TCG VENTURES LIMITEDKIRK HOUSE, P.O. BOX 1100-G, GRAND CAYMAN, B.W.I.

TELEPHONE (345) 949-7212 TELEFAX (345) 949-0993 TELEX CP4226

17 August 1999

VIA FAX TO : «Fax»Total Number of Pages : 19 (including this page)

«ContactName»«Company»«Address1»«CityStateZip»

Investment Vehicle : C/S Venture Investors, L.P.Commitment : US$35,000,000

Dear «Salutation»,

We are pleased to notify you of the proposed investment of C/S Venture Investors, L.P. and its investing affiliates (the “Fund”) in VarsityBooks.com, Inc. (“VarsityBooks”), Customer Analytics, Inc. (“Customer Analytics”) and Equinix, Inc. (“Equinix”).

The Fund, along with certain parallel partnerships, anticipates contributing $7.5 million toward an equity investment in VarsityBooks, $5.0 million toward an equity investment in Customer Analytics and $5.0 million toward an equity investment in Equinix.. A detailed description of the investments is attached to this letter.

Pursuant to Section 3.01 of the Agreement of Limited Partnership dated 30 September 1997 (the “Agreement”), TCG Ventures Limited, as General Partner, is making a capital call for investments in VarsityBooks, Customer Analytics and Equinix.

Funding Obligation

The following summarizes your funding obligation for this capital call:

Investment in VarsityBooks.com, Inc. $ «Varsitybooks»Investment in Customer Analytics, Inc. «Customer_Anal

yt»Investment in Equinix, Inc. «Equinix» Total

$«TotReqdEquity

»

Your total funding obligation of US$ «TotReqdEquity» (please include any wiring fees with your payment) must be sent to us according to the following wiring instructions no later than 31 August 1999:

First Union National BankCharlotte, N.C.ABA 054 001 220For the benefit of:C/S Venture Investors, L.P.Account number 20000-025-30835

Ref: C/S Venture Investors, L.P.

Additional Information

If you have any questions regarding the investment as described in the attached exhibit, please contact Mitch Reese, Managing Director-Venture at (202) 347-2626.

If you have any questions regarding this capital call notice please contact Megan McGovern at (202) 626-1275 or Patty Gallagher at (202) 626-1277. Thank you for the faith you have placed in us and we appreciate your prompt attention in addressing this notice.

Yours faithfully,

TCG Ventures LimitedTCG Ventures Limited

EQUINIX, INC.

TRANSACTION OVERVIEW

Carlyle Venture Partners (“Carlyle”) has the opportunity to invest in Equinix, Inc. (“Equinix” or the “Company”), which operates Internet Business Exchange facilities. Carlyle’s $5 million investment in Equinix will be part of a $50-60 million Series B Preferred round, which will be led by E-Group, an affiliate of News Corp. Additional Series B investors will likely include E*Trade, Dell, NorthPoint, Enron, and insiders. The Company will use these funds to open new IBX facilities across the U.S., and for general corporate purposes. Equinix’s management projects that this Series B round will be adequate to fund the roll out of Equinix’s business plan through first quarter 2000, at which point the Company will likely seek additional debt or equity funds from the public market.

This Series B financing round follows the Series A financing, which was raised in September 1998 from an investor group that included Cisco Systems, Microsoft Corporation, Benchmark Capital, Stanford University, and several individual parties. This Series A round, which priced at $1.00 per share, totaled approximately $12.4 million and implied a post-money valuation of roughly $22 million. These Series A investors are committing up to $10 million in the Series B round.

The Series B Preferred investment at $8.00 per share values the business at $230-240 million post-money and implies a roughly $176 million pre-money valuation. Post-financing, Carlyle’s $5 million investment will represent roughly 2.2% of the fully diluted equity of the Company.

INVESTMENT SUMMARY

Equinix was formed in June 1998 by an experienced senior management team to design, build, and operate Internet Business Exchange facilities (“IBXs”). Equinix IBXs will be the first carrier and IP network neutral collocation facilities, and will provide customers with the flexibility, speed, and adaptability to react to current market conditions, expand their business offerings, and enter new markets. Internet Service Providers (“ISPs”), Internet Content Providers (“CPs”), and telecommunications carriers (including CLECs) will seek access to Equinix’s neutral, unregulated IBXs, located across the globe, to connect to each other and economically deliver the highest quality Internet services to their customers.

Equinix is perhaps best characterized as an Internet infrastructure service business that provides the foundation for a pervasive Internet where companies conduct mission-critical business activities efficiently, securely, and economically. The Company’s primary focus is the rapidly emerging mission-critical Internet business market, which includes customers such as ISPs, high-value CPs, and telecommunications carriers. These customers require the ability to conduct business with each other, in order to receive mutual benefits including peering, transit, and base facility services. Equinix IBXs will enable these customers to connect to each other in neutral, unregulated environments and to provide secure, high quality Internet services to their customers. By building and operating the core of the Internet with open and scalable business exchanges, Equinix will make possible infinite Internet business growth and development.

With the tremendous growth of the Internet and data traffic in recent years, the number of Internet-related businesses (ISPs, CPs, etc.) has exploded. In addition, Component Service Providers (“CSPs”), such as Critical Path, have emerged to enable ISPs to outsource critical services such as electronic mail, access, content distribution, or IP bandwidth. After many discussions with potential customers, it became clear to Equinix’s senior management team that a large number of Internet businesses have high demand for neutral locations where they can directly interact with other Internet businesses quickly and efficiently. Equinix IBXs will be the premier facilities where carriers, ISPs,

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CPs, and CSPs can all collocate under the same roof. All of Equinix’s customers will benefit from this proximity, which results in more centralized content, greater network flexibility, and improved traffic exchange.

Such proximity is not available at the current Internet Network Access Points (“NAPs”), such as MAE East, due to lack of available space. Originally sponsored by carriers such as MFS (in Virginia) and Ameritech (in Chicago) in the mid-1990s, the NAPs have become an ever-increasingly essential part of Internet service delivery as they provide a way for ISPs to exchange data traffic. Generally, these NAPs were built in pre-existing carrier facilities designed for minimal amounts of switching equipment. As ISPs built out their infrastructure into these facilities, a large number of compromises were made in areas such as quality, cost, security, and power. In addition, these sites were far too small to accommodate the growth of the Internet in recent years. As Internet-dependent, mission-critical businesses began to take shape, it became clear that CPs needed to move their servers as close to the NAPs as possible so that they could achieve the shortest network distance between their content and Internet end users. However, space was limited in the NAPs, and a separate industry has emerged to house Internet content, which has taken the form of server farms in separate, non-NAP data centers. Forrester Research estimates that by the year 2002, approximately 40% of complex Web sites will be outsourced, and that Internet hosting revenues for complex sites will increase from roughly $200 million in 1997 to approximately $8.0 billion by 2002. Currently, almost no collocation occurs in NAP facilities due to lack of space and insufficient services. Equinix’s business proposition is to provide its customers with the ability to collocate in new facilities that offer unlimited NAP-like connectivity between all resident companies.

A number of companies have emerged to meet this growing need for collocation services – including larger firms such as Uunet, Cable & Wireless, and GTE Internetworking, and new companies such as AboveNet Communications and Exodus Communications. In general, these companies profit not solely from collocation, but also from the sale of bandwidth and specialized content management (or web hosting) services. In contrast, Equinix believes that customers will prefer to collocate in its IBXs because Equinix plans to maintain total neutrality with respect to bandwidth and carriers, and does not plan to offer advance web hosting services. This focused approach on neutral connectivity and collocation enables the Company to differentiate itself from its potential competitors in the marketplace, because customers are free to purchase bandwidth and enhanced services from entities other than their collocation provider.

Equinix plans to open three IBXs in 1999, and an additional twelve facilities in 2000, and Management’s financial projections include only these fifteen U.S. IBXs. However, the Company plans to deploy at least 35 sites worldwide over the next three years, and believes that its first two non-U.S. facilities will open in mid-2000 in London and Hong Kong. Equinix will strategically locate these IBXs near facilities operated by ISPs, near major central offices operated by carriers, and near heavy concentrations of Internet users.

The Company opened its first facility in Ashburn, VA (near Washington, DC) in late July 1999. Washington was a logical choice for Equinix’s initial facility, because more Internet traffic passes through the area than anywhere else in the world. This facility is strategically located near America Online and MCI Worldcom, and enjoys initial “anchor” tenants including MCI Worldcom, Teleglobe, Concentric Network, Akamai, NetRail, and RemarQ. Equinix surpassed its own expectations by pre-selling over 25% of available collocation space before this opening. The Company hopes to replicate this early success as it continues rolling out IBXs over the next three years.

In summary, Equinix’s business is founded on three important principles – Neutrality, Exchange, and Synergy. Neutrality with respect to carriers enables Equinix customers to purchase bandwidth and

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other services from anyone. This choice should result in greater redundancy and improved pricing. Exchange enables Equinix customers to interconnect, quickly and economically, with other Internet businesses under one roof. Such interconnection is not available in current NAP facilities. Synergy represents the opportunities for new business development that will be created by the IBX environment. The increased communication and business activity between resident companies in the IBX will likely spur significant business growth and new business creation. By building the core of the Internet with a focus on these principles of neutrality, exchange and synergy, Equinix plans to support infinite Internet growth while creating a successful, profitable business for its shareholders.

INVESTMENT CONSIDERATIONS

GROWTH OF INTERNET-RELATED BUSINESSES; DEMAND FOR COLLOCATION

Internet traffic is growing approximately 300% per year, and data services are growing roughly 40% per year. As a result, the number of businesses providing Internet and data services (carriers, ISPs, CPs, CSPs, etc.) has exploded in the past few years. Due to this tremendous increase in the number of Internet businesses and the limited space and services in existing NAPs, a separate industry has emerged to house Internet content, which has taken the form of server farms in separate, non-NAP data centers. Equinix IBXs will be the premier facilities where carriers, ISPs, CPs, and CSPs can all collocate and transact business with each other under the same roof. All of Equinix’s customers will benefit from this proximity, which results in more centralized content, greater network flexibility, and improved traffic exchange.

DEMAND FOR EXCHANGE POINTS THAT ARE CARRIER AND IP NETWORK NEUTRAL

A key differentiating element of Equinix’s business plan is the Company’s focus on carrier neutrality. Historically, ISPs have located their mission-critical infrastructure in NAPs, each of which is served by a single carrier. All circuits into such a NAP are monopolized by the carrier sponsor, which in turn enables the carrier to increase prices without adding necessary redundancy. Equinix plans to address this carrier neutrality issue by enabling its customers to purchase bandwidth and other Internet services from anyone in the IBX. This is a major departure from the business plans of most competing collocation companies, which seek to make money from the sale of bandwidth and other services. This availability of customer choice in a carrier neutral IBX should result in greater redundancy and more favorable pricing for Equinix’s customers. EXPERIENCED MANAGEMENT TEAM; STRONG INVESTOR BASE

Equinix is led by a senior management team with extensive relevant experience. The Company’s Chief Executive Officer, Al Avery, and Chief Technology Officer, Jay Adelson, built and ran the Palo Alto Internet Exchange (PAIX), the first generation neutral switching and peering facility for global and regional ISPs. In addition, the Company enjoys a strong initial base of venture investors (including Cisco Systems, Microsoft Corporation, Benchmark Capital, and Stanford University) and strategic potential Series B investors (News Corp., E*Trade, Dell, NorthPoint).

EARLY INITIAL SUCCESS; STRONG EARLY CUSTOMER SPONSORSHIP

The Company opened its first facility in the Washington, DC area in late July 1999. This facility is strategically located near America Online and MCI Worldcom, and enjoys initial “anchor” tenants including MCI Worldcom, Teleglobe, Concentric Network, Akamai, NetRail, and RemarQ. Equinix surpassed its own expectations by pre-selling over 25% of available collocation space before this opening. The Company hopes to replicate this early success as it continues rolling out IBXs over the next three years.

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HIGH QUALITY FACILITIES FOCUSED ON CUSTOMER SERVICE

Equinix IBXs will be the premier facilities where carriers, ISPs, CPs, and CSPs can all collocate and transact business with each other under the same roof. The Company is focused on providing all necessary elements to ensure that its customers can economically deliver the highest quality Internet services to their respective customers. These elements include greater available space, security, power, and customer service than is presently available in existing NAPs and collocation facilities. These higher quality of service requirements are demanded by key customers, as the Internet becomes a more mission-critical component of their business plans.

FAVORABLE DILIGENCE RESULTS FROM CORE LOCATION AND NORTHPOINT

In addition to meeting with Equinix’s management team in California and touring the Company’s IBX in Virginia, Carlyle has also learned about Equinix through its existing investments in Core Location and NorthPoint. Core Location plans to lease an entire floor of its Chicago facility to Equinix for the Chicago IBX, and NorthPoint currently plans to collocate its DSL equipment in Equinix IBXs across the U.S. NorthPoint also plans to invest $5 million in this Series B round. POTENTIAL ATTRACTIVE EXIT ALTERNATIVES

Carlyle anticipates that the most likely exit option for this investment will involve either an initial public offering or a sale of the Company to a strategic buyer. As the market for enhanced Internet services has grown and consolidated in recent years, it has not been uncommon for companies (such as AboveNet and Exodus) to be valued, either by strategic acquirers or the public market, at levels in excess of 10x estimated revenues. While Equinix’s business plan is somewhat different from both of these examples, we believe that an attractive public offering or strategic sale would be likely if the Company executes its business plan and achieves its projected financial results. With estimated 2000 revenues of nearly $65 million, we believe that it is not inconceivable that Equinix would be valued at $500 million or higher within the next twelve to eighteen months. Thus, assuming the successful execution of the Company’s business plan, we believe that potential equity returns on this investment would be attractive to our investors.

INVESTMENT RISKS

MINORITY INVESTMENT

Following this proposed investment, Carlyle’s $5 million Series B investment will represent roughly 2.2% of Equinix’s outstanding fully-diluted equity. The Series B preferred stock will have limited class, and will have the authority to elect only one of the Company’s seven Directors. This Series B Director has not yet been identified. Due to its minority ownership position, Carlyle will have limited control on key decisions affecting the Company. Certain entities have invested in the Company at lower valuations, and the possibility exists for diverging interests among Equinix’s shareholders.

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UNCERTAINTY OF MARKET ACCEPTANCE OF EQUINIX IBXS; SIGNIFICANT COMPETITION

There are many other companies that will offer collocation services to Equinix’s potential customer base. Equinix’s sales force will have a significant challenge, to compete with these other providers, many of whom are larger and more established than the Company. While Management believes that Equinix’s focus on neutrality, exchange, and synergy will prove to be attractive to potential customers, there can be no guarantee that Equinix will be successful in attracting and retaining key potential customers.

UNCERTAIN AVAILABILITY OF OPTIMAL REAL ESTATE

Equinix plans to strategically locate its IBXs near facilities operated by ISPs, near major central offices operated by carriers, and near heavy concentrations of Internet users. For example, Equinix is planning to lease an entire floor in the Core Location building in Chicago. Well-chosen placement of multiple locations will be a key strategic advantage for the Company in the long term. There can be no guarantee that the Company will secure such real estate in optimal locations at attractive prices. If Equinix is forced to select sub-optimal locations, such actions could have a negative impact on the Company’s business plan.

FUTURE FINANCING REQUIREMENTS; UNCERTAIN CAPITAL MARKETS

The Company projects that it will require additional funding in mid-2000 or earlier to complete its planned roll out of IBX facilities. Although Management believes that the public equity and debt markets will be receptive to Equinix’s business model (and several major investment banks are supportive of a potential high yield financing later in 1999), there can be no guarantee that such funds will be available at any certain point in the future.

DIFFICULTY IN ATTRACTING AND RETAINING QUALIFIED EMPLOYEES

As Equinix rolls out its IBXs over the next three years, it will need to hire additional personnel to manage various corporate, sales, technical, and customer service functions. It is often difficult to identify and hire experienced employees, given the relative infancy of the Internet industry. Thus, there can be no guarantee that the Company will be able to grow its employee base with quality personnel to match its expansion plans for the future.

FUTURE CONSOLIDATION OF INTERNET BUSINESSES

Although the number of Internet businesses has increased significantly in recent years with the growth of the Internet, there has also been significant consolidation in the overall industry. As an example, it is unclear whether the number of ISPs will increase or decrease in the next few years. A decrease in the raw number of Internet businesses could negatively impact Equinix, as its business plan is based on the need for these multiple companies to collocate under the same roof and transact business with each other. However, it is possible that the Internet market will continue its explosive growth, and that such growth will foster the continued emergence of new types of Internet-related businesses.

POTENTIAL EROSION OF PRICES AND MARGINS OVER TIME

As additional companies begin to offer collocation services to the market, it is possible that Equinix will need to reduce its monthly lease rates to maintain competitive pricing. Such a price reduction would likely have a negative impact on the Company’s profitability margins. In addition, the

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Company may need to discount off its published price list in order to attract its initial set of “anchor” customers in new IBX facilities.

PROJECTED FINANCIALS

The Chart below provides a summary of Management’s financial projections for the years 1999 through 2001. These projections reflect Equinix’s plan to open three IBX facilities in 1999 (Northern Virginia, Newark, and San Jose) and twelve additional IBX facilities in 2000. In addition, the Company plans to open two international IBXs (London, Hong Kong) in 2000.

Equinix expects to invest roughly $10 million of capital expenditures in each new IBX facility, and projects that each facility will be EBITDA positive (before corporate S,G&A) by its second month of operations. Management assumes that each new facility will be 15% pre-sold (before opening), and will fill up its entire capacity in its first 12-18 months of operations.

As evidenced in the chart below, Management projects that Equinix will realize EBITDA of nearly $100 million in 2001. This projection is based on no additional new facilities in 2001, and assumes that the Company will be able to access the public equity or debt markets for additional funding in Q2 2000. Management believes that these projections are conservative, given current market demand for Equinix’s service offerings.

($000s) 1999 2000 2001

Total Q1 Q2 Q3 Q4 Total Total

Net Revenues $4,347 $6,705 $12,318 $19,021 $26,128 $64,172 $154,889

Gross Profit (394) 1,622 4,795 9,007 13,911 29,335 103,000

EBITDA (7,856) (662) 2,498 6,826 11,168 19,830 93,170

Net Income (8,535) (1,511) 1,417 5,712 10,066 15,684 57,111

Cash Balance (1) 32,985 15,246 (18,705) (47,861) (65,882) (65,882) NA

# of Facilities 3 6 9 12 15 15 15

Footnote: (1) Cash Balance assumes $50MM of Series B funding in Q3 1999, and no subsequent funding events.

EXIT OPTIONS / INVESTMENT RETURNS

Carlyle anticipates that the most likely exit option for this investment will involve either an initial public offering or a sale of the Company to a strategic buyer with projected IRR’s in excess of 30%. Please contact Frank Yeary at (212) 381-4900 if you have any questions on this investment.

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TRANSACTION OVERVIEW

On July 29, 1999, Carlyle Venture Partners (“Carlyle”) and Customer Analytics, Inc. (“Customer Analytics” or the “Company”) executed a term sheet pursuant to which Carlyle has the opportunity to invest $5 million in the Company. The total amount being raised by Customer Analytics in this round is $7 million, with the remaining $2 million coming from the Company’s existing investor, Trident Capital. Carlyle will receive one board seat on the seven member board, and its investment in the Company will represent an ownership position of approximately 22%, based on a post-money valuation of $23 million. We believe that while the Company has a strong existing management team, a critical addition is that of a Chief Operating Officer. The existing investors and the management team have agreed to this condition. As a result, the transaction will be staged with Carlyle and the other investors funding their pro-rata share of $1.75 million at an initial closing expected at the end of August 1999. Carlyle and the other investors will fund the remaining $5.25 million of the round concurrently with the hiring of a Chief Operating Officer, reasonably acceptable to all the investors. Such a hiring is expected in the near term.

INVESTMENT SUMMARY

Customer Analytics, based in Burlington, MA, is a provider of industry-specific, enterprise relationship management (“ERM”) applications. Currently, the Company is focused on selling its products primarily to mid-tier financial services companies, including banks, insurance companies and mutual funds. The Company’s software application suite, ERM Central, is currently in its version 1.0 release.

Having automated their back and front office systems, enterprises will next automate strategic and tactical marketing operations. Existing data mining and data applications have improved the interaction between a customer and an organization and have produced large repositories of data. However, these applications remain focused on automating business processes, rather than analyzing data to provide meaningful and actionable customer information. In addition, this data resides in various sections of the enterprise; some data may be in the call center, some in the sales force automation system, or some from the corporate website, and this data is often not integrated.

Through its easy-to-use web-based applications, the Company enables its clients to create and manage marketing campaigns, perform sophisticated analyses, and connect disparate customer data throughout the enterprise more effectively than traditional enterprise systems. As a result, we believe that the Company presents an attractive investment opportunity for the reasons outlined in the section below.

INVESTMENT CONSIDERATIONS

LEADERSHIP IN AN EMERGING MARKET

Customer Relationship Management (CRM) as it exists today is nearly a $3.5 billion market. Gartner Group has projected that corporate spending on customer marketing solutions will grow at a 35% CAGR and will exceed $9 billion by 2002. The market for relationship management solutions, however, is undergoing a transformation from systems that focus on data mining in separate departments of a corporation, to systems that combine and analyze data for a single, unified view of a

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customer that is accessible to people across the enterprise. This new market is being referred to as Enterprise Relationship Management or ERM.

We have identified only one other company whose stated mission is to develop systems for this emerging market. Epiphany is a Kleiner Perkins backed startup with $1.5 million in revenues for 1998 with a run rate of $10 million in revenues for 1999. Epiphany has currently filed an S-1 and is expecting a public offering in the next couple of months. Customer Analytics has adopted a vertical industry approach to the market, while Epiphany develops more generic solutions not targeted to a specific industry. In 1998, relationship marketing software spending for North American financial services institutions alone is estimated at $440 million and is expected to double by 2002. Because Customer Analytics has chosen financial services as an initial industry of focus, the Company has the potential to be the market leader in this large segment of the market.

KEY PRODUCT AND SERVICE DIFFERENTIATION

Traditional data mining and CRM companies have offered departmental specific reports and views into data resident only on that department’s systems. Customer Analytics provides views, reports and analysis across all systems through their web-based applications. The Company has two main products aimed at integrating data and providing reporting capabilities through the web to the enterprise as a whole:

(1) ERM Audit : The audit is essentially a scorecard for assessing an organization’s readiness for relationship marketing. The Audit compares the value of best practices to current client situations to measure the impact of adopting best practices and estimating payback. Essentially, this is a brief consulting engagement meant to gain buy-in and act as a hook in selling the customer the ERM Central application suite. This assessment is priced at approximately $30,000 to $50,000.

(2) ERM Central: ERM Central is the Customer Analytics’ application suite that has five components:

(a) Data Pump - ERM Central’s Data Pump processes data from a variety of legacy systems. This Data Pump transforms, cleanses, geocodes and households data into a multi-dimensional database. The Data Pump identifies all the data elements necessary to do sophisticated modeling and profitability to ensure that an accurate understanding of the customer is obtained. The Data Pump is fully functional in the version 1.0 release, and some companies have expressed interest in purchasing ERM Central for this component alone.

(b) Data Store - The foundation of ERM Central is the Customer Centric Data Store, a customer-centric, open relational database based on the Company’s patented data model. The Data Store houses all the data needed for customer-centric marketing and sales and provides a comprehensive view of every customer (consumer and business) relationship.

(c) Analytics - The analytics of ERM Central is driven by a library of predictive models and profitability utilizing the experience of the Company’s management in the area of data mining and analysis. These state-of-the-art predictive models and profitability formulas support numerous customer management tasks for all classes of financial service products, e.g., CDs, Mutual funds, home equity loans, annuities, life insurance, etc.

(d) The Application - With a Data Store and the predictive modeling capabilities, ERM Central’s software component allows everyone that has been authorized by the financial service institution to have access to the data, via a Web browser. ERM Central provides a specific home page for the Marketing Director, Marketing Analysts, Head of Branch Banking, Branch Managers, Customer Support Staff, and the CFO with functionality specific to these tasks.

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(e) Channel Pump - Once the marketing programs are established, ERM Central's Channel Pump can be used to format and load the appropriate data to the client’s various front office applications and drive the interaction between each such application and the Data Store. These applications include self-service channels like the Web, interactive applications, such as call center, or passive channels, such as direct mail.

The Company will offer the application suite either in a traditional software business model with expected average selling prices of $500,000 to $1,000,000 followed by 15-20% maintenance fees or a hosted solution utilizing a service business model.

STRONG MANAGEMENT TEAM

When the Company was initially funded in April 1998, the Company had only one employee: the founder, Evangelos Simoudis. Over the past year, the Company has been able to assemble a strong team of people with backgrounds in this industry. For a description of the Company’s executive management team, please contact Megan McGovern at (202) 626-1275.

Evangelos Simoudis, founder and chief executive officer of Customer Analytics, is widely regarded as an expert in the data mining industry. Prior to founding Customer Analytics, he was Vice President of Global Business Intelligence Solutions at IBM, currently a $300 million run-rate revenue unit. As one of the youngest employees to be promoted to Vice President, Evangelos oversaw the development and delivery of data mining, data warehousing and decision support solutions for Fortune 500 companies, with a special emphasis on industries with a critical interest in relationship marketing and risk analysis. He currently holds six patents in data mining, machine learning and design automation.

Michael Hoffman, VP of Sales, has been involved in selling database marketing solutions for thirteen years. His career at Customer Insight Company, now Experian Database Marketing Solutions, began in 1991 where his list of clients included leading, large and small financial institutions. Michael Hoffman was Regional Sales Manager for Customer Insight Company for six years and was responsible for the Customer Insights’ success in becoming the leading provider of advanced database systems in the financial services industry.

Joe DiGiantommaso, CFO, has more than 20 years of diversified high tech experience in public and private companies. Prior to joining the Company, he was Vice President of Finance at Acacia Networks, Inc., and earlier was Vice President of Finance and CFO of Proteon Corporation. Gail McDowell, VP of Engineering, is responsible for product development including design, implementation, quality assurance and documentation. She is an experienced leader of development teams with over 18 years of experience building successful teams and award-winning products. Most recently, Gail was Vice President of Engineering at Eprise Corporation, which developed business-to-business web content management products.

INVESTMENT RISKS

COMPETITION

The Company faces direct and potential competition from five different types of companies:

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(1) Pure-Play ERM Software : The leading company in this category is Epiphany. Epiphany is a Kleiner Perkins backed startup with $1.5 million in revenues for 1998 and a $10 million run rate in revenues for 1999. Epiphany is likely to be the most significant competition for Customer Analytics. According to industry and customer references, Customer Analytics is second to Epiphany. Epiphany is not focused on any particular industry, however, and as a result their solutions tend to be more generic and tend to require more back-end customization. Customer Analytics’ system is highly focused on financial services companies; these companies tend to have very specific needs relative to other CRM focused industries.

(2) Financial Services Data Providers : Companies in this category include Harte Hanks, John Harland & Co, Experian and other traditional financial service bureaus. These companies are information providers focused on the financial services industry. Many of the potential customers that Customer Analytics targets are currently clients of these firms. These service bureaus provide reports and custom analysis specifically for marketing departments. In addition, the analysis is limited to data from that particular service bureau. If a service bureau customer wants to achieve more rigorous analysis, he can provide his own data to the service bureau, but he would have to wait a significant amount of time to obtain results. ERM Central alleviates these problems by letting the customer analyze his own data along with data from any service bureau in near real-time. In addition, this information is available for people to access across the enterprise.

(3) Campaign Management Software : Companies in this category include Exchange Applications and Prime Response. Both of these companies market software specifically focused for marketing departments in larger companies for managing large marketing campaigns. The implementation and license fees associated with these products make these solutions prohibitive to the mid-tier market. In addition, their solution offers only a portion of the functionality of ERM central.

(4) Enterprise Application Software : Companies in this category include i2 Technologies or Siebel Systems, and to some extent, SAP or Peoplesoft. These companies are more likely to partner with Customer Analytics than to compete. ERM Central is not meant to be a replacement for a Siebel-type system but meant to be a complement. A major component of Customer Analytics’ value proposition is to allow its clients to integrate the data residing in disparate applications across the enterprise. Thus, if a company uses Siebel for call center management and SAP in other parts of the enterprise, ERM Central will allow the data from these systems to be integrated. Siebel Systems is in discussions with Customer Analytics regarding a strategic partnership.

(5) Decision support and Data Warehousing Software: Companies in this category include Brio, Business Objects, Cognos, Informatica and Sagent. From a competitive standpoint these companies are more focused on analytics of decision support instead of focusing on a total view of the customer in a particular industry. However, it is possible that these companies may want to apply their decision support analytics to attack to customer-centric ERM market.

COMPLETION OF THE MANAGEMENT TEAM

As the Company grows, key additions will need to be made to the management team, including a Chief Operating Officer, a Vice President of Marketing and a Vice President of Business Development. As a condition of the completion of this financing, the Company will hire a Chief Operating Officer. Despite a difficult labor market, the Company has demonstrated an ability to assemble a team not only with significant software development experience but also sales and marketing experience directly related to the database marketing and financial services sectors. As a

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result, we believe that the Company is in a strong position to hire qualified candidates for these positions.

PRODUCT DEVELOPMENT

Customer Analytics has signed one paying customer for the version 1.0 release of its product. The product will not contain its full feature set until the first quarter 2000. The initial customer has been pleased with the product and the service that the Company has provided. Based on discussions with industry analysts, the current customer and potential customers, the functionality in the current release provides substantial benefit over existing solutions in the marketplace. However, the full development of these products is in process, and any unexpected delays in the products’ development or implementation schedule would cause future revenues to grow at a slower than expected rate.

ROLLOUT OF PRODUCT LINE

As the Company continues to work on the functionality of the software, it must continue to sell version 1.0 to its customers. In addition, as the competition begins to intensify in the ERM market, the Company needs to move quickly to gain penetration in the financial services industry. The Company’s Vice President of Sales is aggressively growing his sales staff with people who have direct experience selling to software to firms in the financial services industry. In addition, Customer Analytics has a quantified pipeline of sales to potential customers of approximately $5 million. However, unexpected delays in the products’ development may decelerate the rollout of future versions of ERM Central.

SUMMARY FINANCIAL INFORMATION

Base Case projections:

($ in thousands)1999 2000 2001 2002 2003

Revenue 800 13,900 57,600 186,400 314,500 Operating Income (5,700) (2,500) 3,200 19,500 55,200 Net Income (5,700) (2,600) 1,900 11,700 33,100

Number of Installations 2 15 75 325 637

INVESTMENT RETURNS

Carlyle’s investment models project IRRs in excess of 30% using the Base Case projections and conservative exit multiples. Should you have any questions on this investment, please contact Brian Hayhurst at (202) 347-2626.

THE CARLYLE GROUP 5 AUGUST 1999

VARSITYBOOKS.COM, INC.

TRANSACTION OVERVIEW

Carlyle Venture Partners (“Carlyle”) has the opportunity to invest in VarsityBooks.Com (“VarsityBooks” or the “Company”), an online retailer of textbooks. The Company has received $11.4 million of equity capital in seed and first round funding collectively and is currently seeking a $30 million second round of venture financing. The Company desires an investor group of two financial investors as well as one to two strategic investors. Carlyle has evaluated this opportunity and has decided to follow Tribune Ventures, who is acting as lead investor in this round. Tribune would invest $10 million, Carlyle would invest approximately $7.5 million, the existing investors, including Mayfield and FBR, would invest $7.5 million and Southeastern Technology Partners would invest $5 million. The pre-money valuation would be $60 million. Carlyle’s investment would represent an ownership position of 8.3%. We believe this is an attractive valuation given the Company’s market position and stage and given current market conditions. The proposed transaction is expected to close in August 1999.

INVESTMENT SUMMARY

VarsityBooks, based in Washington, DC, is the leader in the emerging online textbook-retailing market. The Company was founded in December 1997 to become the nation’s premier online textbook retailer and channel to the college market. The Company selected the $3 billion textbook industry to establish a stronghold in the college market because textbooks are expensive commodity goods that must be purchased by every student. Equally important, textbooks have traditionally been sold to students by monopolistic, on-campus bookstores plagued by customer service concerns. Through a partnership with Baker & Taylor, Inc., a Carlyle portfolio company, VarsityBooks has access to approximately two million books from more than 25,000 publishers. We believe that VarsityBooks is an attractive investment opportunity with the following attractive characteristics:

INVESTMENT CONSIDERATIONS

STRONG BRAND NAME AND FIRST MOVER ADVANTAGE IN THE INTERNET-SAVVY COLLEGE STUDENT MARKET

VarsityBooks launched its Web site in August 1998, posting the required and optional reading lists – course booklists – for five Washington, DC area schools on its site and marketing only to those schools. Without any pre-launch marketing, the Company sold to an average of 1.1 percent of the undergraduate population at each of the schools. Within weeks of its launch, despite the fact that it did not market outside the Washington, DC area, the Company sold books to students in all 50 states.

The following spring semester, the Company marketed heavily to 74 target schools and posted booklists for 57 schools on its Web site. The Company sold to an average of 3.5 percent of the students at each of the original five schools and .5 percent of the students at each of the new schools. The Company sold books to students at approximately 1,200 colleges and universities across the country. Moreover, revenues grew from approximately $100,000 in the fall of 1998 to $1.45 million in the spring of 1999. This growth was accomplished by increasing the number of schools where the Company marketed from five in fall 1998 to 74 in the spring 1999. Same-school orders increased by 200% from the fall to the spring semester. In addition, the Company increased its student marketing representative organization from less than 50 in the fall to 300 in the spring.

More important, however, is the upcoming fall semester, for which VarsityBooks is preparing to market directly to 3 million students with a student representative organization of 1,800, featuring the

THE CARLYLE GROUP 1 AUGUST 1999

VARSITYBOOKS.COM, INC.

booklists of 250 universities on its Web site, including large state universities, private colleges, and community colleges. The Company will also be posting booklists for its partnerships with high schools, colleges, and distance learning programs. To support the demand, Baker & Taylor has agreed to stock $25 million in inventory.

In addition, the research firm Media Metrix ranked VarsityBooks the number one college-targeted Web site for January 1999, leading all college-oriented sites with 283,000 unique visitors. Currently, VarsityBooks is the “category-killer” in the online textbook market and already one of the most recognized college brands in the country. Given that 90% of the 15 million U.S. college students use the Internet, this strong first-mover advantage has allowed the company to begin to compile a valuable database of customer data on this coveted demographic.

KEY DIFFERENTIATION FROM ITS COMPETITORS

The Company has three key competitive advantages:

(1) Proprietary Method of Assembling Booklists : Obtaining course book lists from universities is a long, tedious, and difficult process. Many universities do not make these lists readily available to people outside the university community. In addition, many of these lists are not in standard formats or are even gathered electronically. The Company has a developed proprietary method for gathering and posting booklists from universities across the country, greatly increasing the convenience of a customer’s shopping experience.

(2) Nationwide Student Representative Network: VarsityBooks employs a nationwide network of

student representatives (“Reps”) to market directly on campus – reaching into classrooms, student organizations and dormitories. By this fall, this powerful, grass-roots marketing tool will be fueled by approximately 1,800 hand-picked, highly trained Reps managed at a regional and corporate level. In addition to driving market share and keeping a pulse on the environment at a campus level, this network represents a potent revenue stream as other companies have already expressed an interest in utilizing the Company’s Reps to market their own goods and services. The sheer size of this organization can be an effective barrier to entry for other companies wanting to reach students in a similar fashion.

(3) Relationship with Baker & Taylor : VarsityBooks has an exclusive relationship with Baker & Taylor to provide textbooks at a discount and to provide drop-shipments for other products. Through Baker & Taylor, VarsityBooks has access to approximately two million books from more than 25,000 publishers. In addition, Baker & Taylor will hold an approximately 7% stake in the Company following this round of financing.

MULTIPLE REVENUE STREAMS/E-COMMERCE OPPORTUNITY

The company believes that it is ideally positioned to supplement its retailing revenue by offering other products or services. Over time, the Company expects to be a destination site for college students allowing for revenue streams from advertisers and other e-commerce companies who target the college market. The company expects revenue from the following sources:

(1) Textbook purchases : Textbook purchases are split into three categories: Sales from targeted schools, or schools to which the Company directly markets; non-targeted schools or consumers; and Partnership schools, or schools who VarsityBooks has contracted with the school to provide all its textbook sales. Even with modest penetration rates, the company can scale quickly in these markets.

THE CARLYLE GROUP 2 AUGUST 1999

VARSITYBOOKS.COM, INC.

(2) Purchases of related retail products : Starting in Q1 2000, the Company plans to sell other college-related merchandise directly to its customers, such as music, supplies and college apparel.

(3) Marketing Contract Services : Other companies have already expressed interest in paying the Company for its use of VarsityBooks’ network of 1,800 student representatives nationwide.

(4) Indirect Revenue : As the Company’s user base builds, VarsityBooks becomes a natural destination site. The Company expects that it will become an indirect sales channel for other service or product providers. The Company expects to receive transaction fees on the sales of these other products.

(5) Advertising : Given the highly targeted nature of VarsityBooks’ customer base, the Company expects the site to be attractive to advertisers. The Company has not projected significant advertising revenues.

OUTSOURCED DISTRIBUTION AND FULFILLMENT MODEL

VarsityBooks is able to offer discounts of up to 40 percent on new college textbooks, combined with direct delivery to a student’s dormitory and flat rate shipping because of its unique distribution and fulfillment model. Because of its exclusive relationship with Baker & Taylor, VarsityBooks has a scaleable model that allows the Company to grow rapidly while keeping overhead costs low. Baker & Taylor orders the Company’s requested titles directly from publishers and warehouses the books in its largest facility. VarsityBooks has a sophisticated IT infrastructure that seamlessly passes customer orders to Baker & Taylor, who then drop-ships the books under the VarsityBooks name via UPS directly to the Company’s individual customers. This enables the Company to leverage the resources of a distributor with the infrastructure to efficiently manage back-end fulfillment and direct-to-customer delivery on a large scale and to use those resources on an exclusive basis. Moreover, the terms of the partnership allow VarsityBooks to take advantage of a no cost inventory and give the Company access to Baker & Taylor’s proprietary product information databases, as well as its entire inventory of over two million titles. Perhaps most important, the exclusive nature of the relationship gives VarsityBooks a competitive advantage and erects natural barriers to entry.

STRONG MANAGEMENT TEAM

The Company’s founders, Eric Kuhn and Tim Levy, are young entrepreneurs who have captured significant mindshare for VarsityBooks among the college student market. As the Company began to grow rapidly, the founders recognized the need to augment the senior management team with experienced individuals. For a detailed description of the Company’s executive management team, please contact Megan McGovern at (202) 626-1275.

ABILITY TO ATTRACT CUSTOMERS BY WORD-OF-MOUTH BRANDING

Given that traditional textbook shopping is generally a negative experience, students are looking for any possible way to make their experience better. As more and more students have positive shopping experiences at VarsityBooks, they will spread the word to their friends. Given the close-knit nature of the college environment, VarsityBooks’ brand name has spread quickly with relatively small marketing expenditures.

INVESTMENT RISKS

THE CARLYLE GROUP 3 AUGUST 1999

VARSITYBOOKS.COM, INC.

VALUATION

VarsityBooks’ pre-money valuation of $60 million is high relative to the Company’s stage of development and the $22.5 million post-money valuation of the previous round completed in February 1999, but it reflects the progress VarsityBooks has made to date and the size of the opportunity the Company is pursuing. The company has grown from $100,000 in revenues at the end of 1998, to $2 million in revenues for the six months ended June 1999 and is on track to do over $7 million in revenues for the year. The existing investors have committed an additional $7.5 million in this round affirming a strong commitment to the Company. While we are not basing our investment decision on other firms’ actions, competitors and other companies at a similar stage of development have been valued at significantly higher multiples in both private and public financings (i.e. Drugstore.com, Onsale.com, Etoys.com, Critical Path). In addition, our own analysis of VarsityBooks’ business model leads us to conclude that the likely returns are very attractive if the Company continues to execute as it is currently.

COMPETITION

VarsityBooks has done well at penetrating its target market in a short period of time. Traditional brick-and-mortar college bookstores are the Company’s primary competition, as they have held a near-monopoly over the college book-buying market. However, faced with high overhead, these stores cannot profitably discount textbooks to the levels that VarsityBooks can. Furthermore, these stores are unable to compete with the Company’s non-price advantages, such as direct home delivery and the ability to shop twenty-four hours a day, seven days a week. However, the Company faces direct and potential competition from three different types of companies:

(1) Existing brick-and-mortar stores that are forming an Internet presence : Companies in this category include the traditional, large, monopolistic on-campus textbook retailers such as Barnes & Noble College Stores (textbooks.com), Follett College Bookstores (efollett.com), Wallace’s Bookstores (ecampus.com), and the National Association of College Stores (Courseweb.com). In addition to managing college stores, these companies are the leading used-book wholesalers in the country, and as such, each sells books to hundreds of schools across the country. The channel conflicts these companies face make it difficult for them to realize the value of an Internet-based business. In an effort to not cannibalize their own brick-and-mortar sales, they have focused on selling used books. However, used books are a poor online purchase because a used book is not a commodity good and the purchaser is likely to demand the ability to “touch and feel” a book before they buy it. Uniformly, these companies launched Internet stores as a defensive tactic to retain market share.

(2) Pure-play Internet textbook startup companies : Companies in this category include venture-funded companies such as BigWords.com, or other startups such as Classbook.com. Neither of these companies have the brand presence of VarsityBooks. However, BigWords has recently received venture capital financing and is trying to catch up to VarsityBooks market lead. BigWords does not have booklists on a university basis, nor do they have an agreement with a large textbook distributor as the Company does. Instead, BigWords has opted to build its own warehouses increasing its infrastructure costs.

(3) Online-book retailers : Companies in this category include Amazon.com and Borders.com, which do offer textbook titles in their databases, but not a wide selection, mainly because they are focused on the mass market. In addition, they do not generally discount textbooks or stock them for immediate shipping. Moreover, the textbooks are not organized according to school booklists

THE CARLYLE GROUP 4 AUGUST 1999

VARSITYBOOKS.COM, INC.

and so it is difficult for students to find the needed titles.

As it expands beyond textbooks, VarsityBooks is likely to face competition from several of the college-focused Web sites that hope to become content-driven collegiate portals, such as Embark.com or UniversityAccess.com. The Company believes that its strategy of starting with textbook sales and establishing a beachhead in the college market based on saving students time and money will, as it grows, give it a significant advantage over these other Web sites. The Company’s textbook strategy has enabled it to gain rapid market share, begin building a highly leverageable database of student preferences, demographics and purchasing behavior. Most important, the textbook strategy has allowed the Company to build a category-killer student-friendly brand. Moreover, the Company’s unique network of Student Reps will compound these strategic advantages.

EXECUTION RISK

As competitors emerge in attacking the college student market, VarsityBooks will need to execute its business plan quickly to capture market share among its demographic. The management team’s Web knowledge and experience should enable the Company to continue to carry out its plan.

ACCESS TO CAPITAL

The Company does not expect to be cash flow positive until 2001. Assuming the current market environment and the Company meets its projections, an initial public offering is likely in the year 2000. Assuming that the public market is not a viable alternative during this time period, the Company must be able to raise enough capital in the private markets to sustain its operations.

Under this scenario, the management has identified key variable costs that can be reduced while still maintaining a growth strategy. Because of seasonal nature of the business, the Company can adjust its marketing strategy accordingly during the year. In addition, because the Company has no overhead for its fulfillment, its fixed costs are relatively low.

THE CARLYLE GROUP 5 AUGUST 1999

VARSITYBOOKS.COM, INC.

PROJECTED FINANCIALS

Revenues for the Company grew from approximately $100,000 in the fall of 1998 to $1.45 million in the spring of 1999. This growth was accomplished by increasing the number of schools where the Company marketed from five in the fall of 1998 to 74 in the spring 1999. Also, same-school orders increased by 200% from the fall to the spring semester. Currently, the company has revenues of $1.7 million for the 6 months ended June 30, 1999.

Actuals:($ in thousands)

1998A6 months ended

6/30/99Revenue 131 1,727OperatingIncome (Loss) (1,892) (3,994)Net Income (1,125) (2,369)

PROJECTIONS :($ in thousands)

1999 2000 2001 2002 2003

Revenue 7,300 58,600 240,300 598,100 1,092,700 Operating Income (20,600) (95,300) (77,900) 955 168,700 Net Income (12,200) (56,700) (46,200) 983 103,300

Investment Returns

Carlyle’s investment models project IRRs in excess of 30% using the Base Case projections and conservative exit multiples. Should you have any questions on this investment, please contact Brian Hayhurst at (202) 347-2626.

THE CARLYLE GROUP 6 AUGUST 1999