Defendants moved to dismiss Plaintiffs' Consolidated Amended Class Action Complaint, and Plaintiffs opposed Defendants' attempt to dismiss their allegations. On August 26, 2002, the Court sustained Plaintiffs' allegations against the Company and certain of its officers for violations of the Securities Exchange Act of 1934, but granted Defendants' dismissal request as to Defendant Arthur Andersen (the Company's auditor) and Plaintiffs' claims that Defendants violated the Securities Act of 1933. Plaintiffs and Defendants entered mediation on September 11, 2003 and again in July 2004. Discussions are ongoing.

On July 23, 2004, Exchange Applications, Inc. filed a Notice of Bankruptcy.

According to a Press Release dated October 26, 2001, the complaint alleges violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. On or about December 8, 1998, Exchange Applications commenced an initial public offering of 3,000,000 of its shares of common stock at an offering price of $11 per share (the "Initial Offering") and on June 4, 1999 Exchange Applications and the Selling Shareholders commenced a secondary public offering of 3,000,000 of Exchange Applications shares of common stock at an offering price of $22 per share (the "Secondary Offering"). Exchange Applications filed registration statements with the SEC in connection with the Initial Offering and the Secondary Offering, each of which incorporated a prospectus (the "Prospectuses"). The complaint further alleges that the Prospectuses were materially false and misleading because each failed to disclose, among other things, that: (i) the Underwriter Defendants had solicited and received excessive and undisclosed commissions from certain investors in exchange for which the Underwriter Defendants allocated to those investors material portions of the restricted number of Exchange Applications shares issued in connection with the Initial Offering and the Secondary Offering; and (ii) the Underwriter Defendants had entered into agreements with customers whereby they agreed to allocate Exchange Applications shares to those customers in the Initial Offering and Secondary Offering in exchange for which the customers agreed to purchase additional Exchange Applications shares in the aftermarket at pre-determined prices.