------------------------
Purchaser's Signature

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<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made part of this
registration statement and prospectus.

/s/ Arthur Andersen LLP

Seattle, Washington
February 6, 2000