<SUBMISSION>
<ACCESSION-NUMBER>0001026506-01-500003
<TYPE>10-K
<PUBLIC-DOCUMENT-COUNT>9
<PERIOD>20001231
<FILING-DATE>20010402
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>EGGHEAD COM INC/DE
<CIK>0001026506
<ASSIGNED-SIC>5961
<IRS-NUMBER>770408319
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-K
<ACT>34
<FILE-NUMBER>000-29184
<FILM-NUMBER>1589136
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>1350 WILLOW ROAD
<STREET2>SUITE 100
<CITY>MENLO PARK
<STATE>CA
<ZIP>94025
<PHONE>6504702400
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>1350 WILLOW ROAD
<CITY>MENLO PARK
<STATE>CA
<ZIP>94025
</MAIL-ADDRESS>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>ONSALE INC
<DATE-CHANGED>19961216
</FORMER-COMPANY>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>ONSALE
<DATE-CHANGED>19961216
</FORMER-COMPANY>
</FILER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>body10k.htm
<DESCRIPTION>BODY
<TEXT>

<HTML>
<head>
<TITLE>2000 10K DOC</TITLE>
</head>

<body bgcolor=white>

<DIV align=left>
<HR align=left SIZE=2 width="100%">
</DIV>
<DIV align=left>
<HR align=left SIZE=2 width="100%">
</DIV>

<p align="center"><font size="3"><strong>UNITED STATES</br>
SECURITIES AND EXCHANGE COMMISSION</br>
Washington, D.C. 20549</strong></font></p>

<br>
<HR WIDTH="25%">
<br>

<p align="center"><font size="5"><strong>FORM 10-K</strong></font></p>

<HR WIDTH="25%">

<p>(MARK ONE)
<p align="center"><font size="3"><strong>
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934
</strong></font></p>
<p align="center"><font size="3" color="FF0000"><strong>
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
</strong></font></p>

<p align="center"><font size="3"><strong> OR </strong></font></p>

<p align="center"><font size="3"><strong>
[&nbsp;&nbsp;&nbsp;]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
</strong></font></p>
<p align="center"><font size="3"><strong>
    FOR THE TRANSITION PERIOD FROM ___________ TO  _____________
</strong></font></p>
<p align="center"><font size="3"><strong>
             Commission file number&nbsp;&nbsp;&nbsp; <u>000-29184</u>
</strong></font></p>
<p align="center"><font size="6" color="#0000FF"><strong>
                               <u>EGGHEAD.COM, INC.</u>
</strong></font></br>
<font size="2">
               (Exact name of Registrant as Specified in its Charter)
</font></p>

<P>&nbsp;
<TABLE COLS=2 WIDTH="100%" >
<TR>
<TD>
<font size="3"><strong>
<CENTER><u>Delaware</u></CENTER>
</font></strong>
</TD>
<TD>
<font size="3"><strong>
<CENTER><u>77-0408319</u></CENTER>
</font></strong>
</TD>
</TR>
<TR>
<TD>
<font size="2">
<CENTER>&nbsp; (State or Other Jurisdiction of Incorporation or Organization)&nbsp;</CENTER>
</font>
</TD>
<TD>
<font size="2">
<CENTER>(I.R.S. Employer Identification Number)</CENTER>
</font>
</TD>
</TR>
</TABLE>
<BR>



<p align="center"><font size="3"><strong>
                                1350 Willow Road<br>
                      <u>Menlo Park, California &nbsp;&nbsp;  94025
</strong></font></u><br>

<font size="2">
        (Address of Principal Executive Offices including Zip Code)
</font></p>

<p align="center"><font size="3"><strong><u>
                                (650) 470-2400
</strong></font></u><br>

<font size="2">
                 (Registrant's Telephone Number, Including Area Code)
<br>
<br>
<br>
</font></p>

<p align="center"><font size="3">
          Securities registered pursuant to Section 12(b) of the Act: None
</font></p>


<p align="center"><font size="3">
          Securities registered pursuant to Section 12(g) of the Act:
</font></p>

<p align="center"><font size="3"><strong><u>
                   COMMON STOCK, PAR VALUE $0.001 PER SHARE
</strong></font></u><br>

<font size="2">
                                (Title of Class)

<br>
<br>
<br>
</font></p>

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

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


<P>&nbsp;
<TABLE COLS=2 WIDTH="85%" >
  <TR vAlign=bottom>
<TD>
<font size="3">
&nbsp;&nbsp;&nbsp;
</font>
</TD>
<TD>
<font size="3">
<CENTER>As of March 15, 2001 </CENTER>
</font></strong>
</TD>
</TR>

  <TR vAlign=bottom>
<TD>
<font size="3">
Aggregate market value of the voting and nonvoting common
equity held by held by non-affiliates of the Registrant,
based on the closing bid price of such stock
</font>
</TD>
<TD>
<font size="3">
<CENTER>   $29,515,866 </CENTER>
</font>
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3">
Number of shares of Common Stock outstanding
</font>
</TD>
<TD>
<font size="3">
<CENTER> 42,932,169 </CENTER>
</font>
</TD>
</TR>
</TABLE>


<B><p align="center"><font size="3">
                      DOCUMENTS INCORPORATED BY REFERENCE
</font></p></B>
<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Portions of the Registrant's definitive proxy
statement for its 2001 annual meeting of stockholders are incorporated by
reference into Part III of this report. Only those portions of the proxy
statement which are specifically incorporated by reference into this report
shall be deemed to be filed with or incorporated by reference into this
report.</P>




<DIV align=left>
<HR align=left SIZE=2 width="100%">
</DIV>
<DIV align=left>
<HR align=left SIZE=2 width="100%">
</DIV>


<p align="center"></font><strong>
                                EGGHEAD.COM, INC.<br>
<br>
                                   FORM 10-K<br>
<br>
                     FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000<br>
<br>
                               TABLE OF CONTENTS
</strong><br>


<P ALIGN="LEFT"><TABLE BORDER=0 CELLSPACING=1 CELLPADDING=7 WIDTH=700>
<TR><TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="JUSTIFY"><B><FONT SIZE=3>Part I.
</B></TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">Page</B></FONT></TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="CENTER"><FONT SIZE=3>
&nbsp;&nbsp;
Item 1.
<B></TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
Business
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#item1">3</A>
</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="CENTER"><FONT SIZE=3>
&nbsp;&nbsp;
Item 2.
<B></TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
Properties
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#item2">10</A>
</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="CENTER"><FONT SIZE=3>
&nbsp;&nbsp;
Item 3.
<B></TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
Legal Proceedings
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#item3">10</A>
</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="CENTER"><FONT SIZE=3>
&nbsp;&nbsp;
Item 4.
<B></TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
Submission of Matters to a Vote of Security Holders
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#item4">10</A>
</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="JUSTIFY"><B><FONT SIZE=3>Part II.
</B></TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="CENTER"><FONT SIZE=3>
&nbsp;&nbsp;
Item 5.
<B></TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
Market for the Registrant's Common Equity and Related Stockholder Matters
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#item5">11</A>
</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="CENTER"><FONT SIZE=3>
&nbsp;&nbsp;
Item 6.
<B></TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
Selected Financial Data
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#item6">12</A>
</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="CENTER"><FONT SIZE=3>
&nbsp;&nbsp;
Item 7.
<B></TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
Management's Discussion and Analysis of Financial Condition and Results of Operations
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#item7">14</A>
</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="CENTER"><FONT SIZE=3>
&nbsp;&nbsp;
Item 7A.
<B></TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
Quantitative and Qualitative Disclosures About Market Risks
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#item7a">29</A>
</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="CENTER"><FONT SIZE=3>
&nbsp;&nbsp;
Item 8.
<B></TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
Financial Statements and Supplementary Data
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#item8">30</A>
</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="CENTER"><FONT SIZE=3>
&nbsp;&nbsp;
Item 9.
<B></TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#item9">50</A>
</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="JUSTIFY"><B><FONT SIZE=3>Part III.
</B></TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="CENTER"><FONT SIZE=3>
&nbsp;&nbsp;
Item 10.
<B></TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
Directors and Executive Officers of the Registrant
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#item10">51</A>
</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="CENTER"><FONT SIZE=3>
&nbsp;&nbsp;
Item 11.
<B></TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
Executive Compensation
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#item11">51</A>
</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="CENTER"><FONT SIZE=3>
&nbsp;&nbsp;
Item 12.
<B></TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
Security Ownership of Certain Beneficial Owners and Management
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#item12">51</A>
</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="CENTER"><FONT SIZE=3>
&nbsp;&nbsp;
Item 13.
<B></TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
Certain Relationships and Related Transactions
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#item13">51</A>
</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="JUSTIFY"><B><FONT SIZE=3>Part IV.
</B></TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="CENTER"><FONT SIZE=3>
&nbsp;&nbsp;
Item 14.
<B></TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
Exhibits, Consolidated Financial Statement Schedules and Reports on Form 8-K
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#item14">52</A>
</TD>
</TR>


<TR><TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="JUSTIFY"><B><FONT SIZE=3>Signatures
</B></TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
&nbsp;&nbsp;
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#sign">54</A>
</TD>
</TR>
</TABLE>

<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>


<B><FONT SIZE=2><P ALIGN="CENTER">&nbsp;</P>
<P ALIGN="CENTER">PART I</P>

<A NAME="item1"></A>
<P>Item 1. <I>Business</I>.</P>
<P>Corporate History</P>
</B><P>We were incorporated in July 1994 as Onsale, Inc. and began auctioning
products on the Internet in May 1995. In November 1999, we acquired Egghead.com,
Inc. ("Old Egghead") and changed our name to Egghead.com, Inc. We integrated Old
Egghead's operations with our operations in November 1999. </P>
<P>From our inception in 1995 to early 1999, we sold primarily excess,
refurbished and closeout merchandise over our web site through our online
auctions. In early 1999, we expanded our online offerings to include new
merchandise at fixed prices through new web site stores organized around
different product categories. In November 1999, we acquired Old Egghead and
merged our retail and auction operations. During these periods, we targeted both
the consumer markets and business markets, and relied on our web site and mass
media promotional activities to acquire customers. In July 2000, we redefined
our strategy to market primarily to small to medium businesses by employing
traditional direct marketing techniques, including telemarketing and targeted e-
mail, to complement our web site operations. We formed our business account
management team during 2000 to implement this strategy.</P>
<P>Each day, over a hundred thousand visitors come to our web site, with
approximately two million unique people visiting the site each month. By the end
of 2000, we had approximately 3.8 million people registered to bid or buy, and
approximately 172,000 new registrants and 248,000 unique buyers in the fourth
quarter of 2000.</P>
<B><P>Business Overview</P>
</B><P>We are an Internet-based direct marketer specializing in technology and
related products and services for the office and home. Our target customers are
primarily small and medium businesses, as well as consumers. Through our web
site, we offer a wide assortment of new, excess and closeout products, as well
as business services, both at fixed prices and through our live online auctions.
In addition, our new business account management team markets directly to
business customers via telephone and targeted e-mails.</P>
<P>We offer our customers the following benefits:</P>
<I><P>Online and Offline Service and Support. </I>Our business account
management team, which currently consists of over 150 representatives, provides
account and sales assistance via telephone and e-mail to our business customers
to complement the online shopping experience that we provide with our web site.
Business account managers make initial contact with select business prospects,
assist these prospective customers with registration, offer our credit services,
and provide ongoing sales support to our customers. In addition, through our
on-line Business Solutions Center, we offer leasing, extended warranties,
government and education support, software licensing, on-line training and a
broad offering of business services to complement the merchandise that we offer
on our web site.</P>
<I><P>Compelling Merchandise Offering of Over 75,000 Items.</I> We carry a broad
assortment of technology products, office products and business services,
provided primarily by name brand manufacturers and service providers. Most of
these offerings are targeted to meet the needs of the small and medium sized
business market. We also target the consumer market with an assortment of
consumer electronics, sporting goods, vacation packages and other consumer
products. </P>
<I><P>Value Pricing</I>. We seek to maintain competitive pricing for our
technology products and office products by utilizing our distribution partners
to provide fulfillment services for a substantial portion of our sales. This
pricing strategy, combined with our auctions and our excess and closeout
merchandise, provides our customers with many opportunities to obtain great
values. </P>
<I><P>Efficient Web Based Purchasing</I>. With our web site's navigation and
search capabilities, and product descriptions and comparisons, we help our
customers locate desired products and services. Once they make their selections,
our web site's user friendly and efficient checkout process allows customers to
purchase quickly. Our web site enables customers to browse merchandise, and
place orders and bids, 24 hours a day, 7 days a week.</P>
<B><P>Automated Sales Process and Personalized Customer Service</P>
</B><P>We have automated many aspects of our sales and auction process to
provide a more efficient buying experience for our customers. We believe that
this automation will lead to a more efficient and scaleable business, with lower
transaction costs relative to traditional retailing. </P>


<P>We believe that customers demand personalized customer service as part of the
online experience, and we are attempting to address this need both through
automation and through our new business account management team. Members of our
business account management team are assigned to larger business customers to
help them establish an account with us and purchase products. We have
automated some customer support and service functions, and we are actively
working to enhance our customer support and service operations through measures
such as improved customer reporting systems. We have a software system that
allows customers to use our web site to track the shipment of their purchases.
In addition, we employ a staff of full-time customer support and service
personnel who are responsible for handling customer inquiries, answering
customer questions about the bidding process, tracking shipments, investigating
problems with merchandise and acting as liaisons between our customers and our
vendors.</P>
<P>A typical customer purchase might involve the following combination of
automated processes and personalized customer service:</P>

<UL>
<LI>Registration - customers complete a registration form on our web site to
register to purchase products from our fixed price web sites and over our online
auctions. Our business account management team may assist business customers
with this registration. </LI>
<LI>Customer assistance - businesses that qualify are assigned a business
account manager to assist in opening an account, establishing credit and
ordering products.</LI>
<LI>Completion of the bid or order - customers receive e-mail notice of status
changes to their bids, as well as order confirmation. Credit card authorizations
are executed electronically once a bid or order is finalized.</LI>
<LI>Transporting products - our automated processes transmit orders either
directly to suppliers for shipment or to our warehouse for fulfillment.</LI>
<LI>Customer service - our online customer service center allows customers to
check the status of their orders, 24-hours a day, seven days a week.</LI></UL>

<I><P>&nbsp;</P>
</I><P>To purchase fixed price merchandise, customers first complete a
registration form on our web site or with the assistance of a business account
manager. Once registered, customers select an item for purchase, and our system
charges the customer's credit card or account and transmits the order to our
distribution partner or the vendor for shipment, or to our warehouse for
fulfillment. Each day we download current price and availability information and
update our web site.</P>
<P>To bid on our online auctions, customers also first register on our web site.
Registered customers can bid and buy at any time during an open auction. As bids
are received, our web pages are instantly updated to display the current high
bidders' initials, city, state and an optional comment to personalize the
bidding. Customers are notified by e-mail when they are outbid and can then
respond through our web site to increase the bid. In addition, customers can
monitor their bid status on our web site. Once an auction closes the highest
bidders win the available inventory at their actual bid prices. Our integrated
auction software automatically informs the winning bidders by e-mail, creates an
order and transmits the order to the vendor for shipment or to our warehouse for
fulfillment.</P>
<P>Most of the merchandise that we sell through our fixed price and auction
formats is owned either by us or our distribution partners. We also sell
merchandise on consignment and through agency transactions. See "Merchandise
Acquisition and Vendor<I> </I>Relationships." For owned, distributor direct and
consigned inventory transactions, we charge the customer's credit card, then we
or the vendor ship the merchandise to the buyer. For agency transactions, the
third-party seller is responsible for collection of bid proceeds and shipment of
merchandise.</P>
<B><P>Merchandise and Web Site Stores</P>
</B><P>Our technology and business products and services are primarily targeted
towards the small to medium business market. We also continue to offer value
priced technology products, consumer electronics, sporting goods and travel
packages to the consumer market. In order to serve both of these markets
efficiently, we have organized our web site into the following groups: </P>
<DIR>

<B><I><P>New Goods (Hardware, Software, Networking, Accessories, Office,
Electronics) </B></I>We carry over 75,000 new, current-version technology,
software, electronics and business products at competitive prices. We update our
merchandise continually so that we may offer the latest products at competitive
prices. Our computer products include desktops, notebooks, servers, peripherals,
networking and accessories. Our office products include supplies, paper,
furniture, business machines and other office essentials. Depending upon the
product, merchandise is either shipped directly to the customer from one of our
distribution partners or shipped from our warehouse. We also offer a variety of
business services, including leasing and extended warranties, software
licensing, DSL Internet access service and on-line training. These services are
typically fulfilled directly by the service provider.</P>

<B><I><P>Clearance Center</P>
</B></I><P>The Clearance Center<I> </I>carries hundreds of products from major
technology and business product categories, including hardware, software,
networking, business machines and electronics. This value priced merchandise is
typically excess or closeout and enables cost conscious customers to obtain
products at discount prices. This merchandise typically comes with a minimum
90-day warranty. </P>

<B><I><P>After Work Store</P>
</B></I><P>Through our After Work Store, we currently offer primarily excess and closeout
merchandise, including consumer electronics, vacation packages, sports and
fitness equipment, jewelry, gourmet foods, tools and hardware and general gift
ideas. These products typically are sold with a warranty and are shipped
directly from our vendor's warehouses. </P>

<B><I><P>Auctions </P>
</B></I><P>Our customers can bid on a variety of products, ranging from high-end
computer servers to vacation packages. Our highly trafficked web site allows for
thousands of simultaneous 24-hour auctions. These products can be new, excess or
closeout, and typically carry a warranty. We target our auctions to appeal to
cost conscious small and medium business customers as well as our consumer
traffic.</P>
</DIR>

<B><P>Merchandise Acquisition and Vendor Relationships</P>
</B><P>We obtain merchandise directly from computer, electronics and sporting
goods manufacturers and indirectly through distributors and other vendors. Since
merchandise availability is unpredictable, strong vendor relationships are
critical to our success. Our buying staff maintains frequent, and in some cases
daily, contact with our vendors to learn when new merchandise becomes available.
We obtain merchandise for sale on our web site through purchase or consignment,
or through agency transactions. See "Factors that May Affect Future Operating
Results - We face risks associated with purchasing and carrying our own
inventory." </P>
<P>The new merchandise that we sell, including current-version computers and
related products and business supplies, is supplied primarily by our four
largest distribution partners: Tech Data Corporation, Ingram Micro Inc., New Age
Electronics Inc. and United Stationers Inc. These vendors accounted for
approximately 41% of our revenue in 2000 and 33% of our revenue in 1999. </P>
<P>Tech Data is our largest vendor, accounting for approximately 36% of our
merchandise in 2000 and 24% in 1999. We have operated under contract with Tech
Data since January 1999, and this contract expired in January 2001. We are
currently negotiating an additional one year extension of this contract, and we
expect the terms of this agreement to remain largely unchanged for 2001. If we
are unable to agree to an extension of this contract with favorable terms, our
business may be harmed because we may not be able to find an alternative
supplier of products at competitive prices quickly, or at all.</P>
<P>We have direct relationships with major manufacturers; for example, we are
authorized to distribute products from IBM, Compaq, Hewlett Packard, Sony, Kodak
and many others. We purchase most of the current-version computers and related
products and business supplies through our distribution partners. Several
technology and consumer electronics manufacturers choose to sell directly to
us.</P>
<P>For our Clearance Center, After Work store and auctions, we purchase excess
and closeout products directly from name brand manufacturers such as IBM, Compaq
and Hewlett Packard and original providers of travel such as Norwegian Cruise
Lines, Orient Cruise Lines and Renaissance Cruise Lines. We have also built up a
substantial network of brokers and repair organizations that provide us with a
steady stream of excess and closeout products. We pre-qualify these suppliers to
ensure we purchase only the highest quality merchandise. Most of these products
come with warranties, some provided by the original equipment manufacturer, and
are generally returnable if defective. </P>
<P>We generally do not have long-term contracts or arrangements with our
vendors, and the vendor agreements that we have entered into do not guarantee
the availability of merchandise. We cannot assure you that our current vendors
will continue to sell merchandise to us or that we will be able to establish new
vendor relationships to ensure an adequate supply of this merchandise at
competitive prices.</P>
<I><P>Distributor Direct Sales</I>. We sell merchandise directly through
distributors and take title to the merchandise prior to delivery to the
customer, charge the customer's credit card and pay the distributor for the
merchandise. In these distributor direct sales, we avoid inventory risk, but we
are at risk for collection and for physical loss of delivered merchandise. The
distributor ships the products to the customer. Distributor direct sales
represented approximately 57% and 49% of our revenue in 2000 and 1999,
respectively. In the past we included distributor direct sales within our
reported purchased sales.</P>
<I><P>Purchased and Consignment Inventory Sales</I>. We sell merchandise that we
purchase from vendors or that we hold on consignment for vendors. When we
purchase merchandise, we assume the full inventory and price risk involved in
selling it. When we hold merchandise for sale on consignment, we take title to
it upon completion of the sale, charge a customer's credit card and pay the
vendor for it. With consignment sales, we avoid inventory risk but bear
collection risk and risk of physical loss of delivered inventory and warehoused
inventory, as well as risk of customer returns. We ship the purchased products to our
customers. Together, purchased and consignment inventory sales represented
approximately 37% and 49% of our revenue in 2000 and 1999,
respectively.</P>
<I><P>Agency Sales Transactions</I>. We also act as a sales agent, helping
vendors sell their merchandise. In these agency sales we forward order
information to the vendor, who charges the customer's credit card and ships the
merchandise. We receive commissions based on the sales price. In agency sales
transactions, the vendor retains title to the merchandise and bears the
inventory risk, collection risk and customer return risk. The vendors ship the
merchandise they sell. Commission and other revenue, which includes the
commission on agency sales transactions and advertising sales accounted for
approximately 6% and 2% of our revenue in 2000 and 1999, respectively. </P>

<B><P>Merchandise Shipping and Returns</P>
</B><P>The purchased inventory orders which constituted approximately 31% of our
sales in 2000, are shipped from our own distribution facility which operates out
of rented warehouse space in Vancouver, WA. Prior to August 2000, order
fulfillment and shipping of purchased inventory product was done by both our
Vancouver distribution facility and a third party logistics company, Gage
Marketing Group. To reduce ongoing warehouse and distribution costs and improve
our competitiveness, we terminated the Gage agreement in August 2000 and
consolidated all our purchased inventory fulfillment into the Vancouver
center.</P>
<P>For our non-purchased inventory sales, we rely on many distribution and
vendor partners to process and ship merchandise to our customers. We utilize
both Electronic Data Interchange and Internet based connectivity to monitor and
audit the shipping processes of our partners and to provide that information to
our customers using our web site. Nevertheless, we have limited control over the
shipping procedures of our distribution partners and vendors, and shipments by
them have often been subject to delays. See "Factors That May Affect Future
Operating Results - We rely on merchandise vendors for supply and shipping
of products."</P>
<P>Most merchandise that we sell carries a warranty supplied by either the
manufacturer or the vendor. Our largest distribution direct partner, Tech Data,
offers return privileges for most items, and we pass on those return rights to
our customers, who are provided with return authorizations when requested. Those
items are then sent directly back to our distribution partner for processing and
crediting. Although we are not obligated to accept merchandise returns for those
products that we do not have return rights, we have in fact accepted returns
from customers for such items on a case by case basis.</P>
<B><P>Customer Acquisition and Marketing </P>
</B><P>We redefined our strategy in 2000 to target small and medium size
business customers and to decrease our marketing to consumers. Our goal is to
acquire customers through direct marketing targeted at this market, and we have
dramatically reduced our mass marketing efforts. To execute on this strategy, we
have formed a new business account management group consisting of approximately
150 sales representatives who develop new small and medium size business
customer prospects and service the needs of our existing business customers.
Therefore, our customer acquisition and marketing strategy consists of the
following mix of targeted and general media and promotional activities:
</P><DIR>

<I><P>Outbound Telemarketing.</I> We target existing customers and prospects
with our business account management team that develops these prospects through
telephonic sales calls.</P>
<I><P>Customer Electronic Mail Broadcasts</I>. We actively market to our base of
customers through e-mail broadcasts. Buyers and bidders are added to our
electronic mailing list upon request.</P>
<I><P>Direct Mail Offerings.</I> We target existing customers and prospects and
develop targeted direct mail campaigns to develop these prospects.</P><I><P>Public
Relations Campaign</I>. Our corporate communications team engages in an ongoing
public relations campaign which has resulted in the company being included in
numerous newspaper and magazine articles and on several radio programs. </P>
<I><P>Print Advertising.</I> We run advertisements in select print publications.
</P>
<I><P>Electronic News Feeds</I>. We transmit our current merchandise price and
availability information to other Internet sites, including price comparison web
sites and web portal sites. Prospective customers may then view this information
and click through directly to our merchandise pages. </P></DIR>

<B><P>Cooperative Advertising Funds and Advertising Sales </P>
</B><P>We receive marketing support in the form of market development funding,
from some of our vendors and suppliers. This revenue, is an integral part of our
sales and margin strategy. Typically called cooperative advertising or market
development funds, these programs support the advertising of vendors' products
on our web site. This advertising may be in the form of a virtual vendor store
on our web site, preferred product placement, or other advertising as requested
by the vendor. </P>
<P>We also sell banner and other promotional advertising on our web site. We
sell ad space to manufacturers whose merchandise we sell on our web site, credit
card issuers, financial service providers and others. We use an advertising
agency and a dedicated in-house sales team to sell our advertising space.</P>

<B><P>Technology and Operations </P></B>

<P>We currently use a combination of proprietary technology and commercially available licensed technology
to execute sales and conduct auctions.  We plan to shift toward the
licensing of more commercially available solutions instead of purchasing custom-made
solutions or internally developing these solutions. We believe that this strategy enables us to lower our operating costs
and to respond to changing demands due to growth and technological shifts.

<P>Key components of our software include the following:</P><DIR>

<I><P>Sales Management Applications</I>. These applications manage sales and
auctions, update merchandise web pages to show product images, price, inventory
availability, and currently winning bidders and send a variety of e-mail messages
to customers informing them of order and auction status.</P>

<I><P>E-Commerce Engine</I>. We use this set of applications to receive and
validate orders and bids, enter requests to place the customer on our mailing
list, list currently active and recent winning and losing bids, and review and
submit customer service requests.</P>
<I><P>Order Processing Applications</I>. These applications charge customer
credit cards or accounts, print order information, transmit order information
electronically to our distribution partners, vendors or our warehouse, process
shipping information received from our distribution partners, vendors or our
warehouse, and send transaction information to our accounting system.</P></DIR>

<P>We are developing a new e-commerce engine and configuring and customizing a
new commercially available software package to replace our existing sales
management applications, e-commerce engine and order processing applications. In
addition, we have recently licensed and intend to implement a new hosted online
auction software system. We intend to enhance the features and functionality of
our existing software components, develop new software components and integrate
off-the-shelf components into our proprietary software.</P>

<P>Our web site operations staff consists of systems administrators who manage,
monitor and operate our web site. This staff is charged with maintaining the
reliability of our web site, and we feel that it is critical to our business to
prevent service interruptions and to maintain the responsiveness of our web
site. We use Internet service providers to provide connectivity to the Internet,
Internet traffic and data routing services and e-mail services. We intend to
relocate our web site operations from Menlo Park, California to Vancouver,
Washington during 2001. See "Factors that May Affect Future Operating Results -
Our online commerce systems are vulnerable to interruption."</P>

<B><P>Competition</P>
</B><P>Competition in our industry is intense. We believe that the principal
competitive factors in our electronic retailing market include price and
availability of popular merchandise, customer service, the ability to attract
new customers at lower customer acquisition costs, the ability to secure
merchandise for sale at favorable terms, available financing and the reliability
of the retail web site. Our redefined strategy has resulted in an increase in
the number of potential competitors. These competitors include:</P>

<UL>
<LI>online computer and business services retailers such as Buy.com and Cyberian
Outpost; </LI>
<LI>Internet auction houses such as uBid;</LI>
<LI>manufacturer and Partner direct sales such as IBM, HP, Dell Computers and
Gateway Computers; </LI>
<LI>computer resellers and direct marketers such as Micro Warehouse and PC
Connection;</LI>
<LI>storefront technology products retailers, such as CompUSA and Best Buy; and
</LI>
<LI>other companies that offer merchandise similar to ours through physical
auctions and with which we compete for sources of supply.</LI></UL>

<P>Current and potential competitors have established or may establish
cooperative relationships among themselves or with vendors to obtain exclusive
or semi-exclusive sources of merchandise. Accordingly, it is possible that new
competitors or alliances among competitors and vendors may emerge and rapidly
acquire market share. In addition, manufacturers might elect to sell or
liquidate their products directly to customers. Increased competition is likely
to result in reduced operating margins, loss of market share and a diminished
brand franchise, any one of which could seriously harm our business. Many of our
current and potential competitors have significantly greater financial,
technical, marketing and other resources than we do. As a result, they may be
able to secure merchandise from vendors on more favorable terms, and they may be
able to respond more quickly than we can to changes in customer preferences, or
to devote greater resources than us to development, promotion and sale of their
merchandise.</P>
<B><P>Intellectual Property and Other Proprietary Rights</P>
</B><P>We rely on a variety of technologies that we license from third parties,
including our database and Internet server software, which we use in our web
site to perform key functions. For example, we recently licensed and intend to
implement a new hosted online auction software system. We cannot assure you that
these third party technology licenses will continue to be available to us on
commercially reasonable terms. Our loss of or inability to maintain or obtain
upgrades to any of these technology licenses could result in delays in
completing our proprietary software enhancements and new development until
equivalent technology could be identified, licensed or developed, and
integrated. Any such delays could seriously harm our business.</P>
<P>We believe our proprietary technology is also a significant factor in our
performance and ability to compete. We rely on a combination of patent,
trademark, copyright and trade secret laws, as well as confidentiality
agreements and technical measures, to establish and protect our proprietary
rights. During 2000, we were granted one U.S. patent. We now have two issued
U.S. patents and two pending U.S. patent applications. We have registered many
trademarks, including Egghead, Egghead.com, Onsale, Yankee Auction, Bidwatch,
and Steals and Deals as trademarks in the United States, and we claim trademark
rights in a number of other marks. We currently hold various web domain names
relating to our brand, including the "Egghead.com" domain name. As part of our
confidentiality procedures, we generally enter into agreements with our
employees and consultants and limit access to and distribution of our software,
documentation and other proprietary information. We may at any time elect to
abandon our patents, patent applications, trademarks and trademark applications.
Abandoning any of these rights may result in a loss of protection or commercial
advantage that may be available to us. In addition, we cannot assure you that
the patent or trademark rights granted to us will be of sufficient scope or
strength to provide meaningful protection or any commercial advantage to us.</P>
<P>We have received notices, and may in the future receive additional notices,
from third parties claiming infringement by our software or other aspects of our
business. While no infringement claim has been asserted against us in court, any
future infringement claim, with or without merit, could result in significant
litigation costs and diversion of our management and other resources and could
require us to enter into royalty and licensing agreements, either or both of
which could seriously harm our business. Such royalty and licensing agreements,
if required, may not be available on terms acceptable to us or at all. In the
future, we may also need to file lawsuits to enforce our intellectual property
rights, to protect our trade secrets or to determine the validity and scope of
the proprietary rights of others. Such litigation, whether it is successful or
not, could result in substantial costs and diversion of resources and could
seriously harm our business.</P>
<P>In addition, we cannot assure you that we can prevent third parties from
challenging our rights to our patents, trademarks, domain names, software and
licenses. Our loss of or inability to protect these rights may impede our
ability to operate, possibly lead to customer confusion, decrease the value of
our proprietary rights, subject us to litigation costs and divert our management
and other resources.</P>
<B><P>Employees</P>
</B><P>As of March 15, 2001, we had 653&nbsp;employees. We also employ
independent contractors for software development, accounting services, artistic
design, customer service and business sales. In March 2001, we announced a
reduction in force of 56 full-time regular employees and 21 temporary workers
and contractors, or about 12% of our workforce at the time. This reduction in
force will take effect in early April 2001. None of our employees is represented
by a labor union, and we consider our employee relations to be good. We believe
that our future success will depend in part on our ability to retain qualified
personnel. See "Factors that May Affect Future Operating Results - Our future
success depends on our ability to retain and motivate highly skilled employees."
</P>


<A NAME="item2"></A>
<P>&nbsp;<B>Item 2. <I>Properties</I>.</P>
</B><P>Our executive offices are located in an office building in Menlo Park,
California, consisting of approximately 50,000 square feet, under a
leas</FONT><FONT SIZE=2 COLOR="#ff0000">e</FONT><FONT SIZE=2> which expires in
November 2002. Our other primary properties include an office building in
Vancouver, Washington consisting of approximately 45,000 square feet, a
converted industrial complex in Vancouver, Washington consisting of
approximately 70,000 square feet which houses our account management team, and a
warehouse located in Vancouver, Washington consisting of approximately 100,000
square feet, under leases that expire at various times from November 2002 to
June 2004. We also own a commercial building consisting of approximately 24,000
square feet and 11.3 acres of land in Kalispell, Montana. We have no remaining
carrying value in this asset. We believe that we have adequate space for our
current needs. </P>

<A NAME="item5"></A>
<B><P>Item 3. <I>Legal Proceedings</I>.</P>
</B><P>In connection with its investigation of the shipping and return practices
of several e-commerce companies, in December 2000, the Federal Trade Commission
informed us<B> </B>that it believed we had violated the FTC's Mail and Telephone
Order Rules and proposed that we enter into a consent decree. The FTC alleges
that we solicited orders for products when we did not have a reasonable basis to
expect that we could timely ship those products, that we failed to notify
customers about delayed shipments adequately, and that we failed to offer
customers appropriate options to remedy delayed shipments.&nbsp; The consent
decree proposed by the FTC would require us to pay a fine and to adopt new
systems and procedures regarding our shipping practices, many of which we are
implementing voluntarily. We are currently negotiating a settlement of the FTC's
claims and a proposed consent decree.  The FTC had not
filed any formal action as of the date of this report, and in the event that it
does, we intend to defend ourselves vigorously.</P>
<P>From time to time, we are subject to litigation in the ordinary course of our
business. We believe that none of the currently pending litigation will have a
material adverse effect on our business, results of operations or financial
condition.</P>

<A NAME="item4"></A>
<B><P ALIGN="JUSTIFY">Item 4</B>. <B><I>Submission of Matters to a Vote of
Security Holders</I>.</P>
<P ALIGN="JUSTIFY">&#9;</B>Not applicable.</P>
<P ALIGN="JUSTIFY">&nbsp;&nbsp;</P>


<B><P ALIGN="CENTER">PART II</P>


<A NAME="item5"></A>
<P ALIGN="JUSTIFY">Item 5. <I>Market for the Registrant's Common Equity and
Related Stockholder Matters</I>.</P>
<P>&#9;</B><I>Market Information</I>. Our common stock is traded on the National
Market System of the Nasdaq Stock Market under the symbol "EGGS". The following
table sets forth, on a per share basis, the high and low sales prices of our
common stock for the periods indicated, as reported by the Nasdaq National
Market.</P></FONT>
<P ALIGN="CENTER"><CENTER><TABLE CELLSPACING=0 BORDER=0 CELLPADDING=6 WIDTH=529>
<TR><TD WIDTH="64%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="20%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="CENTER">High</B></U></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="CENTER">Low</B></U></FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="TOP">
<FONT SIZE=2><P>Fiscal Year Ended December 31, 1999:</FONT></TD>
<TD WIDTH="22%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="64%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=2><P>&#9;First Quarter&#9;</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$&#9;60.59</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$&#9;31.00</FONT></TD>
</TR>
<TR><TD WIDTH="64%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=2><P>&#9;Second Quarter&#9;</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$&#9;39.25</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$&#9;15.25</FONT></TD>
</TR>
<TR><TD WIDTH="64%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=2><P>&#9;Third Quarter&#9;</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$&#9;26.25</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$&#9;12.81</FONT></TD>
</TR>
<TR><TD WIDTH="64%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=2><P>&#9;Fourth Quarter&#9;</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$&#9;27.81</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$&#9;11.31</FONT></TD>
</TR>
<TR><TD WIDTH="64%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=2><P>Fiscal Year Ended December 31, 2000:</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="64%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=2><P>&#9;First Quarter&#9;</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$&#9;18.25</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$&#9;6.75</FONT></TD>
</TR>
<TR><TD WIDTH="64%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=2><P>&#9;Second Quarter&#9;</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$&#9;7.63</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$&#9;2.25</FONT></TD>
</TR>
<TR><TD WIDTH="64%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=2><P>&#9;Third Quarter&#9;</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$&#9;4.19</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$&#9;2.06</FONT></TD>
</TR>
<TR><TD WIDTH="64%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=2><P>&#9;Fourth Quarter&#9;</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$&#9;2.88</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$&#9;0.50</FONT></TD>
</TR>
</TABLE>
</CENTER></P>

<FONT SIZE=2><P ALIGN="CENTER">&#9;</P>
<P>&#9;<I>Holders</I>. As of March 15, 2001, the number of holders of record of
our common stock was 1,360. However, because brokers and other institutions hold
many shares on behalf of our stockholders, the total number of beneficial
holders is greater than that represented by these record holders.</P>
<B><P>&#9;</B><I>Dividend Policy</I>. We have not paid any cash dividends on our
capital stock to date. We currently anticipate that we will retain any future
earnings for use in our business and do not anticipate paying any cash dividends
in the foreseeable future.</P>
<P>&#9;<I>Recent Sales of Unregistered Securities</I>. We did not sell any of
our securities during 2000 which were not registered under the Securities
Act.</P>

<A NAME="item6"></A>
<B><P ALIGN="JUSTIFY">&nbsp;</P>
<P ALIGN="JUSTIFY">Item 6. <I>Selected Financial Data</I>.</P>
</B><P>The following selected financial data should be read in conjunction with
our financial statements and related notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations." This selected
financial data does not include discontinued operations of Old Egghead.
Historical results are not necessarily indicative of future results.</P>
</FONT>
<P ALIGN="CEMTER"><TABLE BORDER CELLSPACING=1 WIDTH=625>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="57%" VALIGN="TOP" COLSPAN=9 HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">Years ended December 31, (1)</FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">2000</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">1999</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">1998</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">1997</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">1996</FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=9>
<P>&nbsp;</TD>
<TD WIDTH="57%" VALIGN="TOP" COLSPAN=9 HEIGHT=9>
<FONT SIZE=2><P ALIGN="CENTER">(amounts in thousands, except per share
data)</FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<B><FONT SIZE=2><P>Statement of Operations Data:</B></FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Revenue:</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Online revenue</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">$ 462,711</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">$ 529,575</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">$ 376,628</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">$ 154,939</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">$ 14,893</FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Retail revenue</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">- </FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">- </FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">231,724 </FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">358,786 </FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Commission and other revenue</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">16,137</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">11,633</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">3,981</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">4,602</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">2,217</U></FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Total revenue</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">478,848</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">541,208</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">380,609</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">391,265</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">375,896</U></FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Gross profit: </FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Online revenue</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">21,111</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">15,994</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">32,405</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">18,382</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">1,627</FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Retail revenue</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">- </FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">- </FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">26,565 </FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">55,694</FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Commission and other revenue</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">16,137</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">11,633</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">3,981</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">4,602</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">2,217</U></FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Total gross profit</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">37,248</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">27,627</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">36,386</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">49,549</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">59,538</U></FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Operating expenses:</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Sales and marketing</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">69,757</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">101,753</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">62,272</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">64,920</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">66,355</FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>General and administrative</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">19,807</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">22,017</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">18,783</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">17,262</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">15,587</FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Engineering</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">14,500</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">15,521</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">11,821</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">7,700</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">9,534</FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Amortization of goodwill</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">- </FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">1,534</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">1,708</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">1,009</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Merger costs</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">763</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">52,215</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">- </FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Restructuring and impairment costs</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">-</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">(2,735)</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">-</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">19,500</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">15,597</U></FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Total operating expenses </FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">104,827</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">190,305</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">94,584</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">110,391</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">107,073</U></FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Loss from operations</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">(67,579)</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">(162,678)</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">(58,198)</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">(60,842)</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">(47,535)</FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Equity in net loss of joint venture</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">(571)</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">(1,001)</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">(200)</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Interest and other income, net</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">5,950</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">8,750</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">9,309</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">3,839</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">3,766</U></FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Loss before income taxes</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">(62,200)</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">(154,929)</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">(49,089)</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">(57,003)</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">(43,769)</FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Provision for income taxes</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">          -</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">          -</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">             -</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">               -</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=2><P ALIGN="RIGHT">4,831</U></FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Loss from operations</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">$ (62,000)
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">$ (154,929)
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">$ (49,089)
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">$ (57,003)
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">$ (48,600)
<HR NOSHADE SIZE=3>
</FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Net loss</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">$ (62,200)
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">$ (154,929)
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">$ (49,089)
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">$ (52,703)
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">$ (39,279)
<HR NOSHADE SIZE=3>
</FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Net loss per share (2):</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Basic and diluted</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">$ (1.53)
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">$ (4.29)
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">$ (1.50)
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">$ (1.91)
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">$ (1.78)
<HR NOSHADE SIZE=3>
</FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Weighted average common shares outstanding for purposes of
computing (2): Basic and diluted</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">40,598
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">36,146
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">32,834
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">27,588
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=13>
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">22,023
<HR NOSHADE SIZE=3>
</FONT></TD>
</TR>
</TABLE>
</P>

<br>
<HR WIDTH="55%">
<br>

<P ALIGN="CEMTER"><TABLE BORDER CELLSPACING=1 WIDTH=625>
<TR><TD WIDTH="34%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="66%" VALIGN="TOP" COLSPAN=10>
<FONT SIZE=2><P ALIGN="CENTER">As of December 31, </FONT></TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">2000</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">1999</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">1998</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">1997</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">1996</FONT></TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="66%" VALIGN="TOP" COLSPAN=10>
<FONT SIZE=2><P ALIGN="CENTER">(amounts in thousands)</FONT></TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="TOP">
<B><FONT SIZE=2><P>Balance Sheet Data:</B></FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="TOP">
<FONT SIZE=2><P>Cash and cash equivalents</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ 31,466</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ 70,685</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ 145,475</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ 123,947</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=2><P ALIGN="RIGHT">$ 86,202</FONT></TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="TOP">
<FONT SIZE=2><P>Working capital </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">7,285</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">44,704</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">146,270</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">109,310</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=2><P ALIGN="RIGHT">81,289</FONT></TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="TOP">
<FONT SIZE=2><P>Total assets</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">71,969</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">129,130</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">245,611</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">198,295</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=2><P ALIGN="RIGHT">181,200</FONT></TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="TOP">
<FONT SIZE=2><P>Long-term liabilities</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">2,348</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">2,046</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">2,016</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=2><P ALIGN="RIGHT">438</FONT></TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="TOP">
<FONT SIZE=2><P>Total stockholders' equity </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">18,891</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">53,422</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">191,508</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">148,356</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=2><P ALIGN="RIGHT">102,375</FONT></TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="1%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
</TR>
</TABLE>

<FONT SIZE=2><P>&nbsp;</P>
<P>_________________</P><DIR>
<DIR>

<P>(1) In November 1999 we acquired Old Egghead and changed our name to
Egghead.com, Inc.The acquisition of Old Egghead was accounted for as a pooling
of interests. Accordingly, our financial statements have been restated to
reflect our financial position and results of operations as if Old Egghead was
our wholly-owned subsidiary for the years ended December 31, 1999, 1998, 1997
and 1996. Old Egghead used a 52/53 week fiscal year that ended on the Saturday
nearest March 31; for convenience, these fiscal years are referred to as "March
31." The selected financial data combine the financial position of Old Egghead
as of March 31, 1999, 1998 and 1997 with our financial position as December 31,
1998, 1997 and 1996, respectively. Old Egghead's results of operations from
January 1, 1999 through acquisition date and the fiscal years ended March 31,
1999, 1998 and 1997 are combined with our historical results of operations for
the four years ended December 31, 1999, 1998, 1997 and 1996, respectively. The
operations of Old Egghead for the three-month period ended March 31, 1999,
resulting in net sales and a net loss of $42.3 and $12.8 million, respectively,
have been included in the results of operations for the years ended December 31,
1999 and 1998.</P>
<P>(2) See Note 1 of Notes to Consolidated Financial Statements for an
explanation of the determination of the number of shares used to compute net
loss per share.</P></DIR>
</DIR>

<A NAME="item7"></A>
<P>&nbsp;<B>Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.</P>
</B><I><P>The following discussion of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and the related notes included elsewhere in this report. This
discussion contains forward-looking statements within the meaning of the
Securities Act and the Exchange Act. These statements typically refer to future
events or financial results, including statements in the future tense and
statements indicating that "we believe," "we expect," "we anticipate" or "we
intend" certain events may occur or certain trends may continue, that involve
risks and uncertainties. For example, these forward-looking statements include
our expectations about future levels of revenues and expenses. Although these
statements reflect the current judgment of our management, we can only base such
statements on facts and factors that we currently know. Our actual results could
differ materially from those anticipated in these forward-looking statements.
Factors that might cause those differences include those set forth under
"Factors That May Affect Future Operating Results."</P>
</I><B><P>Company Overview</P>
</B><P>We were incorporated in July 1994 as Onsale, Inc. and began auctioning
products on the Internet in May 1995. For the period from July 1994 to December
31, 1995, our operating activities consisted primarily of recruiting personnel,
purchasing operating assets, establishing vendor relationships and developing
the computer infrastructure necessary to conduct live auctions on the Internet.
During that period, we had total revenue of $140,000. We achieved profitability
in the first quarter of 1996 and we increased our total revenue and net income
in each quarter of 1996. In early 1997, we expanded our operations and increased
our staffing and marketing efforts, which resulted in higher operating expenses
and net losses in 1997, 1998 and 1999. In January 1999 we introduced our Onsale
atCost program, under which we sold computers and computer-related products at
prices equal to the amount invoiced by our vendors, plus charges for
transaction, payment processing and shipping fees, and taxes where appropriate.
In November 1999, we acquired Egghead.com, Inc. ("Old Egghead"). In connection
with that merger we changed our name to Egghead.com, Inc. In 2000 our revenues,
operating expenses and net losses declined as we eliminated unprofitable sales,
increased margin and eliminated duplicate costs.</P>
<P>The acquisition of Old Egghead was accounted for as a pooling of interests.
Accordingly, our financial statements have been restated to reflect our
financial position as of December 31, 1999 and results of operations for the
years ended December 31, 1999 and 1998 as if Old Egghead was our wholly-owned
subsidiary. Old Egghead used a 52/53 week fiscal year that ended on the Saturday
nearest March 31. For convenience, these fiscal years are referred to as "March
31." Old Egghead's results of operations from January 1, 1999 through the
acquisition date and the fiscal year ended March 31, 1999 are combined with our
historical results of operations for the years ended December 31, 1999 and 1998.
The operations of Old Egghead for the three month period ended March 31, 1999,
resulting in net sales and a net loss of $42.3 million and $12.8 million,
respectively, was included in the consolidated statements of operations for the
years ended December 31, 1999 and 1998. Accordingly, the net loss of $12.8
million for the three month period ended March 31, 1999 is reflected as an
adjustment to accumulated deficit in 1999.</P>
<P>The following discussion relates to the consolidated financial statements of
the combined company. </P>
<B><P>&nbsp;&nbsp;</P>
<P>Results of Operations</B> </P>
<P>&#9;The following table presents our results of operations for the three
years ended December 31, 2000, in absolute dollars and as a percentage of total
revenue, or in the case of gross profit, as a percentage of online revenue or
commission and other revenue, respectively. The operating results in any periods
are not necessarily indicative of the results to be expected for any future
period. </P></FONT>

<TABLE BORDER=0 CELLSPACING=1 CELLPADDING=1 WIDTH=642>
<TR><TD WIDTH="34%" VALIGN="BOTTOM" HEIGHT=16>
<P></TD>
<TD WIDTH="66%" VALIGN="BOTTOM" COLSPAN=11 HEIGHT=16>
<FONT SIZE=2><P ALIGN="CENTER">Years Ended December 31,
<HR NOSHADE SIZE=2>
</FONT></TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P>(Dollars in thousands)</FONT></TD>
<TD WIDTH="20%" VALIGN="BOTTOM" COLSPAN=3 HEIGHT=16>
<FONT SIZE=2><P ALIGN="CENTER">2000
<HR NOSHADE SIZE=2>
</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="20%" VALIGN="BOTTOM" COLSPAN=3 HEIGHT=16>
<FONT SIZE=2><P ALIGN="CENTER">1999
<HR NOSHADE SIZE=2>
</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="22%" VALIGN="BOTTOM" COLSPAN=3 HEIGHT=16>
<FONT SIZE=2><P ALIGN="CENTER">1998
<HR NOSHADE SIZE=2>
</FONT></TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P ALIGN="CENTER">Amount
<HR NOSHADE SIZE=2>
</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P ALIGN="CENTER">%
<HR NOSHADE SIZE=2>
</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P ALIGN="CENTER">Amount
<HR NOSHADE SIZE=2>
</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P ALIGN="CENTER">%
<HR NOSHADE SIZE=2>
</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="CENTER">Amount
<HR NOSHADE SIZE=2>
</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P ALIGN="CENTER">%
<HR NOSHADE SIZE=2>
</FONT></TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Revenue:</FONT></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Online</FONT></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">$462,711</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">96.6</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">$ 529,575</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">97.9</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">$ 376,628</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">99.0</FONT></TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Commission and other</FONT></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">16,137</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">3.4</U></FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">11,633</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">2.1</U></FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">3,981</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">1.0</U></FONT></TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Total revenue</FONT></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">478,848</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">100.0</U></FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">541,208</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">100.0</U></FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">389,609</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">100.0</U></FONT></TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="BOTTOM" HEIGHT=10><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=10><P></P></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=10><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=10><P></P></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=10><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=10><P></P></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=10><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=10><P></P></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=10><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=10><P></P></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=10><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=10><P></P></TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Gross profit:</FONT></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Online</FONT></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">21,111</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">4.6</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">15,994</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">3.0</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">32,405</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">8.6</FONT></TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Commission and other</FONT></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">16,137</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">100.0</U></FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">11,633</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">100.0</U></FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">3,981</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">100.0</U></FONT></TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Total gross profit</FONT></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">37,248</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">7.8</U></FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">27,627</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">5.1</U></FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">36,386</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">9.6</U></FONT></TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="BOTTOM" HEIGHT=10><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=10><P></P></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=10><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=10><P></P></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=10><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=10><P></P></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=10><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=10><P></P></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=10><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=10><P></P></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=10><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=10><P></P></TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Operating expenses:</FONT></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Sales and marketing</FONT></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">69,757</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">14.6</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">101,753 </FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">18.8</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">62,272 </FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">16.4</FONT></TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>General and administrative</FONT></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">19,807</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">4.1</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">22,017</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">4.1</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">18,783</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">4.9</FONT></TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Engineering </FONT></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">14,500</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">3.0</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">15,521</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">2.9</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">11,821</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">3.1</FONT></TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Amortization of goodwill </FONT></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">- </FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">- </FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">1,534</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">0.3</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">1,708</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">0.4</FONT></TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Merger costs</FONT></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">763</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">0.2</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">52,215</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">9.6</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Restructuring and impairment costs</FONT></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">-</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">- </U></FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">(2,735)</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">(0.5)</U></FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">-</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">-</U></FONT></TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="BOTTOM" HEIGHT=18>
<FONT SIZE=1><P>Total operating expenses</FONT></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=18>
<U><FONT SIZE=1><P ALIGN="RIGHT">104,827</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=18><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=18>
<U><FONT SIZE=1><P ALIGN="RIGHT">21.9</U></FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=18><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=18>
<U><FONT SIZE=1><P ALIGN="RIGHT">190,305</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=18><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=18>
<U><FONT SIZE=1><P ALIGN="RIGHT">35.2</U></FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=18><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=18>
<U><FONT SIZE=1><P ALIGN="RIGHT">94,584</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=18><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=18>
<U><FONT SIZE=1><P ALIGN="RIGHT">24.9</U></FONT></TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="BOTTOM" HEIGHT=18>
<FONT SIZE=1><P>Loss from operations</FONT></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=18>
<FONT SIZE=1><P ALIGN="RIGHT">(67,579)</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=18><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=18>
<FONT SIZE=1><P ALIGN="RIGHT">(14.1)</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=18><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=18>
<FONT SIZE=1><P ALIGN="RIGHT">(162,678)</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=18><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=18>
<FONT SIZE=1><P ALIGN="RIGHT">(30.1)</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=18><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=18>
<FONT SIZE=1><P ALIGN="RIGHT">(58,198)</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=18><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=18>
<FONT SIZE=1><P ALIGN="RIGHT">(15.3)</FONT></TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Equity in net loss of joint venture</FONT></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">(571) </FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">(0.1) </FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">(1,001)</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">(0.2)</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">(200)</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">(0.1)</FONT></TD>
</TR>
<TR><TD WIDTH="34%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Interest and other income, net</FONT></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">5,950</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">1.2</U></FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">8,750</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">1.6</U></FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="12%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">9,309</U></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">2.4</U></FONT></TD>
</TR>

<TR><TD WIDTH="34%" VALIGN="TOP" HEIGHT=18>
<FONT SIZE=1><P>Net loss</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=18>
<FONT SIZE=1><P ALIGN="RIGHT">$(62,200)
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=18><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=18>
<FONT SIZE=1><P ALIGN="RIGHT">(13.0)
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=18><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=18>
<FONT SIZE=1><P ALIGN="RIGHT">$(154,929)
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=18><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=18>
<FONT SIZE=1><P ALIGN="RIGHT">(28.6)
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=18><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=18>
<FONT SIZE=1><P ALIGN="RIGHT">$ (49,089)
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=18><P></P></TD>
<TD WIDTH="9%" VALIGN="TOP" HEIGHT=18>
<FONT SIZE=1><P ALIGN="RIGHT">(12.9)
<HR NOSHADE SIZE=3>
</FONT></TD>
</TR>
</TABLE>

<B><FONT SIZE=2><P ALIGN="JUSTIFY">&nbsp;</P>
<P>Revenue</P>
</B><P>Our revenue consists of online revenue and commission and other revenue.
Online revenue consists of sales of merchandise, services and shipping and
handling revenue, net of returns. Commission and other revenue consists of
commissions on auction and clearance sales, vendor market development funds and
advertising revenue. For a more detailed description of our sources of revenue,
the risks that we bear under each revenue model and the revenue recognition for
each, see note 1 of the notes to the consolidated financial statements</P>
<I><P>Revenue fluctuation. </I>Online revenue decreased $66.9 million, or 12.6%,
from 1999 to 2000, and increased $152.9 million, or 40.6%, from 1998 to 1999.
The decline in revenue from 1999 to 2000 was primarily attributable to the
following factors: </P>

<UL>
<LI>our decision to eliminate unprofitable sales; </LI>
<LI>raising prices with the goal of increasing margin;</LI>
<LI>reducing
advertising spending and re-deployment of a significant portion of our marketing
budget to develop our business account management team, which had the effect of
reducing sales to consumers; and
<LI>the downturn in
the U.S. economy and weakening demand for technology products.
</UL>


<P>The increase in online revenue from 1998 to 1999 was primarily attributable
to the following factors: </P>


<UL>

<LI>growth of our online customer base due primarily to investments in marketing
programs designed to promote and maintain awareness of our brand;
<LI>the opening of
our Onsale atCost web site in January 1999;
<LI>increases in the
amounts and types of merchandise obtained from vendors for sale through our
superstore (fixed price format) and auction web pages;
<LI>increased daily
and weekly auctions; and
<LI>the introduction
of new auction services such as Quick Buy and Express Auctions.</P>
</UL>

<P>Commission and other revenue increased from 1998 to 1999 and from 1999 to
2000 primarily due to increased advertising revenue. We expect advertising
revenue to decline during 2001 due to softening in demand for online advertising
and our shift in business strategy away from the consumer market. </P>
<P>We expect our total revenue during the first quarter of 2001 to be less than
our total revenue during the fourth quarter of 2000. Due to current economic
slowdown in the U.S. economy, there is increased uncertainty with respect to our
expected revenues in upcoming quarters in 2001. We are seeking to increase our
product margins and manage our expenses to achieve profitability by the fourth
quarter of 2001, rather than seeking to grow revenues without regard to margins.
We also expect the average transaction size for customer purchases to increase
as we continue to shift our focus towards sales to small and medium size
business customers and away from consumers. See "Factors That May Affect Future
Operating Results -- Our operating results may fluctuate significantly and may
be difficult to predict."</P>

<I><P>New goods vs. closeout and excess goods</I>. During 2000, revenue from
sales of new goods and sales of excess and closeout goods constituted 41% and
58% of our revenue, respectively. During 1999, revenue from sales of new
goods and sales of excess goods was 32% and 66% of our
revenue, respectively. The increase in the percentage of revenue from the sale
of new goods was due primarily to a shift in our focus to sales to small to
medium size businesses. We expect the percentage of revenue produced by sales of
new goods to increase as we continue to shift our marketing focus towards this
market. </P>
<B><P>Gross Profit</P>
</B><P>Gross profit is total revenue minus cost of revenue. Cost of online
revenue consists of the cost of merchandise sold, inventory reserve adjustments
and shipping and handling expense. There is no significant cost of commission
and other revenue. Gross margin is gross profit as a percentage of revenue.</P>

<P>Gross margin for online revenue was 4.6%, 3.0% and 8.6%, respectively, for
2000, 1999 and 1998. The increase in gross margin from 1999 to 2000 resulted
primarily from raising prices on new and excess and closeout goods sold in fixed
price formats, limiting the quantity of auction merchandise available for bid at
any one time - which tends to make the price go up, and adding a flat fee
shipping charge on new merchandise orders. The decrease in gross margin from 1998 to
1999 reflected a general decrease in selling prices of computers and related
merchandise, lower margins associated with auction, clearance and smart deals
merchandise and our introduction of the Onsale atCost web site in January
1999,which sales generally produced lower margins than auction and smart deals
direct sales. The decrease in margins associated with auction merchandise
resulted from our efforts to increase auction sales and market share by
increasing the quantities of products available for bid at any one time, which
tends to lower final sales prices. Additionally, we conducted an aggressive
marketing campaign associated with Onsale atCost sales in which, for most of the
second and fourth quarters of 1999, we waived fees charged for transaction
processing and shipping. We also offered promotional pricing on specific
products to compete with prices offered by our competitors. </P>

<P>We intend to continue our efforts to improve gross margins. However, intense
ongoing industry-wide competitive price pressures may
compel us to reduce the selling prices on some of our products, which from time to time, could
reduce overall gross margins.</P>
<B><P>Operating Expenses</P>
</B><P>Our operating expenses as a percentage of revenue, excluding merger and
restructuring and impairment costs, were 21.7%, 26.1% and 24.9% for 2000, 1999
and 1998, respectively. In 1999 and 1998 these expenses reflected the cost of
operating two separate businesses prior to the merger with Old Egghead and the
cost of promoting our brand name. We believe our operating expenses will
continue to decline as we cut costs, focus on our strategy of capitalizing on
our installed base through our business accounts management group, and implement
opportunities to further streamline our business as new technologies come on
stream throughout the year.</P>
<I><P>Sales and Marketing</I>. Sales and marketing expenses consist primarily of
advertising expenditures, payroll and related expenses for sales, customer
service, marketing and merchandise acquisition personnel, distribution and
credit card processing costs. Sales and marketing expenses as a percentage of
revenue were 14.6%, 18.8% and 16.4% for 2000, 1999 and 1998, respectively. The
decrease from 1999 to 2000 was primarily attributable to elimination of
duplicate costs, efficiencies resulting from our merger with Old Egghead and
reductions in advertising costs. The increase from 1998 to 1999 was primarily
attributable to increased spending on radio, print and online marketing and
advertising programs, including marketing of our Onsale atCost web site.
Additionally, we expanded our customer service department during 1999. </P>
<P>We expect sales and marketing expenses to decrease in the future as we employ
expense control measures and continue to shift our focus from building brand
awareness through mass marketing to marketing directly to small and medium
business prospects and our existing registered business customers through
telemarketing, direct mail and e-mail.</P>
<I><P>General and Administrative</I>. General and administrative expenses
consist primarily of payroll and related expenses for executive, accounting and
administrative personnel, bad debt expense, facilities expenses, recruiting and
other general corporate expenses. General and administrative expenses as a
percentage of revenue were 4.1%, 4.1% and 4.9% for 2000, 1999 and
1998, respectively. As a percentage, general and administrative expenses remained relatively
constant from 1999 to 2000 as we eliminated duplicate costs and responded to
lower revenues by further controlling expenses. The decrease from 1998 to 1999
was primarily due to controlling expense growth with a higher volume of sales.
The 1998 expense reflects increased hiring to support the online business for
Old Egghead and Onsale. We expect general and administrative expenses to decline
in 2001 due to expense control measures including consolidation of facilities
and reductions in force.</P>
<I><P>Engineering</I>. Engineering expenses consist primarily of payroll and
related expenses for engineering personnel and consultants who develop, enhance,
manage, operate and monitor our web site and related systems, as well as related
equipment costs, other than those capitalized in accordance with Statement of
Position 98-1 (SOP 98-1) and Emerging Issues Task Force 00-2 (EITF 00-2).
Engineering expenses as a percentage of revenue were 3.0%, 2.9% and 3.1%
for 2000, 1999 and 1998, respectively. The increase in 2000 resulted primarily
from lower revenues. The decrease in 1999 was due to leveraging the partially
fixed expenses with higher sales. Prior to 1998, all engineering costs were
expensed as incurred. In 1998, we adopted the American Institute of Certified
Public Accountants' ("AICPA") Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1")
and, accordingly, capitalized engineering costs related to internally developed
software. During 2000, we capitalized $3.4 million of software expense of
which $300,000 was related to engineering costs for internally developed
software. During 1999, we capitalized $6.1 million of software expense of
which $4.9 million was related to engineering costs for internally developed
software. During 1998, we capitalized $6.2 million of software
expense, of which $3.6 million was related to internally developed software.
During the fourth quarter of 1999, we wrote off Old Egghead capitalized software
totaling approximately $6.2 million, net of accumulated depreciation. See Merger
Costs below. </P>

<P>We expect engineering expenses to decrease significantly in 2001 as we
eliminate remaining duplicate costs and institute cost control measures.</P>


<I><P>Merger Costs.</I> In connection with our acquisition of Old Egghead, we
recorded merger-related expenses of approximately $800,000 and $52.2 million in
2000 and 1999, respectively. In 2000, these expenses consisted primarily of
$2.4 million of additional merger related severance payments
partially offset by the reduction of $1.7 million in 1999 merger
reserves. In 1999, we recorded merger-related expenses of $52.2
million for direct transaction costs including investment banking and financial
advisory fees of $7.0 million and other merger related expenses of
$6.8 million, consisting primarily of professional services, severance costs,
contract termination costs and other merger related expenses. We also wrote off
assets representing duplicate facilities which were abandoned, including
hardware and software of $8.7 million and goodwill of $30.5
million associated with these duplicate facilities.</P>

<I><P>Restructuring and Impairment Charges</I>. Restructuring income in 1999
reflects the change in management's estimate of costs remaining to complete the
closure of Old Egghead's retail network, which is substantially complete. These
changes in estimates primarily related to the resolution of lease obligations
for former retail facilities. Additionally, in the first calendar quarter of
1999, Old Egghead announced plans to move the remaining headquarters functions
from Liberty Lake, Washington to Vancouver, Washington and recorded a
restructuring charge of approximately $890,000 related to the move. This
restructuring charge was offset by a reduction of approximately the same amount
in 1997 restructuring reserves. The obligations were substantially settled by
the end of 1999.</P>
<B><P ALIGN="JUSTIFY">Equity in Net Loss of Joint Venture</P>
</B><P>On May 15, 1998, we entered into a joint venture agreement with Softbank
Corporation to perform on-line auctions for the Japanese market, resulting in
the formation of Onsale Japan K.K., which commenced operations in the third
quarter of 1998. Our share of the initial investment in Onsale Japan K.K.,
approximately $2.0 million, was funded through an unsecured promissory note
payable to Softbank. Through the second quarter of 2000, we owned a 40% interest
in the joint venture and accounted for this interest using the equity method of
accounting. Accordingly, we recognized our share of net profits or losses of the
joint venture as an adjustment to our initial investment amount. On July 3, 2000
we sold 52.5% of our interest in Onsale Japan K.K. to Indigo Corporation for
approximately $2.5 million, representing a gain of approximately $2.3 million on
our investment. Our share of the net loss of the joint venture was approximately
$571,000, $1.0 million and $200,000 in 2000, 1999 and 1998, respectively. There
is no remaining carrying value in this asset. </P>

<B><P ALIGN="JUSTIFY">Interest and Other Income, Net</P>
</B><P>Our interest and other income, net, was $5.9 million, $8.8 million and
$9.3 million in 2000, 1999 and 1998, respectively. In 2000, our interest and
other income, net consisted primarily of interest income of $3.2 million,
gain from the sale of 52.5% of our equity interest in Onsale Japan K.K. of
$2.3 million, and recognition of previously deferred gain of
$662,000 from the sale by Old Egghead of Elekom Corporation. Interest income
declined from 1999 to 2000 due primarily to lower cash balances resulting
primarily from net losses and reductions in accounts payable, accrued expenses
and deferred revenue. In 1999, income included increased interest earned on
higher cash balances due to the secondary offering of Old Egghead common stock
in March 1999, which resulted in net proceeds of $72.9 million,
partially offset by decreased cash balances resulting from net losses and
increased purchases of merchandise inventory. The 1998 income includes a gain of
$3.3 million from the sale of all of Old Egghead's equity interest in Elekom
Corporation in November 1998, and interest earned on increased cash balances
resulting from the initial and secondary public offerings of our common stock in
April and October 1997, which resulted in net proceeds of $14.8
million and $45.1 million, respectively.</P>
<B><P>Income Taxes</P>
</B><P>We had net losses in 2000, 1999 and 1998, and therefore we did not record
any provision for income taxes in those years. </P>
<B><P>Liquidity and Capital Resources</P>
<I><P>Cash Inflows and Outflows </P>
</B><P>Operating Activities</I>. Net cash used in operating activities was $74.7
million in 2000, $70.9 million in 1999 and $47.3 million in 1998. The net cash
used in operating activities in 2000 was primarily attributable to our net loss
of $62.2 million, decreases in accounts payable, accrued expenses and deferred
revenue of $8.2 million, $8.2 million and $4.5 million, respectively, and a $4.0
million increase in reserves by our credit card processor, offset by a decrease
in other accounts receivable of $1.3 million. These uses of cash were partially
offset by reductions in inventory and prepaid expenses and other assets of $8.1
million and $1.2 million, respectively, and depreciation and amortization
expense of $4.7 million. The reductions in accounts payable and accrued expenses
reflect the payment of $10.9 million in merger-related costs and $8.0 million of
non-recurring pay downs of accounts payable related to duplicate costs in the
fourth quarter of 1999.</P>
<P>Net cash used in operating activities in 1999 was primarily attributable to
our net loss from operations of $154.9 million. The net loss was partially
offset by depreciation and amortization expense of $9.2 million, the $39.2
million write off of duplicate assets and associated goodwill related to the
acquisition of Old Egghead, an increase in accounts payable of $8.3 million and
an increase in accrued expenses of $11.6 million. Additionally, the uses were
partially offset by elimination of the duplication of Old Egghead's fiscal 1999
fourth quarter loss of $12.8 million.</P>
<P>Net cash used in operating activities in 1998 was primarily attributable to
our net loss from operations of $49.1 million, a decrease in restructuring
liabilities of $10.7 million, an increase in merchandise inventory of $4.8
million and a gain on sale of equity investment of $3.3 million. These uses were
partially offset by depreciation and amortization expense of $6.1 million, an
increase in accounts payable of $9.1 million, an increase in accrued expenses of
$3.2 million and an increase in deferred revenue of $1.3 million. </P>

<I><P>Investing Activities</I>. Net cash provided by investing activities was
$7.8 million during 2000, consisting of net proceeds of $14.4 million from the
sale of short term marketable securities, proceeds of $2.6 million from the sale
of 52.5% of our equity interest in Onsale Japan K.K. and proceeds of $662,000
from collection of our final payment from the sale of Elekom, offset by an
investment of $9.9 million in property and equipment. Net cash used in investing
activities was $7.9 million during 1999, primarily the result of the purchase of
$13.1 million of property and equipment. Net cash used in
investing activities was $23.5 million during 1998, consisting primarily of our
net investment of excess cash of $20.7 million in short term marketable
securities, and an investment of $13.2 million in property and equipment,
including fixtures and equipment for our new corporate headquarters and
California warehouse, continued investment in hardware required for our web
sites and related software and hardware, partially offset by net proceeds of
$7.1 million from the sale of the former Old Egghead headquarters building and
net proceeds of $3.3 million from the sale of Old Egghead's equity interest in
Elekom Corporation. </P>

<I><P>Financing Activities.</I> Net cash provided by financing activities of
$27.6 million in 2000 consisted of proceeds of $26.8 million from sales of
common stock under our equity financing agreement with Acqua Wellington, and
proceeds of $800,000 from the issuance of common stock under our stock option
and employee stock purchase plans. Net cash provided by financing activities of
$4.0 million in 1999 resulted primarily from the issuance of
common stock under our stock option and employee stock purchase plans. Net cash
provided by financing activities of $92.2 million in 1998 primarily consisted of
net proceeds of $72.9 million from the secondary public offering of Old Egghead
common stock in March 1999, and proceeds of $19.9 million from stock issuances
under our stock option and employee stock purchase plans. </P>

<B><I><P ALIGN="JUSTIFY">Cash, Cash Equivalents and Commitments</P>
</B><P>Cash and Cash Equivalents</I>. As of December 31, 2000, we had
approximately $31.5 million of cash and cash equivalents and $1.2 million of
short-term available-for-sale investments, compared to $70.7 million of cash and
cash equivalents and $15.5 million of short-term available-for-sale investments
as of December 31, 1999. </P>
<I><P>Commitments</I>. Our principal capital commitments as of December 31, 2000
consisted of:</P>

<UL>
<LI>&#9;We had obligations under operating leases for our corporate offices and
warehouses of $7.3 million in the aggregate, and obligations under additional
operating leases of $400,000 in the aggregate. These amounts do not include
obligations related to retail store leases which have been fully provided for.
</LI>
<LI>&#9;We anticipate spending approximately $2.0 million on various capital
items during 2001. </LI>
<LI>&#9;We had commitments for advertising and promotional arrangements of
approximately $2.6 million. In addition, we had entered into sponsorship
agreements which allow us to appear as the sponsor on specific web sites. These
agreements, which expire at various times up to June 2001, require future
payments of up to approximately $1.2 million and incremental fees based on the
volume of traffic to our web site. </LI>
<LI>&#9;We had $1.2 million of restricted cash, which primarily represented
collateral for the lease of our Vancouver, Washington office and warehouse.</LI>
<LI>We owed $2.0 million, plus accumulated interest and
exclusive of foreign exchange costs, to Softbank Corporation under an unsecured
promissory note denominated in Japanese Yen, that we used to fund our initial
investment in our Onsale Japan K.K. joint venture. The principal amount of this
note and accrued interest was due upon the earlier of the closing date of an
initial public offering of the joint venture or December 2002.</LI></P></UL>

<P ALIGN="JUSTIFY">In February 2001, we entered into an inventory financing
agreement with IBM Credit Corporation. We may borrow up to $20 million under
this credit line to finance our purchases of inventory. IBM has obtained a
security interest in our inventory and equipment, accounts and accounts
receivable and general intangibles as collateral for amounts that we borrow
under this agreement. Because we may only obtain financing for purchases of
inventory from approved vendors and only up to the amount of inventory and other
collateral that we currently possess, we may not be able to borrow the maximum
amount under this agreement. As of March 30, 2001, we owed $1.3 million under
this credit line. This agreement requires us to make payments to IBM on a tri-
monthly basis for amounts borrowed under this credit line, and imposes several
requirements and restrictions on us, including restrictions on our ability to
sell our assets, merge with other entities, incur most forms of additional debt
and make specified forms of investments, among others. This credit facility
expires in February 2002. </P>
<P ALIGN="JUSTIFY">We began to offer credit to business customers on our site in
the fourth quarter of 1999. During 2000, 5% of our sales were financed by our
customers through our credit services, and we expect this percentage to grow as
we continue to shift our focus to the small and medium business market. As a
result, we expect our accounts receivable to grow and our immediate cash intake
from sales to decrease.</P>
<P>We expect to continue to incur net losses, and we will have to use our
existing cash resources to support our operations. We believe that our current
cash and cash equivalents, together with amounts available to us under our
financing credit line with IBM, will meet our anticipated cash needs for working
capital expenditures for the next 12 months. However, if IBM elects to terminate
this credit line due to a default, or we do not achieve profitability by the
fourth quarter of 2001 or if we do not sustain profitability thereafter, we will
need to obtain additional financing to support our operations. See "Factors That
May Affect Future Operating Results - If we default under our inventory
financing agreement, or if this agreement is not renewed, we may experience a
cash shortfall." The trading price of our common stock economic conditions for
Internet companies generally makes it more difficult for us to obtain financing
through the issuance of equity or convertible debt securities. Other financing,
including vendor financing, may become more difficult to obtain on terms
favorable to us, or may not be available to us at all, due to our financial
position and continuing losses. Therefore, additional financing may not be
available on terms favorable to us, or may not be available to us at all. </P>
<B><P ALIGN="JUSTIFY">New Accounting Pronouncements</P>
</B><P>In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. The new
standard requires companies to record derivatives on the balance sheet as assets
or liabilities, measured at fair value. Gains or losses resulting from changes
in the values of those derivatives would be accounted for depending on the use
of the derivative and whether it qualifies for hedge accounting. Because we do
not use derivatives, the new standard is expected to have no material impact on
our financial position or results of operations. SFAS No. 133 will be effective
for 2001.</P>
<P>In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition," which provides guidance on
the recognition, presentation, and disclosure of revenue in financial statements
filed with the SEC. SAB 101 outlines the basic criteria that must be met to
recognize revenue and provides guidance for disclosures related to revenue
recognition policies. Our revenue recognition policies comply with the
requirements of SAB 101.</P>
<P>In July and September 2000, consensus was reached by the Emerging Issues Task
Force regarding Issue 00-10, Accounting for Shipping and Handling Fees. EITF 00-
10 requires companies to report all shipping and handling revenue received from
a customer as revenue. In previous years, we reported a portion of our shipping
revenue as a reduction of shipping cost in cost of sales. In order to comply
with EITF 00-10, we have reclassified shipping revenue previously recorded in
cost of sales to online revenue. This reclassification results in an increase in
online and net revenue, no change in gross profit dollars, and a slight decrease
in gross profit margin. This reclassification results in the following changes
to online revenue, total revenue and gross margins for 1999, 1998, 1997 and 1996
(dollars in thousands): </P></FONT>

<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=1 CELLPADDING=7 WIDTH=491>
<TR><TD WIDTH="31%" VALIGN="BOTTOM" HEIGHT=16>
<P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="68%" VALIGN="BOTTOM" COLSPAN=7 HEIGHT=16>
<FONT SIZE=1><P ALIGN="CENTER">Years Ended December 31, </FONT></TD>
</TR>
<TR><TD WIDTH="31%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="CENTER">1999</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="CENTER">1998</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="CENTER">1997</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="CENTER">1996</FONT></TD>
</TR>
<TR><TD WIDTH="31%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>As currently reported:</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="31%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Online revenue </FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">$ 529,575</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">$ 376,628</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">$ 154,939</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">$ 14,893</FONT></TD>
</TR>
<TR><TD WIDTH="31%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Total revenue</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">541,208</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">380,609</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">391,265</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">375,896</FONT></TD>
</TR>
<TR><TD WIDTH="31%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="31%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>As previously reported:</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="31%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Online revenue </FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">$ 503,171</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">$ 352,491</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">$ 145,734</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">$ 13,981</FONT></TD>
</TR>
<TR><TD WIDTH="31%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Total revenue</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">514,804</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">356,472</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">382,060</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">374,984</FONT></TD>
</TR>
<TR><TD WIDTH="31%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="31%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>As currently reported:</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="31%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Online margin </FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">3.0%</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">8.6%</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">11.9%</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">10.9%</FONT></TD>
</TR>
<TR><TD WIDTH="31%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Total margin</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">5.1%</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">9.6%</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">12.7%</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">15.8%</FONT></TD>
</TR>
<TR><TD WIDTH="31%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="31%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>As previously reported:</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="31%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Online margin </FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">3.2%</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">9.2%</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">12.6%</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">11.6%</FONT></TD>
</TR>
<TR><TD WIDTH="31%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Total margin</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">5.4%</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">10.2%</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">13.0%</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">15.9%</FONT></TD>
</TR>
</TABLE>
</CENTER></P>

<B><FONT SIZE=2><P ALIGN="CENTER">Factors That May Affect Future Operating
Results</P>
</B><I><P>You should consider the risks described below and the other
information in this report carefully. The risks described below are not the only
ones we face. Additional risks that we are aware of or that we currently believe
are immaterial may become important factors that affect our business. If any of
the following risks occur, or if others occur, our business, operating results
and financial condition could be seriously harmed. The trading price of our
common stock could decline due to any of these risks.</P>
</I><P>&nbsp;</P>
<B><I><P>If we default under our inventory financing agreement, or if it is not
renewed, we may experience a cash shortfall.</P>
</B></I><P>In February 2001, we entered into an inventory financing credit line
under which we may borrow up to $20 million to finance our purchases of
inventory. We granted the lender a security interest in substantially all of our
assets as collateral for amounts that we borrow under this agreement. Because we
may only obtain financing for purchases of inventory from approved vendors and
only up to the amount of inventory and other collateral that we currently
possess, we may not be able to borrow the maximum amount under this agreement.
As of March 30, 2001, we owed approximately $1.3 million under this credit line.
This agreement requires us to make payments to IBM on a tri-monthly basis for
amounts borrowed under this credit line, and imposes restrictions on our ability
to sell our assets, merge with other entities, incur most forms of additional
debt and make specified forms of investments. The agreement provides that any of
the following events, as well as others specified in the agreement, may
constitute a default by us under the agreement:</P>


<UL>
<LI>Failure to make
payments under this agreement on time;
<LI>Failure to comply
with the requirements and restrictions imposed on us by this agreement;
<LI>Default under
our other obligations;
<LI>Receipt of a
"going concern" qualification by the auditors in connection with their audit or
opinion; and
<LI>Other events
which could have a material adverse effect on our company.
</UL>


<P>If we default under this agreement, and the default is not cured by us or
waived by the lender, it may elect to accelerate all amounts due and terminate
the credit line, foreclose on the collateral subject to a security interest
under this agreement, and sue us for other amounts due and other damages. Any of
these results could force us to cease operations or could result in a shortfall
of cash for the company.</P>
<P>This inventory financing agreement expires in February 2002, unless it is
renewed by both parties. If the lender elects to terminate this financing line
due to a default, or does not renew it, and we do not achieve and sustain
profitability beforehand, we will likely need to seek alternative financing. The
trading price of our common stock and the stock market and economic conditions
for Internet sector, may make it more difficult for us to obtain financing
through the issuance of equity or debt securities. Therefore, this form of
financing may not be available on terms favorable to us, or may not be available
at all. Other financing, including vendor financing, may become more difficult
to obtain on terms favorable to us, or may not be available to us at all, due to
our financial position and continuing losses. If we are able to obtain
financing, the sale of additional equity or debt securities will result in
additional dilution to our common stockholders. Additionally, we could issue
securities that have rights senior to the rights of common stockholders. </P>
<B><I><P>Our business partners could elect to tighten the terms of their
relationships with us, which could impact our cash reserves and our ability to
purchase inventory and generate revenue.</P>
</B></I><P>We have agreements and relationships with several third party vendors
that are integral to conducting our operations, particularly with respect to
purchases of inventory and sales to customers. These vendors may perceive that
there is increased risk in doing business with us due to the downturn in the
U.S. economy and our current financial position. If these third parties elect to
tighten the terms of their relationships with us, this could make it more
difficult for us to do business. These relationships include the following: </P>
<I><P>Financing</I>. We finance a significant portion of the inventory that we
purchase from our vendors on credit offered by these vendors. Over the past
year, some of these vendors have tightened the terms of our credit arrangements
by decreasing the amount of time we have to pay off this credit. The terms of
these credit relationships may be tightened further in the future, and if these
credit terms become too restrictive, this could negatively impact our cash
reserves and our ability to purchase inventory and generate revenue. </P>
<I><P>Payment processing</I>. We rely on primarily one credit card transaction
processor, Wells Fargo. Our agreement with Wells Fargo allows it to withhold a
reserve from the amounts it pays to us in connection with processing our credit
card transactions. During the fourth quarter of 2000, Wells Fargo began
withholding a reserve. If they elect to increase this reserve, this would
further limit our cash inflow from credit card transactions and could negatively
impact our cash position.</P>
<B><I><P>Our projection that we will become profitable by the end of this year
is subject to risks and uncertainties, and if we fail to meet this projection,
to become profitable at all, or to sustain profitability, we may experience a
cash shortfall or be subject to securities litigation.</P>

</B></I><P>We previously announced that we expect to become profitable during
the fourth quarter of 2001. However, we cannot guarantee that we will meet this
projection, or that we will ever achieve profitability.
Based on historical financial statements adjusted to reflect the pooling of our results with those of Old Egghead,
we have incurred net
losses since our inception, and as of December 31, 2000 we had a net accumulated
deficit of approximately $330.8 million. Our revenues decreased each calendar
quarter in 2000, and we expect our revenues to decline from 2000 levels. We
expect to continue to incur net losses, and our ability to achieve revenues that
exceed expenses in the future is subject to many risks and uncertainties
described in this report and other risks and uncertainties. Even if we do
achieve profitability, we may not be able to sustain or increase profitability
on a quarterly or annual basis in the future. </P>
<P>If we fail to achieve profitability by the fourth quarter of 2001, and to
sustain and increase profitability thereafter, we may experience a cash
shortfall and may not have enough cash to support our operations. Failure to
achieve profitability in line with our projection, and to sustain and increase
profitability thereafter, may also result in a decline in the trading price of
our common stock and may subject us to securities litigation.</FONT><B> </P>
<I><FONT SIZE=2><P>General economic conditions and reduced demand for computers
and related products and services may prevent us from achieving targeted
revenues and profitability.</P>
</B></I><P>Our revenues and our ability to achieve and sustain profitability
depends significantly on the overall demand for personal computers and related
products and services. Our customers' decisions to purchase our products and
services are to some extent discretionary and subject to their internal budgets
and purchasing processes. The slowdown in the U.S. economy may cause customers
to defer or alter purchasing decisions, and accordingly could reduce demand for
our products and services. Softening demand for these products and services
caused by worsening economic conditions has resulted and may result in the
future in decreased revenues. As a result, there is increased uncertainty with
respect to our expected revenues in 2001, and further delays or reductions in
business and consumer spending on personal computers and related products and
services could have a material adverse effect on our revenues and operating
results. If our revenues decline we may be required to cut costs by reducing our
workforce, which may affect our ability to execute on our business plan.</P>
<B><I><P>Our new direct marketing efforts may not be successful, and this shift
in our business strategy may make our business more difficult to evaluate.</P>
</B></I><P>To execute on our direct marketing strategy, we face several
challenges, including:</P>

<UL>

<LI>managing risks
associated with accounts receivable expansion and collection;
<LI>maintaining and
improving existing operational, financial and inventory systems, procedures and
controls, and implementing new systems, procedures and controls;
<LI>integrating new
key managerial and technical employees into our existing management team;
and
<LI>hiring, training and retaining knowledgeable and skilled sales
personnel.</LI></UL>

<P>Recently-hired business account managers will require time to learn our
business, and once they become assimilated into our organization we do not know
whether they will be able to generate revenues at the same rate as our existing
business account managers. Our business account management team may suffer from
inefficiencies arising from the recent growth of this team. Turnover or
workforce reductions may also make it more difficult for our business account
management team to operate efficiently. If our direct marketing efforts prove
unsuccessful, we may not achieve targeted revenues and may not achieve
profitability in line with our projected schedule, or at all. In addition,
because we have refocused our business model, our operating history prior to the
third quarter of 2000 does not provide meaningful information upon which you may
evaluate our business and prospects. Because we are to some extent changing our
target customer base, and because our direct marketing strategy is new and
unproven, our business may be more difficult to evaluate going forward.</P>

<B><I><P>We rely on merchandise vendors for supply and shipping
of products.</P>
</B><P>Supply</I>. We rely on vendors to supply our merchandise. During 2000,
purchases from Tech Data, a distributor of computers and related products,
accounted for approximately 36% of our aggregate merchandise purchases. For the
past two years, we have operated under a contract with Tech Data, but this
contract has expired. We are currently operating under the terms of the expired
agreement and are negotiating an additional one-year extension of this contract.
We cannot assure you that we will be able to renew this
contract on terms favorable to us, or at all. Neither this agreement nor any
other agreements that we have with our vendors guarantee the availability of
merchandise. As a result, we may not be able to obtain sufficient quality and
quantities of merchandise at competitive prices. Also, the quality of service
provided by such parties may fall below the standard needed to enable us to
conduct our business effectively. We cannot assure you that our current vendors
will continue to supply merchandise or that we will be able to establish new
vendor relationships that will ensure that merchandise will be available.</P>

<I><P>Customer service--shipping and returns.</I> We rely on some of our vendors
to ship merchandise directly to customers. Consequently, we have limited control
over the goods shipped by these vendors, and shipments of goods may be subject
to delays and shipment errors. We have experienced delays and errors in the
past. Delays in fulfilling orders could result in a loss of customers, and may
subject us to litigation or regulatory scrutiny. The FTC informed us that it
believes our shipping practices violate the FTC's Mail and Telephone Order
Rules, and as a result has proposed that we pay a fine and adopt new systems and
procedures regarding our shipping practices. Shipping delays, unexpected
inventory shortfalls or other problems with third party fulfillment of orders in
the future could subject us to litigation or further regulatory scrutiny. In
addition, we sometimes accept returns from customers for which we receive no
reimbursement from the manufacturer or vendor. If the level of returns exceeds
expectations, this could materially harm our operating results. </P>
<B><I><P>Our operating results may fluctuate significantly and may be difficult
to predict.</P>
</B></I><P>We expect our operating results to fluctuate over time due to a
number of factors, many of which are outside our control. These factors
include:</P>

<UL>
<LI>economic
conditions generally and demand for technology products in particular;
<LI>our ability to
decrease expenses in line with revenues;
<LI>the effectiveness
of our direct marketing efforts, and the level of traffic at our web
site;
<LI>decreases in
revenues as we phase out sales of unprofitable products;
<LI>pricing
competition;
<LI>the availability
and pricing of merchandise from our vendors, and payment terms that may be
required by our vendors;
<LI>the introduction
of new types of merchandise, service offerings or customer services by us or our
competitors, and our ability to manage our inventory mix and the mix of products
offered for auction;
<LI>seasonal
fluctuations in sales of new, closeout and excess merchandise and in the
availability of closeout and excess merchandise; and
<LI>the impact of
workforce reductions.
</UL>

<P>Due to these factors, factors discussed elsewhere in this document, or
unforeseen factors, in some future quarter our operating results may not meet
the expectations of securities analysts and investors, in which event the
trading price of our common stock may decline.</P>
<B><I><P>If our common stock is delisted by Nasdaq, the trading price of our
common stock could drop and it may be more difficult to trade our common
stock.</P>
</B></I><P>Our common stock trades on the Nasdaq National Market, which imposes
requirements to maintain continued listing of common stock on this market. One
of these requirements is that we must maintain a minimum bid price of $1.00 per
share for our common stock. If we fail to meet this requirement for 30
consecutive business days, we will receive a delisting notice from Nasdaq. Upon
receipt of this notice, we would then have 90 calendar days to comply, and
during this period the minimum closing bid price per share must increase above
$1.00 per share for 10 consecutive business days during this period to comply.
Following this period, we could appeal to Nasdaq for a hearing regarding the
determination to delist our common stock from the Nasdaq National Market. As of
the close of business on March 30, our common stock closed at a minimum
price of $0.75 per share, and had closed below $1.00 per share for 24
consecutive business days.</P>

<P>Delisting could reduce the ability of holders of our common stock to purchase
or sell shares as quickly and as inexpensively as they have done historically.
This reduced liquidity would make it more difficult for us to raise capital in
the future. In addition, the trading price of our common stock could decline due
to the change in liquidity and reduced exposure resulting from being delisted
from the Nasdaq National Market.<B> </P>
</B></FONT><H5>Our future success depends on our ability to retain and motivate
highly skilled employees. </H5>
<FONT SIZE=2><P>We face several challenges associated with retaining our key
employees. Competition for qualified employees is strong. We grant stock options
as a method of attracting and retaining employees, to motivate performance and
to align the interests of management with those of our stockholders. Due to the
decline in the trading price of our common stock during 2000 and early 2001, a
substantial portion of the stock options held by our employees have an exercise
price that is higher than the current trading price of our common stock. We plan
to issue new stock options to our employees which vest based on the
profitability of the company, but because we expect to incur operating losses
for the next few quarters, these options may not be effective in retaining
employees in the near term. In addition, in March 2001 we announced a reduction
in force, and this may create concern about job security among existing
employees that could lead to increased turnover. As a result of these factors,
we may have difficulties in retaining current highly skilled employees.</P>
<P>In particular, we believe that our future performance depends upon
contributions from members of our senior management, particularly Jeff Sheahan,
our Chief Executive Officer and President. In addition, other key employees
possess marketing, technical and other expertise that is important to the
operations of our business. All of our executive officers and other employees
serve "at-will" and may elect to pursue other opportunities at any time. If
these employees leave, we may not be able to replace them with employees
possessing comparable skills.</P>
<B><I><P>We face challenges in managing our operations, and if we are unable to
manage our operations successfully, our business will not be successful.</P>
</B></I><P>We face challenges in managing our operations due to the addition of
several new members to our management team and due to our recent reduction in
force. In March 2001, we hired several new officers, including a new Chief
Financial Officer, Controller, Senior Vice President of Marketing and Vice
President of Direct Sales. These new officers will take time to learn the
business, and we cannot assure you that they will work effectively together and
with existing management to manage our operations. In addition, as a result of
our recent reduction in force we will need to operate with fewer employees and
existing employees will have to perform new tasks previously performed by former
employees.</P>
<B><I><P>Reductions in force may require us to incur additional non-recurring
expenses which could impact our cash reserves and results of operations. </P>
</B></I><P>We may incur expenses associated with reductions in force,<B>
</B>including severance packages and associated<B> </B>restructuring charges.
Workforce reductions may subject us to the requirements of the Worker Adjustment
and Retrainment Notification Act, in which event we would have to either provide
60 days' notice prior to a reduction in force or pay salary and benefits to each
terminated employee for each day of this 60-day period for which notice was not
provided. Reductions in force also may subject us to risks of litigation, which
could be expensive to defend, divert the attention of management, and subject us
to possible liability for damages. Any of these expenses could materially harm
our results of operations or deplete our cash reserves.</P>
<B><I><P>We operate in a highly competitive market and we could lose revenue and
customers to our competitors.</P>
</B></I><P>We compete with many companies that either offer the same types of
merchandise that we do, many through both Internet and traditional sales
channels. It is not difficult to enter the online commerce market, and current
and new competitors can launch new online commerce web sites at relatively low
cost. Competition in online commerce will increase further as more traditional
retailers, suppliers, manufacturers and direct marketers begin to sell computer
products and consumer goods directly to consumers through the Internet.
Increased competition may result in price reductions, fewer customer orders,
reduced gross margins, increased marketing costs, loss of market share, or any
combination of these problems.</P>
<P>Many of our current and potential competitors have greater financial,
marketing, customer support, technical and other resources than we do. As a
result, they may be able to secure merchandise from suppliers on more favorable
terms than us, and they may be able to respond more quickly to changes in
customer preference or to devote greater resources to the development, promotion
and sale of their merchandise than we can. If we are not able to compete
successfully, our revenues and margins will decrease and our business will be at
risk. </P>
<B><I><P>We face risks associated with purchasing and carrying our own
inventory.</P>
</B></I><P>We purchase inventory from vendors. Risks of carrying inventory
include:</P>

<UL>
<LI>potential
declines in the market value of the goods that we purchase;
<LI>difficulties
managing customer returns and credits associated with merchandise to be returned
to vendors;
<LI>shrinkage
resulting from theft, loss or inaccurate inventory recording; and
<LI>unpredictable
sale prices due to the nature of our auction process.
</UL>

<P>If we manage our inventory poorly, our costs will increase and our operating
results will be materially harmed.</P>
<B><I><P>We rely on other third parties in conducting our operations.</P>
</B></I><P>In conducting our operations, we depend on various other vendor and
distribution partners, including the following:</P>

<UL>

<LI><I>Distribution</I>. Third parties distribute a significant portion of our
sales. Any service interruptions experienced by our partner's distribution
centers as a result of labor problems or otherwise could disrupt or prevent
fulfillment of customer orders. Delays in fulfilling orders could result in a
loss of customers, and may subject us to litigation or regulatory scrutiny.</P>

<LI><I>Payment
processing</I>. We rely on primarily one credit card transaction processor. If
computer systems failures or other problems were to prevent them from processing
our credit card transactions, we would experience delays and business
disruptions.</P>
<LI><I>Shipping</I>.
We use one or two primary delivery services to ship our products. Our business
would suffer if labor problems or other causes prevented these or any other
major carriers from delivering our products for significant time periods. Delays
in shipping in the future could result in a loss of customers, or could subject
us to litigation.
</UL>

<P>We may not be able to maintain satisfactory relationships with any of the
above parties on acceptable commercial terms, and the quality of services that
they provide may not remain at the levels needed to enable us to conduct our
business effectively.</P>
<B><I><P>Risks associated with online commerce security, credit card fraud and
the security of our online operations could subject us to litigation or
expenses, and could result in a loss of customers.</P>
</B></I><P>A significant barrier to online commerce and communications is the
secure transmission of confidential information, such as customer credit card
numbers, over public networks and the security of customer databases. To
transmit confidential information securely we rely on encryption and
authentication technology that we license from third parties. In addition, we
have a customer database in which we store proprietary information about our
customers, including their credit card numbers. To the extent that our
activities involve the storage and transmission of this proprietary information,
security breaches could damage our reputation and expose us to a risk of loss or
litigation and possible liability.
For example, in December 2000 we experienced a security breach of our computer systems by computer hackers.
Our business may be harmed if our security
measures do not prevent security breaches, and we cannot assure you that we can
prevent all security breaches. </P>

<P>We have suffered losses as a result of orders
placed with fraudulent credit card data even though the associated financial
institution approved payment of the orders. Under current credit card practices,
a merchant is liable for fraudulent credit card transactions where, as is the
case with the transactions that we process, the merchant does not obtain a
cardholder's signature. Fraudulent use of credit card data in the future could
harm our business.</P>
<P>VISA U.S.A. and our credit card processor have notified us of their decision
to adopt a new standard for cardholder information security for e-commerce
merchants. We are taking steps to enhance our systems to comply with this
standard. If we fail to comply, this could result in a disruption of our
operations, or VISA U.S.A. or our credit card processor may assess fines against
us. </P>
<B><I><P>Our online commerce systems are vulnerable to interruption.</P>
</B></I><P>Customer access to our web site directly affects the volume of orders
and our revenues. System interruptions may make our web site unavailable or
prevent us from fulfilling orders efficiently, reducing the volume of goods we
sell and the attractiveness of our products and services. We may need to add
hardware and software and further develop and upgrade our existing technology,
transaction- processing systems and network infrastructure. We currently
maintain substantially all of our computer and communications hardware at two
facilities, in Menlo Park, California and Vancouver, Washington. However, we
intend to relocate our web site operations from Menlo Park to Vancouver in 2001.
Customer access to our web site could be interrupted during this transition,
which could result in a loss of customers and revenues.</P>
<P>Our systems and operations could be damaged or interrupted by fire, flood,
power loss, telecommunications failure, network break-ins, earthquake and
similar events. In particular, California is experiencing an energy shortage and
some regions have experienced blackouts. Our backup systems and disaster
recovery plan may not be adequate, and we may not have sufficient business
interruption insurance to compensate us for losses from a major interruption.
Computer viruses, physical or electronic break-ins, deliberate attempts by third
parties to exceed the capacity of our systems and similar disruptions could
cause system interruptions, delays and loss of critical data, and could prevent
us from providing services and accepting and fulfilling customer orders.</P>
<B><I><P>We depend on the performance of our web site and transaction processing
systems, and if these systems do not perform well, we could lose customers and
revenues.</P>
</B></I><P>Our web site must be able to handle a large volume of customers and
orders. Accordingly, we rely on the performance of our web site and our
transaction processing systems, as well as our network infrastructure and the
continued improvement of the Internet infrastructure. These factors also are
critical to our reputation and our ability to attract and retain customers and
maintain adequate customer service levels. We currently use a combination of proprietary technology and commercially
available licensed technology
to execute sales and conduct auctions. We are in the process of
developing a new e-commerce engine and configuring and customizing a new
commercially available software package to replace our existing sales management
applications, e-commerce engine and order processing applications.  We may incur
unanticipated expenses in completing these system implementations. Failure to
successfully complete these systems implementations in a timely and effective
manner may result in the disruption of our operations, slower response times,
degradation in levels of customer service, or impaired quality and speed of
order fulfillment, any of which could result in a loss of customers and could
materially harm our operating results. </P>
<I><STRONG><P>Our business may face increased government regulation.</STRONG>
</P>
<P>Auctioneering and other laws.</I> Several states have laws that regulate
auctions and auction companies within their jurisdiction. Some states may
interpret their statutes to apply to our transactions with consumers in such
states. The burdens of complying with auctioneering laws could materially
increase our cost of doing business. Similarly, states may construe their
existing laws governing issues such as property ownership, sales tax, libel and
personal privacy to apply to Internet companies servicing consumers within their
boundaries. Resolution of whether or how these laws will be applied is uncertain
and may take years to resolve. </P>

<I><P>Consumer protection laws.</I> We could be subject to regulation under
consumer protection laws in various states. Several states, including California
and Washington, have laws regulating the disclosure of pricing information by
wholesalers and comparable businesses. In the future, governments of California,
Washington and other states could require additional disclosure in order to
comply with other regulations. There are also other federal and state consumer
protection laws that may be applied to the sales of goods over the Internet.
From time to time, we receive inquiries from federal and state agencies about
our advertising, product offerings and sales fulfillment practices. The
application of federal and state laws may increase our cost of doing business or
materially affect the method by which we provide products to our customers.</P>
<I><P>Tax laws.</I> The tax treatment of the Internet and electronic commerce is
currently unsettled. A number of proposals have been made at the federal, state
and local level and by certain foreign governments that could impose taxes on
the sale of goods and services and certain other Internet activities. Our
business may be harmed by the passage of laws in the future imposing taxes or
other burdensome regulations on online commerce. </P>
<I><P>New Internet laws.</I> Due to the increasing popularity and use of the
Internet, it is possible that a number of laws and regulations may be adopted
with respect to the Internet generally, covering issues such as user privacy,
pricing and characteristics and quality of products and services. Similarly, the
growth and development of the market for Internet commerce may prompt calls for
more stringent consumer protection laws that may impose additional burdens on
those companies conducting business over the Internet. The adoption of any
additional laws or regulations may decrease the growth of commerce over the
Internet, increase our cost of doing business or otherwise harm our business.
</P>
<I><P>We may have to qualify to do business in other jurisdictions</I>. Because
our service is available over the Internet in multiple states and foreign
countries, and we sell to consumers resident in such states and foreign
countries, such jurisdictions may claim that we are required to qualify to do
business as a foreign corporation in each of these states and foreign countries.
If we fail to qualify as a foreign corporation in a jurisdiction where we are
required to do so, we could be subject to taxes and penalties.</P>
<B><I><P>Our business activities have and may subject us to litigation.</P>
</B><P>Intellectual property rights</I>. Our business activities may infringe
upon the proprietary rights of others, and we have in the past received, and may
in the future receive, notices from third parties claiming infringement by our
software or other aspects of our business. Any of these claims, with or without
merit, could result in significant litigation costs and diversion of resources
and management attention, and could require us to enter into royalty and
licensing agreements (which may not be available on terms acceptable to us or at
all). Successful litigation could result in invalidation of our proprietary
rights or significant liability for damages, which could harm our business.</P>
<I><P>Products liability and consumer protection</I>. Our sale of products
through our web sites subjects us to federal and state consumer protection laws,
and could subject us to product liability claims. For instance, the FTC has
informed us that it believes our shipping practices violate the FTC's Mail and
Telephone Order Rules, and has proposed that we enter into a consent decree that
would require us to pay a fine and adopt new shipping systems and procedures.
States and other jurisdictions may interpret their products liability or
consumer protection laws to apply to Internet commerce providers such as us that
enter into transactions with their residents. While we carry liability
insurance, this may not be adequate to compensate for substantial claims, and
these claims, or changes to our business practices that are required by or
penalties resulting from such laws, could have a harmful effect on our
business.</P>
<I><P>Liability for information transmitted over our online services</I>. The
law relating to the liability of online services companies for information
carried on or disseminated through our services is currently unsettled. Claims
could be made against us under both United States and foreign law for
defamation, libel, invasion of privacy, negligence, copyright or trademark
infringement, or other theories based on the nature and content of the materials
disseminated through our services. Several private lawsuits seeking to impose
such liability on other online services companies are currently pending. In
addition, legislation has been proposed that imposes liability for or prohibits
the transmission over the Internet of certain types of information. The
potential imposition of liability on online services companies for information
carried on or disseminated through their services could require us to alter our
service offerings.</P>
<B><I><P>We expect our stock price to be volatile, which could lead to losses by
investors and securities litigation</P>
</B></I><P>The market price of the shares of our common stock declined
significantly during 2000 and early 2001, and we expect it to continue to be
subject to fluctuations in response to several factors, such as:</P>


<UL>
<LI>actual or
anticipated variations in our results of operations;
<LI>potential
de-listing from the Nasdaq National Market;
<LI>press reports
about us, and changes in financial estimates by securities analysts; and
<LI>conditions and
trends in the U.S. economy in general and the Internet and computer industries
in particular.
</UL>

<P>In recent years the stock markets generally, and the Nasdaq National Market
in particular, have experienced extreme price and volume fluctuations, and in
recent periods the stock prices of equity securities of many technology
companies have declined dramatically. These market developments, as well as
general economic, political and market conditions such as recessions, interest
rates or international currency fluctuations, may adversely affect the market
price of our common stock. In the past, stockholders have instituted securities
class action litigation against several companies following periods of
volatility in the market price of their securities. Such litigation, if
instituted against us, could result in diversion of our management's attention
and resources and substantial financial costs.</P>


<A NAME="item7a"></A>
<B><P ALIGN="JUSTIFY">Item 7A. <I>Quantitative and Qualitative Disclosures About
Market Risk</I>.</P>
</B><P ALIGN="JUSTIFY">Our exposure to market risk, for changes in interest
rates, relates primarily to our investment portfolio and long term debt. We do
not use derivative financial instruments in our investment portfolio. We
consider investments in highly liquid instruments purchased with an original
maturity of 90 days or less to be cash equivalents. We place our investments in
instruments that meet high credit quality standards, as specified in our
investment policy guidelines; the policy also limits the amount of credit
exposure to any one issue, issuer, and type of investment. All of our cash
equivalents and short-term investments, consisting principally of commercial
paper, debt securities and governmental securities, are classified as available-
for-sale as of December 31, 2000. We do not expect any material loss with
respect to our investment portfolio.</P>
<P>The table below presents principal (or notional) amounts and related weighted
average interest rates by year of maturity for our investment portfolio.</P>





<P ALIGN="CENTER"><TABLE BORDER=0 CELLSPACING=1 CELLPADDING=7 WIDTH=575>
<TR><TD WIDTH="80%" VALIGN="TOP">
<P><FONT SIZE=2>
&nbsp;
</TD>
<TD WIDTH="20%" VALIGN="TOP">
<P ALIGN="CENTER"><FONT SIZE=2>
2001
<HR NOSHADE SIZE=2>
</TD>
</TR>

<TR><TD WIDTH="80%" VALIGN="TOP">
<P><FONT SIZE=2>
Cash Equivalents
</TD>
<TD WIDTH="20%" VALIGN="TOP">
<P ALIGN="CENTER"><FONT SIZE=2>
$ 29,285,000
</TD>
</TR>

<TR><TD WIDTH="80%" VALIGN="TOP">
<P><FONT SIZE=2>
<P>Fixed Interest Rate
</TD>
<TD WIDTH="20%" VALIGN="TOP">
<P ALIGN="CENTER"><FONT SIZE=2>
6.55%
</TD>
</TR>

<TR><TD WIDTH="80%" VALIGN="TOP">
<P><FONT SIZE=2>
Investments
</TD>
<TD WIDTH="20%" VALIGN="TOP">
<P ALIGN="CENTER"><FONT SIZE=2>
$ 1,166,000
</TD>
</TR>

<TR><TD WIDTH="80%" VALIGN="TOP">
<P><FONT SIZE=2>
<P>Fixed Interest Rate
</TD>
<TD WIDTH="20%" VALIGN="TOP">
<P ALIGN="CENTER"><FONT SIZE=2>
9.50%
</TD>
</TR>
</TABLE>

<P ALIGN="JUSTIFY">We also have market risk related to our long-term debt
obligation, which matures in 2002. The principal amount of this obligation is
$2.0 million, exclusive of foreign exchange gains and losses, denominated in Japanese Yen,
and has a variable rate of interest which is equal to the prime rate of the
Dai-ichi Kangyo Bank in Tokyo, Japan. At December 31, 2000 this prime rate was
1.5%.</P>

<A NAME="item8"></A>
<B><P ALIGN="JUSTIFY">Item 8. <I>Financial Statements and Supplementary
Data</I>.</P>
</B>

<P ALIGN="LEFT"><TABLE BORDER=0 CELLSPACING=1 CELLPADDING=7 WIDTH=685>
<TR><TD WIDTH="85%" VALIGN="TOP">
<P ALIGN="JUSTIFY"><B><FONT SIZE=2>Index to Financial Statements
</B></TD>
<TD WIDTH="15%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">Page</B></FONT></TD>
</TR>


<TR><TD WIDTH="85%" VALIGN="BOTTOM">
<P ALIGN="JUSTIFY"><FONT SIZE=2>
Financial Statements:
</TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">
&nbsp;
</TD>
</TR>




<TR><TD WIDTH="85%" VALIGN="BOTTOM">
<P ALIGN="JUSTIFY"><FONT SIZE=2>
&nbsp;&nbsp;
Independent Auditors Report
</TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">
<A HREF="#report1">31</A>
</TD>
</TR>

<TR><TD WIDTH="85%" VALIGN="BOTTOM">
<P ALIGN="JUSTIFY"><FONT SIZE=2>
&nbsp;&nbsp;
Report of Independent Accountants
</TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">
<A HREF="#report2">32</A>
</TD>
</TR>


<TR><TD WIDTH="85%" VALIGN="BOTTOM">
<P ALIGN="JUSTIFY"><FONT SIZE=2>
&nbsp;&nbsp;
Balance Sheets at December 31, 2000 and 1999
</TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">
<A HREF="#bs">33</A>
</TD>
</TR>

<TR><TD WIDTH="85%" VALIGN="BOTTOM">
<P ALIGN="JUSTIFY"><FONT SIZE=2>
&nbsp;&nbsp;
Statements of Operations for each of the three years in the period
ended
December 31, 2000
</TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">
<A HREF="#ops">34</A>
</TD>
</TR>

<TR><TD WIDTH="85%" VALIGN="BOTTOM">
<P ALIGN="JUSTIFY"><FONT SIZE=2>
&nbsp;&nbsp;
Statements of Cash Flows for each of the three years in the period
ended
December 31, 2000
</TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">
<A HREF="#flows">35</A>
</TD>
</TR>

<TR><TD WIDTH="85%" VALIGN="BOTTOM">
<P ALIGN="JUSTIFY"><FONT SIZE=2>
&nbsp;&nbsp;
Statements of Stockholders' Equity for each of the three years
in the period
ended December 31, 2000
</TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">
<A HREF="#equity">36</A>
</TD>
</TR>

<TR><TD WIDTH="85%" VALIGN="BOTTOM">
<P ALIGN="JUSTIFY"><FONT SIZE=2>
&nbsp;&nbsp;
Notes to Financial Statements
</TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">
<A HREF="#notes">37</A>
</TD>
</TR>

<TR><TD WIDTH="85%" VALIGN="BOTTOM">
<P ALIGN="JUSTIFY"><FONT SIZE=2>
Financial Statement Schedules:
</TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">
&nbsp;
</TD>
</TR>

<TR><TD WIDTH="85%" VALIGN="BOTTOM">
<P ALIGN="JUSTIFY"><FONT SIZE=2>
&nbsp;&nbsp;
II - Valuation and Qualifying Accounts for each of the three years in
the period
ended December 31, 2000
</TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">
<A HREF="#schedii">49</A>
</TD>
</TR>

<TR><TD WIDTH="85%" VALIGN="BOTTOM">
<P ALIGN="JUSTIFY"><FONT SIZE=2>
&nbsp;&nbsp;
All other schedules are omitted because they are not applicable
or the required information
is shown in the Financial Statements or Notes thereto.
</TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">
&nbsp;
</TD>
</TR>

<TR><TD WIDTH="85%" VALIGN="BOTTOM">
<P ALIGN="JUSTIFY"><FONT SIZE=2>
Supplementary Financial Data (Unaudited):
</TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">
&nbsp;
</TD>
</TR>

<TR><TD WIDTH="85%" VALIGN="BOTTOM">
<P ALIGN="JUSTIFY"><FONT SIZE=2>
&nbsp;&nbsp;
Quarterly Financial Data for the two years ended December 31,
2000
</TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">
<A HREF="#quarter">49</A>
</TD>
</TR>
</TABLE>


<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="report1"></A>
<B><P>INDEPENDENT AUDITORS' REPORT</P>
</B><P ALIGN="JUSTIFY">To the Board of Directors and Stockholders of<br>
Egghead.com, Inc.<br>
Menlo Park, California</P>
<P ALIGN="JUSTIFY">We have audited the accompanying consolidated balance sheet
of Egghead.com, Inc. and subsidiaries as of December 31, 2000, and the related
statements of consolidated operations, stockholders' equity, and cash flows for
the year then ended. Our audit also included the financial statement schedule
listed in the accompanying Index. These financial statements and financial
statement schedule for the year ended December 31, 2000 are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and financial statement schedule based on our
audit.</P>
<P>We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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 audit provides a
reasonable basis for our opinion.</P>
<P>In our opinion, such financial statements present fairly, in all material
respects, the consolidated financial position of Egghead.com, Inc. and
subsidiaries at December 31, 2000, and the results of their operations and their
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, such
financial statement schedule for the year ended December 31, 2000 when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.</P>
<P ALIGN="JUSTIFY">Deloitte &amp; Touche LLP</P>
<P ALIGN="JUSTIFY">San Francisco, California<br>
March 29, 2001</P>

<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="report2"></A>
<B><P ALIGN="CENTER">REPORT OF INDEPENDENT ACCOUNTANTS</P>
</B><P ALIGN="JUSTIFY">To The Board of Directors and Stockholders of
Egghead.com, Inc. </P>
<P ALIGN="JUSTIFY">In our opinion, based upon our audits and the report of other
auditors, the accompanying consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Egghead.com, Inc. and its subsidiaries at December 31, 1999,
and the results of their operations and their cash flows for each of the
two years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. In addition, in our opinion,
the financial statement schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related financial statements. The consolidated financial
statements for the year ended December 31, 1998 give retroactive effect to the
merger of Onsale, Inc. and Egghead.com, Inc., ("Old Egghead") on November 19,
1999, which has been accounted for as a pooling of interest as described in Note
1. These financial statements and financial statement schedule are the
responsibility of the company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of Old Egghead used for purposes of preparing the
consolidated financial statements and financial statement schedule for the year
as discussed in Note 1, which statements reflect total assets of $176.2 million
at April 3, 1999 (of which $119.5 million was audited by us) and total revenues
of $148.4 million for the year ended April 3, 1999. Those statements were
audited by other auditors whose report thereon has been furnished to us, and our
opinion expressed herein, insofar as it relates to the amounts included for Old
Egghead, is based solely on the report of the other auditors. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits and the report of other auditors provide a reasonable basis for the
opinion expressed above.</P>
<P ALIGN="JUSTIFY">PricewaterhouseCoopers LLP</P>
<P ALIGN="JUSTIFY">San Jose, California<br>
February 22, 2000, except as to Note 16, which is as of March
29, 2000</P>



<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="bs"></A>
</FONT><B><FONT FACE="Times New (W1)"><P ALIGN="CENTER">EGGHEAD.COM, INC.</P>
<P ALIGN="CENTER">CONSOLIDATED BALANCE SHEETS</P>
<P ALIGN="CENTER">(In thousands, except per share data)</P></B></FONT>
<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=1 CELLPADDING=7 WIDTH=684>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=6>
<P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=6>
<FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">December 31,</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT FACE="Times New (W1)" SIZE=1><P ALIGN="CENTER">December 31,</FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=6>
<FONT FACE="Times New (W1)" SIZE=1><P ALIGN="CENTER">2000</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT FACE="Times New (W1)" SIZE=1><P ALIGN="CENTER">1999</FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=6>
<B><FONT SIZE=1><P ALIGN="JUSTIFY">ASSETS</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=16>
<FONT FACE="Times New (W1)" SIZE=1><P>Current assets:</FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=16>
<FONT FACE="Times New (W1)" SIZE=1><P>Cash and cash equivalents</FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">$ 31,466 </FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=16>
<FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">$ 70,685 </FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=16>
<FONT FACE="Times New (W1)" SIZE=1><P>Short-term investments</FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">1,166</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=16>
<FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">15,538</FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=16>
<FONT FACE="Times New (W1)" SIZE=1><P>Accounts receivable, net of allowances of
$2,336 and $2,320, respectively</FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">15,490</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=16>
<FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">12,782</FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=16>
<FONT FACE="Times New (W1)" SIZE=1><P>Merchandise inventory</FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">6,123</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=16>
<FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">14,221</FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=16>
<FONT FACE="Times New (W1)" SIZE=1><P>Prepaid expenses and other current
assets</FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">3,658</U></FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">5,140</U></FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=16>
<FONT FACE="Times New (W1)" SIZE=1><P>Total current assets</FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">57,903</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=16>
<FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">118,366</FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=2><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=2><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=2><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=2><P></P></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=16>
<FONT FACE="Times New (W1)" SIZE=1><P>Property and equipment, net</FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=16>
<FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">13,294</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=16>
<FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">9,513</FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="TOP" HEIGHT=16>
<FONT FACE="Times New (W1)" SIZE=1><P>Other assets</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" HEIGHT=16>
<U><FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">772</U></FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=16>
<U><FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">1,251</U></FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="TOP" HEIGHT=16>
<FONT FACE="Times New (W1)" SIZE=1><P>Total assets</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" HEIGHT=16>
<FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">$ 71,969
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=16>
<FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">$ 129,130
<HR NOSHADE SIZE=3>
</FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=6>
<B><FONT FACE="Times New (W1)" SIZE=1><P ALIGN="JUSTIFY">LIABILITIES AND
STOCKHOLDERS' EQUITY</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=6>
<FONT FACE="Times New (W1)" SIZE=1><P>Current liabilities:</FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=6>
<FONT FACE="Times New (W1)" SIZE=1><P>Accounts payable</FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=6>
<FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">$ 26,330</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">$ 34,512</FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=6>
<FONT FACE="Times New (W1)" SIZE=1><P>Accrued expenses</FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=6>
<FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">21,292</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">31,504</FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=6>
<FONT FACE="Times New (W1)" SIZE=1><P>Deferred revenue</FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">3,108</U></FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">7,646 </U></FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=6>
<FONT FACE="Times New (W1)" SIZE=1><P>Total current liabilities</FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">50,730</U></FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">73,662</U></FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=6>
<FONT FACE="Times New (W1)" SIZE=1><P>Long-term liabilities</FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">2,348</U></FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">2,046</U></FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=6>
<FONT FACE="Times New (W1)" SIZE=1><P>Commitments and contingencies (Note
10)</FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=6>
<FONT FACE="Times New (W1)" SIZE=1><P>Stockholders' equity</FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=6>
<FONT FACE="Times New (W1)" SIZE=1><P>Convertible preferred stock, $0.001 par
value; 2,000,000 shares  authorized; no shares issued and
outstanding</FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=6>
<FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=6>
<FONT FACE="Times New (W1)" SIZE=1><P>Common stock, $0.001 par value; 98,000,000
shares authorized;  42,857,483 and 37,199,240 shares issued and outstanding,
respectively.</FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=6>
<FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">42</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">37</FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=6>
<FONT FACE="Times New (W1)" SIZE=1><P>Additional paid-in capital</FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=6>
<FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">349,625</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">321,961</FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=6>
<FONT FACE="Times New (W1)" SIZE=1><P>Accumulated deficit</FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">(330,776)</U></FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">(268,576)
</U></FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=6>
<FONT FACE="Times New (W1)" SIZE=1><P>Total stockholders' equity</FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">18,891</U></FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">53,422</U></FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="TOP" HEIGHT=6>
<FONT FACE="Times New (W1)" SIZE=1><P>Total liabilities and stockholders'
equity</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" HEIGHT=6>
<FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">$ 71,969
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=6>
<FONT FACE="Times New (W1)" SIZE=1><P ALIGN="RIGHT">$ 129,130
<HR NOSHADE SIZE=3>
</FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="4%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
</TR>
<TR><TD VALIGN="BOTTOM" COLSPAN=4 HEIGHT=6>
<FONT SIZE=1><P>See notes to consolidated financial statements.</FONT></TD>
</TR>
</TABLE>
</CENTER></P>

<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="ops"></A>
</FONT><FONT FACE="Times,Times New Roman"><P>&nbsp;</P>
</FONT><FONT SIZE=2><P ALIGN="JUSTIFY">&nbsp;</P>
</FONT><B><P ALIGN="CENTER">EGGHEAD.COM, INC.</P>
<P ALIGN="CENTER">CONSOLIDATED STATEMENTS OF OPERATIONS</P>
<P ALIGN="CENTER">(In thousands, except per share data)</P></B>
<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=1 CELLPADDING=7 WIDTH=576>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6>
<P></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="57%" VALIGN="BOTTOM" COLSPAN=5 HEIGHT=6>
<FONT SIZE=1><P ALIGN="CENTER">Years Ended December 31,</FONT></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="CENTER">2000</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="CENTER">1999</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="CENTER">1998</FONT></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=6><P></P></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6>
<FONT SIZE=1><P>Revenue:</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=6><P></P></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6>
<FONT SIZE=1><P>Online</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">$ 462,711</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">$ 529,575</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">$ 376,628</FONT></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6>
<FONT SIZE=1><P>Commission and other revenue</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT SIZE=1><P ALIGN="RIGHT">16,137</U></FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT SIZE=1><P ALIGN="RIGHT">11,633</U></FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT SIZE=1><P ALIGN="RIGHT">3,981</U></FONT></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6>
<FONT SIZE=1><P>Total revenue</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT SIZE=1><P ALIGN="RIGHT">478,848</U></FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT SIZE=1><P ALIGN="RIGHT">541,208</U></FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT SIZE=1><P ALIGN="RIGHT">380,609</U></FONT></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6>
<FONT SIZE=1><P>Cost of online revenue </FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT SIZE=1><P ALIGN="RIGHT">441,600</U></FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT SIZE=1><P ALIGN="RIGHT">513,581</U></FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT SIZE=1><P ALIGN="RIGHT">344,223</U></FONT></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6>
<FONT SIZE=1><P>Gross profit:</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6>
<FONT SIZE=1><P>Online</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">21,111</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">15,994</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">32,405</FONT></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6>
<FONT SIZE=1><P>Commission and other revenue</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT SIZE=1><P ALIGN="RIGHT">16,137</U></FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT SIZE=1><P ALIGN="RIGHT">11,633</U></FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT SIZE=1><P ALIGN="RIGHT">3,981</U></FONT></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6>
<FONT SIZE=1><P>Total gross profit</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT SIZE=1><P ALIGN="RIGHT">37,248</U></FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT SIZE=1><P ALIGN="RIGHT">27,627</U></FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT SIZE=1><P ALIGN="RIGHT">36,386</U></FONT></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6>
<FONT SIZE=1><P>Operating expenses:</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6>
<FONT SIZE=1><P>Sales and marketing</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">69,757</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">101,753</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">62,272</FONT></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6>
<FONT SIZE=1><P>General and administrative</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">19,807</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">22,017</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">18,783</FONT></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6>
<FONT SIZE=1><P>Engineering</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">14,500</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">15,521</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">11,821</FONT></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6>
<FONT SIZE=1><P>Amortization of goodwill</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">1,534</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">1,708</FONT></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6>
<FONT SIZE=1><P>Merger costs</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">763</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">52,215</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6>
<FONT SIZE=1><P>Restructuring and impairment costs</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT SIZE=1><P ALIGN="RIGHT">-</U></FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT SIZE=1><P ALIGN="RIGHT">(2,735)</U></FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT SIZE=1><P ALIGN="RIGHT">-</U></FONT></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6>
<FONT SIZE=1><P>Total operating expenses</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT SIZE=1><P ALIGN="RIGHT">104,827</U></FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT SIZE=1><P ALIGN="RIGHT">190,305</U></FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT SIZE=1><P ALIGN="RIGHT">94,584</U></FONT></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6>
<FONT SIZE=1><P>Loss from operations</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">(67,579)</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">(162,678)</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">(58,198)</FONT></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6>
<FONT SIZE=1><P>Equity in net loss of joint venture</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">(571)</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">(1,001)</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">(200)</FONT></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6>
<FONT SIZE=1><P>Interest and other income, net</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT SIZE=1><P ALIGN="RIGHT">5,950</U></FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT SIZE=1><P ALIGN="RIGHT">8,750</U></FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<U><FONT SIZE=1><P ALIGN="RIGHT">9,309</U></FONT></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6>
<FONT SIZE=1><P>Net loss</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">$ (62,200)
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">$ (154,929)
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">$ (49,089)
<HR NOSHADE SIZE=3>
</FONT></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6>
<FONT SIZE=1><P>Net loss per share - basic and diluted</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">$ (1.53)
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">$ ( 4.29)
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">$ (1.50)
<HR NOSHADE SIZE=3>
</FONT></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6>
<FONT SIZE=1><P>Weighted average common shares
outstanding for purposes of computing:</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="3%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP" HEIGHT=6>
<FONT SIZE=1><P>Basic and diluted</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">40,598
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">36,146
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=6><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=6>
<FONT SIZE=1><P ALIGN="RIGHT">32,834
<HR NOSHADE SIZE=3>
</FONT></TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=7 HEIGHT=6>
<FONT SIZE=1><P>See notes to consolidated financial statements.</FONT></TD>
</TR>
</TABLE>
</CENTER></P>


<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="flows"></A>
<FONT SIZE=2>
</FONT><FONT FACE="Times,Times New Roman"><P>&nbsp;</P>
</FONT><B><P ALIGN="CENTER">EGGHEAD.COM, INC.</P>
<P ALIGN="CENTER">Consolidated Statements of Cash Flows</P>
<P ALIGN="CENTER">(In thousands)</P></B>
<TABLE BORDER CELLSPACING=1 CELLPADDING=7 WIDTH=650>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="37%" VALIGN="BOTTOM" COLSPAN=5>
<FONT SIZE=1><P ALIGN="CENTER">Years Ended December 31,</FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="CENTER">2000</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="CENTER">1999</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="CENTER">1998</FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<FONT SIZE=1><P>Operating activities:</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<FONT SIZE=1><P>Net loss</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">$ (62,200)</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">$ (154,929)</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">$ (49,089)</FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<FONT SIZE=1><P>Adjustments to reconcile net loss to net cash used in operating
activities:</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<FONT SIZE=1><P>Old Egghead loss for the quarter ended  April 3, 1999
</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">12,810 </FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<FONT SIZE=1><P>Depreciation and amortization</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">4,650</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">9,239 </FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">6,081 </FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<FONT SIZE=1><P>Equity in net loss of joint venture</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">571</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">1,001</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">200</FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<FONT SIZE=1><P>Interest on long-term liabilities</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">29</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">30</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">16</FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<FONT SIZE=1><P>Foreign currency transaction losses</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">273</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<FONT SIZE=1><P>Abandonment of duplicate property and equipment related to
merger, including related goodwill </FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">39,206</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<FONT SIZE=1><P>Gain on sale of equity investments</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">(2,993)</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">(3,349)</FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<FONT SIZE=1><P>Gain on sale of assets</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">(272)</FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<FONT SIZE=1><P>Changes in assets and liabilities:</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<FONT SIZE=1><P>Accounts receivable, net</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">(2,708)</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">(5,247)</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">525</FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<FONT SIZE=1><P>Merchandise inventory</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">8,098</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">9,187</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">(4,853)</FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<FONT SIZE=1><P>Prepaid expenses and other assets</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">1,162</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">(3,746)</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">509</FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<FONT SIZE=1><P>Accounts payable</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">(8,182)</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">8,364</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">9,117</FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<FONT SIZE=1><P>Accrued expenses</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">(8,227)</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">11,582</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">3,232</FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<FONT SIZE=1><P>Deferred revenue</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">(4,538)</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">5,810</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">1,333</FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<FONT SIZE=1><P>Reserves and liabilities related to restructuring</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<U><FONT SIZE=1><P ALIGN="RIGHT">(602)</U></FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<U><FONT SIZE=1><P ALIGN="RIGHT">(4,181)</U></FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<U><FONT SIZE=1><P ALIGN="RIGHT">(10,709)</U></FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<FONT SIZE=1><P>Net cash used in operating activities</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<U><FONT SIZE=1><P ALIGN="RIGHT">(74,667)</U></FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<U><FONT SIZE=1><P ALIGN="RIGHT">(70,874)</U></FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<U><FONT SIZE=1><P ALIGN="RIGHT">(47,259)</U></FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="11%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="11%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
<TD WIDTH="11%" VALIGN="BOTTOM" HEIGHT=6><P></P></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<FONT SIZE=1><P>Investing activities:</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<FONT SIZE=1><P>Purchase of short-term available-for-sale
investments</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">(4,671)</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">(26,944) </FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">(31,649)</FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<FONT SIZE=1><P>Proceeds from sales of short-term available-for-sale
investments</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">19,099</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">32,102 </FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">10,953 </FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<FONT SIZE=1><P>Proceeds from sale of equipment</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">7,110</FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<FONT SIZE=1><P>Proceeds from sale of equity investments</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">3,221</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">3,348</FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<FONT SIZE=1><P>Purchase of property and equipment</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<U><FONT SIZE=1><P ALIGN="RIGHT">(9,870)</U></FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<U><FONT SIZE=1><P ALIGN="RIGHT">(13,107</U>)</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<U><FONT SIZE=1><P ALIGN="RIGHT">(13,217</U>)</FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<FONT SIZE=1><P>Net cash provided by (used in) in investing
activities</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<U><FONT SIZE=1><P ALIGN="RIGHT">7,779</U></FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<U><FONT SIZE=1><P ALIGN="RIGHT">(7,949)</U></FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<U><FONT SIZE=1><P ALIGN="RIGHT">(23,455</U>)</FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<FONT SIZE=1><P>Financing activities:</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<FONT SIZE=1><P>Proceeds from issuances of common stock and exercises of stock
options, net</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<U><FONT SIZE=1><P ALIGN="RIGHT">27,669</U></FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<U><FONT SIZE=1><P ALIGN="RIGHT">4,033</U></FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<U><FONT SIZE=1><P ALIGN="RIGHT">92,242</U></FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Net cash provided by financing activities</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="11%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">27,669</U></FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="11%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">4,033</U></FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="11%" VALIGN="BOTTOM" HEIGHT=16>
<U><FONT SIZE=1><P ALIGN="RIGHT">92,242</U></FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<FONT SIZE=1><P>Net increase (decrease) in cash and cash equivalents</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">(39,219)</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">(74,790)</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=1><P ALIGN="RIGHT">21,528</FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM">
<FONT SIZE=1><P>Cash and cash equivalents at beginning of period</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<U><FONT SIZE=1><P ALIGN="RIGHT">70,685</U></FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<U><FONT SIZE=1><P ALIGN="RIGHT">145,475</U></FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<U><FONT SIZE=1><P ALIGN="RIGHT">123,947</U></FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="TOP">
<FONT SIZE=1><P>Cash and cash equivalents at end of period</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">$ 31,466
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">$ 70,685
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">$ 145,475
<HR NOSHADE SIZE=3>
</FONT></TD>
</TR>
<TR><TD VALIGN="BOTTOM" COLSPAN=7>
<FONT SIZE=1><P>See notes to consolidated financial statements.</FONT></TD>
</TR>
</TABLE>

<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="equity"></A>
<FONT FACE="Times,Times New Roman"><P>&nbsp;</P>
<P>&nbsp;</P>
</FONT><B><P ALIGN="CENTER">EGGHEAD.COM, INC.</P>
<P ALIGN="CENTER">CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY</P>
<P ALIGN="CENTER">(In thousands)</P></B>
<TABLE BORDER CELLSPACING=1 CELLPADDING=1 WIDTH=756>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" COLSPAN=3 HEIGHT=16>
<FONT SIZE=1><P ALIGN="CENTER">Common Stock</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="11%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="10%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="10%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="CENTER">Shares</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="8%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="CENTER">Amount</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="11%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="CENTER">Additional Paid-in Capital</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="10%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="CENTER">Accumulated Deficit</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="10%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="CENTER">Total</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Balance at January 1, 1998</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">31,916</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="8%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">$ 32</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="11%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">$ 225,692 </FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="10%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">$ (77,368)</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="10%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">$ 148,356</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Issuance of common stock upon secondary offering, net of
issuance costs </FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">3,249</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="8%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">3</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="11%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">72,901</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="10%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">- </FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="10%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">72,904</FONT></TD>
</TR>

<TR><TD WIDTH="48%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Issuance of common stock pursuant to
employee benefit plans</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">1,538</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="8%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">2</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="11%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">19,877</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="10%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="10%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">19,879</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Retirement of common stock in final settlement of acquisition of
subsidiary</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">(57)</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="8%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="11%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">(542)</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="10%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="10%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">(542)</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Net loss</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="8%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="11%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="10%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">(49,089)</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="10%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">(49,089)</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Balance at December 31, 1998</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">36,646</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="8%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">$ 37</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="11%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">$ 317,928</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="10%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">$ (126,457)</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="10%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">$ 191,508</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="MIDDLE" HEIGHT=16>
<FONT SIZE=1><P>Issuance of common stock pursuant to employee benefit
plans</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">553</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="8%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="11%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">4,033</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="10%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="10%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">4,033</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="BOTTOM" HEIGHT=18>
<FONT SIZE=1><P>Old Egghead net loss for quarter ended April 3, 1999
</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=18><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=18>
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=18><P></P></TD>
<TD WIDTH="8%" VALIGN="BOTTOM" HEIGHT=18>
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=18><P></P></TD>
<TD WIDTH="11%" VALIGN="BOTTOM" HEIGHT=18>
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=18><P></P></TD>
<TD WIDTH="10%" VALIGN="BOTTOM" HEIGHT=18>
<FONT SIZE=1><P ALIGN="RIGHT">12,810</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=18><P></P></TD>
<TD WIDTH="10%" VALIGN="BOTTOM" HEIGHT=18>
<FONT SIZE=1><P ALIGN="RIGHT">12,810</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Net loss </FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="8%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="11%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="10%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">(154,929)</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="10%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">(154,929)</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Balance at December 31, 1999</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">37,199</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="8%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">$ 37</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="11%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">$ 321,961 </FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="10%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">$ (268,576)</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="10%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">$ 53,422</FONT></TD>
</TR>

<TR><TD WIDTH="48%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Issuance of common stock pursuant to
employee benefit plans</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">659</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="8%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="11%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">768</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="10%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="10%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">768</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Issuance of common stock </FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">4,999</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="8%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">5</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="11%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">26,896</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="10%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="10%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">26,901</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P>Net loss</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="8%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="11%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="10%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">(62,200)</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="10%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">(62,200)</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=1><P>Balance at December 31, 2000</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="9%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">42,857
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="8%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">$ 42
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">$ 349,625
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="10%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">$ (330,776)
<HR NOSHADE SIZE=3>
</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="10%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=1><P ALIGN="RIGHT">$ 18,891
<HR NOSHADE SIZE=3>
</FONT></TD>
</TR>
<TR><TD VALIGN="BOTTOM" COLSPAN=11 HEIGHT=16>
<FONT SIZE=1><P>See notes to consolidated financial statements.</FONT></TD>
</TR>
</TABLE>



<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="notes"></A>
<B><FONT SIZE=2><P>&nbsp;</P>
</FONT><FONT SIZE=2><P>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
</FONT><FONT SIZE=2><P>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</P>
</B><P ALIGN="JUSTIFY">&nbsp;</P>
<B><P>NOTE 1-THE COMPANY AND A SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES
</P>
<P>THE COMPANY</P>
</B></FONT><FONT SIZE=2><P ALIGN="JUSTIFY">Egghead.com, Inc. (the "Company") is
an Internet-based direct marketer specializing in technology and related
products and services for the office and home. The Company's target customers
are primarily small and medium businesses, as well as consumers. Through its web
site, the Company offers a wide assortment of new and closeout products, as well
as business services, both at fixed prices and through our live online auctions.
In addition, the Company's new business account management team markets directly
to business customers via telephone and targeted e-mails. The Company conducts
its business within one industry segment. </P>
<P ALIGN="JUSTIFY">The Company was incorporated in California in July 1994 and
commenced operations in May 1995 as Onsale, Inc. ("Onsale"). In March 1997, the
Company reincorporated in Delaware. </P>
<P>On November 19, 1999, Onsale acquired Egghead.com, Inc., a Washington
corporation ("Old Egghead") and changed its name from Onsale, Inc. to
Egghead.com, Inc. This acquisition was accounted for as a pooling of interests.
The consolidated financial statements for each of the three years in the period
ended December 31, 2000 and the accompanying notes reflect the Company's
financial position and results of operations as if Old Egghead was a
wholly-owned subsidiary of the Company for the years ended December 31, 1999 and 1998.
Old Egghead used a 52/53 week fiscal year that ended on the Saturday nearest
March 31; for convenience, these fiscal years are referred to as "March 31." The
accompanying consolidated financial statements combine the results of operations
of Old Egghead from January 1, 1999 through the acquisition date and the fiscal
year ended March 31, 1999 with Onsale's results of operations for the years
ended December 31, 1999 and 1998, respectively. The operations of Old Egghead
for the three month period ended March 31, 1999, resulting in net sales and a
net loss of $46.9 million and $12.8 million, respectively, was included in the
consolidated statements of operations for the years ended December 31, 1999 and
1998. Accordingly, the net loss of $12.8 million for the three month period
ended March 31, 1999 is reflected as an adjustment to accumulated deficit in
1999.</P>
<B><P>Continuing Operations and Managements' Plans</P>
</B><P>The Company has experienced recurring net losses through the year ended
December 31, 2000. Net losses for 2000, 1999 and 1998 were $62.2, $154.9 and
$49.1 million respectively. At December 31, 2000, the Company had an accumulated
deficit of $330.8 million. The Company expects to experience quarterly net
losses for the first three quarters of 2001. </P>

<P>Continued negative cash flows create uncertainty about the Company's ability
to implement its operating plan. In addition, current market conditions present
uncertainty as to the ability of the Company to secure financing, if needed, and to reach profitability. The
Company has implemented, and is continuing to pursue, aggressive cost cutting
programs in order to preserve available cash. Management intends to take all
action necessary to bring the Company to positive cash flow from operations as
soon as possible. Additionally, management will continue to pursue financing
alternatives. However, there can be no assurances as to the availability of
additional financing, the terms of such financing if it is available, or as to
the ability of the Company to achieve positive cash flow from operations.</P>
</FONT><B><FONT SIZE=2><P>SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</P>
<P>Consolidation</P>
</B></FONT><FONT SIZE=2><P>The consolidated financial statements include the
accounts of Egghead.com, Inc. and its wholly owned subsidiaries, E O
Corporation, D J &amp; J Software Corporation, Surplus Software, Inc., EH
Direct, Inc., MPI Corporation and Egghead.com Advertising, Inc. and include all
such adjustments and reclassifications necessary to eliminate the effect of
significant intercompany accounts and transactions.</P>
<P>&nbsp;</P>
</FONT><B><FONT SIZE=2><P>Revenue recognition</P>
</B></FONT><FONT SIZE=2><P ALIGN="JUSTIFY">The Company's revenue is currently
derived from online sales of merchandise and from commission and other revenue.
Prior to February 1998, the Company also derived revenue from retail sales
through Old Egghead's retail stores and catalog/mail-order operations. Online
sales include sales of purchased inventory and sales of inventory placed on
consignment with the Company. Commission and other revenue consist of
commissions on agency transactions and advertising revenue. </P>
<P>In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which provides
guidance on the recognition, presentation, and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosures
related to revenue recognition policies. The Company's revenue recognition
policies comply with the requirements of SAB&nbsp;101.</P>
<P ALIGN="JUSTIFY">Purchased inventory </P>
<P ALIGN="JUSTIFY">For sales of purchased inventory, the Company conducts online
sales, bills the customer, ships the merchandise to the customer and processes
merchandise returns. The Company recognizes the full sales amount as revenue
upon authorization of the credit card transaction and shipment of the
merchandise. The Company bears both inventory and credit risk with respect to
sales of its inventory. When credit card authorization has been received but the
merchandise has not been shipped, the Company defers revenue recognition until
the merchandise is shipped. </P>
<P ALIGN="JUSTIFY">Consignment inventory </P>
<P ALIGN="JUSTIFY">For sales of consignment inventory (where physical possession
of the merchandise may be maintained by the Company or by the vendor), the
Company is not obligated to take title to the merchandise until sold. Upon
completion of a consignment sale, the Company takes title to the merchandise,
charges the customer's credit card and either ships the merchandise directly or
arranges for a third party to complete delivery to the customer. The Company
pays the vendor for the merchandise. The Company records the full sales amount
as revenue upon authorization of the credit card and shipment of the
merchandise. In consignment transactions, the Company is at risk of loss for
collecting all sales proceeds, delivery of the merchandise and returns from
customers. When credit card authorization has been received but the merchandise
has not been shipped, the Company defers revenue recognition until the
merchandise is shipped. </P>
<P ALIGN="JUSTIFY">Sales returns</P>
<P>For online sales, the Company will allow customers to return products in
certain circumstances. Accordingly, the Company provides for allowances for
estimated future returns at the time of shipment and periodically reviews the
reserves and adjusts requirements based on historical and anticipated
experience. </P>
<P>Commission and other revenue </P>
<P ALIGN="JUSTIFY">In agency transactions, the Company conducts online sales and
processes orders in exchange for a commission on the sale of the supplier's
merchandise. Under this arrangement, at the conclusion of a sale, the Company
forwards the order information to the supplier, who then charges the customer's
credit card and ships the merchandise to the customer. In an agency transaction,
the Company does not take title to or possession of the merchandise, and the
supplier bears all of the risk of credit card chargebacks and customer
returns.</P>
<P ALIGN="JUSTIFY">The Company also earns revenue from the sale of
advertisements on its web site. This revenue is recognized as the advertisement
is displayed. </P>
</FONT><B><FONT SIZE=2><P ALIGN="JUSTIFY">Cash, cash equivalents and short-term
investments </P>
</B></FONT><FONT SIZE=2><P ALIGN="JUSTIFY">Cash and cash equivalents consist of
cash on deposit with banks and highly liquid investments with an original
maturity of three months or less from the date of purchase. The Company's
short-term investments consist of certificates of deposit, commercial paper and debt
securities with remaining maturities between 90 and 365 days. The Company
classifies all short-term investments as available-for-sale in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities", which requires the Company
to account for its investments at fair market value as of the balance sheet date
and record unrealized gains and losses in stockholders' equity. Realized gains
and losses and permanent declines in value, if any, on available-for-sale
securities are reported in other income or expense as incurred. As of December
31, 2000, 1999 and 1998, the Company had restricted cash of approximately $1.2
million, $1.8 million and $2.5 million, respectively.</P>
</FONT><B><FONT SIZE=2><P>Merchandise inventory </P>
</B></FONT><FONT SIZE=2><P ALIGN="JUSTIFY">Inventory is stated at the lower of
cost or market, cost being determined on a first-in, first-out basis. </P>
</FONT><B><FONT SIZE=2><P ALIGN="JUSTIFY">Property and equipment </P>
</B></FONT><FONT SIZE=2><P ALIGN="JUSTIFY">Property and equipment, including
leasehold improvements and capitalized software, is stated at cost less
accumulated depreciation and amortization. Depreciation of equipment, furniture
and fixtures and software is computed using the straight-line method over the
estimated useful lives ranging from two to seven years. Depreciation of
buildings is provided using the straight-line method over their estimated useful
lives of up to 30 years. Amortization of leasehold improvements is provided
using the straight-line method over the lesser of the lease term or the asset's
estimated useful lives. </P>
<P ALIGN="JUSTIFY">The Company applies the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," which requires recognition of impairment of long-lived assets
in the event the net book value of such assets exceeds the future undiscounted
cash flows attributable to such assets. </P>
</FONT><B><FONT SIZE=2><P>Goodwill</P>
</B></FONT><FONT SIZE=2><P>The purchase price of net assets of businesses
acquired in purchase transactions is allocated based on the fair value of the
assets at the date of acquisition. Goodwill was amortized over 20 years.
Goodwill at December 31, 1998 and 1997 was $31.6 million and $33.2 million, net
of accumulated amortization of $2.7 million and $1.0 million, respectively. As a
result of the completion of the merger with Old Egghead, the Company wrote-off
the remaining goodwill balance, as discussed in Note 11.</P>
</FONT><B><FONT SIZE=2><P>Comprehensive income</P>
</B></FONT><FONT SIZE=2><P ALIGN="JUSTIFY">The Company applies the provisions of
SFAS No. 130 "Reporting Comprehensive Income" ("SFAS 130") which requires the
Company to report in its financial statements, in addition to its net income
(loss), comprehensive income (loss) which includes all changes in equity during
a period from non-owner sources including, as applicable, foreign currency
items, minimum pension liability adjustments and unrealized gains and losses on
certain investments in debt and equity securities. Unrealized gains/losses on
short-term available-for-sale securities were insignificant and accordingly net
losses and comprehensive losses were the same for the years ended December 31,
2000 and 1999. </P>
</FONT><B><FONT SIZE=2><P ALIGN="JUSTIFY">Advertising costs </P>
</B></FONT><FONT SIZE=2><P ALIGN="JUSTIFY">All advertising costs are expensed as
incurred. The Company does not incur any significant direct-response advertising
costs. For the years ended December 31, 2000, 1999 and 1998 advertising costs
totaled $23.3 million, $51.4 million, and $23.6 million, respectively. </P>
</FONT><B><FONT SIZE=2><P>Capitalized software development for internal use</P>
</B></FONT><FONT SIZE=2><P>In 1998, the Company adopted Statement of Position
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use", ("SOP 98-1"). The Company capitalized software costs related to
internally developed or purchased software in accordance with SOP 98-1 in the
amount of $3.1 million in 2000 and $6.1 million in 1999. Amounts capitalized are
amortized on a straight-line basis over three years. Amortization expense for
the years ended December 31, 2000, 1999 and 1998 was approximately $1.0 million,
$4.9 million and $1.7 million, respectively. In connection with the merger with
Old Egghead, the Company wrote-off approximately $6.2 million, net of
accumulated depreciation, of Old Egghead's capitalized software upon abandonment
in the fourth quarter of 1999 following the merger.</P>
<P>In March 2000, the Emerging Issues Task Force issued its consensus on Issue
No. 00-2, "Accounting for Web Site Development Costs" ("EITF 00-2"). The Company
accounts for the development and maintenance of its website in accordance with
EITF 00-2.</P>
</FONT><B><FONT SIZE=2><P ALIGN="JUSTIFY">Engineering expenses </P>
</B></FONT><FONT SIZE=2><P ALIGN="JUSTIFY">Engineering expenses include expenses
incurred by the Company to develop, enhance, manage, monitor and operate the
Company's web site. Engineering costs are expensed as incurred, except for
engineering costs capitalized in accordance with SOP 98-1 and EITF 00-2.</P>
</FONT><B><FONT SIZE=2><P>Income taxes </P>
</B></FONT><FONT SIZE=2><P ALIGN="JUSTIFY">The Company provides for income taxes
using the asset and liability approach that recognizes deferred income tax
assets and liabilities for expected future tax consequences of temporary
differences between the book and tax bases of assets and liabilities using the
currently enacted tax rates and laws. A valuation allowance is provided for
deferred tax assets when it is more likely than not, based on currently
available evidence, that some portion or all of the deferred tax assets will not
be realized. </P>
</FONT><B><FONT SIZE=2><P ALIGN="JUSTIFY">Dependence on merchandise vendors </P>
</B></FONT><FONT SIZE=2><P ALIGN="JUSTIFY">The Company does not manufacture any
of the merchandise that it sells. The Company's strategy has been to develop and
maintain relationships with distributors, original equipment manufacturers and
brokers to secure a continuing supply of merchandise to be auctioned or sold
directly to the public. </P>
</FONT><B><FONT SIZE=2><P ALIGN="JUSTIFY">Concentration of credit risk </P>
</B></FONT><FONT SIZE=2><P ALIGN="JUSTIFY">Financial instruments that
potentially subject the Company to a concentration of credit risk consist of
cash and cash equivalents and accounts receivable. The Company's accounts
receivable include: 1) receivables from a credit card vendor for customer
charges; 2) receivables from vendors and other businesses for advertising on the
Company's web site; 3) commissions from agency transactions earned from
suppliers located in the United States and Canada; 4) receivables from vendors
for returned merchandise; and 5) receivables for sales to small business,
educational institutions and governmental entities. The Company generally
requires no collateral from its vendors and customers. Online sales are made
through credit cards or on open account and are approved prior to shipment of
merchandise. The Company maintains an allowance for doubtful accounts receivable
based upon the expected collectibility of accounts receivable and potential
credit losses. At December 31, 2000, the receivable from a major credit card
vendor was approximately $5.6 million, or 36% of the total accounts receivable
balance. </P>
</FONT><B><FONT SIZE=2><P ALIGN="JUSTIFY">Basic and diluted net loss per share
</P>
</B></FONT><FONT SIZE=2><P ALIGN="JUSTIFY">The Company calculates loss per share
in accordance with the provisions of SFAS No. 128, "Earnings per Share" ("SFAS
128"). SFAS 128 requires the Company to report both basic earnings per share and
diluted earnings per share. Basic earnings per share is computed using the
weighted-average number of common shares outstanding during the periods. Diluted
earnings per share is computed using the weighted average number of common and
potentially dilutive common equivalent shares outstanding during the periods.
Common equivalent shares consist of incremental common shares issuable upon
conversion of convertible preferred stock (using the if-converted method) and
shares issuable upon the exercise of stock options and warrants (using the
treasury stock method). During the years ended December 31, 2000, 1999 and 1998,
options to purchase approximately 6.8 million, 5.5 million and 4.0 million
shares, respectively, were outstanding but not included in the computation
because they were antidilutive. </P>
</FONT><B><FONT SIZE=2><P ALIGN="JUSTIFY">Stock-based compensation </P>
</B></FONT><FONT SIZE=2><P ALIGN="JUSTIFY">The Company accounts for its stock-
based awards using the intrinsic value method in accordance with APB No. 25,
"Accounting for Stock Issued to Employees," and its related interpretations and
complies with the disclosure provisions of SFAS No. 123 "Accounting for Stock
Based Compensation." </P>
</FONT><B><FONT SIZE=2><P ALIGN="JUSTIFY">Management estimates and assumptions
</P>
</B></FONT><FONT SIZE=2><P ALIGN="JUSTIFY">The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.</P>
</FONT><B><FONT SIZE=2><P>Recently Issued Accounting Pronouncements</P>
</B></FONT><FONT SIZE=2><P>Statement of Financial Accounting Standards ("SFAS")
No. 133, Accounting for Derivative Instruments and Hedging Activities, is
effective for all fiscal years beginning after June 15, 2000. SFAS 133, as
amended, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. Under SFAS 133, certain contracts that
were not formerly considered derivatives may now meet the definition of
derivative. The Company will adopt SFAS 133 effective January 1, 2001.
Management does not expect the adoption of SFAS 133 to have a significant impact
on the financial position, results of operations, or cash flows of the
Company.</P>
<P>In September 2000, consensus was reached by the Emerging Issues Task Force
regarding Issue 00-10, Accounting for Shipping and Handling Fees ("EITF 00-10").
EITF 00-10 requires companies to report all shipping and handling revenue
received from a customer as revenue. In previous quarters, the Company reported
certain shipping revenue as a reduction of shipping cost in cost of sales. In
order to comply with EITF 00-10, the Company has reclassified shipping revenue
previously recorded in cost of sales to online revenue. This reclassification
results in an increase in online and net revenue, no change in gross profit
dollars, and a slight decrease in gross profit margin. This reclassification
results in the following changes to online revenue, total revenue and gross
margins for the years 1999 and 1998 (dollars in thousands):</P>
<P>&nbsp;</P>
<P>&nbsp;</P></FONT>
<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=1 CELLPADDING=7 WIDTH=342>
<TR><TD WIDTH="42%" VALIGN="BOTTOM" HEIGHT=16>
<P></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="53%" VALIGN="BOTTOM" COLSPAN=3 HEIGHT=16>
<FONT SIZE=2><P ALIGN="CENTER">Years Ended December 31,</FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="23%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P ALIGN="CENTER">1999</FONT></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="25%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P ALIGN="CENTER">1998</FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P>As currently reported:</FONT></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="23%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="25%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P>Online revenue </FONT></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="23%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">$ 529,575</FONT></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="25%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">$ 376,628</FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P>Total revenue </FONT></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="23%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">541,208</FONT></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="25%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">380,609</FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="23%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="25%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P>As previously reported:</FONT></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="23%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="25%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P>Online revenue </FONT></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="23%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">$ 503,171</FONT></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="25%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">$ 352,491</FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P>Total revenue </FONT></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="23%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">514,804</FONT></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="25%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">356,472</FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="23%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="25%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P>As currently reported:</FONT></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="23%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="25%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P>Online margin </FONT></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="23%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">3.0%</FONT></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="25%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">8.6%</FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P>Total margin</FONT></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="23%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">5.1%</FONT></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="25%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">9.6%</FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="23%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="25%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P>As previously reported:</FONT></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="23%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="25%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P>Online margin </FONT></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="23%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">3.2%</FONT></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="25%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">9.2%</FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P>Total margin</FONT></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="23%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">5.4%</FONT></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="25%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">10.2%</FONT></TD>
</TR>
</TABLE>
</CENTER></P>

<B><FONT SIZE=2><P>&nbsp;</P>
<P>Reclassifications</P>
</B></FONT><FONT SIZE=2><P ALIGN="JUSTIFY">Certain prior years' balances have
been reclassified to conform with the current year's presentation. </P>
</FONT><FONT SIZE=2><P>&nbsp;</P>
<B><P>NOTE 2 - PROPERTY AND EQUIPMENT </P>
</B><P>&#9;&#9; </P></FONT>
<TABLE BORDER CELLSPACING=1 CELLPADDING=7 WIDTH=576>
<TR><TD WIDTH="60%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="40%" VALIGN="BOTTOM" COLSPAN=3>
<FONT SIZE=2><P ALIGN="CENTER">December 31,
<HR NOSHADE SIZE=1>
</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="15%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="CENTER">2000
<HR NOSHADE SIZE=1>
</FONT></TD>
<TD WIDTH="9%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="16%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="CENTER">1999
<HR NOSHADE SIZE=1>
</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="40%" VALIGN="BOTTOM" COLSPAN=3>
<FONT SIZE=2><P ALIGN="CENTER">(in thousands)</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="BOTTOM">
<FONT SIZE=2><P>Property and equipment:</FONT></TD>
<TD WIDTH="15%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="9%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="16%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="BOTTOM">
<FONT SIZE=2><P>Computer equipment</FONT></TD>
<TD WIDTH="15%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">$8,697</FONT></TD>
<TD WIDTH="9%" VALIGN="BOTTOM">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="16%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">$ 5,956</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P>Software&#9;&#9;</FONT></TD>
<TD WIDTH="15%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">7,462</FONT></TD>
<TD WIDTH="9%" VALIGN="BOTTOM" HEIGHT=16><P></P></TD>
<TD WIDTH="16%" VALIGN="BOTTOM" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">4,217</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="BOTTOM">
<FONT SIZE=2><P>Furniture and fixtures and telecommunications
equipment</FONT></TD>
<TD WIDTH="15%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">5,582</FONT></TD>
<TD WIDTH="9%" VALIGN="BOTTOM">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="16%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">4,080</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="BOTTOM">
<FONT SIZE=2><P>Land and buildings&#9;</FONT></TD>
<TD WIDTH="15%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">563</FONT></TD>
<TD WIDTH="9%" VALIGN="BOTTOM">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="16%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">563</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="BOTTOM">
<FONT SIZE=2><P>Leasehold improvements</FONT></TD>
<TD WIDTH="15%" VALIGN="BOTTOM">
<U><FONT SIZE=2><P ALIGN="RIGHT">4,552</U></FONT></TD>
<TD WIDTH="9%" VALIGN="BOTTOM">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="16%" VALIGN="BOTTOM">
<U><FONT SIZE=2><P ALIGN="RIGHT">2,256</U></FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="15%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">26,855</FONT></TD>
<TD WIDTH="9%" VALIGN="BOTTOM">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="16%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">17,072</FONT></TD>
</TR>

<TR><TD WIDTH="60%" VALIGN="BOTTOM">
<FONT SIZE=2><P>Less: accumulated depreciation and amortization</FONT></TD>
<TD WIDTH="15%" VALIGN="BOTTOM">
<U><FONT SIZE=2><P ALIGN="RIGHT">(13,561)</U></FONT></TD>
<TD WIDTH="9%" VALIGN="BOTTOM">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="16%" VALIGN="BOTTOM">
<U><FONT SIZE=2><P ALIGN="RIGHT">(7,559)</U></FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Property and equipment, net</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$13,294
<HR NOSHADE SIZE=4>
</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="16%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ 9,513
<HR NOSHADE SIZE=4>
</FONT></TD>
</TR>
</TABLE>

<FONT SIZE=2><P>The Company is in the process of developing a new e-commerce
engine and configuring and customizing a new commercially available software
package to replace our existing sales management applications, e-commerce engine
and order processing applications and plans to convert to these new computerized
software systems in 2001. As a result, the estimate of the remaining useful
lives of certain software systems has been revised. This resulted in additional
depreciation expense of $300,000 in 2000.&#9;</P>
</FONT><B><FONT SIZE=2><P>NOTE 3 - ACCRUED EXPENSES </P>
</B><P>&#9;</P>
<P>Accrued expenses at December 31, 2000 included $1.7 million in merger costs
and $3.7 million in accrued advertising expense.</P>
</FONT><FONT SIZE=2><P ALIGN="JUSTIFY">Accrued expenses at December 31, 1999
included $9.0 million in merger costs primarily related to investment banking
fees and $4.8 million in accrued advertising expense. </P>
</FONT><B><FONT SIZE=2><P>NOTE 4 - SALE OF INTEREST IN JOINT VENTURE </P>
</B></FONT><FONT SIZE=2><P ALIGN="JUSTIFY">On May 15, 1998, the Company entered
into a joint venture agreement with Softbank Corporation to perform on-line
auctions for the Japanese market, resulting in the formation of Onsale Japan K.
K., which commenced operations in the third quarter of 1998. Through the second
quarter of 2000 the Company owned a 40% interest in the joint venture and
accounted for its interest using the equity method of accounting and,
accordingly, the Company recognized its share of net profits or losses of the
joint venture as an adjustment to its initial investment amount. The Company's
initial investment of $2.0 million was funded through a note payable to Softbank
Corporation denominated in Japanese Yen. The principal amount of the note and
accrued interest was due the earlier of the closing date of an initial public
offering of the joint venture or in December 2002. Interest accrues at a
fluctuating rate equal to the short-term prime rate of the Dai-ichi Kangyo Bank
in Tokyo, Japan. This note has no right of offset against the Company's
investment in the joint venture. On July 3, 2000 the company sold 52.5% of its
interest (or 21% of the total common stock outstanding) in Onsale Japan K.K. to
Indigo Corporation for approximately $2.5 million, representing a gain of
approximately $2.3 million. There is no remaining carrying value in this
asset.</P>
</FONT><B><FONT SIZE=2><P>NOTE 5- RELATED PARTY TRANSACTIONS </P>
</B></FONT><FONT SIZE=2><P ALIGN="JUSTIFY">In the fourth quarter of 1998, the
Company entered into a five year secured loan agreement with Company's Chief
Executive Officer and loaned him $250,000 for housing assistance related to his
relocation and employment. This loan is recorded as a long-term note receivable,
included in other assets, and requires quarterly interest payments computed at
an annual interest rate of 4.46%. The Board of Directors resolved, on August 23,
2000, that all amounts of principal and accrued but unpaid interest would be
forgiven as follows: (a) one-third of the outstanding principal and accrued
interest due as of January 1, 2001 will be forgiven on such date; (b) one-half
of the outstanding principal and accrued interest due as of January 1, 2002 will
be forgiven on such date; and (c) all principal and accrued interest remaining
due as of January 1, 2003 will be forgiven on such date. The forgiveness is
subject to certain provisions regarding his continued employment with the
Company. Compensation expense related to the forgiveness as of January 1, 2001
was recognized in the year 2000.</P>
</FONT><B><FONT SIZE=2><P ALIGN="JUSTIFY">NOTE 6 - CONVERTIBLE PREFERRED STOCK
AND COMMON STOCK</P>
</B></FONT><FONT SIZE=2><P>The Company's Board of Directors is authorized,
subject to any limitation prescribed by Delaware law, to issue up to 2,000,000
shares of preferred stock, with such designation, preferences, special rights,
qualifications, limitations or restrictions as expressed in a Board resolution,
without any further vote or action by the voting stockholders. The Board may
authorize the issuance of such preferred stock with voting or conversion rights
that could adversely affect the voting power or other rights of the holders of
common stock. Thus, the issuance of preferred stock may have the effect of
delaying, deferring or preventing a change in control of the Company.</P>
<P>In March 1999, Old Egghead issued 3,249,000 shares of its common stock
through a secondary offering, resulting in net proceeds of $72.9
million.</P>

<P>On February 17, 2000 the Company entered into an equity financing agreement
with Acqua Wellington North American Equities Fund, Ltd. ("Acqua Wellington").
On March 6, 2000, the Company issued approximately 700,000 shares of common
stock at an average price of $10.67, reflecting a 5.6% discount from market
prices, resulting in net proceeds of $7.4 million. On March 29,
2000, the Company issued an additional 2.3 million shares of common stock for
$6.75 per share, reflecting a 2.7% discount from the closing market price on
that date, which resulted in net proceeds of $15.5 million. On
July 14, 2000, the Company issued another 2.0 million shares of common stock at
an average price of $1.96 per share, reflecting a 16.1% average discount from
market prices, which resulted in net proceeds of $3.9 million.</P>
<B><P>NOTE 7 - EMPLOYEE BENEFIT PLANS </P>
<P>Stock Option Plans</P>
</B><P>In connection with the acquisition of Old Egghead, the Company assumed
Old Egghead's 1997 Non-officer Employee Stock Option Plan, the Surplus Software,
Inc. 1996 Stock Option Plan, the Non-employee Director Stock Option Plan and the
Amended and Restated 1993 Stock Option Plan (collectively, the "Old Egghead
Plans"). Outstanding options in these plans totaled 1,348,876 shares at November
19, 1999, the date of the merger. The options that were issued under the Old
Egghead Plans have retained their original option dates, option term and vesting
schedules. The options generally vest over four years and terminate after 10
years.</P>
<B><P>1995 Equity Incentive Plan</P>
</B><P>Under the Company's 1995 Equity Incentive Plan (the "1995 Plan"), shares
of common stock are reserved for issuance pursuant to stock options, restricted
stock and stock bonuses that may be granted to employees, directors and
consultants. Upon the adoption of the 1995 Plan, 3.5 million shares were
reserved for issuance. In May 1998, the Company's stockholders approved an
increase of an additional 1.8 million shares to be reserved for issuance under
this plan. In May 1999, the Company's stockholders approved an increase of an
additional 392,000 shares to be reserved for issuance under the plan, as well as
an amendment to the plan providing that the number of shares available for
issuance would be increased automatically each year by an amount equal to 4% of
the outstanding shares of the Company's common stock as of the last day of the
prior year. In November 1999, the Company's stockholders approved an increase of
an additional 950,000 shares to be reserved for issuance under the plan. Stock
options must be granted with exercise prices of at least the fair market value
of the Company's common stock on the date of grant. Options generally vest over
a 48-month period and expire at the conclusion of terms not exceeding ten years
from the date of grant. At December 31, 2000, 8,095,498 shares were reserved for
issuance under the 1995 Plan. </P>
<B><P>Directors Stock Option plan </P>
</B><P>In December 1996, the Company's Board of Directors adopted the 1996
Directors Stock Option Plan (the "Directors Plan") and reserved 100,000 shares
of common stock for issuance thereunder. The Company's stockholders approved the
Directors Plan in January 1997, however the plan was terminated on November 19,
1999, upon of the completion of the merger with Old Egghead. Outstanding options
continue to vest, but no new options can be granted from this plan. The options
vest over a 48-month period and expire ten years from the date of grant. At
December 31, 2000, there were options to purchase 58,238 shares of common stock,
with exercise prices ranging from $2.00 to $31.50, outstanding under the
Directors Plan, of which 49,140 options were exercisable. </P>
<B><P>2000 Equity Incentive Plan</P>
</B><P>In July 2000, the Company's Board of Directors approved the 2000 Equity
Incentive Plan (the "2000 Plan"). The 2000 Plan will not be subjected to
stockholder approval, and only director level employees and lower level
employees are eligible for grants under this plan. Upon the adoption of the 2000
Plan, 1.0 million shares were reserved for issuance. Options vest over a 48-
month period and expire at the conclusion of terms not exceeding ten years from
the date of grant. At December 31, 2000, 1.0 million shares were reserved for
issuance under the 2000 Plan.</P>
<B><P>Employee Stock Purchase plan </P>
</B><P>In December 1996, the Company's Board of Directors adopted the 1996
Employee Stock Purchase Plan (the "Purchase Plan") and reserved 150,000 shares
of common stock for issuance thereunder. The Company's stockholders approved the
Purchase Plan in January 1997. In May 1998, the Company's stockholders approved
an increase of an additional 300,000 shares to be reserved for issuance under
this plan, as well as an amendment providing that the number of shares reserved
for issuance thereunder would be increased automatically at the beginning of
each year by an amount equal to 1.5% of the outstanding shares of the Company's
common stock as of the last day of the prior year. The Purchase Plan permits
eligible employees to acquire shares of the Company's common stock through
periodic payroll deductions of up to 15% of their annual compensation not to
exceed $21,250. Eligible employees may purchase up to 1,500 shares at each
purchase period. The price at which the common stock is purchased under the
Purchase Plan 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. Each offering period has a maximum
duration of 24 months, and shares of common stock are purchased for each
participant at semi-annual intervals during each offering period. At December
31, 2000, 932,600 shares were reserved for future issuance under this plan. </P>
<P>In connection with the acquisition of the Old Egghead, the Company assumed
the 1989 Employee Stock Purchase Plan of Old Egghead and provided Old Egghead
employees the option to acquire the Company's common stock, as long as they were
still employed by the Company at June 30, 2000, the stock purchase date. The
stock was issued at the lesser of 85% of the fair market value of the Company's
common stock on July 1, 1999 or 85% of the fair market value on the following
June 30. This plan was discontinued after the June 30, 2000 purchase period was
completed.</P>
<P>A summary of stock option activity under the Plans, the 1995 Plan, the 2000
Plan and the Directors Plan is as follows</FONT>: </P>
<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=1 CELLPADDING=1 WIDTH=650>
<TR><TD WIDTH="52%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="20%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="CENTER">Options Outstanding</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">Weighted Average Exercise Price</FONT></TD>
</TR>
<TR><TD WIDTH="52%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="20%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="21%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="52%" VALIGN="TOP">
<FONT SIZE=2><P>Balance at December 31, 1997</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">4,203,811</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ 8.78</FONT></TD>
</TR>
<TR><TD WIDTH="52%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="20%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="21%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="52%" VALIGN="TOP">
<FONT SIZE=2><P>Granted</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">1,891,199</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">20.84</FONT></TD>
</TR>
<TR><TD WIDTH="52%" VALIGN="TOP">
<FONT SIZE=2><P>Exercised</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">(1,418,658)</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">13.28</FONT></TD>
</TR>
<TR><TD WIDTH="52%" VALIGN="TOP">
<FONT SIZE=2><P>Canceled</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">(642,739)</U></FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="21%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">9.63</U></FONT></TD>
</TR>
<TR><TD WIDTH="52%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="20%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="21%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="52%" VALIGN="TOP">
<FONT SIZE=2><P>Balance at December 31, 1998</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">4,033,613</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">12.66</FONT></TD>
</TR>
<TR><TD WIDTH="52%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="20%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="21%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="52%" VALIGN="TOP">
<FONT SIZE=2><P>Granted</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">3,437,993</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">22.89</FONT></TD>
</TR>
<TR><TD WIDTH="52%" VALIGN="TOP">
<FONT SIZE=2><P>Exercised</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">(468,843)</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">6.83</FONT></TD>
</TR>
<TR><TD WIDTH="52%" VALIGN="TOP">
<FONT SIZE=2><P>Canceled</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">(1,524,251)</U></FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="21%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">20.49</U></FONT></TD>
</TR>
<TR><TD WIDTH="52%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="20%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="21%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="52%" VALIGN="TOP">
<FONT SIZE=2><P>Balance at December 31, 1999</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">5,478,512</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">17.34</FONT></TD>
</TR>
<TR><TD WIDTH="52%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="20%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="21%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="52%" VALIGN="TOP">
<FONT SIZE=2><P>Granted</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">5,153,482 </FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">4.70</FONT></TD>
</TR>
<TR><TD WIDTH="52%" VALIGN="TOP">
<FONT SIZE=2><P>Exercised</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">(533,317)</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">0.53</FONT></TD>
</TR>
<TR><TD WIDTH="52%" VALIGN="TOP">
<FONT SIZE=2><P>Canceled</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">(3,254,486) </U></FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="21%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">18.20</U></FONT></TD>
</TR>
<TR><TD WIDTH="52%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="20%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="21%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="52%" VALIGN="TOP">
<FONT SIZE=2><P>Balance at December 31, 2000</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">6,844,191
<HR NOSHADE SIZE=4>
</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ 8.73
<HR NOSHADE SIZE=4>
</FONT></TD>
</TR>
</TABLE>
</CENTER></P>

<FONT SIZE=2><P ALIGN="CENTER">&nbsp;</P>
<P ALIGN="JUSTIFY">The weighted-average grant-date fair value of options granted
was $3.94, $17.48, and $16.58 during 2000, 1999, and 1998, respectively.</P>
<P ALIGN="JUSTIFY">At December 31, 1999, 2.1 million options were fully vested
and exercisable at prices ranging from $.03 to $63.50, and at December 31, 1998,
1.5 million options were fully vested and exercisable at prices ranging from
$0.03 to $33.61.</P>
<P>The following table summarizes information about stock options outstanding as
of December 31, 2000: </P>
</FONT>
<TABLE BORDER CELLSPACING=1 CELLPADDING=7 WIDTH=654>
<TR><TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="51%" VALIGN="TOP" COLSPAN=3>
<FONT SIZE=2><P ALIGN="CENTER">OPTIONS OUTSTANDING</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="25%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=2><P ALIGN="CENTER">OPTIONS EXERCISABLE</FONT></TD>
</TR>
<TR><TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=4>
<FONT SIZE=2><P ALIGN="CENTER">Range of Exercise Prices</FONT></TD>
<TD WIDTH="19%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="CENTER">Number Outstanding</FONT></TD>
<TD WIDTH="19%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="CENTER">Weighted Average Remaining Contractual Life
(years)</FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="CENTER">Weighted Average Exercise Price</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="CENTER">Number Exercisable</FONT></TD>
<TD WIDTH="12%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="CENTER">Weighted Average Exercise Price</FONT></TD>
</TR>
<TR><TD WIDTH="21%" VALIGN="TOP" COLSPAN=4 HEIGHT=19>
<P>&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=19>
<P>&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=19>
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="TOP" HEIGHT=19>
<P>&nbsp;</TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=19>
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=19>
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=19>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="3%" VALIGN="TOP">
<FONT SIZE=2><P>$</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">0.53</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP">
<FONT SIZE=2><P>-</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">2.13</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">469,247</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">9.74</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$1.35</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">19,324 </FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$1.98</FONT></TD>
</TR>
<TR><TD WIDTH="3%" VALIGN="TOP">
<FONT SIZE=2><P>$</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">2.16</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP">
<FONT SIZE=2><P>-</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">2.25</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">1,308,350</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">9.55</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$2.24</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">123,804</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$2.25</FONT></TD>
</TR>
<TR><TD WIDTH="3%" VALIGN="TOP">
<FONT SIZE=2><P>$</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">2.28</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP">
<FONT SIZE=2><P>-</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">2.44</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">798,829</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">9.59</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$2.40</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">65,443</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$2.42</FONT></TD>
</TR>
<TR><TD WIDTH="3%" VALIGN="TOP">
<FONT SIZE=2><P>$</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">2.47</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP">
<FONT SIZE=2><P>-</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">4.19</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">801,999</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">9.47</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$3.46</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">85,656</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$3.71</FONT></TD>
</TR>
<TR><TD WIDTH="3%" VALIGN="TOP">
<FONT SIZE=2><P>$</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">4.38</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP">
<FONT SIZE=2><P>-</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">9.50</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">814,490</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">8.68</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$7.56</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">232,397</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$6.73</FONT></TD>
</TR>
<TR><TD WIDTH="3%" VALIGN="TOP">
<FONT SIZE=2><P>$</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">9.51</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP">
<FONT SIZE=2><P>-</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">12.00</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">735,420</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">6.57</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$9.94</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">642,336</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$9.73</FONT></TD>
</TR>
<TR><TD WIDTH="3%" VALIGN="TOP">
<FONT SIZE=2><P>$</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">12.17</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP">
<FONT SIZE=2><P>-</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">14.75</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">643,132</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">8.32</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$14.04</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">267,022</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$14.27</FONT></TD>
</TR>
<TR><TD WIDTH="3%" VALIGN="TOP">
<FONT SIZE=2><P>$</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">14.88</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP">
<FONT SIZE=2><P>-</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">22.13</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">711,144</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">8.00</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$19.13</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">364,841</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$19.24</FONT></TD>
</TR>
<TR><TD WIDTH="3%" VALIGN="TOP">
<FONT SIZE=2><P>$</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">22.40</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP">
<FONT SIZE=2><P>-</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">50.25</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">561,580</U></FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">8.45</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$27.33</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">226,491</U></FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$27.91</FONT></TD>
</TR>
<TR><TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">6,844,191
<HR NOSHADE SIZE=4>
</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">2,027,314
<HR NOSHADE SIZE=4>
</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
</TABLE>

<B><I><FONT SIZE=2><P>&nbsp;</P>
<P>Fair Value Disclosures</P>
</B></I></FONT><FONT FACE="Times,Times New Roman" SIZE=2><P ALIGN="JUSTIFY">SFAS
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), requires the
disclosure of pro forma net earnings and earnings per share as if the Company
had adopted the fair value method as of the beginning of fiscal 1995. Under SFAS
123, the fair value of stock-based awards to employees is calculated through the
use of option pricing models, even though such models were developed to estimate
the fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option awards.
These models also require subjective assumptions, including future stock price
volatility and expected time to exercise, which greatly affect the calculated
values. </P>
</FONT><FONT SIZE=2><P>The fair value of options granted under the 1995 Plan,
the 2000 Plan and stock purchase rights under the Purchase Plan for fiscal years
2000, 1999 and 1998 has been estimated at the date of grant using a Black-
Scholes option pricing model. The following assumptions were used for the 1995
Plan, the 2000 Plan and the Director's Plan: dividend yield of 0.0%; risk-free
interest rates of 5.1%, 5.5% and 5.1% in 2000, 1999 and 1998, respectively; a
weighted average expected option term of five years; and expected volatility of
121% in 2000 and 100% in 1999 and 1998. The following assumptions were used for
the Purchase Plan: dividend yield of 0.0%; risk free interest rates of 6.4%,
4.5% and 5.7% in 2000, 1999 and 1998, respectively; a weighted average expected
option term of two years; and volatility of 121% in 2000 and 100% in 1999 and
1998. </P>
<P ALIGN="JUSTIFY">The fair value of options granted under Old Egghead's Plans
for fiscal 1998 was estimated at the date of grant using a Black-Scholes option
pricing model. The following assumptions were used for the Plan: dividend yield
of 0.0%; risk-free interest rate of 5.4%; a weighted average expected option
term of 4.3 years; and volatility of 96%. </P>
<P ALIGN="JUSTIFY">Had compensation cost been recognized in accordance with SFAS
123, the pro forma results would have been a net loss of $76.0 million or $1.87
per basic and diluted share in 2000, a net loss of $169.6 million or $4.69 per
basic and diluted share in 1999, and a net loss of $56.5 million or $1.72 per
basic and diluted share in 1998. </P>
<P>Because the determination of the fair value of the options granted for all
periods presented is based on the assumptions set forth above, the above pro
forma disclosures may not be indicative of the pro forma effects of option
grants on reported net income (loss) for future years.</P>
</FONT><B><FONT SIZE=2><P>NOTE 8 - 401(k) PLAN</P>
</B></FONT><FONT SIZE=2><P>Effective November 1996, the Company adopted the
Onsale 401(k) Plan (the "401(k) Plan"). The 401(k) Plan qualifies as a deferred
salary arrangement under Section 401 of the Internal Revenue Code. Under the
401(k) Plan, participating employees may defer a portion of their pretax
earnings not to exceed 15% of their total compensation. The Company, at its
discretion, may make contributions for the benefit of eligible employees. The
Company's contributions for 2000 were approximately $285,000, contributions for
all other periods presented were not significant. </P>
</FONT><FONT FACE="Times,Times New Roman" SIZE=2><P ALIGN="JUSTIFY">The Company
assumed Old Egghead's 401(k) Plan ("the Old Egghead 401(k) Plan") upon
consummation of the acquisition of Old Egghead. In the Old Egghead 401(k) Plan,
employee contributions were matched by the Company at 25% of the employee's
contribution, up to 5% of each employee's compensation upon the employee's
completion of six months of full-time employment or one year of eligibility
service. Contributions are fully vested upon the completion of five years of
service. </P>
</FONT><B><FONT SIZE=2><P>NOTE 9 - INCOME TAXES </P>
</B></FONT><FONT SIZE=2><P ALIGN="JUSTIFY">There was no provision for income
taxes during the years ended December 31, 2000, 1999 or 1998. The provision
(benefit) for income taxes differs from the amount determined by applying the
U.S. statutory income tax rate to income before income taxes as summarized below
(in thousands): </P>
</FONT><FONT SIZE=2><P>&#9;&#9;</P></FONT>
<TABLE BORDER CELLSPACING=1 CELLPADDING=7 WIDTH=565>
<TR><TD WIDTH="51%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="50%" VALIGN="BOTTOM" COLSPAN=5>
<FONT SIZE=2><P ALIGN="CENTER">Years Ended December 31,</FONT></TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="CENTER">2000</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="CENTER">1999</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="CENTER">1998</FONT></TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="BOTTOM">
<FONT SIZE=2><P>Tax benefit at statutory rate</FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">$ (21,294)</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">$ (48,318)</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">$(16,690)</FONT></TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="BOTTOM">
<FONT SIZE=2><P>Non-recognition of benefit of operating losses</FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">21,287 </FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">38,709 </FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">16,648 </FONT></TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="BOTTOM">
<FONT SIZE=2><P>Goodwill write-off</FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">10,379</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="BOTTOM">
<FONT SIZE=2><P>Merger costs</FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">(790)</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="BOTTOM">
<FONT SIZE=2><P>Other</FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<U><FONT SIZE=2><P ALIGN="RIGHT">7</U></FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<U><FONT SIZE=2><P ALIGN="RIGHT">20</U></FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<U><FONT SIZE=2><P ALIGN="RIGHT">42</U></FONT></TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -
<HR NOSHADE SIZE=4>
</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -
<HR NOSHADE SIZE=4>
</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -
<HR NOSHADE SIZE=4>
</FONT></TD>
</TR>
</TABLE>

<FONT SIZE=2><P ALIGN="JUSTIFY">Deferred income taxes reflect the tax effect of
temporary differences between carrying amounts of assets and liabilities for
financial reporting and income tax purposes. The Company provides a valuation
allowance for the deferred tax assets when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Management
believes that the available objective evidence creates sufficient uncertainty
regarding the realizability of deferred tax assets such that a full valuation
allowance is required at December 31, 2000. </P>
<P>Significant components of the Company's deferred tax assets are as follows:
</P></FONT>
<TABLE BORDER CELLSPACING=1 CELLPADDING=7 WIDTH=545>
<TR><TD WIDTH="51%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">2000</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">1999</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="15%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">1998</FONT></TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT SIZE=2><P>Net operating loss carry forwards</FONT></TD>
<TD WIDTH="13%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">$ 110,298</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">$ 87,170</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="15%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">$ 38,551</FONT></TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT SIZE=2><P>Reserves and accruals</FONT></TD>
<TD WIDTH="13%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">3,328</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">4,482 </FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="15%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">10,952 </FONT></TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT SIZE=2><P>Other</FONT></TD>
<TD WIDTH="13%" VALIGN="BOTTOM">
<U><FONT SIZE=2><P ALIGN="RIGHT">- </U></FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="BOTTOM">
<U><FONT SIZE=2><P ALIGN="RIGHT">- </U></FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="15%" VALIGN="BOTTOM">
<U><FONT SIZE=2><P ALIGN="RIGHT">85</U></FONT></TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">113,626</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">91,652</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="15%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">49,588</FONT></TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT SIZE=2><P>Valuation allowance</FONT></TD>
<TD WIDTH="13%" VALIGN="BOTTOM">
<U><FONT SIZE=2><P ALIGN="RIGHT">(113,626)</U></FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="BOTTOM">
<U><FONT SIZE=2><P ALIGN="RIGHT">(91,652)</U></FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="15%" VALIGN="BOTTOM">
<U><FONT SIZE=2><P ALIGN="RIGHT">(49,588)</U></FONT></TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -
<HR NOSHADE SIZE=4>
</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -
<HR NOSHADE SIZE=4>
</FONT></TD>
<TD WIDTH="4%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="15%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -
<HR NOSHADE SIZE=4>
</FONT></TD>
</TR>
</TABLE>

<FONT SIZE=2><P>The Company has a net operating loss carryforward for federal
tax purposes of approximately $317 million, which will expire beginning in
2014.</P>
</FONT><B><FONT SIZE=2><P>NOTE 10 - COMMITMENTS AND CONTINGENCIES </P>
<P ALIGN="JUSTIFY">Lease Commitments </P>
</B></FONT><FONT SIZE=2><P>The Company leases office space for its corporate
headquarters and warehouse. These leases expire at various times from one year
to four years. Future annual minimum lease payments under all non-cancelable
operating leases as of December 31, 2000 were as follows (in thousands): </P>
</FONT>
<TABLE BORDER CELLSPACING=1 CELLPADDING=7 WIDTH=396>
<TR><TD WIDTH="80%" VALIGN="TOP">
<P>&nbsp;<FONT SIZE=2>Years ending December 31,</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">Amount</FONT></TD>
</TR>
<TR><TD WIDTH="80%" VALIGN="TOP">
<FONT SIZE=2><P>2001</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ 3,166</FONT></TD>
</TR>
<TR><TD WIDTH="80%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>2002</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">3,026</FONT></TD>
</TR>
<TR><TD WIDTH="80%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>2003</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">1,309</FONT></TD>
</TR>
<TR><TD WIDTH="80%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>2004</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">267</FONT></TD>
</TR>
<TR><TD WIDTH="80%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>2005</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">-
<HR NOSHADE SIZE=1>
</FONT></TD>
</TR>
<TR><TD WIDTH="80%" VALIGN="TOP" HEIGHT=13><P></P></TD>
<TD WIDTH="20%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="RIGHT">$ 7,768
<HR NOSHADE SIZE=4>
</FONT></TD>
</TR>
</TABLE>

<FONT SIZE=2><P>&#9;</P>
</FONT><FONT SIZE=2><P>Total rent expense for the years ended December 31, 2000,
1999 and 1998 was approximately $3.0 million $3.1 million, and $2.8 million,
respectively. </P>
<P ALIGN="JUSTIFY">The Company has recorded a liability for retail stores and
distribution facility lease terminations in connection with its retail
restructurings. See Note 12.</P>
<P ALIGN="JUSTIFY">&nbsp;</FONT><FONT SIZE=2>&nbsp;</P>
</FONT><B><FONT SIZE=2><P ALIGN="JUSTIFY">Sponsorship Agreements </P>
</B><P ALIGN="JUSTIFY">The Company has entered into certain sponsorship
agreements on specific web sites requiring minimum payments of $1.2 million and,
under certain conditions, incremental fees based on the volume of traffic to its
web site. These agreements expire at various times from March 2001 to June 2001.
</P>
</FONT><B><FONT SIZE=2><P>Litigation </P>
</B></FONT><FONT SIZE=2><P>From time to time the Company is subject to legal
proceedings and claims in the ordinary course of business, including claims of
alleged infringement of trademarks and other intellectual property rights. The
Company is not currently aware of any legal proceedings or claims that the
Company believes will have, individually or in the aggregate, a material adverse
effect on the Company's financial position or results of operations. </P>


</FONT><B><FONT SIZE=2><P>NOTE 11 - ACQUISITIONS</P>
<P>Merger with Old Egghead </P>
</B></FONT><FONT SIZE=2><P>On November 19, 1999, the Company acquired Old
Egghead, a publicly traded online retailer of software and other computer
related products. Under the terms of the acquisition which was accounted for as
a pooling of interests, the Company exchanged approximately 17.4 million shares
of its common stock for all of the outstanding shares of Old Egghead common
stock. Additionally, the Company converted options to purchase approximately 2.5
million shares of Old Egghead common stock into options to
purchase approximately 1.4 million shares of the Company's common stock. During
1999, the Company recorded merger-related expenses of approximately $52.2 for
direct transaction costs including investment banking and financial advisory
fees of approximately $7.0 million and other merger related expenses of $6.8
million, consisting primarily of professional services, severance costs,
contract termination costs and other merger related expenses. The Company also
wrote off assets representing duplicate facilities which were abandoned,
including hardware and software of approximately $8.7 million and goodwill of
$30.5 million associated with these duplicate facilities. In 2000, the Company
incurred approximately $2.4 million of additional merger related severance
payments partially offset by the reduction of approximately $1.7 million in 1999
merger reserves. </P>
</FONT><B><FONT SIZE=2><P ALIGN="JUSTIFY">Old Egghead Acquisition Of Surplus
Direct </P>
</B></FONT><FONT SIZE=2><P ALIGN="JUSTIFY">On August 14, 1997, Old Egghead
acquired Surplus Direct by issuing 3,000,652 shares of Old Egghead common stock,
valued at approximately $32.6 million, and 163,348 options to purchase Old
Egghead common stock. The transaction included payment of $6.0 million of
Surplus Direct debt. At the time, Surplus Direct was engaged in direct marketing
of off-price computer hardware and software through catalogs and two Internet
commerce sites. This acquisition was recorded using the purchase method of
accounting. Operating results of Surplus Direct are included in the statement of
operations from the date of acquisition. An excess purchase price of
approximately $34.2 million, over identifiable assets, was determined based on
the fair values of assets acquired and liabilities assumed. This goodwill was
being amortized over 20 years. In January 1999, the Company received and
subsequently retired 56,497 shares of Old Egghead common stock originally issued
in connection with the Surplus Direct acquisition in settlement of certain pre-
acquisition contingencies.</P>
</FONT><B><FONT SIZE=2><P>NOTE 12 - RESTRUCTURING AND REORGANIZATION </P>
</B></FONT><FONT SIZE=2><P ALIGN="JUSTIFY">In the fourth quarter of 1997, Old
Egghead recorded a $37.6 million restructuring charge to reorganize its
operations for a plan involving, among other things, closing the remaining Old
Egghead retail stores, a significant reduction in its headquarters staff and the
closure of its Sacramento, California distribution center. This charge included
approximately $17.1 million for retail lease terminations and related fixed
asset disposals, $10.0 million for store closing costs, $6.2 million for the
liquidation of inventory, $2.1 million for the closure of the Sacramento
distribution center and $2.2 million in severance, fixed asset disposal and
other miscellaneous expenses related to the reduction of Old Egghead's
headquarters operation. The $37.6 million restructuring charge was recorded as a
$6.2 million charge to gross profit, a $6.4 million charge to selling and
marketing expenses, a $0.5 million charge to general and administrative expenses
and a $24.5 million charge to restructuring and impairment charges. The $24.5
million 1997 restructuring and impairment charge was partially offset by a
reduction of $5.0 million in 1996 restructuring and impairment reserves. The
Company anticipates that the remaining payables as of December 31, 2,000,
consisting primarily of $1.7 million in lease obligations, will be substantially
completed by the 2007. </P>
</FONT><B><FONT SIZE=2><P>NOTE 13 - RECAPITALIZATION OF SUBSIDIARY </P>
</B></FONT><FONT SIZE=2><P>On November 11, 1997, Old Egghead recapitalized its
wholly owned subsidiary Elekom Corporation. As part of the recapitalization,
certain venture capitalists invested capital in Elekom, reducing the Company's
ownership percentage to approximately 26% at the end of 1997. Prior to
recapitalization, income and expenses of Elekom were recorded in the Company's
operating results. After recapitalization, the Company's share of the results of
operations of Elekom were included using the equity method of accounting and are
reflected in the other income (expense) in the Company's consolidated statements
of operations. On November 9, 1998, the remaining ownership in Elekom was sold
at a gain of approximately $3.3 million. Due to a contingency clause in the
sales agreement approximately $600,000 in gain from the sale was deferred and
held in escrow. The company received the escrowed monies and accordingly
recorded a gain of approximately $662,000 in 2000.</P>
<B><P ALIGN="JUSTIFY">NOTE 14 - SUBSEQUENT EVENTS</P>
</B><P>In February 2001, the Company entered into a $20 million secured
inventory financing credit line with IBM Credit Corporation. This credit
facility terminates in February 2002, unless renewed by both parties. This
financing line is secured by the Company's inventory and equipment, accounts and
accounts receivable, general intangibles and other collateral. This agreement
requires the Company to make payments to IBM on a tri-monthly basis for amounts
borrowed under this credit line, and imposes several requirements and
restrictions on the company, including restrictions on the Company's ability to
sell its assets, merge with other entities, incur most forms of additional debt
and make specified forms of investments, among others. </P>
<P>In March 2001, the Company announced a reduction in force of 77 people which
included full-time regular employees, temporary workers and contractors.</P>

<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="schii"></A>
<B><P>FINANCIAL STATEMENT SCHEDULES</P>
</B><P>II - Valuation and Qualifying Accounts for each of the three years in the
period ended December 31, 2000:</P></FONT>
<TABLE BORDER CELLSPACING=1 WIDTH=588>
<TR><TD WIDTH="37%" VALIGN="BOTTOM">
<P>&nbsp;<FONT SIZE=2>(In thousands)</FONT></TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="CENTER">Balance at Beginning of Period</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="CENTER"> Additions Charged to Costs and
Expenses</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="CENTER">Write-offs</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="CENTER">Balance at End of Period</FONT></TD>
</TR>
<TR><TD WIDTH="37%" VALIGN="TOP">
<FONT SIZE=2><P>Year Ended December 31, 2000</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="37%" VALIGN="TOP">
<FONT SIZE=2><P>Allowance for doubtful accounts</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ 2,320</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ 1,763</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ (1,747)</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ 2,336</FONT></TD>
</TR>
<TR><TD WIDTH="37%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="37%" VALIGN="TOP">
<FONT SIZE=2><P>Year Ended December 31, 1999</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="37%" VALIGN="TOP">
<FONT SIZE=2><P>Allowance for doubtful accounts</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ 1,273</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ 3,628</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ (2,581)</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ 2,320</FONT></TD>
</TR>
<TR><TD WIDTH="37%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="37%" VALIGN="TOP">
<FONT SIZE=2><P>Year Ended December 31, 1998</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="37%" VALIGN="TOP">
<FONT SIZE=2><P>Allowance for doubtful accounts</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ 2,765</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ 7,678</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ (9,170)</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ 1,273</FONT></TD>
</TR>
</TABLE>


<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="quarter"></A>
<B><FONT SIZE=2><P>&nbsp;</P>
<P>SUPPLEMENTARY FINANCIAL DATA (UNAUDITED)</P>
</B><P>Quarterly Financial Data</P>
<P>Quarterly financial data for the years ended December 31, 2000 and 1999 are
summarized in the following table: (In thousands, except per share
amounts)</P></FONT>
<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=1 WIDTH=506>
<TR><TD WIDTH="26%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">March 31,   2000</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">June 30,      2000</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">Sept. 30,     2000</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">Dec. 31,      2000</FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>Net sales</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ 152,049</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ 129,750</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ 105,425</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ 91,624</FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>Gross profit </FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">8,846</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">8,770</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">10,493</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">9,139</FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>Net loss </FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">(25,059)</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">(17,661)</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">(9,908)</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">(9,572)</FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>Net loss per share:</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=2><P>Basic and diluted</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=2><P ALIGN="RIGHT">$ (0.67)</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=2><P ALIGN="RIGHT">$ (0.44)</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=2><P ALIGN="RIGHT">$ (0.24)</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=2><P ALIGN="RIGHT">$ (0.23)</FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">March 31,   1999 </FONT></TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">June 30,      1999 </FONT></TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">Sept. 30,     1999</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">Dec. 31,      1999 </FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>Net sales</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ 117,335</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ 128,109</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ 142,551</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ 153,213</FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>Gross profit </FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">10,389</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">5,286</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">5,936</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">6,016</FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>Net loss (1)</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">(18,335)</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">(22,356)</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">(23,874)</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">(90,364)</FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>Net loss per share:</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="2%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="17%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP" HEIGHT=19>
<FONT SIZE=2><P>Basic and diluted</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=19>
<FONT SIZE=2><P ALIGN="RIGHT">$ (0.54)</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=19><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=19>
<FONT SIZE=2><P ALIGN="RIGHT">$ (0.61)</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=19><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=19>
<FONT SIZE=2><P ALIGN="RIGHT">$ (0.64)</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=19><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=19>
<FONT SIZE=2><P ALIGN="RIGHT">$ (2.44)</FONT></TD>
</TR>
</TABLE>
</CENTER></P>

<FONT SIZE=2><P ALIGN="JUSTIFY">&nbsp;</P>
<P ALIGN="JUSTIFY">(1) Net loss for the quarter ended December 31, 1999 includes
merger related costs of $52.2 million. See Note 11 to the Consolidated Financial
Statements included elsewhere in this report.</P>


<A NAME="item9"></A>
<B><P>Item 9. <I>Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure</I>.</P>
</B></FONT><FONT FACE="Times,Times New Roman" SIZE=2><P>&#9;</P>
</FONT><FONT SIZE=2><P>Effective August 21, 2000, we engaged Deloitte &amp;
Touche LLP to replace PricewaterhouseCoopers LLP as our independent public
accountants. Our board of directors approved this decision on August 16, 2000.
The reports of PricewaterhouseCoopers LLP on our financial statements for each
of 1998 and 1999 contained no adverse opinion or disclaimer of opinion and were
not qualified or modified as to uncertainty, audit scope or accounting
principles. </P>
<P>During 1998 and 1999 and through August 21, 2000, we had no disagreements
with PricewaterhouseCoopers LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of PricewaterhouseCoopers LLP
would have caused it to make reference to the subject matter of the disagreement
in its report on our financial statements for such years. Also, during this
period, we had no reportable events (as defined in Item 304(a)(1)(v) of
Regulation S-K), except that in February 2000 PricewaterhouseCoopers LLP
reported to our audit committee regarding two material control weaknesses. They
recommended that we establish policies and procedures to strengthen the controls
surrounding processing of deferred revenue and related transactions on a timely
basis, and establish and implement policies and procedures to pre-test changes
to our computer systems. We approved those recommendations and we have taken
corrective action, including the establishment of new procedures and the
enhancement of existing procedures, and acquisition of new order management
software, to ensure that deferred revenue and related transactions are
reconciled timely and any material corrections are made. In addition, we have
implemented policies and procedures requiring user testing of all material
changes to computer systems prior to implementation, and intend to enhance
quality assurance procedures as well.</P>
<P>&nbsp;&nbsp;</P>
<B><P ALIGN="CENTER">PART III</P>

<A NAME="item10"></A>
<P>Item 10. <I>Directors and Executive Officers of the Registrant.</P>
</B></I><P>&#9;The information required by this item is incorporated by
reference to the proxy statement for our 2001 Annual Meeting of Stockholders,
which we intend to file on or before April 30, 2001. The information required by
this item will be set forth in the sections of the proxy statement entitled
"Proposal No. 1 - Election of Directors," "Management" and "Compliance under
Section 16(a) of the Securities Exchange Act of 1934.</P>

<A NAME="item11"></A>
<B><P>Item 11.&#9; <I>Executive Compensation.</P>
</B></I><P>&#9;The information required by this item is incorporated by
reference to the proxy statement for our 2001 Annual Meeting of Stockholders,
which we intend to file on or before April 30, 2001. The information required by
this item will be set forth in the sections of the proxy statement entitled
"Proposal No. 1 - Election of Directors," "Executive Compensation" and "Company
Stock Price Performance."</P>

<A NAME="item12"></A>
<B><P>Item 12.&#9; <I>Security Ownership of Certain Beneficial Owners and
Management.</P>
</B></I><P>&#9;The information required by this item is incorporated by
reference to the proxy statement for our 2001 Annual Meeting of Stockholders,
which we intend to file on or before April 30, 2001. The information required by
this item will be set forth in the section of the proxy statement entitled
"Security Ownership of Principal Stockholders, Directors and Management."</P>

<A NAME="item13"></A>
<B><P>Item 13.&#9; <I>Certain Relationships and Related Transactions.</P>
</B></I><P>&#9;The information required by this item is incorporated by
reference to the proxy statement for our 2001 Annual Meeting of Stockholders,
which we intend to file on or before April 30, 2001. The information required by
this item will be set forth in the sections of the proxy statement entitled
"Related Party Transactions."</P>
<B><P ALIGN="CENTER">&nbsp;</P>
<P ALIGN="CENTER">&nbsp;</P>
<P ALIGN="CENTER">PART IV</P>

<A NAME="item14"></A>
<P>Item 14.&#9; <I>Exhibits, Financial Statement Schedules, and Reports on Form
8-K.</P>
</B></I><P>(a) The following documents are filed as part of this annual
report:</P>
<P>1. Financial Statements. See Index to Financial states at Item 8 on page
30.</P>
<P>2. Financial Statement Schedules. See Index to Financial Statements at Item 8
on page 30.</P>
<P>Omitted schedules are not applicable or the required information is shown in
the consolidated financial statements and notes thereto.</P>
<P>3. Exhibits. The following exhibits are filed as part of, or are incorporated
by reference into, this annual report:</P>
</FONT>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=6 WIDTH=738>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P ALIGN="CENTER"><B><FONT SIZE=1>Exhibit</B></FONT></TD>
<TD WIDTH="42%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="41%" VALIGN="TOP" COLSPAN=4>
<B><U><FONT SIZE=1><P ALIGN="CENTER">Incorporated by
Reference</B></U></FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">
<B><FONT SIZE=1><P ALIGN="CENTER">Filed</B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<B><U><FONT SIZE=1><P ALIGN="CENTER">Number</B></U></FONT></TD>
<TD WIDTH="42%" VALIGN="TOP">
<B><U><FONT SIZE=1><P ALIGN="CENTER">Exhibit Description</B></U></FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">
<B><U><FONT SIZE=1><P ALIGN="CENTER">Form</B></U></FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<B><U><FONT SIZE=1><P ALIGN="CENTER">File No.</B></U></FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<B><U><FONT SIZE=1><P ALIGN="CENTER">Exhibit</B></U></FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<B><U><FONT SIZE=1><P ALIGN="CENTER">Filing Date</B></U></FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">
<B><U><FONT SIZE=1><P ALIGN="CENTER">Herewith</B></U></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">3.01</FONT></TD>
<TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=2><P>Amended and Restated Certificate of Incorporation of the
Registrant, filed with the Delaware Secretary of State on November 19,
1999.</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">S-4</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">333-87377</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">3.02</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">09/17/99</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">3.02</FONT></TD>
<TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=2><P>Amended and Restated Bylaws of the Registrant, as adopted on
September 10, 1999.</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">S-4
</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">333-87377</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">3.03
</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">09/17/99</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">4.01</FONT></TD>
<TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=2><P>Investors Rights Agreement, dated September 12, 1996, among the
Registrant and the parties indicated therein.</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">S-1
</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">333-18489</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">4.01</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">12/20/96</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.01</FONT></TD>
<TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=2><P>Egghead.com 2000 Equity Incentive Plan, as adopted on March 13,
2000, and forms of related agreements.*</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">S-8
</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">4.04
</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">08/08/00
</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.02</FONT></TD>
<TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=2><P>Revised Senior Management Bonus Plan, Q2-Q4 Year
2000.*</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">10-Q
</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">10.03
</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">08/14/00
</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.03</FONT></TD>
<TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=2><P>Uniform Severance Guidelines for Egghead
Executives.*</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">10-Q
</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">10.04
</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">08/14/00
</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.04</FONT></TD>
<TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=2><P>Offer letter, dated March 15, 2001, by the Registrant to Mark C.
Shepherd.*</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="9%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">X</B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.05</FONT></TD>
<TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=2><P>Offer letter, dated January 23, 2001, by the Registrant to
Robert S. Islinger.*</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="9%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">X</B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.06</FONT></TD>
<TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=2><P>Amendment to offer letter, dated January 1, 2001, by the
Registrant to Jeffrey F. Sheahan.</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="9%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">X</B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.07</FONT></TD>
<TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=2><P>Common Stock Purchase Agreement, dated February 17, 2000,
between the Registrant and Acqua Wellington North American Equities Fund, Ltd.,
dated February 17, 2000.</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">8-K
</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">1.01
</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">02/23/00
</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.08</FONT></TD>
<TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=2><P>Letter Agreement, dated March 29, 2000, between the Registrant
and Acqua Wellington North American Equities Fund, Ltd.</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">
</body>
<FONT SIZE=2><P ALIGN="CENTER">8-K
</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">99.01
</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
</head>
<FONT SIZE=2><P ALIGN="CENTER">04/04/00
</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>

<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.09</FONT></TD>
<TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=2><P>Draw Down Notice, dated July 18, 2000, between the Registrant
and the Acqua Wellington North American Equities Fund, Ltd.</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">8-K
</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">99.01
</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">07/20/00
</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>

<TR><TD WIDTH="9%" VALIGN="TOP"1>
<FONT SIZE=2><P ALIGN="CENTER">10.10</FONT></TD>
<TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=2><P>Lease Agreement, dated October 17, 2000, between the Registrant
and The Columbian Publishing Company. **
</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP"><P></P></TD>
<TD WIDTH="10%" VALIGN="TOP"><P></P></TD>
<TD WIDTH="10%" VALIGN="TOP"><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP"><P></P></TD>
<TD WIDTH="9%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">X</B></FONT></TD>
</TR>

<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.11</FONT></TD>
<TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=2><P>Agreement for Inventory Financing, dated February 29, 2001,
between the Registrant and IBM Credit Corporation. **</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="9%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">X</B></FONT></TD>
</TR>

<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">21.01</FONT></TD>
<TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=2><P>List of subsidiaries of the Registrant.</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="9%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">X</B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">23.01</FONT></TD>
<TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=2><P>Consent of Deloitte &amp; Touche LLP, Independent
Auditors.</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="9%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">X</B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">23.02</FONT></TD>
<TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=2><P>Consent of PricewaterhouseCoopers LLP, Independent
Accountants.</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="9%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">X</B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">24.01</FONT></TD>
<TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=2><P>Power of Attorney (see signature page after Item
14).</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="9%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">X</B></FONT></TD>
</TR>
</TABLE>
<DIR>

<FONT SIZE=2><P>*&#9;Management contracts or compensatory plans required to be
filed as an exhibit to Form 10-K.</P>
<P>**&#9;Pursuant to Item 601(b)(2) of Regulation S-K, certain attachments have
been omitted but will be furnished supplementally to the Commission upon
request.</P>
<P>&nbsp;</P>
<P>(b) Reports on Form 8-K.</P><DIR>

<P>We did not file any current reports on Form 8-K during the quarterly period
ended December 31, 2000.</P>
<P>&nbsp;</P>
<P>&nbsp;</P></DIR>
</DIR>



<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="sign"></A>

<B><P ALIGN="CENTER">SIGNATURES</P>
</B><P>&#9;Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.</P>
<P>&nbsp;</P>

<P ALIGN="CENTER"><TABLE BORDER=0 CELLSPACING=1 CELLPADDING=7 WIDTH=600>
<TR><TD WIDTH="50%" VALIGN="TOP">
<P><FONT SIZE=2>
Date: March 30, 2001
</TD>
<TD WIDTH="50%" VALIGN="TOP">
<P><FONT SIZE=2>
EGGHEAD.COM, INC.</P>
</TD>
</TR>

<TR><TD WIDTH="50%" VALIGN="TOP">
<P><FONT SIZE=2>
<P>&nbsp;
</TD>
<TD WIDTH="50%" VALIGN="TOP">
<P><FONT SIZE=2>
<P>By: <U>/s/ Jeffrey F. Sheahan</U><br>
&#9;Jeffrey F. Sheahan<br>
<I><P>&#9;Chief Executive Officer and President</I></P>
</TD>
</TR>
</TABLE>

<B><P ALIGN="CENTER">&nbsp;</P>
<P ALIGN="CENTER">POWER OF ATTORNEY</P>
</B><P>KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Jeffrey F. Sheahan and Mark C. Shepherd,
his true and lawful attorneys-in-fact and agents, with full power of
substitution, for him, and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-K,
and to file the same, with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or his or their substitute or substitutes, may lawfully do or cause to
be done by virtue thereof.</P>
<P>Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated. </P>
<P>&nbsp;</P></FONT>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=630>
<TR><TD WIDTH="42%" VALIGN="TOP">
<P ALIGN="CENTER"><B><U><FONT SIZE=2>Signature</B></U></FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="CENTER">Title</B></U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="CENTER">Date</B></U></FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="40%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="18%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<B><FONT SIZE=2><P>Principal Executive Officer:</B></FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="18%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<U><FONT SIZE=2><P>/s/ &#9;Jeffrey F. Sheahan</U></FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<FONT SIZE=2><P>Chief Executive Officer, President</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">March 30, 2001</FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=2><P>&#9;Jeffrey F. Sheahan</FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<FONT SIZE=2><P>and a Director</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="40%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="18%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<B><FONT SIZE=2><P>Principal Financial and Accounting Officer:</B></FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="18%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<U><FONT SIZE=2><P>/s/ &#9;John Labbett&#9;</U></FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<FONT SIZE=2><P>Executive Vice President and </FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">March 30, 2001</FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=2><P>&#9;John Labbett</FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<FONT SIZE=2><P>Chief Financial Officer</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="40%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="18%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="40%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="18%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<B><FONT SIZE=2><P>Additional Directors:</B></FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="18%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<U><FONT SIZE=2><P>/s/ &#9;George Orban&#9;</U></FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<FONT SIZE=2><P>Co-Chairman of the Board</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">March 30, 2001</FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=2><P>&#9;George Orban</FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="18%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="40%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="18%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<U><FONT SIZE=2><P>/s/ &#9;S. Jerrold Kaplan&#9;</U></FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<FONT SIZE=2><P>Co-Chairman of the Board</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">March 30, 2001</FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=2><P>&#9;S. Jerrold Kaplan</FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="18%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="40%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="18%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=2><P><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<FONT SIZE=2><P>Director</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P>&nbsp;</FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=2><P>&#9;C. Scott Gibson</FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="18%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="40%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="18%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=2><P><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<FONT SIZE=2><P>Director</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P>&nbsp;</FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=2><P>&#9;Peter Harris</FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="18%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="40%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="18%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>

<TR><TD WIDTH="42%" VALIGN="TOP">
<U><FONT SIZE=2><P>/s/ &#9;Kenneth J. Orton&#9;
</U></FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<FONT SIZE=2><P>Director</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">March 30, 2001</FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=2><P>Kenneth J. Orton</FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="18%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="40%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="18%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>

<TR><TD WIDTH="42%" VALIGN="TOP">
<U><FONT SIZE=2><P>/s/ &#9;Robert T. Wall&#9;
</U></FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<FONT SIZE=2><P>Director</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">March 30, 2001</FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=2><P>Robert T. Wall</FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="18%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="40%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="18%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>

<TR><TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=2><P><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
</U></FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<FONT SIZE=2><P>Director</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P>&nbsp;</FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=2><P>Karen White</FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="18%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
</TABLE>

<B><FONT SIZE=2><P ALIGN="CENTER">&nbsp;</P>
<P ALIGN="CENTER">&nbsp;</P>
<P ALIGN="CENTER">EXHIBIT INDEX</P></B></FONT>
<P ALIGN="CENTER"><CENTER><TABLE CELLSPACING=0 BORDER=0 CELLPADDING=6 WIDTH=750>
<TR><TD WIDTH="9%" VALIGN="TOP" HEIGHT=31><P></P></TD>
<TD WIDTH="40%" VALIGN="TOP" HEIGHT=31>
<P>&nbsp;</TD>
<TD WIDTH="40%" VALIGN="TOP" COLSPAN=4 HEIGHT=31>
<B><U><FONT SIZE=1><P ALIGN="CENTER">Incorporated by
Reference</B></U></FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=31><P></P></TD>
</TR>

<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<B><FONT SIZE=1><P ALIGN="CENTER">Exhibit<U> Number</B></U></FONT></TD>
<TD WIDTH="40%" VALIGN="BOTTOM">
<B><U><FONT SIZE=1><P ALIGN="CENTER">Exhibit Description</B></U></FONT></TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<B><U><FONT SIZE=1><P ALIGN="CENTER">Form</B></U></FONT></TD>
<TD WIDTH="9%" VALIGN="BOTTOM">
<B><U><FONT SIZE=1><P ALIGN="CENTER">File No.</B></U></FONT></TD>
<TD WIDTH="8%" VALIGN="BOTTOM">
<B><U><FONT SIZE=1><P ALIGN="CENTER">Exhibit</B></U></FONT></TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<B><U><FONT SIZE=1><P ALIGN="CENTER">Filing Date</B></U></FONT></TD>
<TD WIDTH="11%" VALIGN="BOTTOM">
<B><FONT SIZE=1><P ALIGN="CENTER">Filed<U> Herewith</B></U></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="40%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="9%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">3.01</FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<FONT SIZE=2><P>Amended and Restated Certificate of Incorporation of the
Registrant, filed with the Delaware Secretary of State on November 19,
1999.</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">S-4</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">333-87377</FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">3.02</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">09/17/99</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">3.02</FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<FONT SIZE=2><P>Amended and Restated Bylaws of the Registrant, as adopted on
September 10, 1999.</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">S-4
</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">333-87377</FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">3.03
</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">09/17/99
</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">4.01</FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<FONT SIZE=2><P>Investors Rights Agreement, dated September 12, 1996, among the
Registrant and the parties indicated therein.</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">S-1
</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">333-18489</FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">4.01</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">12/20/96</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.01</FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<FONT SIZE=2><P>Egghead.com 2000 Equity Incentive Plan, as adopted on March 13,
2000, and forms of related agreements.*</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">S-8
</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">4.04
</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">08/08/00
</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.02</FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<FONT SIZE=2><P>Revised Senior Management Bonus Plan, Q2-Q4 Year
2000.*</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">10-Q
</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">10.03
</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">08/14/00
</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.03</FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<FONT SIZE=2><P>Uniform Severance Guidelines for Egghead
Executives.*</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">10-Q
</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">10.04
</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">08/14/00
</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.04</FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<FONT SIZE=2><P>Offer letter, dated March 15, 2001, by the Registrant to Mark C.
Shepherd.*</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="9%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">X</B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.05</FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<FONT SIZE=2><P>Offer letter, dated January 23, 2001, by the Registrant to
Robert S. Islinger.*</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="9%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">X</B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.06</FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<FONT SIZE=2><P>Amendment to offer letter, dated January 1, 2001, by the
Registrant to Jeffrey F. Sheahan.</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="9%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">X</B></FONT></TD>
</TR>

<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.07</FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<FONT SIZE=2><P>Common Stock Purchase Agreement, dated February 17, 2000,
between the Registrant and Acqua Wellington North American Equities Fund,
Ltd.</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">8-K
</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">1.01
</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">02/23/00
</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.08</FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<FONT SIZE=2><P>Letter Agreement, dated March 29, 2000, between the Registrant
and Acqua Wellington North American Equities Fund, Ltd.</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">8-K
</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">99.01
</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">04/04/00
</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.09</FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<FONT SIZE=2><P>Draw Down Notice, dated July 18, 2000, between the Registrant
and the Acqua Wellington North American Equities Fund, Ltd.</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">8-K
</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">99.01
</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">

<FONT SIZE=2><P ALIGN="CENTER">07/20/00
</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.10</FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<FONT SIZE=2><P>Lease Agreement, dated October 17, 2000, between the Registrant
and The Columbian Publishing Company. **</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="9%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">X</B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.11</FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<FONT SIZE=2><P>Agreement for Inventory Financing, dated February 29, 2001,
between the Registrant and IBM Credit Corporation. **</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="9%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">X</B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">21.01</FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<FONT SIZE=2><P>List of subsidiaries of the Registrant</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="9%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">X</B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">23.01</FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<FONT SIZE=2><P>Consent of Deloitte &amp; Touche LLP, Independent
Auditors.</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="9%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">X</B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">23.02</FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<FONT SIZE=2><P>Consent of PricewaterhouseCoopers LLP, Independent
Accountants.</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="9%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">X</B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">24.01</FONT></TD>
<TD WIDTH="40%" VALIGN="TOP">
<FONT SIZE=2><P>Power of Attorney (see signature page after Item
14).</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="9%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="11%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">X</B></FONT></TD>
</TR>
</TABLE>
</CENTER></P>

<FONT SIZE=2><P>&nbsp;</P><DIR>

<P>*&#9;Management contracts or compensatory plans required to be filed as an
exhibit to Form 10-K.</P>
<P>**&#9;Pursuant to Item 601(b)(2) of Regulation S-K, certain attachments have
been omitted but will be furnished supplementally to the Commission upon
request.</P>

<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>

</body>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.4
<SEQUENCE>2
<FILENAME>egg104.htm
<DESCRIPTION>EXHIBIT
<TEXT>

<HTML>
<HEAD>
<TITLE>2000 10K Exbibit 10.4</TITLE>
</HEAD>
<BODY LINK="#0000ff" VLINK="#800080">


<B><FONT SIZE=2><P ALIGN="RIGHT">&nbsp;</P>
<P ALIGN="RIGHT">EXHIBIT 10.04</P>
</B><P>&nbsp;</P>
<P>Mark C. Shepherd<br>
28 Chestnut Place<br>
Danville, CA 94506</P>
<P>Dear Mark:</P>
<P>March 15, 2001</P>
<P ALIGN="JUSTIFY">On behalf of Egghead.com I am pleased to offer you the
position of Chief Financial Officer and Sr. Vice President, reporting to me in
my role as President &amp; CEO. You will start working with us during the latter
part of March on some date mutually agreed upon between the two of us.</P>
<P ALIGN="JUSTIFY">Your annual base salary will be $250,000 paid in 26
increments over the course of the year. After we reach profitability, you will
participate in Egghead's Sr. Management Bonus Program, which can add substantial
income in the form of variable cash compensation. </P>
<P ALIGN="JUSTIFY">In the event that you are involuntarily terminated, except
for a Termination for Cause as defined below, you will be paid 6 months of base
salary in a lump sum within 30 days of your termination date. Further, if you
voluntarily terminate within six months following the close of a Change of
Control transaction as defined below, because your duties, responsibilities, or
compensation is materially diminished, or the location of your office is changed
by more than 50 miles, you will be paid 6 months base salary in a lump sum
within 30 days of your termination date.</P>
<P ALIGN="JUSTIFY">You will receive an option to purchase 500,000 shares of
Egghead common stock, subject to board approval. 375,000 shares of this stock
will vest monthly over a four-year period after a six-month "cliff". Your stock
option price for this option will be based upon the closing price of Egghead.com
stock the workday prior to the commencement of your employment with us. The
remaining 125,000 shares of stock will be in the form of a Time Accelerated Sock
Option Program (TASOP). This is a new program for Egghead and will be introduced
early in the second quarter of 2001.</P>
<P ALIGN="JUSTIFY">Your strike price for this second option will be based upon
the closing price of Egghead.com stock the day before the program is announced.
This option either vests ratably over a 36 month period after a six-month cliff,
or as Egghead reaches profitability, whichever occurs first. On the day we
publicly announce that the company made a profit during the previous quarter,
50% of the shares vest. On the day we publicly announce that Egghead earned 2%
in net income during the previous quarter, an additional 25% of the shares vest.
Finally, on the day we publicly announce that the company earned 3% in net
income during the previous quarter the remaining 25% of the shares vest. Net
income excludes special charges that are related to acquisitions,
amortization/write-off of goodwill and acquired R&amp;D, special compensation
charges, etc.</P>
<P ALIGN="JUSTIFY">Egghead provides employees a wide array of benefits including
a 401(K) plan through Fidelity Investments and an Employee Stock Purchase Plan.
Most of these benefits, including health care benefits will begin on the first
day of your employment. A brochure describing all our benefits plans is
enclosed.</P>
<P ALIGN="JUSTIFY">You will be required to sign a standard Employee Inventions
and Assignment Agreement and an Acknowledgement and Receipt of Egghead.com's
Employee Handbook. Your employment will at all times be "at will", which means
that you or Egghead can terminate your employment at any time with or without
cause. There will be no express or implied agreements to the contrary.</P>
<P ALIGN="JUSTIFY">Please sign and return a copy of this letter to indicate your
acceptance of our offer. This offer is contingent on the completion of a
background check. If you have any questions, please feel free to call me or any
other member of the executive staff. This offer expires if not signed and
returned by Friday, March 16, 2001. You may fax it to me on (650) 473 6990.</P>
<P ALIGN="JUSTIFY">Sincerely,</P>
<P ALIGN="JUSTIFY">/s/ Jeff Sheahan</P>
<P ALIGN="JUSTIFY">Jeff Sheahan</P>
<P ALIGN="JUSTIFY">President &amp; CEO</P>
<P ALIGN="JUSTIFY">I accept this job offer as described above:</P>
<P ALIGN="JUSTIFY">Signature: <U>/s/ Mark C. Shepherd </U>Date:<U>3/15/01</P>
</U><P ALIGN="JUSTIFY">Definition of Termination for Cause: The company's
termination of an executive's employment for (I) willful failure or refusal
without proper cause, to substantially perform his duties as an employee of the
company; (ii) the executive's conviction for any criminal act, except that a
misdemeanor conviction shall not constitute "Termination for Cause" unless it
shall have involved misappropriate use of funds or property, fraud, or other
similar activity which bears directly upon the executive's ability to perform
faithfully his duties as an employee of the Company. The executive shall have an
opportunity to appeal such termination to the board of directors of the
company.</P>
<P ALIGN="JUSTIFY">Definition of Change of Control Transaction: (i) a merger or
consolidation in which the voting shares of the Corporation immediately before
the merger or consolidation do not represent, or are not converted into shares
representing, a majority of the voting poser of the surviving corporation; (ii)
a transfer of shares representing more than 50% of the voting power of the
Corporation to a single entity or person or group of related entities or
persons; or (iii) a sale of substantially all of the assets of the
Corporation.</P></FONT>


<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>3
<FILENAME>egg105.htm
<DESCRIPTION>EXHIBIT
<TEXT>

<HTML>
<HEAD>
<TITLE>2000 10K Exbibit 10.5</TITLE>
</HEAD>
<BODY LINK="#0000ff" VLINK="#800080">


<B><FONT SIZE=2><P ALIGN="RIGHT">EXHIBIT 10.05</P>
</B><P>Robert S. Islinger<br>
14616 Eby<br>
Overland Park, Kansas 66221</P>
<P>Dear Bob:</P><DIR>

<P> January 23, 2001</P></DIR>

<P ALIGN="JUSTIFY">This letter replaces Bill Skinner's December 19<SUP>th
</SUP>offer letter.</P>
<P ALIGN="JUSTIFY">On behalf of Egghead.com I am pleased to offer you the
position of Sr. Vice President of Marketing, reporting to me in my role as
President &amp; CEO. You will start working with us during February 2001 on some
date mutually agreed upon between you and I.</P>
<P ALIGN="JUSTIFY">Your cash compensation package will have three components
during your first year at Egghead. Your annual base salary will be $225,000 paid
in 26 increments over the course of the year. You will receive a $50,000 sign-on
bonus, payable as a lump sum within your first 30 days of employment. Finally,
your first year's bonus will be guaranteed at $100,000, and paid in equal
installments during the beginning of July 2001 and the beginning of January
2002.</P>
<P ALIGN="JUSTIFY">From 2002 onward, your cash compensation package will have
two components. Effective upon your first anniversary with Egghead you will
receive a $30,000 increase in your base salary, taking it from $225,000 to
$255,000. During 2002 you will begin participation in Egghead's Sr. Management
Bonus Program, which will have a payout target of 55% of your base salary for
2002 only. In subsequent years your Sr. Management Bonus Program payout target
will be 40% of your base salary.</P>
<P ALIGN="JUSTIFY">You will begin accruing vacation at the rate of 3 weeks per
year on your first day of work. </P>
<P ALIGN="JUSTIFY">In the event that you are involuntarily terminated, except
for a Termination for Cause as defined below, you will be paid 6 months of base
salary in a lump sum within 30 days of your termination date. Further, if you
voluntarily terminate within six months following the close of a Change of
Control transaction as defined below, because your duties, responsibilities, or
compensation is materially diminished, or the location of your office is changed
by more than 50 miles, you will be paid 6 months base salary in a lump sum
within 30 days of your termination date.</P>
<P ALIGN="JUSTIFY">You will receive an option to purchase 275,000 shares of
Egghead common stock, subject to board approval. This stock will vest monthly
over a four-year period after a six-month "cliff". Your stock option price will
be based upon the closing price of Egghead.com stock the workday prior to the
commencement of your employment with us.</P>
<P ALIGN="JUSTIFY">Many of the costs associated with your relocation to the
Vancouver area will be paid directly or reimbursable as stated in the enclosed
and amended Relocation Policy.</P>
<P ALIGN="JUSTIFY">Egghead will provide to you upon request a loan of up to
$300,000 to aid in purchasing a home on the following terms:</P>

<UL>
<P ALIGN="JUSTIFY"><LI>Loan must commence within 1 year of your employment start
date</LI></P>
<P ALIGN="JUSTIFY"><LI>Loan period is for 5 calendar years from
commencement</LI></P>
<P ALIGN="JUSTIFY"><LI>Loan is at the minimum IRS rate as of the time of
origination</LI></P>
<P ALIGN="JUSTIFY"><LI>Loan is payable as follows:</LI></P>
<P ALIGN="JUSTIFY"><LI>Loan can be prepaid at any time</LI></P>
<P ALIGN="JUSTIFY"><LI>Accrued interest payable not less frequently than
quarterly</LI></P>
<P ALIGN="JUSTIFY"><LI>50% of any net proceeds of sale of Egghead.com stock will
be used to pay down loan during the loan term</LI></P>
<P ALIGN="JUSTIFY"><LI>Principal payable upon the earlier of (a) end of loan
term, (b) sale of property, or (c) within 2 years if employment is terminated
without cause by Egghead, but in no event later than 5 calendar years from
commencement, or (d) immediately if employment ends for any other
reason.</LI></P>
<P ALIGN="JUSTIFY"><LI>Loan to be secured by 2<SUP>nd</SUP> interest in property
purchased</LI></P></UL>

<P ALIGN="JUSTIFY">A formal loan note and associated documentation will be drawn
up and executed prior to origination of the loan.</P>
<P ALIGN="JUSTIFY">Egghead provides employees a wide array of benefits including
a company matched 401K plan and an Employee Stock Purchase Plan. Most of these
benefits, including health care benefits will begin on the first day of your
employment.</P>
<P ALIGN="JUSTIFY">You will be required to sign a standard Employee Inventions
and Assignment Agreement and an Acknowledgement and Receipt of Egghead.com's
Employee Handbook. Your employment will at all times be "at will", which means
that you or Egghead can terminate your employment at any time with or without
cause. There will be no express or implied agreements to the contrary.</P>
<P ALIGN="JUSTIFY">Please sign and return a copy of this letter to indicate your
acceptance of our offer. This offer is contingent on the completion of reference
checks and a background check. If you have any questions, please feel free to
call bill or me. or any other member of the executive staff. This offer expires
if not signed and returned by Friday, January 26, 2001. You may fax it to me on
(650) 473 6990.</P>
<P ALIGN="JUSTIFY">Sincerely,</P>
<P ALIGN="JUSTIFY">/s/ Jeff Sheahan</P>
<P ALIGN="JUSTIFY">Jeff Sheahan</P>
<P ALIGN="JUSTIFY">President &amp; CEO</P>
<P ALIGN="JUSTIFY">I accept this job offer as described above:</P>
<P ALIGN="JUSTIFY">Signature: <U>/s/ Robert Islinger </U>Date:<U>01/31/01</P>
</U><P ALIGN="JUSTIFY">Definition of Termination for Cause: The company's
termination of an executive's employment for (I) willful failure or refusal
without proper cause, to substantially perform his duties as an employee of the
company; (ii) the executive's conviction for any criminal act, except that a
misdemeanor conviction shall not constitute "Termination for Cause" unless it
shall have involved misappropriate use of funds or property, fraud, or other
similar activity which bears directly upon the executive's ability to perform
faithfully his duties as an employee of the Company. The executive shall have an
opportunity to appeal such termination to the board of directors of the
company.</P>
<P ALIGN="JUSTIFY">Definition of Change of Control Transaction: (i) a merger or
consolidation in which the voting shares of the Corporation immediately before
the merger or consolidation do not represent, or are not converted into shares
representing, a majority of the voting poser of the surviving corporation; (ii)
a transfer of shares representing more than 50% of the voting power of the
Corporation to a single entity or person or group of related entities or
persons; or (iii) a sale of substantially all of the assets of the
Corporation.</P>

<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.6
<SEQUENCE>4
<FILENAME>egg106.htm
<DESCRIPTION>EXHIBIT
<TEXT>

<HTML>
<HEAD>
<TITLE>2000 10K Exbibit 10.6</TITLE>
</HEAD>
<BODY LINK="#0000ff" VLINK="#800080">

<B><FONT SIZE=2><P ALIGN="RIGHT">EXHIBIT 10.06</P>
<P ALIGN="CENTER">AMENDED AND RESTATED</P>
<P ALIGN="CENTER">LOAN AND SECURITY AGREEMENT</P>
<P ALIGN="CENTER">&nbsp;</P>
<P ALIGN="JUSTIFY">THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT</B>
(this "<B><I>Agreement</B></I>") is made and entered into effective as of
January 1, 2001 (the "<B><I>Effective Date</B></I>") by and among ONSALE, Inc.,
a Delaware corporation ("<B><I>Lender</B></I>"), and Jeff Sheahan and Theresa
Sheahan (together, "<B><I>Borrower</B></I>"). This Agreement and the Note
(defined in Section 1.2) and any other documents entered into pursuant to this
Agreement or in connection with the Loan (defined in Section 1.1) are
hereinafter sometimes collectively referred to as the "<B><I>Loan
Documents</B></I>."</P>
<B><P ALIGN="JUSTIFY">WHEREAS</B>, Lender and Borrower are parties to that
certain Loan and Security Agreement dated as of November 23, 1998 (the
"<B><I>Prior Agreement</B></I>"), that certain Secured Promissory Note dated
November 23, 1998 in the aggregate principal amount of $250,000.00 (the
"<B><I>Prior Note</B></I>"), and that certain Stock Pledge Agreement dated as of
November 23, 1998 (the "<B><I>Stock Pledge Agreement</B></I>"); and</P>
<B><P ALIGN="JUSTIFY">WHEREAS</B>, Lender and Borrower desire (i) to amend and
restate the Prior Agreement and the Prior Note and (ii) to terminate the Second
Deed of Trust (as defined below) and the Stock Pledge Agreement as set forth in
this Agreement.</P>
<B><P ALIGN="JUSTIFY">NOW, THEREFORE</B>, in consideration of the foregoing
recitals and for other consideration, the adequacy and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:</P>
<B><P ALIGN="JUSTIFY">1.&#9;<U>AMOUNT AND TERMS OF LOAN</U>.</P>
<P ALIGN="JUSTIFY">1.1&#9;<U>Loan</U>.</B> On November 23, 1998, Lender loaned
Borrower the principal amount of Two Hundred Fifty Thousand Dollars
($250,000.00) (the "<B><I>Loan</B></I>") for the purchase of the property
located at APN 215-260-004, commonly known as 127 Alta Vista Way, Danville,
California 94506 (the "<B><I>Property</B></I>").</P>
<B><P ALIGN="JUSTIFY">&#9;1.2&#9;<U>Note</U>.</B> Borrower's indebtedness to
Lender with respect to the Loan is evidenced by the Prior Note. Lender and
Borrower agree to amend and restate the Prior Note and, subject to the terms and
conditions of this Agreement and from and after the Effective Date, the Loan
will be evidenced by a Full Recourse Promissory Note executed by Borrower
substantially in the form attached as <U>Exhibit A</U> (the
"<B><I>Note</B></I>").</P>
<B><P ALIGN="JUSTIFY">1.3&#9;<U>Security</B></U>. Borrower's indebtedness to
Lender under the Loan Documents will not be secured by a second deed of trust
(the "<B><I>Second Deed of Trust</B></I>") on the Property and will not be
secured by Borrower's pledge of certain equity securities of Lender pursuant to
the terms and conditions of the Stock Pledge Agreement. Each of Lender and
Borrower agree that the Second Deed of Trust and the Stock Pledge Agreement
shall be terminated as of the Effective Date. </P>
<B><P ALIGN="JUSTIFY">1.4&#9;<U>Maturity of Loan</U>.</B> Subject to Section 1.5
below, the outstanding principal and accrued interest due under the Loan,
together with any other related fees, expenses or costs, will be immediately due
and payable in full to Lender on the date (the "<B><I>Maturity Date</B></I>")
that is the earlier to occur of (i) November 23, 2003 and (ii) the date on which
the outstanding principal and accrued interest of the Loan becomes due and
payable in full under Section 2 below.</P>
<B><P ALIGN="JUSTIFY">1.5&#9;<U>Loan Forgiveness</U>.</B> The outstanding
principal and accrued interest due under the Loan will be forgiven as follows:
(i) one-third of the outstanding principal and accrued interest due as of
January 1, 2001 will be forgiven by Lender on such date; (ii) one-half of the
outstanding principal and accrued interest due as of January 1, 2002 will be
forgiven by Lender on such date, provided that Mr. Sheahan has been continuously
employed by Lender from January 2, 2001 to January 1, 2002; and (iii) all
outstanding principal and accrued interest remaining due as of January 1, 2003
will be forgiven by Lender on such date, provided that Mr. Sheahan has been
continuously employed by Lender from January 2, 2002 to January 1, 2003;
<U>provided</U>, <U>however</U>, that if Lender terminates Mr. Sheahan's
employment without cause, or constructively discharges Mr. Sheahan without
cause, Lender will forgive the remaining balance of outstanding principal and
accrued interest due under the Loan and will provide Mr. Sheahan with a cash
payment to cover the federal and state income tax due with respect to the
forgiveness of the Loan but Mr. Sheahan shall be liable and responsible for any
taxes due with respect to such cash payment by Lender.</P>
<B><P ALIGN="JUSTIFY">1.6&#9;<U>At Will Employment</U>.</B> Borrower is an "at
will" employee of Lender, and nothing in this Agreement or any exhibit shall be
construed as a promise of continued employment.</P>
<B><P>2.&#9;<U>DEFAULT BY BORROWER</U>.</B> </P>
<B><P ALIGN="JUSTIFY">2.1&#9;<U>Default</U>.</B> Borrower will be deemed to be
in default under the Loan upon the occurrence of any of the following events
(each an "<B><I>Event of Default</B></I>"): (i) Borrower's failure to make any
payment when due under the Loan,<B> </B>which failure shall continue for a
period of five (5) days after such due date; (ii) the termination of Mr.
Sheahan's employment with Lender;<B> </B>(iii) the failure of any representation
or warranty in the Loan Documents to have been true, the failure of Borrower to
perform any obligation under the Loan Documents, or upon any other material
breach by Borrower of the Loan Documents; (iv) the filing regarding Borrower of
any voluntary or involuntary petition for relief under the United States
Bankruptcy Code or the initiation of any proceeding under federal law or law of
any other jurisdiction for the general relief of debtors; or (v) the execution
by Borrower of an assignment for the benefit of creditors or the appointment of
a receiver, custodian, trustee or similar party to take possession of Borrower's
assets or property.</P>
<B><P ALIGN="JUSTIFY">2.2&#9;<U>Acceleration; Remedies Upon Default</U>.</B>
Upon the occurrence of any Event of Default, at the option of Lender, all
outstanding principal, accrued interest and other amounts due under the Loan
shall become immediately due and payable without notice or demand on the part of
Lender, and Lender will have, in addition to its rights and remedies under the
Loan Documents, full recourse against any real, personal, tangible or intangible
assets of Borrower, and may pursue any legal or equitable remedies that are
available to it; <U>provided</U>, <U>however</U>, that upon the termination of
Mr. Sheahan's employment with Lender for cause or for Mr. Sheahan's negligence,
the outstanding principal, accrued interest and other amounts due under the Loan
will become due and payable in full to Lender on the six (6) month anniversary
of the date of such termination by Lender, and Borrower must use fifty percent
(50%) of all proceeds from any sale by Borrower of the equity securities of
Lender, which Borrower acquires pursuant to Borrower's exercise of options to
purchase equity securities of Lender under Lender's 1995 Equity Incentive Plan
or any subsequent or similar stock option plan of Lender, or any employee stock
purchase agreement or other similar plan of Lender (collectively, the
"<B><I>Shares</B></I>"), to pay such amounts due under the Loan. The rights and
remedies of Lender herein provided will be cumulative and not exclusive of any
other rights or remedies provided by law or otherwise; and <U>provided</U>,
<U>however</U>, that if Mr. Sheahan terminates his employment with Lender
voluntarily, the outstanding principal, accrued interest and other amounts due
under the Loan will become due and payable in full to Lender on the second
anniversary of the date that Mr. Sheahan voluntarily terminates his employment.
</P>
<B><P ALIGN="JUSTIFY">3.&#9;<U>MISCELLANEOUS</U>.</P>
<P ALIGN="JUSTIFY">3.1&#9;<U>Entire&nbsp;Agreement</U>.</B> The Loan Documents
constitute the entire agreement and understanding among the parties with respect
to the subject matter thereof and supersedes any prior understandings or
agreements of the parties with respect to such subject matter.</P>
<B><P ALIGN="JUSTIFY">3.2&#9;<U>Successors&nbsp;and&nbsp;Assigns</U>.</B> The
terms and conditions of this Agreement will inure to the benefit of and be
binding upon the respective successors and assigns of the parties, including any
subsequent holders of the Note; <U>provided</U>, <U>however</U>, that Borrower
may not assign or delegate any of its rights or obligations hereunder or under
any other Loan Document or any interest herein or therein without Lender's prior
written consent.</P>
<B><P ALIGN="JUSTIFY">3.3&#9;<U>Modification; Waiver</U>.</B> This Agreement may
be modified or amended only by a writing signed by both parties hereto. No delay
or failure on the part of either party in exercising any right or remedy under
this Agreement or any other Loan Document will operate as a waiver of such right
or any other right. A waiver given on one occasion will not be construed as a
bar to, or as a waiver of, any right or remedy on any future occasion.</P>
<B><P ALIGN="JUSTIFY">3.4&#9;<U>Severability</U>.</B> The invalidity or
unenforceability of any term or provision of this Agreement will not affect the
validity or enforceability of any other term or provision.</P>
<B><P ALIGN="JUSTIFY">&#9;3.5&#9;<U>Governing&nbsp;Law</U>. </B>This Agreement
will be governed by and construed in accordance with the internal laws of the
State of California, as applied to agreements entered into solely between
residents of and to be performed entirely in the State of California, without
reference to that body of law relating to conflicts of law or choice of law.</P>
<P ALIGN="JUSTIFY">&#9;<B>3.6&#9;<U>Arbitration</U>.</B> Any dispute arising
from or relating to this Agreement will be submitted to mandatory, final and
binding arbitration in Santa Clara County, California, and, except as herein
specifically stated, in accordance with the provisions of the Streamlined
Arbitration Rules and Procedures of J.A.M.S./ENDISPUTE or its successor
("<B><I>J.A.M.S.</B></I>") then in effect. However, in all events, these
arbitration provisions will govern over any conflicting rules that may now or
hereafter be contained in the Streamlined Arbitration Rules and Procedures of
J.A.M.S. The parties covenant that they will participate in the arbitration in
good faith. Any judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction over the subject matter thereof. The
arbitrator will have the authority to grant any equitable and legal remedies
that would be available in any judicial proceeding instituted to resolve any
dispute arising from or relating to this Agreement.</P>
<B><P ALIGN="JUSTIFY">3.7&#9;<U>Counterparts</U>.</B> This Agreement may be
executed in one or two counterparts, each of which will be deemed an original,
but together will constitute one and the same instrument.</P>
<B><P ALIGN="JUSTIFY">3.8&#9;<U>Further&nbsp;Assurances</U>.</B> Each of
Borrower and Lender will execute and deliver such instruments, documents or
other writings as Borrower or Lender, as the case may be, may reasonably require
in order to confirm and carry out and to effectuate fully the intent and the
purposes of this Agreement or any of the other Loan Documents.</P>
<B><P ALIGN="JUSTIFY">3.9&#9;<U>Prior Agreement and Prior Note
Superseded</U>.</B> The undersigned parties who are parties to the Prior
Agreement and the Prior Note hereby amend and restate the Prior Agreement and
the Prior Note to read in its entirety as set forth in this Agreement and the
Note, all with the intent and effect that the Prior Agreement and the Prior Note
shall hereby be cancelled and entirely replaced and superseded by this Agreement
and the Note.</P>
<P ALIGN="JUSTIFY">&#9;<B>IN WITNESS WHEREOF</B>, the parties have duly executed
and delivered this Agreement as of the Effective Date.</P>
<B><P>BORROWER:</B>&#9;&#9;&#9;&#9;&#9;<B>LENDER:</P>
</B><P>&#9;&#9;&#9;&#9;&#9;&#9;&#9;ONSALE, INC.</P>
<P>&nbsp;</P>
<U><P>/s/ Jeff Sheahan&#9;&#9;&#9;&#9;</U>&#9;&#9;<U>/s/ John F.
Labbett&#9;&#9;&#9;</P>
</U><P>Jeff Sheahan&#9;&#9;&#9;&#9;&#9;&#9;John Labbett</P><DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>

<P>Executive Vice President and</P></DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>

<P>&#9;&#9;&#9;&#9;&#9;&#9;&#9;Chief Financial Officer</P>
<U><P>/s/ Theresa Sheahan&#9;&#9;&#9;</P>
</U><P>Theresa Sheahan</P>


<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>

<B><U><P>Attachment</U>:</P>
</B><P>Exhibit A - Full Recourse Promissory Note</P>
<P>&nbsp;</P>
<B><U><P ALIGN="CENTER">Full Recourse Promissory Note</P>
</B></U><P ALIGN="CENTER">Palo Alto, California</P>
<P ALIGN="JUSTIFY">&nbsp;</P>
<P ALIGN="JUSTIFY">$250,000.00&#9;November 23, 1998</P>
<P ALIGN="JUSTIFY">&#9;This Full Recourse Promissory Note (this
"<B><I>Note</B></I>") is issued under, and entitled to the benefits of, that
certain Amended and Restated Loan and Security Agreement (the
"<B><I>Agreement</B></I>") dated as of January 1, 2001, by and among the
undersigned ("<B><I>Borrower</B></I>") and ONSALE, Inc., a Delaware corporation
(the "<B><I>Company</B></I>"), and entirely replaces and supersedes that certain
Secured Promissory Note dated November 23, 1998 in the aggregate principal
amount of $250,000.00 in the favor of the Company (the "<B><I>Prior
Note</B></I>"), which was cancelled pursuant to the Agreement. Unless otherwise
indicated in this Note, all capitalized terms used herein have the meanings
assigned to them in the Agreement.</P>
<B><P ALIGN="JUSTIFY">1.&#9;<U>Obligation</U>.</B> For value received, Borrower
hereby promises to pay, subject to the terms and conditions of Section 1.5 of
the Agreement, to the order of the Company on or before November 23, 2003, at
the Company's principal place of business located at 1350 Willow Road, #202,
Menlo Park, California 94025, or at such other place as the Company may direct,
the principal sum of Two Hundred Fifty Thousand Dollars ($250,000.00) together
with interest compounded semi-annually on the unpaid principal at the rate of
four and forty-six hundredths percent (4.46%), which rate is the minimum rate
established pursuant to Section 1274(d) of the Internal Revenue Code of 1986, as
amended, at the time the Prior Note was issued by Borrower; <U>provided</U>,
<U>however</U>, that the rate at which interest will accrue on unpaid principal
under this Note will not exceed the highest rate permitted by applicable law.
Interest will continue to accrue until the date on which all amounts owing under
this Note have been repaid in full. All payments hereunder shall be made in
lawful tender of the United States.</P>
<B><P ALIGN="JUSTIFY">2.&#9;<U>Default</U>.</B> Borrower will be deemed to be in
default under this Note upon the occurrence of any of the following events (each
an "<B><I>Event of Default</B></I>"): (i) Borrower's failure to make any payment
when due under this Note, which failure shall continue for a period of five (5)
days after such due date; (ii) the termination of Mr. Sheahan's employment with
the Company;<B> </B>(iii) the failure of any representation or warranty in the
Loan Documents to have been true, the failure of Borrower to perform any
obligation under the Loan Documents, or upon any other material breach by
Borrower of the Loan Documents; (iv) the filing regarding Borrower of any
voluntary or involuntary petition for relief under the United States Bankruptcy
Code or the initiation of any proceeding under federal law or law of any other
jurisdiction for the general relief of debtors; or (v) the execution by Borrower
of an assignment for the benefit of creditors or the appointment of a receiver,
custodian, trustee or similar party to take possession of Borrower's assets or
property.</P>
<B>
<P ALIGN="JUSTIFY">3.&#9;<U>Acceleration;&nbsp;Remedies&nbsp;On&nbsp;Default</U>.</B>
Upon the occurrence of any Event of Default, at the option of the Company,
all outstanding principal, accrued interest and other amounts due under this
Note shall become immediately due and payable without notice or demand on the
part of the Company, and the Company will have, in addition to its rights and
remedies under the Loan Documents, full recourse against any real, personal,
tangible or intangible assets of Borrower, and may pursue any legal or equitable
remedies that are available to it; <U>provided</U>, <U>however</U>, that upon
the termination of Mr. Sheahan's employment with the Company for cause or for
Mr. Sheahan's negligence, all outstanding principal, accrued interest and other
amounts due under this Note shall become due and payable in full to Lender on
the six (6) month anniversary of the date of such termination by the Company,
and Borrower must use fifty percent (50%) of all proceeds from any sale by
Borrower of the Shares to pay such amounts due under this Note. The rights and
remedies of Lender herein provided will be cumulative and not exclusive of any
other rights or remedies provided by law or otherwise; and <U>provided</U>,
<U>however</U>, that if Mr. Sheahan terminates his employment with the Company
voluntarily, the outstanding principal, accrued interest and other amounts due
under this Note will become due and payable in full to the Company on the second
anniversary of the date that Mr. Sheahan voluntarily terminates his
employment.</P>
<B><P ALIGN="JUSTIFY">4.&#9;<U>Prepayment</U>.</B> Borrower may prepay the
outstanding principal and accrued interest due under the Loan at any time,
without penalty, in whole or in part in amounts of at least Ten Thousand Dollars
($10,000.00). Unless otherwise agreed in writing by the Company, each payment
will be applied to the extent of available funds from such payment in the
following order:&nbsp;&nbsp;(i) first to the accrued and unpaid costs and
expenses under the Loan Documents, (ii)&nbsp;then to accrued but unpaid
interest, and (iii)&nbsp;lastly to the outstanding principal.</P>
<B><P ALIGN="JUSTIFY">5.&#9;<U>Assignment</U>. </B>This Note is freely
transferable and assignable by the Company and each subsequent holder, provided
that such transfer is made in compliance with all applicable state and federal
securities laws. Any reference to the Company herein will be deemed to refer to
any subsequent transferee of this Note at such time as such transferee holds
this Note. Borrower may not assign or delegate this Note, whether by voluntary
assignment or transfer, operation of law or otherwise.</P>
<B><P ALIGN="JUSTIFY">6.&#9;<U>Governing&nbsp;Law;&nbsp;Waiver</U>.</B> The
validity, construction and performance of this Note will be governed by the
internal laws of the State of California, excluding that body of law pertaining
to conflicts of law. Borrower hereby waives presentment, notice of non-payment,
notice of dishonor, protest, demand and diligence.</P>
<B><P ALIGN="JUSTIFY">7.&#9;<U>Attorneys'&nbsp;Fees</U>.</B> If suit is brought
for collection of this Note, Borrower agrees to pay all reasonable expenses,
including attorneys' fees, incurred by the holder in connection therewith
whether or not such suit is prosecuted to judgment.</P>
<B><P ALIGN="CENTER">IN WITNESS WHEREOF</B>, Borrower has executed this Note as
of the date and year first above written.</P>
<P ALIGN="JUSTIFY">&nbsp;</P><DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>

<B><P>BORROWER:</P></DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>

</B><P>&#9;&#9;&#9;&#9;&#9;&#9;<U>/s/ Jeff Sheahan&#9;&#9;&#9;&#9;</P><DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>

</U><P>Jeff Sheahan&#9;&#9;&#9;&#9;&#9;&#9;</P></DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>

<P>&#9;&#9;&#9;&#9;&#9;&#9;<U>/s/ Theresa Sheahan&#9;&#9;&#9;</P><DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>

</U><P ALIGN="JUSTIFY">Theresa Sheahan</P>
<P ALIGN="JUSTIFY">&nbsp;</P></DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>

<P ALIGN="JUSTIFY">Accepted and Acknowledged:</P>
<B><P ALIGN="JUSTIFY">THE COMPANY</P></DIR>
</DIR>

</B><P ALIGN="JUSTIFY">ONSALE, INC.</P><DIR>
<DIR>

<U><P ALIGN="JUSTIFY">/s/ John Labbett&#9;&#9;&#9;&#9;</P>
</U><P ALIGN="JUSTIFY">John Labbett</P>
<P ALIGN="JUSTIFY">Executive Vice President and </P>
<P ALIGN="JUSTIFY">Chief Financial Officer</P></DIR>
</DIR>

<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>

</body>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.10
<SEQUENCE>5
<FILENAME>egg1010.htm
<DESCRIPTION>EXHIBIT
<TEXT>

<HTML>
<HEAD>
<TITLE>2000 10K Exbibit 10.10</TITLE>
</HEAD>
<BODY LINK="#0000ff" VLINK="#800080">
<FONT SIZE=2>
<B><P ALIGN="RIGHT">EXHIBIT 10.10</P>
</B>

<B><P ALIGN="CENTER">STANDARD INDUSTRIAL LEASE - MULTI-TENANT<BR>
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION</P>
<OL>

<LI>Parties.  </B>This Lease, dated, for reference purposes only, August 24,
2000, is made by and between The Columbian Publishing, Co., a Washington
corporation, (herein called "Lessor") and Egghead.com, Inc., a Delaware
corporation (herein called "Lessee").</LI>
<B><LI>Premises, Parking and Common Areas.</LI>
<OL>

<LI>Premises. </B> Lessor hereby leases to Lessee and Lessee leases from Lessor
for the term, at the rental, and upon all of the conditions set forth herein,
real property situated in the County of Clark, State of Washington, commonly
known as 206 Grand Boulevard, Vancouver, Washington 98661 and described as
approximately 72,086 square feet building herein referred to as the "Premises,"
as may be outlined on an Exhibit attached hereto, including rights to the Common
Areas as hereinafter specified but not including any rights to the roof of the
Premises or to any Building in the Industrial Center. The Premises are a portion
of a building herein referred to as the "Building." The Premises, the Building,
the Common Areas, the land upon which the same are located, along with all other
buildings and improvements thereon, are herein collectively referred to as the
"Industrial Center." Attached hereto as Exhibit A-1 is the legal description for
the Premises. Attached hereto as Exhibit A-2 is the "Site Plan" for the parking
referenced in paragraph 2.2 below. Attached, hereto as Exhibit A-3 is the
description of the "Industrial Center".</LI>
<B><LI>Vehicle Parking. </B> Lessee shall be entitled to three hundred (300)
vehicle parking spaces, unreserved and unassigned, on those portions of the
Common Areas designated by Lessor for parking. The site plan for specific
parking areas shall be approved by Lessor and Lessee and shall be attached to
this Lease. Lessee shall not use more parking spaces than said number. Said
parking spaces shall be used only for parking by vehicles no larger than full-
size passenger automobiles or pickup trucks, herein called "Permitted Size
Vehicles." Vehicles other than Permitted Size Vehicles are herein referred to as
"Oversized Vehicles."</LI>
<OL>

<LI>Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or
invitees to be loaded, unloaded, or parking in areas other than those designated
by Lessor and approved by Lessee for such activities.</LI>
<LI>If Lessee permits or allows any of the prohibited activities described in
paragraph 2.2 of this Lease, then Lessor shall have the right, without notice,
in addition to such other rights and remedies that it may have, to remove or tow
away the vehicle involved and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.</LI></OL>

<B><LI>Common Areas - Definition. </B> The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center that are provided and designated by the Lessor from
time to time for the general non-exclusive use of Lessor, Lessee, and other
lessees of the Industrial Center and their respective employees, suppliers,
shippers, customers and invitees, including parking areas, loading and unloading
areas, trash areas, roadways, sidewalks, walkways, parkways, driveways and
landscaped areas.</LI>
<B><LI>Common Areas - Lessee's Rights</B>.  Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, customers and
invitees, during the term of this Lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Lessor
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Industrial Center. Under no circumstances
shall the right herein granted to use the Common Areas be deemed to include the
right to store any property, temporarily or permanently, in the Common Areas.
Notwithstanding the foregoing, Lessor and Lessee approve the use of the area
noted on the site plan as "Staging Area" for purpose of loading and unloading
and staging and delivery of products by Lessee. Any such storage shall be
permitted only by the prior written consent of Lessor or Lessor's designated
agent which consent may be revoked at any time.</LI>
<B><LI>Common Areas - Rules and Regulations. </B> Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time; to establish, modify,
amend, and enforce reasonable rules and regulations with respect thereto. Lessee
agrees to abide by and conform to all such rules and regulations, and to cause
its employees, suppliers, shippers, customers, and invitees to so abide and
conform. Lessor shall not be responsible to Lessee for the noncompliance with
said rules and regulations by other lessees of the Industrial Center. All rules
and regulations shall be enforced in a non-discriminating manner to all Lessees,
their employees, customers and invitees.</LI>
<B><LI>Common Areas - Changes. </B> Lessor shall have the right, in Lessor's
sole discretion, from time to time:</LI>
<P>(a)&#9;To make changes to the Common Areas, including, without limitation,
changes in the location, size, shape and number of driveways, entrances, parking
spaces, parking areas, loading and unloading areas, ingress, egress, direction
of traffic, landscaped areas and walkways. (b) To close temporarily any of the
Common Areas for maintenance purposes so long as reasonable access to the
Premises remains available. (c) To designate other land outside the boundaries
of the Industrial Center to be a part of the Common Areas. (d) To add additional
buildings and improvements to the Common Areas. (e) To use the Common Areas
while engaged in making additional improvements, repairs or alterations to the
Industrial Center, or any portion thereof. (f) To do and perform such other acts
and make such other changes in, to, or with respect to the Common Areas and
Industrial Center as Lessor may, in the exercise of sound business judgment,
deem to be appropriate (g) No change to the Common Area shall materially and
adversely affect the Lessee's ability to conduct its business or use of the
Premises.</P>
<OL>

<LI>Lessor shall at all times provide the parking facilities required by
applicable law and in no event shall the number of parking spaces that Lessee is
entitled to under paragraph 2.2 be reduced.</LI></OL>
</OL>

<B><LI>Term.</LI>
<OL>

<LI>Term. </B> The term of this lease shall be for 36 months commencing on
November&nbsp;15, 2000 and ending on November 15, 2003 unless sooner terminated
pursuant to any provision hereof.</LI>
<B><LI>Delay in Possession.  </B>Notwithstanding said commencement date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date, Lessor shall not be subject to any liability therefore, nor shall such
failure affect the validity of this Lease or the obligations of Lessee hereunder
or extend the term hereof, but in such case, Lessee shall not be obligated to
pay rent or perform any other obligation of Lessee under the terms of this
Lease, except as may be otherwise provided in this Lease, until possession of
the Premises is tendered to Lessee, provided, however, that if Lessor shall not
have delivered possession of the Premises within forty-five (45) days from said
commencement date, Lessee may, at Lessee's option, by notice in writing to
Lessor within ten (10) days thereafter, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder, provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect.</LI>
<B><LI>Early Possession. </B> If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not advance the termination date, and Lessee shall
pay rent for such period at the initial monthly rates set forth below except
that Lessee shall be allowed possession of the Premises rent free for a period
of thirty (30) days prior to Lease Commencement to fixturize the Premises to its
needs.</LI></OL>

<B><LI>Rent.</LI>
<OL>

<LI>Base Rent. </B> Lessee shall pay to Lessor, as Base Rent for the Premises,
without any offset or deduction, except as may be otherwise expressly provided
in this Lease, on the first day of each month of the term hereof, monthly
payments in advance of in the amounts referenced in Paragraph 52. Lessee shall
pay Lessor upon execution hereof the sum of $42,935.00 for first month's Base
Rent, first month's operating expenses and security deposit, as set forth in
paragraph 52(b). Rent for any period during the term hereof which is for less
than one month shall be a pro rata portion of the Base Rent. Rent shall be
payable in lawful money of the United States to Lessor at the address stated
herein or to such other persons or at such other places as Lessor may designate
in writing.  </LI>
<LI>Operating Expenses. Lessee shall pay to Lessor during the term hereof, in
addition to the Base Rent, Lessee's Share, as hereinafter defined, of all
Operating Expenses, as hereinafter defined, during each calendar year of the
term of this Lease, in accordance with the following provisions:</LI><OL>

<OL TYPE="a">

<LI>"Lessee's Share" is defined, for purposes of this Lease, 39.30 percent.</LI>
<LI>"Operating Expenses" is defined, for purposes of this Lease, as all costs
incurred                                   by Lessor, if any, for:</LI>
<OL TYPE="i">

<LI>The operation, repair, and maintenance, in neat, clean, good order and
condition, of the following provisions:</LI>
<OL>

<LI>The Common Areas, including parking areas, loading and unloading areas,
trash areas, roadways, sidewalks, walkways, parkways, driveways, landscaped
areas, striping, bumpers, irrigation systems, Common Area lighting facilities
and fences and gates.</LI>
<LI>Management fee not to exceed 15% of operating expenses incurred.</LI>
<LI>Tenant directories.</LI>
<LI>Fire detection systems including sprinkler system maintenance and
repair.</LI>
<LI>Security services.</LI>
<LI>Any other service to be provided by Lessor that is elsewhere in this Lease
stated to be an "Operating Expense."</LI></OL>

<LI>Any deductible portion of an insured loss concerning any of the items or
matters described in this paragraph 4.2.</LI>
<LI>The cost of the premiums for the liability and property insurance policies
to be maintained by Lessor under paragraph 8 hereof.</LI>
<LI>The amount of the real property tax to be paid by Lessor under paragraph
10.1 hereof.</LI>
<LI>Maintenance of the boiler that serves the Premises, including the cost of
employing a 24-hour facility maintenance person. Lessee shall employ, at
Lessee's expense, the 24-hour facility maintenance person to oversee the
operation and maintenance of the boiler.</LI>
<LI>The cost of water, gas and electricity to service the Common
Areas.</LI></OL>

<LI>The inclusion of the improvements, facilities and services set forth in
paragraph 4.2(b)(i) of the definition of Operating Expenses shall not be deemed
to impose an obligation upon Lessor to either have said improvements or
facilities or to provide those services unless the Industrial Center already has
the same, Lessor already provides the services, or Lessor has agreed elsewhere
in this Lease to provide the same or some of them.</LI>
<LI>Lessee's Share of Operating Expenses shall be payable by Lessee within ten
(10) days after a reasonably detailed statement of actual expenses is presented
to Lessee by Lessor. At, Lessor's option, however, an amount may be estimated by
Lessor from time to time of Lessee's Share of annual Operating Expenses and the
same shall be payable monthly or quarterly, as Lessor shall designate, during
each 12-month period of the Lease term, on the same day as the Base Rent is due
hereunder. In the event that Lessee pays Lessor's estimate of Lessee's Share of
Operating Expenses as aforesaid, Lessor shall deliver to Lessee within 60 days
after the expiration of each calendar year a reasonably detailed statement
showing Lessee's Share of the actual Operating Expenses incurred during the
preceding year. If Lessee's payments under this paragraph 4.2(d) during said
preceding year exceed Lessee's Share as indicated on said statement, Lessee
shall be entitled to credit the amount of such overpayment against Lessee's
Share of Operating Expenses next falling due. If Lessee's payments under this
paragraph during said preceding year were less than Lessee's Share as indicated
on said statement, Lessee shall pay to Lessor the amount of the deficiency
within ten (10) days after delivery by Lessor to Lessee of said
statement.</LI></OL>
</OL>
</OL>

<B><LI>Security Deposit. </B> Lessee shall deposit with Lessor upon execution
hereof Nineteen Thousand Eight Hundred Sixty-seven and No/100 ($19,867.00) as
security for Lessee's faithful performance of Lessee's obligations hereunder. If
Lessee fails to pay rent or other charges due hereunder, or otherwise defaults
with respect to any provision of this Lease, Lessor may use, apply, or retain
all or any portion of said deposit for the payment of any rent or other charge
in default or for the payment of any other sum to which Lessor may become
obligated by reason of Lessee's default, or to compensate Lessor for any loss or
damage which Lessor may suffer thereby. If Lessor so uses or applies all or any
portion of said deposit, Lessee shall within ten (10) days after written demand
therefor deposit cash with Lessor in an amount sufficient to restore said
deposit to the full amount then required of Lessee. If the monthly rent shall,
from time to time, increase during the term of this Lease, Lessee shall, at the
time of such increase, deposit with Lessor additional money as a security
deposit so that the total amount of the security deposit held by Lessor shall at
all times bear the same proportion to the then current Base Rent as the initial
security deposit bears to the initial Base Rent set forth in paragraph 4. Lessor
shall not be required to keep said security deposit separate from its general
accounts. If Lessee performs all of Lessee's obligations hereunder, said
deposit, or so much thereof as has not theretofore been applied by Lessor, shall
be returned, without payment of interest or other increment for its use, to
Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's
interest hereunder) at the expiration of the term hereof, and after Lessee has
vacated the Premises. No trust relationship is created herein between Lessor and
Lessee with respect to said Security Deposit.</LI>
<B><LI>Use.</LI>
<OL>

<LI>Use. </B> The Premises shall be used and occupied only for data processing
services administration services, office functions, storage and distribution of
product or any other use which is reasonably comparable and for no other
purpose.</LI>
<B><LI>Compliance with Law.</LI><OL>

<OL TYPE="a">

</B><LI>Lessor warrants to Lessee that the Premises, in the state existing on
the date that the Lease term commences, but without regard to the use for which
Lessee will occupy the Premises, does not violate any covenants or restrictions
of record, or any applicable building code, regulation or ordinance excluding
Americans Disabilities Act (ADA requirements in effect on such Lease term
commencement date. In the event it is determined that this warranty has been
violated, then it shall be the obligation of the Lessor, after written notice
from Lessee, to promptly, at Lessor's sole cost and expense, rectify any such
violation. In the event Lessee does not give to Lessor written notice of the
violation of this warranty within six (6) months from the date that the Lease
term commences, the correction of same shall be the obligation of the Lessee at
Lessee's sole cost. The warranty contained in this paragraph 6.2(a) shall be of
no force or effect if, prior to the date of this Lease, Lessee was an owner or
occupant of the Premises and, in such event, Lessee shall correct any such
violation at Lessee's sole cost.</LI>
<LI>Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's expense,
promptly comply with all applicable statutes, ordinances, rules, regulations,
orders, covenants and restrictions of record, and requirements of any fire
insurance underwriters or rating bureaus, now in effect or which may hereafter
come into effect, whether or not they reflect a change in policy from the now
existing, during the term or any part of the term hereof, relating in any manner
to the Premises and the occupation and use by Lessee of the Premises and of the
Common Areas. Lessee shall not use nor permit the use of the Premises or the
Common Areas in any manner that will tend to create waste or a nuisance or shall
tend to disturb other occupants of the Industrial Center.</LI></OL>
</OL>

<B><LI>Condition of Premises.</LI><OL>

<OL TYPE="a">

</B><LI>Lessor shall deliver the Premises to Lessee clean and free of debris on
the Lease commencement date (unless Lessee is already in possession) and Lessor
warrants to Lessee that the plumbing, lighting, heating, and loading doors in
the Premises shall be in good operating condition on the Lease commencement
date. In the event that it is determined that this warranty has been violated,
then it shall be the obligation of Lessor, after receipt of written notice from
Lessee setting forth with specificity the nature of the violation, to promptly,
at Lessor's sole cost, rectify such violation. Lessee's failure to give such
written notice to Lessor within 30 days after the Lease commencement date shall
cause the conclusive presumption that Lessor has complied with all of Lessor's
obligations hereunder. The warranty contained in this paragraph 6.3(a) shall be
of no force or effect if prior to the date of this Lease, Lessee was an owner or
occupant of the Premises.</LI>
<LI>Except as otherwise provided in this Lease, Lessee hereby accepts the
Premises in their condition existing as of the Lease commencement date or the
date that Lessee takes possession of the Premises, whichever is earlier, subject
to all applicable zoning, municipal, county and state laws, ordinances and
regulations governing and regulating the use of the Premises, and any covenants
or restrictions of record, and accepts this Lease subject thereto and to all
matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business. Lessor agrees to cooperate with Lessee, at
Lessee's expense, in the processing of all required governmental permits,
including any necessary conditional use permits but excluding any zone changes,
for the Premises.</LI></OL>
</OL>
</OL>

<B><LI>Maintenance, Repairs, Alterations and Common Area Services.</LI>
<OL>

<LI>Lessor's Obligations. </B> Subject to the provisions of paragraphs 4.2
(Operating Expenses), 6 (Use), 7.2 (Lessee's Obligations) and 9 (Damage or
Destruction), and except for damage caused by any negligent or intentional act
or omission of Lessee, Lessee's employees, suppliers, shippers, customers, or
invitees, in which event Lessee shall repair the damage, Lessor, at Lessor's
expense, subject to reimbursement pursuant to paragraph 4.2, shall keep in good
condition and repair the foundations, exterior walls, structural condition of
interior bearing walls, and roof of the Premises, as well as the parking lots,
walkways, driveways, landscaping, fences, signs and utility installations of the
Common Areas and all parts thereof, as well as providing the services for which
there is an Operating Expense pursuant to paragraph 4.2. Lessor shall not,
however, be obligated to paint the exterior or interior surface of exterior
walls, nor shall Lessor be required to maintain, repair or replace windows,
doors or plate glass of the Premises. Lessor shall have no obligation to make
repairs under this paragraph 7.1 until a reasonable time after receipt of
written notice from the Lessee of the need for such repairs. Lessee expressly
waives the benefits of any statute now or hereafter in effect which would
otherwise afford Lessee the right to make repairs at Lessor's expense or to
terminate this Lease because of Lessor's failure to keep the Premises in good
order, condition and repair. Lessor shall not be liable for damages or loss of
any kind or nature by reason of Lessor's failure to furnish any Common Area
Services when such failure is caused by accident, breakage, repairs, strikes,
lockout, or other labor disturbances or disputes of any character, or by any
other cause beyond the reasonable control of Lessor.</LI>
<B><LI>Lessee's Obligations.</LI><OL>

<OL TYPE="a">

</B><LI>Subject to the provisions of paragraphs 6 (Use), 7.1 (Lessor's
Obligations), and 9 (Damage or Destruction), Lessee, at Lessee's expense, shall
keep in good order, condition and repair the Premises and every part thereof
(whether or not the damaged portion of the Premises or the means of repairing
the same are reasonably or readily accessible to Lessee) including, without
limiting the generality of the foregoing, all plumbing, heating, electrical and
lighting facilities and equipment within the Premises, fixtures, interior walls
and interior surfaces of exterior walls, ceilings, windows, doors, plate glass,
and skylights located within the Premises. Lessor reserves the right to procure
and maintain the ventilating and air condition system maintenance contract and
if Lessor so elects, Lessee shall reimburse Lessor, upon demand, for the cost
thereof.</LI>
<LI>If Lessee fails to perform Lessee's obligations under this paragraph 7.2 or
under any other paragraph of this Lease, Lessor may enter upon the Premises
after ten (10) days prior written notice to Lessee (except in the case of
emergency, in which no notice shall be required), perform such obligations on
Lessee's behalf and put the Premises in good order, condition and repair, and
the cost thereof together with interest thereon at the maximum rate then
allowable by law shall be due and payable as additional rent to Lessor together
with Lessee's next Base Rent installment.</LI>
<LI>On the last day of the term hereof, or on any sooner termination, Lessee
shall surrender the Premises to Lessor in the same condition as received,
ordinary wear and tear excepted, clean and free of debris. Any damage or
deterioration of the Premises shall not be deemed ordinary wear and tear if the
same could have been prevented by good maintenance practices. Lessee shall
repair any damage to the Premises occasioned by the installation or removal of
Lessee's trade fixtures, alterations, furnishings and equipment. Notwithstanding
anything to the contrary otherwise stated in this Lease, Lessee shall leave the
air lines, power panels, electrical distribution systems, lighting fixtures,
space heaters, air conditioning, plumbing and fencing on the Premises in good
operating condition.</LI></OL>
</OL>

<B><LI>Alterations and Additions.</LI><OL>

<OL TYPE="a">

</B><LI>Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, or Utility Installations in, on, or about
the Premises, or the Industrial Center, except for nonstructural alterations to
tile Premises not exceeding $300,000 in cumulative costs, during the term of
this Lease. In any event, whether or not in excess of $300,000 in cumulative
cost, Lessee shall make no change or alteration to the exterior of the Premises
nor the exterior of the Building nor the Industrial Center without Lessor's
prior written consent. As used in this paragraph 7.3 the term "Utility
Installation" shall mean carpeting, window coverings, air lines, power panels,
electrical distribution systems, lighting fixtures, space heaters, air
conditioning, plumbing, and fencing. Lessor may require that Lessee remove any
or all of said alterations, improvements, additions or Utility Installations at
the expiration of the term, and restore the Premises and the Industrial Center
to their prior condition. Lessor may , require Lessee to provide Lessor, at
Lessee's sole cost and expense, a lien and completion bond in an amount equal to
one and one-half times the estimated cost of such improvements, to insure Lessor
against any liability for mechanic's and materialmen's liens and to insure
completion of the work. Should Lessee make any alterations, improvements,
additions or Utility Installations without the prior approval of Lessor, Lessor
may, at any time during the term of this Lease, require that Lessee remove any
or all of the same.</LI>
<LI>Any alterations, improvements, additions or Utility Installations in or
about the Premises or the Industrial Center that Lessee shall desire to make and
which requires the consent of the Lessor shall be presented to, Lessor in
written form, with proposed detailed plans. If Lessor shall give its consent,
the consent shall be deemed conditioned upon Lessee acquiring a permit to do so
from appropriate governmental agencies, the furnishing of a copy thereof to
Lessor prior to the commencement of the work and the compliance by Lessee of all
conditions of said permit in a prompt and expeditious manner.</LI>
<LI>Lessee shall pay, when due, all claims for labor or materials furnished or
alleged to have been furnished to or for Lessee at or for use in the Premises,
which claims are or may be secured by any mechanic's or materialmen's lien
against the Premises, or the Industrial Center, or any interest therein. Lessee
shall give Lessor not less than 10 days' notice prior to the commencement of any
work in the Premises, and Lessor shall have the right to post notices of
nonresponsibility in or on the Premises or the Building as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense defend itself and Lessor against
the same and shall pay and satisfy and such adverse judgment that may be
rendered thereon before the enforcement thereof against the Lessor or the
Premises or the Industrial Center, upon the condition that if Lessor shall
require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in
an amount equal to such contested lien claim or demand indemnifying Lessor
against liability for the same and holding the Premises and the Industrial
Center free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorneys fees and costs in participating in such
action if Lessor shall decide it is to Lessor's best interest to do so.</LI>
<LI>All alterations, improvements, additions and Utility Installations, which
may be made on the Premises, shall be the property of Lessor and shall remain
upon and be surrendered with the Premises at the expiration of the Lease term,
unless Lessor requires their removal pursuant to paragraph 7.3(a).
Notwithstanding the provisions of this paragraph 7.3(d), Lessee's machinery and
equipment, other than that which is affixed to the Premises so that it cannot be
removed without material damage to the Premises, and other than Utility
Installations, shall remain the property of Lessee and may be removed by Lessee
subject to the provisions of paragraph 7.2.</LI></OL>
</OL>

<B><LI>Utility Additions. </B> Lessor reserves the right to install new or
additional utility facilities throughout the Building and the Common Areas for
the benefit of Lessor or Lessee, or any other lessee of the Industrial Center,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, security systems, communication systems, and fire protection and
detection systems, so long as such installations do not unreasonably interfere
with Lessee's use of the Premises.</LI></OL>

<B><LI>Insurance; Indemnity.</LI>
<OL>

<LI>Liability Insurance - Lessee. </B> Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease a policy of Combined Single
Limit Bodily Injury and Property Damage insurance insuring Lessee and Lessor
against any liability arising out of the use, occupancy or maintenance of the
Premises and the Industrial Center. Such insurance shall be in an amount not
less than $2,000,000.00 per occurrence. The policy shall insure performance by
Lessee of the indemnity provisions of this paragraph 8. The limits of said
insurance shall not, however, limit the liability of Lessee hereunder.</LI>
<B><LI>Liability Insurance - Lessor. </B> Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Property Damage Insurance, insuring Lessor, but not Lessee, against any
liability arising out of the ownership, use, occupancy or maintenance of the
Industrial Center in an amount not less than $2,000,000.00 per occurrence.</LI>
<B><LI>Property Insurance. </B> Lessor shall obtain and keep in force during the
term of this Lease a policy or policies of insurance covering loss or damage to
the Industrial Center improvements, but not Lessee's personal property,
fixtures, equipment or tenant improvements, in an amount not to exceed the full
replacement value thereof, as the same may exist from time to time, providing
protection against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, flood (in the event same is
required by a lender having a lien on the Premises) special extended perils
("all risk," as such term is used in the insurance industry), plate glass
insurance and such other insurance as Lessor deems advisable. In addition,
Lessor shall obtain and keep in force, during the term of this Lease, a policy
of rental value insurance covering a period of one year, with loss payable to
Lessor, which insurance shall also cover all Operating Expenses for said period.
In the event that the Premises shall suffer an insured loss as defined in
paragraph 9.1(g) hereof, the deductible amounts under the casualty insurance
policies relating to the Premises shall be paid by Lessee. Notwithstanding the
foregoing, the deductible amount shall not exceed in the aggregate the sum of
Five Thousand Dollars and 00/100 ($5,000.00) with Lessee being responsible for
its proportionate share.</LI>
<B><LI>Payment of Premium Increase.</LI><OL>

<OL TYPE="a">

</B><LI>After the term of this Lease has commenced, Lessee shall not be
responsible for paying Lessee's Share of any increase in the property insurance
premium for the Industrial Center specified by Lessor's insurance carrier as
being caused by the use, acts or omissions of any other lessee of the Industrial
Center, or by the nature of such other lessee's occupancy which create an
extraordinary or unusual risk.</LI>
<LI>Lessee, however, shall pay the entirety of any increase in the property
insurance premium for the Industrial Center over what it was immediately prior
to the commencement of the term of this Lease if the increase is specified by
Lessor's insurance carrier as being caused by the nature of Lessee's occupancy
or any act or omission of Lessee.</LI></OL>
</OL>

<B><LI>Insurance Policies. </B> Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at lease B plus, or such
other rating as may be required by a lender having a lien on the Premises, as
set forth in the most current issue of "Best's Insurance Guide." Lessee shall
not do or permit to be done anything which shall invalidate the insurance
policies carried by Lessor. Lessee shall deliver to Lessor copies of liability
insurance policies required under paragraph 8.1 or certificates evidencing the
existence and amounts of such insurance within seven (7) days after the
commencement date of this Lease. No such policy shall be cancelable or subject
to reduction of coverage or other modification except after 30 days prior
written notice to Lessor. Lessee shall, at least 30 days prior to the expiration
of such policies, furnish Lessor with renewals or "binders" thereof.</LI>
<B><LI>Waiver of Subrogation. </B> Lessee and Lessor each hereby release and
relieve the other and waive their entire right of recovery against the other for
loss or damage arising out of or incident to the perils insured against which
perils occur in, on or about the Premises, whether due to the negligence of
Lessor or Lessee or their agents, employees, contractors and/or invitees. Lessee
and Lessor shall, upon obtaining the policies of insurance required give notice
to the insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Lease.</LI>
<B><LI>Indemnity. </B> Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Industrial Center,
or from the conduct of Lessee's business or from any activity, work or things
done, permitted or suffered by Lessee in or about the Premises or elsewhere and
shall further indemnify and hold harmless Lessor from and against any and all
claims arising from any breach or default in the performance of any obligation
on Lessee's part to be performed under the terms of this Lease, or arising from
any act or omission of Lessee, or any of Lessee's agents, contractors, or
employees, .and from and against all costs, attorney's fees, expenses and
liabilities incurred in the defense of any such claim or any action or
proceeding brought thereon; and in case any action or proceeding be brought
against Lessor by reason of any such claim, Lessee upon notice from Lessor,
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessee, as a
material part of the consideration to Lessor, hereby assumes all risk of damage
to property of Lessee or injury to persons, in, upon or about the Industrial
Center arising from any cause and Lessee hereby waives, all claims in respect
thereof against Lessor.</LI>
<P ALIGN="JUSTIFY">Lessor shall indemnify and hold harmless Lessee from and
against any and all claims arising from Lessor's use of the Industrial Center,
or from the conduct of Lessor's business or from any activity, work or things
done, permitted or suffered by Lessor in or about the Premises or elsewhere and
shall further indemnify and hold harmless Lessee from and against any and all
claims arising from any breach or default in the performance of any obligation
on Lessor's part to be performed under the terms of this Leas , or arising from
any act or omission of Lessor, or any of Lessor's agents, contractors, or
employees, and from and against all costs, attorney's fees, expenses and
liabilities incurred in the defense of any such claim or any action or
proceeding brought thereon; and in case any action or proceeding be brought
against Lessee by reason of any such claim, Lessor upon notice from Lessee,
shall defend the same at Lessor's expense by counsel reasonably satisfactory to
Lessee and Lessee shall cooperate with Lessor in such defense.</P>
<B><LI>Exemption of Lessor from Liability. </B> Subject to paragraph 8.7 above,
Lessee hereby agrees that Lessor shall not be liable for injury to Lessee's
business or any loss of income therefrom or for damage to the goods, wares,
merchandise, or other property of Lessee. Lessee's employees, invitees,
customers, or any other person in or about the Premises or the Industrial
Center, nor shall Lessor be liable for injury to the person of Lessee, Lessee's
employees, agents or contractors, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, sprinklers, wires, appliances,
plumbing, air conditioning or lighting fixtures, or from any other cause,
whether said damage or injury results from conditions arising upon the Premises
or upon other portions of the Industrial Center, or from other sources or places
and regardless of whether the cause of such damage or injury or the means of
repairing the same is inaccessible to Lessee. Lessor shall not be liable for any
damages arising from any act or neglect of any other lessee, occupant or user of
the Industrial Center, nor from the failure of Lessor to enforce the provisions
of any other lease of the Industrial Center.</LI>
<B><LI>Limitation of Liability. </B> No personal liability or personal
responsibility is assumed by or shall at any time be asserted or enforceable
against Lessor's or Lessee's respective partners, directors, officers,
employees, agents or their legal representatives, successors or assigns on
account of this Lease or on account of any covenant, undertaking or agreement of
Lessor or Lessee contained in this Lease.</LI></OL>

<B><LI>Damage or Destruction.</LI>
<OL>

<LI>Definitions.</LI><OL>

<OL TYPE="a">

</B><LI>"Premises Partial Damage" shall mean if the Premises are damaged or
destroyed to the extent that the cost of repair is less than fifty percent of
the then replacement cost of the Premises.</LI>
<LI>"Premises Total Destruction" shall mean if the Premises are damaged or
destroyed to the extent that the cost of repair is fifty percent or more of the
then replacement cost of the Premises.</LI>
<LI>"Premises Building Partial Damage" shall mean if the Building of which the,
Premises are a part is damaged or destroyed to the extent that the cost to
repair is less than fifty percent of the then replacement cost of the
Building.</LI>
<LI>"Premises Building Total Destruction" shall mean if the Building of which
the Premises are a part is damaged or destroyed to the extent that the cost to
repair is fifty percent or more of the then replacement cost of the
Building.</LI>
<LI>"Industrial Center Buildings" shall mean all of the buildings on the
Industrial Center site.</LI>
<LI>"Industrial Center Buildings Total Destruction" shall mean if the Industrial
Center Buildings are damaged or destroyed to the extent that the cost of repair
is fifty percent or more of the then replacement cost of the Industrial Center
Buildings.</LI>
<LI>"Insured Loss" shall mean damage or destruction which was caused by an event
required to be covered by the insurance described in paragraph 8. The fact that
an Insured Loss has a deductible amount shall not make the loss an uninsured
loss.</LI>
<LI>"Replacement Cost" shall mean the amount of money necessary to be spent in
order to repair or rebuild the damaged area to the condition that existed
immediately prior to the damage occurring excluding all improvements made by
lessees.</LI></OL>
</OL>

<B><LI>Premises Partial Damage; Premises Building Partial Damage.  </LI><OL>

<OL TYPE="a">

</B><LI>Insured Loss: Subject to the provisions of paragraphs 9.4 and 9.5, if at
any time during the term of this Lease there is damage which is an Insured Loss
and which falls into the classification of either Premises Partial Damage or
Premises Building Partial Damage, then Lessor shall, at Lessor's expense, repair
such damage to the Premises, but not Lessee's fixtures, equipment or tenant
improvements, as soon as reasonably possible and this Lease shall continue in
full force and effect.</LI>
<LI>Uninsured Loss: Subject to the provisions of paragraphs 9.4 and 9.5, if at
any time during the term of this Lease there is damage which is not an Insured
Loss and which falls within the classification of Premises Partial Damage or
Premises Building Partial Damage, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense), which
damage prevents Lessee from using the Premises, Lessor may at Lessor's option
either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within 30 days after the date of the
occurrence of such damage of Lessor's intention to cancel and terminate this
Lease as of the date of the occurrence of such damage. In the event Lessor
elects to give such notice of Lessor's intention to cancel and terminate this
Lease, Lessee shall have the right within ten (10) days after the receipt of
such notice to give written notice to Lessor of Lessee's intention to repair
such damage at Lessee's expense, without reimbursement from Lessor, in which
event this Lease shall continue in full force and effect, and Lessee shall
proceed to make such repairs as soon as reasonably possible. If Lessee does not
give such notice within such 10-day period this Lease shall be canceled and
terminated as of the date of the occurrence of such damage.</LI></OL>
</OL>

<B><LI>Premises Total Destruction; Premises Building Total Destruction;
Industrial Center Buildings Total Destruction.</LI><OL>

<OL TYPE="a">

</B><LI>Subject to the provisions of paragraphs 9.4 and 9.5, if at any time
during the term of this Lease there is damage, whether or not it is an Insured
Loss, and which falls into the classifications of either (i) Premises Total
Destruction, or (ii) Premises Building Total Destruction, or (iii) Industrial
Center Buildings Total Destruction, then Lessor may at Lessor's option either
(i) repair such damage or destruction, but not Lessee's fixtures, equipment or
tenant improvements, as soon as reasonably possible at Lessor's expense, and
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within 30 days after the date of occurrence of such damage of Lessor's
intention to cancel and terminate this Lease, in which case this Lease shall be
canceled and terminated as of the date of the occurrence of such damage.
Notwithstanding the foregoing, in the event of either (i) Premises Total
Destruction, or (ii) Premises Building Total Destruction, or (iii) Industrial
Center Buildings Total Destruction, Lessee may elect to cancel and terminate
this Lease by giving written notice to Lessor within thirty (30) days after the
date of occurrence of such damage of Lessee's intent to cancel and terminate
this Lease, in which case this Lease shall be cancelled and terminated as of the
date of the occurrence of such damage.</LI></OL>
</OL>

<B><LI>Damage Near End of Term.</LI><OL>

<OL TYPE="a">

</B><LI>Subject to paragraph 9.4(b), if at any time during the last six months
of the term of this Lease there is substantial damage, whether or not an Insured
Loss, which falls within the classification of Premises Partial Damage, Lessor
or Lessee may at Lessor's or Lessee's option cancel and terminate this Lease as
of the date of occurrence of such damage by giving written notice to the other
of its election to do so within 30 days after the date of occurrence of such
damage.</LI>
<LI>Notwithstanding paragraph 9.4(a), in the event that Lessee has an option to
extend or renew this Lease, and the time within which said option may be
exercised has not yet expired, Lessee shall exercise such option, if it is to be
exercised at all, no later than 20 days after the occurrence of an Insured Loss
falling within the classification of Premises Partial Damage during the last six
months of the term of this Lease. If Lessee duly exercises such option during
said 20 day period, Lessor shall, at Lessor's expense, repair such damage, but
not Lessee's fixtures, equipment or tenant improvements, as soon as reasonably
possible and this Lease shall continue in full force and effect. If Lessee fails
to exercise such option during said 20-day period, then Lessor may at Lessor's
option terminate and cancel this Lease as of the expiration of said 20 day
period by giving written notice to Lessee of Lessor's election to do so within
ten (10) days after the expiration of said 20 day period, notwithstanding any
term or provision in the grant of option to the contrary.</LI></OL>
</OL>

<B><LI>Abatement of Rent; Lessee's Remedies.</LI><OL>

<OL TYPE="a">

</B><LI>In the event Lessor repairs or restores the Premises pursuant to the
provisions of this paragraph 9, the rent payable hereunder for the period during
which such damage, repair or restoration continues shall be abated in proportion
to the degree to which Lessee's use of the Premises is impaired. Except for
abatement of rent, if any, Lessee shall have no claim against Lessor for any
damage suffered by reason of any such damage, destruction, repair or
restoration.</LI>
<LI>If Lessor shall be obligated to repair or restore the Premises under the
provisions of this paragraph 9 and shall not commence such repair or restoration
within 90 days after such obligation shall accrue, Lessee may at Lessee's option
cancel and terminate this Lease by giving Lessor written notice of Lessee's
election to do so at any time prior to the commencement of such repair or
restoration. In such event this Lease shall terminate as of the date of this
notice.</LI></OL>
</OL>

<B><LI>Termination - Advance Payments. </B> Upon termination of this Lease
pursuant to this paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.</LI>
<B><LI>Waiver. </B> Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.</LI></OL>

<B><LI>Real Property Taxes.</LI>
<OL>

<LI>Payment of Taxes. </B> Lessor shall pay the real property tax, as defined in
paragraph 10.3, applicable to the Industrial Center subject to reimbursement by
Lessee of Lessee's Share of such taxes in accordance with the provisions of
paragraph 4.2, except as otherwise provided in paragraph 10.2</LI>
<B><LI>Additional Improvements. </B> Lessee shall not be responsible for paying
Lessee's Share of any increase in real property tax specified in the tax
assessor's records and work sheets as being caused by additional improvements
placed upon the Industrial Center by other lessees or by Lessor for the
exclusive enjoyment of such other lessees. Lessee shall, however, pay to Lessor
at the time that Operating Expenses are payable under paragraph 4.2(c) the
entirety of any increase in real property tax if assessed solely by reason of
additional improvements placed upon the Premises by Lessee or at Lessee's
request.</LI>
<B><LI>Definition of "Real Property Tax</B>.  As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Industrial Center or any portion thereof by any
authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Industrial Center or in any portion
thereof, as against Lessor's right to rent or other income therefrom, and as
against Lessor's business of leasing the Industrial Center. The term "real
property tax" shall also include any tax, fee, levy, assessment or charge (i) in
substitution of, partially or totally, any tax, fee, levy, assessment or charge
hereinabove included within the definition of "real property tax," or (ii) the
nature of which was hereinbefore included within the definition of "real
property tax," or (iii) which is imposed for a service or right not charged
prior to June 1, 1978, or, if previously charged, has been increased since June
1, 1978, or (iv) which is imposed as a result of a transfer, either partial or
total, of Lessor's interest in the Industrial Center of which is added to a tax
or charge hereinbefore included within the definition of real property tax by
reason of such transfer, or (v) which is imposed by reason of this transaction,
any modifications or changes hereto, or any transfers hereof.</LI>
<B><LI>Joint Assessment. </B> If the Industrial Center is not separately
assessed, Lessee's Share of the real property tax liability shall be an
equitable proportion of the real property taxes for all of the land and
improvements included within the tax parcel assessed, such proportion to be
determined by Lessor from the respective valuations assigned in the assessor's
work sheets or such other information as may be reasonably available. Lessor's
reasonable determination thereof, in good faith, shall be conclusive.</LI>
<B><LI>Personal Property Taxes.</LI><OL>

<OL TYPE="a">

</B><LI>Lessee shall pay prior to delinquency all taxes assessed against and
levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere. Mien possible, Lessee
shall cause said trade fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of
Lessor.</LI>
<LI>If any of Lessee's said personal property shall be assessed with Lessor's
real property, Lessee shall pay to Lessor the taxes attributable to Lessee
within ten (10) days after receipt of a written statement setting forth the
taxes applicable to Lessee's property.</LI></OL>
</OL>
</OL>

<B><LI>Utilities. </B> Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to the
Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building.</LI>
<B><LI>Assignment and Subletting.</LI>
<OL>

<LI>Lessor's Consent Required. </B> Lessee shall not voluntarily or by operation
of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all
or any part of Lessee's interest in the Lease or in the Premises, without
Lessor's prior written consent, which Lessor shall not unreasonably withhold.
Lessor shall respond to Lessee's request for consent hereunder in a timely
manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease without the need for notice to Lessee under paragraph 13.1.</LI>
<B><LI>Lessee Affiliate. </B> Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate,"
provided that before such assignment shall be effective said assignee shall
assume, in full, the obligations of Lessee under this Lease. Any such assignment
shall not, in any way, affect or limit the liability of Lessee under the terms
of this Lease even if after such assignment or subletting the terms of this
Lease are materially changed or altered without the consent of Lessee, the
consent of whom shall not be necessary.</LI>
<B><LI>Terms and Conditions of Assignment. </B> Regardless of Lessor's consent,
no assignment shall release Lessee of Lessee's obligations hereunder or alter
the primary liability of Lessee to pay the, Base Rent and Lessee's Share of
Operating Expenses, and to perform all other obligations to be performed by
Lessee hereunder. Lessor may accept rent from any person other than Lessee
pending approval or disapproval of such assignment. Neither a delay in the
approval or disapproval of such assignment nor the acceptance of rent shall
constitute a waiver or estoppel of Lessor's right to exercise its remedies for
the breach of any of the terms or conditions of this paragraph 12 or this Lease.
Consent to one assignment shall not be deemed consent to any subsequent
assignment. In the event of default by any assignee of Lessee or any successor
of Lessee, in the performance of any of the terms hereof, Lessor may proceed
directly against Lessee without the necessity of exhausting remedies against
said assignee. Lessor may consent to subsequent assignments of this Lease or
amendments or modifications to this Lease with assignees of Lessee, without
notifying Lessee, or any successor of Lessee, and without obtaining its or their
consent thereto and such action shall not relieve Lessee of liability under this
Lease.</LI>
<B><LI>Terms and Conditions Applicable to Subletting. </B> Regardless of
Lessor's consent, the following terms and conditions shall apply to any
subletting by Lessee of all or any part of the Premises and shall be included in
subleases:</LI><OL>

<OL TYPE="a">

<LI>Lessee hereby assigns and transfers to Lessor all of Lessee's interest in
all rentals and income arising from any sublease heretofore or hereafter made by
Lessee, and Lessor may collect such rent and income and apply same toward
Lessee's obligations under this Lease; provided, however, that until a default
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may receive, collect and enjoy the rents accruing under such sublease. Lessor
shall not, by reason of this or any other assignment of such sublease to Lessor
nor by reason of the collection of the rents from a sublessee, be deemed liable
to the sublessee for any failure of Lessee to perform and comply with any of
Lessee's obligations to such sublessee under such sublease. Lessee hereby
irrevocably authorizes and dire( ; any such sublessee, upon receipt of written
notice from Lessor stating that a default exists in the performance of Lessee's
obligations under this Lease, to pay to Lessor the rents due and to become due
under the sublease. Lessee agrees that such sublessees shall have the right to
rely upon any such statement and request from Lessor, and that such sublessee
shall pay such rents to Lessor without any obligation or right to inquire as to
whether such default exists and notwithstanding any notice from or claim from
Lessee to the contrary. Lessee shall have no right or claim against such
sublessee or Lessor for any such rents so paid by said sublessee to Lessor.</LI>
<LI>No sublease entered into by Lessee shall be effective unless and until it
has been approved in writing by Lessor. In entering into any sublease, Lessee
shall use only such form of sublease as is satisfactory to Lessor, and once
approved by Lessor, such sublease shall not be changed or modified without
Lessor's prior written consent. Any sublessee shall, by reason of entering into
a sublease under this Lease, be deemed, for the benefit of Lessor, to have
assumed and agreed to conform and comply with each and every obligation herein
to be performed by Lessee, other than such obligations as are contrary to or
inconsistent with provisions contained in a sublease to which Lessor has
expressly consented in writing.</LI>
<LI>If Lessee's obligations under this Lease have been guaranteed by third
parties, then a sublease and Lessor's consent thereto, shall not be effective
unless said guarantors give their written consent to such sublease and the terms
thereof.</LI>
<LI>The consent by Lessor to any subletting shall not release Lessee from its
obligations or alter the primary liability of Lessee to pay the rent and perform
and comply with all of the obligations of Lessee to be performed under this
Lease.</LI>
<LI>The consent by Lessor to any subletting shall not constitute consent to any
subsequent subletting by Lessee or to any assignment or subletting by the
sublessee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable on the Lease or sublease and without obtaining
their consent and such action shall not relieve such persons from
liability.</LI>
<LI>In the event of any default under this Lease, Lessor may proceed directly
against Lessee, any guarantors or any one else responsible for the performance
of this Lease, including the sublessee, without first exhausting Lessor's
remedies against any other person or entity responsible therefor to Lessor, or
any security held by Lessor or Lessee.</LI>
<LI>In the event Lessee shall default in the performance of its obligations
under this Lease, Lessor, at its option and without any obligation to do so, may
require any sublessee to attorn to Lessor, in which event Lessor shall undertake
the obligations of Lessee under such sublease from the time of the exercise of
said option to the termination of such sublease; provided, however, Lessor shall
not be liable for any prepaid rents or security deposit paid by such sublessee
to Lessee or for any other prior defaults of Lessee under such sublease.</LI>
<LI>Each and every consent required of Lessee under a sublease shall also
require the consent of Lessor.</LI>
<LI>No sublessee shall further assign or sublet all or any part of the Premises
without Lessor's prior written consent.</LI>
<LI>Lessor's written consent to any subletting of the Premises by Lessee shall
not constitute an acknowledgment that no default then exists under this Lease of
the obligations to be performed by Lessee nor shall such consent be deemed a
waiver of any then existing default, except as may be otherwise stated by Lessor
at the time.</LI>
<LI>With respect to any subletting to which Lessor has consented, Lessor agrees
to deliver a copy of any notice of default by Lessee to the sublessee. Such
sublessee shall have the right to cure a default of Lessee within 10 days after
service of said notice of default upon such sublessee, and the sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
defaults cured by the sublessee.</LI></OL>
</OL>

<B><LI>Attorney's Fees. </B> In the event Lessee shall assign or sublet the
Premises or requests the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection
therewith, such attorneys fees not to exceed $350.00 for each such
request.</LI></OL>

<B><LI>Default; Remedies.</LI>
<OL>

<LI>Default. </B> The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:</LI><OL>

<OL TYPE="a">

<LI>The vacating or abandonment of the Premises by Lessee. ,</LI>
<LI>The failure by Lessee to make any payment of rent or any other payment
required to be made by Lessee hereunder, as and when due, where such failure
shall continue for a period of three (3) days after written notice thereof from
Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to Pay
Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice to
Pay Rent or Quit shall also constitute the notice required by this
subparagraph.</LI>
<LI>Except as otherwise provided in this Lease, the failure by Lessee to observe
or perform any of the covenants, conditions, or provisions of this Lease to be
observed or performed by Lessee, other than described in paragraph (b) above,
where such failure shall continue for a period of 30 days after written notice
thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's
noncompliance is such that more than 30 days are reasonably required for its
cure, then Lessee shall not be deemed to be in default if Lessee commenced such
cure within said 30-day period and thereafter diligently prosecutes such cure to
completion. To the extent permitted by law, such 30-day notice shall constitute
the sole and exclusive notice required to be given to Lessee under applicable
Unlawful Detainer statutes.</LI>
<LI>(i) The making by Lessee of any general arrangement or general assignment
for the benefit of creditors; (ii) Lessee becomes a "debtor" as defined in 11
U.S.C. 101 or any successor statute thereto (unless, in the case of a petition
filed against Lessee, the same is dismissed within 60 days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within 30 days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within 30 days. In the event that any provision of
this paragraph 13.1(d) is contrary to any applicable law, such provision shall
be of no force or effect.</LI>
<LI>The discovery by Lessor that any financial statement given to Lessor by
Lessee, any assignee of Lessee, any subtenant of Lessee, any successor in
interest of Lessee or any guarantor of Lessee's obligation hereunder, was
materially false.</LI></OL>
</OL>

<B><LI>Remedies. </B> In the event of any such material default by Lessee,
Lessor may at any time thereafter, with or without notice or demand and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such default:</LI><OL>

<OL TYPE="a">

<LI>Terminate Lessee's right to possession of the Premises by any lawful means,
in which case this Lease and the term hereof shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event Lessor
shall be entitled to recover from Lessee all damages incurred by Lessor by
reason of Lessee's default including, but not limited to, the cost of recovering
possession of the Premises; expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorney's fees, and any
real estate commission actually paid; the worth at the time of award by the
court having jurisdiction thereof of the amount by which the unpaid rent for the
balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to paragraph 15
applicable to the unexpired term of this Lease.</LI>
<LI>Maintain Lessee's right to possession in which case this Lease shall
continue in effect whether or not Lessee shall have vacated or abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.</LI>
<LI>Pursue any other remedy now or hereafter available to Lessor under the laws
or judicial decisions of the state wherein the Premises are located. Unpaid
installment of rent and other unpaid monetary obligations of Lessee under the
terms of this Lease shall bear interest from the date due at the maximum rate
then allowable by law.</LI></OL>
</OL>

<B><LI>Default by Lessor. </B> Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but in
no event later than 30 days after written notice by Lessee to Lessor and to the
holder of any first mortgage or deed of trust covering the Premises whose name
and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than 30
days are required for performance then Lessor shall not be in default if Lessor
commences performance within such 30 day period and thereafter diligently
prosecutes the same to completion.</LI>
<B><LI>Late Charges. </B> Lessee hereby acknowledges that late payment by Lessee
to Lessor of Base Rent, Lessee's Share of Operating Expenses or other sums due
hereunder will cause Lessor to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed on Lessor by the terms of any mortgage or trust
deed covering the Property. Accordingly, if any installment of Base Rent,
Operating Expenses, or any other sum due from Lessee shall not be received by
Lessor or Lessor's designee within ten (10) days after such amount shall be due,
then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a
late charge equal to five percent (5%) of such overdue amount. The parties
hereby agree that such late charge represents a fair and reasonable estimate of
the costs Lessor will incur by reason of late payment by Lessee. Acceptance of
such late charge by Lessor shall in no event constitute a waiver of Lessee's
default with respect to such overdue amount, nor prevent Lessor from exercising
any of the other rights and remedies granted hereunder. In the event that a late
charge is payable hereunder, whether or not collected, for three (3) consecutive
installments of any of the aforesaid monetary obligations of Lessee, then Base
Rent shall automatically become due and payable quarterly in advance, rather
than monthly, notwithstanding paragraph 4.1 or any other provision of this Lease
to the contrary.</LI></OL>

<B><LI>Condemnation. </B> If the Premises or any portion thereof or the
Industrial Center are taken under the power of eminent domain, or sold under the
threat of the exercise of said power (all of which are herein called
"condemnation"), this Lease shall terminate as to the part so taken as of the
date the condemning authority takes title or possession, whichever first occurs.
If more than 10% of the floor area of the Premises, or more than 25% of that
portion of the Common Areas designated as parking for the Industrial Center is
taken by condemnation, Lessee may, at Lessee's option, to be exercised in,
writing only within ten (10) days after Lessor shall have given Lessee written
notice of such taking (or in the absence of such notice, within ten (10) days
after the condemning authority shall have taken possession) terminate this Lease
as of the date the condemning authority takes such possession. If Lessee does
not terminate this Lease in accordance with the foregoing, this Lease shall
remain in full force and effect as to the portion of the premises remaining,
except that the rent shall be reduced in the proportion that the floor area of
the Premises taken bears to the total floor area of the Premises. No reduction
of rent shall occur if the only area taken is that which does not have the
Premises located thereon. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages: provided, however, that Lessee
shall be entitled to any award for loss or damage to Lessee's trade fixtures and
removable personal property. In the event that this Lease is not terminated by
reason of such condemnation, Lessor shall to the extent of severance damages
received by Lessor in connection with such condemnation, repair any damage to
the Premises caused by such condemnation except to the extent that Lessee has
been reimbursed therefor by the condemning authority. Lessee shall pay any
amount in excess of such severance damages required to complete such
repair.</LI>
<B><LI>Broker's Fee.</LI><OL>
<OL>

<OL TYPE="a">

</B><LI>Upon execution of this Lease by both parties, Lessor shall pay to Eric
Fuller &amp; Associates, Inc. and Property Brokers. Licensed real estate
broker(s), a fee as set forth in a separate agreement between Lessor and said
broker(s), or in the event there is no separate agreement between Less r and
said broker(s), the sum of $ <U>. </U>for brokerage services rendered by s; i
broker(s) to Lessor in this transaction.</LI>
<LI>Lessor further agrees that if Lessee exercises any Option, as defined in
paragraph 39.1 of this Lease, which is granted to Lessee under this Lease, or
any subsequently granted option which is substantially similar to an Option
granted to Lessee under this Lease, or if Lessee acquires any rights to the
Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or if Lessee remains in possession of the Premises after
the expiration of the term of this Lease after having failed to exercise an
Option, or if said broker(s) are the procuring cause of any other lease or sale
entered into between the parties pertaining to the Premises and/or any adjacent
property in which Lessor has an interest, then as to any of said transactions,
Lessor shall pay said broker(s) a fee in accordance with the schedule of said
broker(s) in effect at the time of the execution of this Lease.</LI>
<LI>Lessor agrees to pay said fee not only on behalf of Lessor but also on
behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee is
due hereunder. Any transferee of Lessor's interests in this Lease, whether such
transfer is by agreement or by operation of law, shall be deemed to have assumed
Lessor's obligation under this paragraph 15. Said broker shall be a third party
beneficiary of the provisions of this paragraph 15.</LI></OL>
</OL>
</OL>

<B><LI>Estoppel Certificate.</LI><OL>
<OL>

<OL TYPE="a">

</B><LI>Each party (as "responding party") shall at any time upon not less than
ten (10) days' prior written notice from the other party ("requesting party")
execute, acknowledge and deliver to the requesting party a statement in writing
(i) certifying that this Lease is unmodified and in full force and effect (or,
if modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect) and the date to which the
rent and other charges are paid in advance, if any, and (ii) acknowledging that
there are not, to the responding party's knowledge, any uncured defaults on the
part of the requesting party, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrance of the Premises or of the business of the requesting party.</LI>
<LI>At the requesting party's option, the failure to deliver such statement
within such times shall be a material default of this Lease by the party who is
to respond, without any further notice to such party, or it shall be conclusive
upon such party that (i) this Lease is in full force and effect, without
modification except as may be represented by the requesting party, (ii) there
are no uncured defaults in the requesting party's performance, and (iii) if
Lessor is the requesting party, not more than one month's rent has been paid in
advance.</LI>
<LI>If Lessor desires to finance, refinance, or sell the Property, or any part
thereof, Lessee hereby agrees to deliver to any lender or purchaser designated
by Lessor such financial statements of Lessee as may be reasonably required by
such lender or purchaser. Such statements shall include the past three (3)
years' financial statements of Lessee. All such financial statements shall be
received by Lessor and such lender or purchaser in confidence and shall be used
only for the purposes herein set forth.</LI></OL>
</OL>
</OL>

<B><LI>Lessor's Liability. </B> The term "Lessor" as used herein shall mean only
the owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Industrial Center, and except as expressly
provided in paragraph 15, in the event of any transfer of such title or
interest, Lessor herein named (and in case of any subsequent transfers then the
grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall, subject
as aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.</LI>
<B><LI>Severability.  </B>The invalidity of any provision of this Lease as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.</LI>
<B><LI>Interest on Past-Due Obligations. </B> Except as expressly herein
provided, any amount due to Lessor not paid when due shall bear interest at the
maximum rate then allowable by law from the date due. Payment of such interest
shall not excuse or cure any default by Lessee under this Lease; provided,
however, that interest shall not be payable on late charges incurred by Lessee
nor on any amount upon which late charges are paid by Lessee.</LI>
<B><LI>Time of Essence</B>.  Time is of the essence with respect to the
obligations to be performed under this Lease.</LI>
<B><LI>Additional Rent. </B>All monetary obligations of Lessee to Lessor under
the terms of this Lease, including but not limited to Lessee's, Share of
Operating Expenses and insurance and tax expenses payable shall be deemed to be
rent.</LI>
<B><LI>Incorporation of Prior Agreements; Amendments. </B> This Lease contains
all agreements of the parties with respect to any matter mentioned herein. No
prior or contemporaneous agreement or understanding pertaining to any such
matter shall be effective. This lease may be modified in writing only, signed by
the patties in interest at the time of the modification. Except as otherwise
stated in this Lease, Lessee hereby acknowledges that neither the real estate
broker listed in paragraph 15 hereof nor any cooperating broker on this
transaction nor the Lessor or any employee or agents or any of said persons has
made any oral or written warranties or representations to Lessee relative to the
condition or use by Lessee of the Premises or the Property and Lessee
acknowledges that Lessee assumes all responsibility regarding the Occupational
Safety Health Act, the legal use and adaptability of the Premises and the
compliance thereof with all applicable laws and regulations in effect during the
term of this Lease except as otherwise specifically stated in this Lease.</LI>
<B><LI>Notices. </B> Any notice required or permitted to be given hereunder
shall be in writing and may be given by personal delivery or by certified mail,
and if given personally or by mail, shall be deemed sufficiently given if
addressed to Lessee or to Lessor at the address noted below the signature of the
respective parties, as the case may be. Either party may by notice to the other
specify a different address for notice purposes except that upon Lessee's taking
possession of the Premises, the Premises shall constitute Lessee's address for
notice purposes. A copy of all notices required or permitted to be given to
Lessor hereunder shall be concurrently transmitted to such party or parties at
such addresses as Lessor may from time to time hereafter designate by notice to
Lessee.</LI>
<B><LI>Waivers. </B> No waiver by Lessor or any provision hereof shall be deemed
a waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach, at the time of
acceptance of such rent.</LI>
<B><LI>Recording. </B> Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.</LI>
<B><LI>Holding Over.  </B>See Paragraph 51.</LI>
<B><LI>Cumulative Remedies. </B> No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.</LI>
<B><LI>Covenants and Conditions. </B> Each provision of this Lease performable
by Lessee shall be deemed both a covenant and a condition.</LI>
<B><LI>Binding Effect; Choice of Law. </B> Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions of
paragraph 17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Industrial Center is located and any litigation concerning this Lease
between the parties hereto shall be initiated in the county in which the
Industrial Center is located.</LI>
<B><LI>Subordination.</LI><OL>
<OL>

<OL TYPE="a">

</B><LI>This Lease, and any Option granted hereby, at Lessor's option, shall be
subordinate to any ground lease, mortgage, deed of trust, or any other
hypothecation or security now or hereafter placed upon the Industrial Center and
to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee, or ground lessor shall elect to have this Lease and any
Options granted hereby prior to the lien of its mortgage, deed of trust or
ground lease, and shall give written notice thereof to Lessee, this Lease and
such Options shall be deemed prior to such mortgage, deed of trust or ground
lease, whether this Lease or such Options are dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of recording
thereof.</LI>
<LI>Lessee agrees to execute any documents required to effectuate an attornment,
a subordination or to make this Lease or any Option granted herein prior to the
lien of any mortgage, deed of trust or ground lease, as the case may be.
Lessee's failure to execute such documents within ten (10) days after written
demand shall constitute a material default by Lessee hereunder without further
notice to Lessee or, at Lessor's option, Lessor shall execute such documents on
behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby make,
constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and in
Lessee's name, place and stead, to execute such documents in accordance with
this paragraph 30(b).</LI></OL>
</OL>
</OL>

<B><LI>Attorney's Fees. </B> If either party or the broker(s) named herein bring
an action to enforce the terms hereof or declare rights hereunder, the
prevailing party in any such action, on trial or appeal, shall be entitled to
his reasonable attorney's fees to be paid by the losing party as fixed by the
court. The provisions of this paragraph shall inure to the benefit of the broker
named herein who seeks to enforce a right hereunder.</LI>
<B><LI>Lessor's Access. </B> Lessor and Lessor's agents shall have the right to
enter the Premises at reasonable times for the purpose of inspecting the same,
showing the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are part as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the Premises or the Building any
ordinary "For Sale" signs and Lessor may at any time during the last 120 days of
the term hereof place on or about the Premises any ordinary "For Lease" signs.
All activities of Lessor pursuant to this paragraph shall be without abatement
of rent, nor shall Lessor have any liability to Lessee for the same.</LI>
<B><LI>Auctions. </B> <B>Except for internet auction sales,</B> Lessee shall not
conduct, nor permit to be conducted, either voluntarily or involuntarily, any
auction upon the Premises or the Common Areas without first having obtained
Lessor's prior written consent. Notwithstanding anything to the contrary in this
Lease, Lessor shall not be obligated to exercise any standard or reasonableness
in determining, whether to grant such consent.</LI>
<B><LI>Signs. </B> Lessee shall not place any sign upon the Premises or the
Industrial Center without Lessor's prior written consent. Under no circumstances
shall Lessee place a sign on any roof of the Industrial Center.</LI>
<B><LI>Merger. </B> The voluntary or ether surrender of this Lease by Lessee, or
a mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.</LI>
<B><LI>Consents. </B> Except for paragraph 33 hereof, wherever in this Lease the
consent of one party is required to an act of the other party such consent shall
not be unreasonably withheld or delayed.</LI>
<B><LI>Guarantor. </B> In the event that there is a guarantor of this Lease,
said guarantor shall have the same obligations as Lessee under this Lease.</LI>
<B><LI>Quiet Possession. </B> Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Property.</LI>
<B><LI>Options.  </LI>
<OL>

<LI>Definition. </B> As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Industrial Center or other property of
Lessor; (3) the right or option to purchase the Premises or the Industrial
Center, or the right of first refusal to purchase. the Premises or the
Industrial Center, or the right of first offer to purchase the Premises or the
Industrial Center, or the right or option to purchase other property of Lessor,
or the right of first refusal to purchase other property of Lessor or the right
of first offer to purchase other property of Lessor.</LI>
<B><LI>Options Personal. </B> Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee, provided, however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
this Lease. The Options, if any, herein granted to Lessee are not assignable
separate and apart from this Lease, nor may any Option be separated from this
Lease in any manner, either by reservation or otherwise.</LI>
<B><LI>Multiple Options. </B> In the event that Lessee has any multiple options
to extend or renew this Lease a later option cannot be exercised unless the
prior option to extend or renew this Lease has been so exercised.</LI>
<B><LI>Effect of Default on Options.</LI><OL>

<OL TYPE="a">

</B><LI>Lessee shall have no right to exercise an Option, notwithstanding any
provision in the grant of Option to the contrary, (i) during the time commencing
from the date Lessor gives to Lessee a notice of default pursuant to paragraph
13.1(b) or 13.1(c) and continuing until the noncompliance alleged in said notice
of default is cured, or (ii) during the period of time commencing on the date
after a monetary obligation to Lessor is due from Lessee and unpaid (without any
necessity for notice thereof to Lessee) and continuing until the obligation is
paid, or (iii) at any time after an event of default described in paragraphs
13.1(a), 13.1(d), or 13.1 (e) (without any necessity of Lessor to give notice of
such default to Lessee), or (iv) in the event that Lessor has given to Lessee
three or more notices of default under paragraph 13.1(b), or paragraph 13.1(c),
whether or not the defaults are cured, during the 12-month period of time
immediately prior to the time that Lessee attempts to exercise the Subject
Option.</LI>
<LI>The period of time within which an Option may be exercised shall not be
extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of paragraph 39.4(a).</LI>
<LI>All rights of Lessee under the provisions of an Option shall terminate and
be of no further force or effect, notwithstanding Lessee's due and timely
exercise of the Option, if, after such exercise and during the term of this
Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a
period of 30 days after such obligation becomes due (without any necessity of
Lessor to give notice thereof to Lessee), or (ii) Lessee fails to commence to
cure a default specified in paragraph 13.1(c) within 30 days after the date that
Lessor gives notice to Lessee of such default and/or Lessee fails thereafter to
diligently prosecute said cure to completion, or (iii) Lessee commits a default
described in paragraph 13.1(a), 13.1(d), or 13.1(e) (without any necessity of
Lessor to give notice of such default to Lessee), or (iv) Lessor gives to Lessee
three or more notices of default under paragraph 13.1(b), or paragraph 13.1(c),
whether or not the defaults are cured.</LI></OL>
</OL>
</OL>

<B><LI>Security Measures. </B> Lessee hereby acknowledges that Lessor shall have
no obligation whatsoever to provide guard service or other security measures for
the benefit of the Premises or the Industrial Center. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option,
from providing security protection for the Industrial Center or any part
thereof, in which event the cost thereof shall be included within the definition
of Operating Expenses, as set forth in paragraph 4.2(b).</LI>
<B><LI>Easements. </B> Lessor reserves to itself the right, from time to time,
to grant such easements, rights and dedications that Lessor deems necessary or
desirable, and to cause the recordation of Parcel Maps and restrictions, so long
as such easements, rights, dedications, Maps and restrictions do not
unreasonably interfere with the use of the Premises by Lessee. Lessee shall sign
any of the aforementioned documents upon request of Lessor and failure to do so
shall constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.</LI>
<B><LI>Performance Under Protest. </B> If at any time a dispute shall arise as
to any amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have tile right to make payment "under protest" and such payment
shall not be regarded as voluntary payment, and there shall survive the right on
the part of said party to institute suit for recovery of such sum. If it shall
be adjudged that there was. no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.</LI>
<B><LI>Authority. </B> If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, trust or
partnership, Lessee shall, within 30 days after execution of this Lease, deliver
to Lessor evidence of such authority satisfactory to Lessor.</LI>
<B><LI>Conflict. </B> Any conflict between the printed provisions of this Lease
and the typewritten or handwritten provisions, if any, shall be controlled by
the typewritten or handwritten provisions.</LI>
<B><LI>Offer. </B> Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease. This Lease
shall become binding upon Lessor and Lessee only when fully executed by Lessor
and Lessee.</LI>
<B><LI>Addendum. </B> Attached hereto is an addendum or addenda containing
paragraphs 47 through 53 which constitute a part of this Lease.  </LI>

<P>LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.</P>
<P ALIGN="JUSTIFY">THIS LEASE HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY
FOR APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS AGENTS OR
EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS
LEASE OR THE TRANSACTION RELATING THERETO: THE PARTIES SHALL RELY SOLELY UPON
THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF
THIS LEASE.</P></FONT>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=638>
<TR><TD WIDTH="50%" VALIGN="TOP">
<FONT SIZE=2><P>ADDRESSES FOR NOTICES AND RENT</FONT></TD>
<TD WIDTH="50%" VALIGN="TOP">
<FONT SIZE=2><P>ADDRESS</FONT></TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP">
<FONT SIZE=2><P>The Columbian Publishing Company<BR>
701 West 8" Street<BR>
Vancouver, WA 98660q</FONT></TD>
<TD WIDTH="50%" VALIGN="TOP">
<FONT SIZE=2><P>Egghead.com., Inc.<BR>
521 SE Chkalov<BR>
Vancouver, WA 98683</FONT></TD>
</TR>
</TABLE>

<FONT SIZE=2><P ALIGN="JUSTIFY">NOTE: These forms are often modified to meet
changing requirements of law and needs of the industry. Always write or call to
make sure you are utilizing the most current form: AMERICAN INDUSTRIAL REAL
ESTATE ASSOCIATION, 345 So. Figueroa St., M-1, Los Angeles, CA 90071. (213)687-
8777.</P>
<P>THIS LEASE IS SUBJECT TO ACCEPTANCE BY LANDLORD:</P>
<P>IN WITNESS WHEREOF, the parties hereto have executed this lease the date and
year above written.</P>
<B><P>LESSOR:  </B>The Columbian Publishing Company, <BR>
&#9;a Washington corporation</P>
<P>By:  <U> /s/ Douglas E. Ness
</U>&#9;<BR>
Its:  <U>Vice President, Finance
</U>&#9;</P>
<P>Address: <U>701 West 8<SUP>th</SUP> Street&#9;</U><BR>
               <U>Vancouver, WA  98660&#9;</P>
</U><B><P>LESSEE:&#9;</B>Egghead.com, Inc.,<BR>
&#9;a Delaware corporation </P>
<P>By:  <U>/s/ Norman F Hullinger&#9;<BR>
</U>Its:  <U>Vice President of Sales and Operations&#9;</P>
</U><P>Address:  <U>521 SE Chkalov&#9;</P>
</U><P>                <U>ChkalovVancouver Washington</P>
</U><B><P>LESSOR:  </P>
</B><P>STATE OF Washington<BR>
County of  Clark</P>
<P>On October 17, 2000 before me, a Notary Public in and for said County and
State, residing therein, personally appeared Douglas E. Ness, who, being duly
sworn, did say that he is the Vice President, Finance of The Columbian, a
corporation and that said instrument was signed in behalf of said corporation by
authority of its board of directors; and he acknowledged said instrument to be
its voluntary act and deed.</P>
<P>IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal
the day and year last above written.</P>
<P>Barbara Samuels&#9;&#9;&lt;Notary Seal&gt;<BR>
My Commission Expires June 20, 2004</P>
<B><P>ADDENDUM A</P>
<LI>Commission. </B> Owner shall pay a commission or fee to Eric Fuller &amp;
Associates, Inc. and Property Brokers in accordance with the provisions of a
separate commission contract. Each party represents that it has not had dealings
with any other real estate broker or salesman with respect to this Lease, and
each party shall defend, indemnify and hold harmless the other party from all
costs and liabilities including reasonable attorney's fees resulting from any
claims to the contrary.</LI>
<B><LI>Agency Disclosure. </B> At the signing of this Agreement the listing
agent, William Connelly or Eric Fuller &amp; Associates, Inc. represented the
Landlord. Greg Steele of Property Brokers represented the Tenant. Each party
signing this document confirms that prior oral and/or written disclosure of
agency was provided to him/her in this transaction. See Attached Exhibit D, Laws
of Real Estate Agency.</LI>
<B><LI>Hazardous Materials. </B> During the term of this Lease, Tenant shall not
cause or permit any Hazardous Materials to be placed, held, located or disposed
of on, in or under the Premises or to otherwise affect the Premises in any
manner that violates federal, state or local laws, ordinances, rules,
regulations or policies now in effect or hereafter adopted governing the use,
storage, treatment, transportation, manufacture, refinement, handling,
production or disposal of Hazardous Materials (collectively, the "Environmental
Laws"). For purposes of this section, "Hazardous Materials" shall mean any
flammable substances, explosives, radioactive materials, hazardous materials,
hazardous wastes, toxic substances, pollutants, pollution or related materials
specified as such in, or regulated under, any of the Environmental Laws.
Landlord shall have neither the ability nor the duty to direct Tenant's
activities with respect to Hazardous Materials or its compliance with
Environmental Laws. At the expiration or earlier termination of this Lease,
Tenant shall cause any Hazardous Materials permitted or caused by the Tenant, to
be placed, held, located or disposed of on in, under or affecting the Premises
in any manner that violate the Environmental Laws to be cleaned up and removed
from the Premises at Tenant's expense in such manner as to comply with the
Environmental Laws. Tenant shall indemnify, defend and hold Landlord and present
and future owners of the property harmless from and against any and all losses,
liabilities, claims and expenses (including reasonable attorney fees through
appeal and fees of environmental engineers) arising out of or in any way
relating to any default by Tenant pursuant to this section, and the agreements
by Tenant in this section shall survive the expiration or earlier termination of
this Lease. Tenant shall immediately advise Landlord in writing of any and all
enforcement, cleanup, remedial, removal or other governmental or regulatory
actions instituted, completed or threatened pursuant to any Environmental Laws
affecting the Premises.</LI>
<B><LI>Zoning Disclaimer. </B> This agreement will not allow use of the Property
described in this agreement in violation of applicable land use laws and
regulations. Before signing or accepting this agreement, the person acquiring
lease-hold to the Property should check with the appropriate City or County
planning department to verify approved uses.</LI>
<B><LI>Holding Over. </B> Tenant will, at the termination of this Lease by lapse
of time or otherwise, yield up immediate possession to Landlord. If Landlord
agrees in writing that Tenant may hold over after the expiration or termination
of this Lease, unless the parties hereto otherwise agree in writing on the terms
of such holding over, the hold over tenancy shall be subject to termination by
Landlord at any time upon not less than five (5) days, advance written notice,
or by Tenant at any time upon not less than thirty (30) days advance written
notice, and all of the other terms and provisions of this Lease shall be
applicable during that period, except that Tenant shall pay Landlord from time
to time upon demand, as rental for the period of any hold over, an amount equal
to one and one-half (1-1/2) the Base Rent in effect on the termination date,
plus all additional rental as defined herein, computed on a daily basis for each
day of the hold over period, No holding over by Tenant,, whether with or without
consent of Landlord, shall operate to extend this Lease except as otherwise
expressly provided. The preceding provisions of this paragraph 51 shall not be
construed as Landlord's consent for Tenant to hold over.</LI>
<B><LI>Rent Schedule:</LI>
</B><P>&#9;a.&#9;Months&#9;Monthly Rent <BR>
&#9;&#9;1-12&#9;&#9;$18,022.00 + operating expenses &#9;<BR>
&#9;&#9;13-24&#9;&#9;$18,923.00 + operating expenses &#9;<BR>
&#9;&#9;25-36&#9;&#9;$19,867.00 + operating expenses</P>
<B><P>&#9;</B>b.&#9;Move In Expense: Tenant shall pay to Landlord the move in
expense as stated below upon lease execution:</P>
<P>First Month's Rent:&#9;$18,022.00</P>
<P>First Month's Operating Expense:&#9;$  5,406.00</P>
<P>Security Deposit:&#9;$<U>19,867.00</P>
</U><P>Move in Expense Due and Payable at Lease
Execution:&#9;&#9;&#9;$42,935.00</P>
<B><LI>Counterparts: </B> This lease may be executed in one or more
counterparts, each of which shall be deemed as an original but all of which
together shall constitute one and the same instrument.</LI></OL>

<B><P ALIGN="CENTER">EXHIBIT A-1</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">To the Lease dated August 24, 2000, between The Columbian
Publishing Company, Lessor, and Egghead.com, Inc. a Delaware Corporation,
Lessee.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The leased premises consists of approximately 72,086 square
feet at 206 Grand Boulevard, Vancouver, Clark County, Washington which is
legally described as a portion of:  William Ryan DLC Lot 240.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The premises is commonly known as:</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">206 Grand Boulevard</P>
<P ALIGN="JUSTIFY">Vancouver, WA  98661</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="CENTER">[DRAWING OF 206 GRAND BOULEVARD]</P>
<B><P ALIGN="CENTER"></P>
<P ALIGN="CENTER">EXHIBIT A-2</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Note:  A temporary barrier will be erected at the appropriate
location highlighted, such that 300 parking spaces will be available including
those along the Grand Street property line (outside existing fences).</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="CENTER">[DRAWING OF PARKING SPACES]</P>
<P ALIGN="CENTER"></P>
<B><P ALIGN="CENTER">EXHIBIT A-3</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">To the Lease dated August 24, 2000, between The Columbian
Publishing Company, Lessor, and Egghead.com, Inc., a Delaware Corporation,
Lessee.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The leased premises consists of approximately 72,086 square
feet at 206 Grand Boulevard, Vancouver, Clark County, Washington which is
legally described as a portion of:  Wiliam Ryan DLC Lot 240.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The premises is commonly known as:</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">206 Grand Boulevard</P>
<P ALIGN="JUSTIFY">Vancouver, WA  98661</P>
<P ALIGN="JUSTIFY"></P>
</FONT><FONT FACE="Arial" SIZE=2><P ALIGN="CENTER">[DRAWING OF 206 GRAND
BOULEVARD]</P>
</FONT><FONT SIZE=2>
<P>&nbsp;</P>

<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.11
<SEQUENCE>6
<FILENAME>egg1011.htm
<DESCRIPTION>EXHIBIT
<TEXT>

<HTML>
<HEAD>
<TITLE>2000 10K Exbibit 10.11</TITLE>
</HEAD>
<BODY LINK="#0000ff" VLINK="#800080">
<FONT FACE="Arial" SIZE=2>
<B><P ALIGN="RIGHT">EXHIBIT 10.11</P></B>

<p align="center"><strong>AGREEMENT FOR INVENTORY FINANCING</strong></p>

<P ALIGN="JUSTIFY">This AGREEMENT FOR INVENTORY FINANCING (as amended, supplemented
or otherwise modified from time to time, this "Agreement") is hereby made
this 28th day of February, 2001, by and between IBM Credit Corporation, a
Delaware corporation with a place of business at 5000 Executive Parkway,
Suite 450, San Ramon, CA  94583 ("IBM Credit"), and Egghead.Com, Inc., duly
organized under the laws of the State of Delaware with its principal place of
business at 1350 Willow Road, Menlo Park, CA   94025 ("Customer").
<p align="center"><strong>W I T N E S S E T H</strong></p>
<P ALIGN="JUSTIFY">WHEREAS, in the course of Customer's operations, Customer intends to
purchase from Persons approved in writing by IBM Credit for the purposes of
this Agreement (the "Authorized Suppliers") computer hardware and software
products manufactured or distributed by or bearing any trademark or trade
name of such Authorized Suppliers (the "Products") (as of the date hereof the
Authorized Suppliers are as set forth on Attachment E hereto);
<P ALIGN="JUSTIFY">WHEREAS, Customer has requested that IBM Credit finance its purchase of
Products from such Authorized Suppliers and IBM Credit Is willing to provide
such financing to Customer subject to the terms and conditions set forth in
this Agreement.
<P ALIGN="JUSTIFY">NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
<p align="center"><strong>SECTION 1.  DEFINITIONS; ATTACHMENTS</strong></p>
<P ALIGN="JUSTIFY"> Special Definitions.  The following terms shall have the following
respective meanings in this Agreement (such meanings to be equally applicable
to both the singular and the plural forms of the terms defined):
<P ALIGN="JUSTIFY">"Accounts":  as defined in the U.C.C.
<P ALIGN="JUSTIFY">"Advance":  any loan or other extension of credit by IBM Credit to, or on
behalf of, Customer pursuant to this Agreement including, without limitation,
Product Advances.
<P ALIGN="JUSTIFY">"Affiliate":  with respect to the Customer, any Person meeting one of the
following:  (i) at least 10% of such Person's equity is owned, directly or
indirectly, by Customer; (ii) at least 10% of Customer's equity is owned,
directly or indirectly, by such Person; or (iii) at least 10% of Customer's
equity and at least 10% of such Person's equity is owned, directly or
indirectly, by the same Person or Persons.  All of Customer's officers,
directors, joint venturers, and partners shall also be deemed to be
Affiliates of Customer for purposes of this Agreement.
<P ALIGN="JUSTIFY">"Agreement":  as defined in the caption.
<P ALIGN="JUSTIFY">"Auditors":  a nationally recognized firm of independent certified public
accountants selected by Customer and satisfactory to IBM Credit.
<P ALIGN="JUSTIFY">"Authorized Suppliers":  as defined in the recitals of this Agreement.
<P ALIGN="JUSTIFY">"Available Credit":  at any time, (1) the Maximum Advance Amount less (2) the
Outstanding Advances at such time.
<P ALIGN="JUSTIFY">"Average Daily Balance":  for each Advance for a given period of time, the
sum of the unpaid principal of such Advance as of each day during such period
of time, divided by the number of days in such period of time.
<P ALIGN="JUSTIFY">"Bank":  as defined in Section 3.3.
<P ALIGN="JUSTIFY">"Borrowing Base":  as defined in Attachment A.
<P ALIGN="JUSTIFY">"Business Day":  any day other than a Saturday, Sunday or other day on which
commercial banks in New York, New York are generally closed or on which IBM
Credit is closed.
<P ALIGN="JUSTIFY">"Closing Date":  the date on which the conditions precedent to the
effectiveness of this Agreement set forth in Section 5.1 hereof are satisfied
or waived in writing by IBM Credit.
<P ALIGN="JUSTIFY">"Code":  the Internal Revenue Code of 1986, as amended or any successor
statute.
<P ALIGN="JUSTIFY">"Collateral":  as defined in Section 4.1.
<P ALIGN="JUSTIFY">"Collateral Management Report":  a report to be delivered by Customer to IBM
Credit from time to time, as provided herein, signed by the chief executive
officer or chief financial officer of Customer, substantially in the form and
detail of Attachment F hereto, detailing and certifying, among other items:
a summary of Customer's inventory on hand financed by IBM Credit and
Customers Eligible Accounts, the amount and aging of all of Customer's
Accounts, Customer's inventory on hand financed by IBM Credit by quantity,
type, model, Authorized Supplier's Invoice price to Customer and the total of
the line item values for all inventory listed on the report, the amounts and
aging of Customer's accounts payable as of a specified date, all of the
Customer's IBM Credit borrowing activity during a specified period and the
total amount of Customer's Borrowing Base as welt as Customer's Outstanding
Product Advances, Available Credit and any Shortfall Amount as of a specified
date.
<P ALIGN="JUSTIFY">"Common Due Date":  (1) the fifth day of a calendar month if the Product
Financing Period expires on the first through tenth of such calendar month;
(2) the fifteenth day of a calendar month if the Product Financing Period
expires on the eleventh through twentieth of such calendar month; and (3) the
twenty-fifth day of a calendar month if the Product Financing Period expires
on the twenty-first through the last day of such calendar month.
<P ALIGN="JUSTIFY">"Credit Line":  as defined in Section 2 1.
<P ALIGN="JUSTIFY">"Customer":  as defined in the caption.
<P ALIGN="JUSTIFY">"Default":  either (1) an Event of Default or (2) any event or condition
which, but for the requirement that notice be given or time lapse or both,
would be an Event of Default.
<P ALIGN="JUSTIFY">"Delinquency Fee Rate":  as defined on Attachment A.
<P ALIGN="JUSTIFY">"Eligible Accounts":  as defined in Section 3.1.
<P ALIGN="JUSTIFY">"Environmental Laws":  all statutes, laws, judicial decisions, regulations,
ordinances, and other governmental restrictions relating to pollution, the
protection of the environment, occupational health and safety, or to
emissions, discharges or release of pollutants, contaminants, hazardous
substances or wastes into the environment.
<P ALIGN="JUSTIFY">"Environmental Liability":  any claim, demand, obligation, cause of action,
allegation, order, violation, injury, judgment, penalty or fine, cost or
expense, resulting from the violation or alleged violation of any
Environmental Laws or the imposition of any Lien pursuant to any
Environmental Laws.
<P ALIGN="JUSTIFY">"ERISA":  the Employee Retirement Income Security Act of 1974, as amended, or
any successor statutes.
<P ALIGN="JUSTIFY">"Event of Default":  as defined in Section 9.1.
<P ALIGN="JUSTIFY">"Financial Statements":  the consolidated balance sheets (including, without
limitation, securities such as stocks and investment bonds), statements of
operations, statements of cash flows and statements of changes in
shareholder's equity of Customer and its Subsidiaries for the period
specified, prepared in accordance with GAAP and consistent with prior
practices.
<P ALIGN="JUSTIFY">"Floor Plan Lender:  any Person who now or hereinafter provides inventory
financing to Customer, provided that such Person executes an Intercreditor
Agreement (as defined in Section 5.1 of this Agreement) or a subordination
agreement with IBM Credit in form and substance satisfactory to IBM Credit.
<P ALIGN="JUSTIFY">"Free Financing Period":  for each Product Advance, the period, if any, in
which IBM Credit does not charge Customer a financing charge.  IBM Credit
shall calculate the Customer's Free Financing Period utilizing a methodology
that is consistent with the methodologies used for similarly situated
customers of IBM Credit.  The Customer understands that IBM Credit may not
offer, may change or may cease to offer a Free Financing Period for the
Customer's purchases of Products.
<P ALIGN="JUSTIFY">"Free Financing Period Exclusion Fee":  as defined in Attachment A.
"GAAP":  generally accepted accounting principles in the United States as in
effect from time to time.
<P ALIGN="JUSTIFY">"Governmental Authority":  any nation or government, any state or other
political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled (through stock or capital ownership or otherwise) by any of the
foregoing.
<P ALIGN="JUSTIFY">"Hazardous Substances":  all substances, wastes or materials, to the extent
subject to regulation as "hazardous substances" or "hazardous waste" under
any Environmental Laws.
<P ALIGN="JUSTIFY">"IBM Credit":  as defined in the caption.
<P ALIGN="JUSTIFY">"Indebtedness":  with respect to any Person, (1) all obligations of such
Person for borrowed money or for the deferred purchase price of property or
services (other than trade liabilities incurred in the ordinary course of
business and payable in accordance with customary practices) or which is
evidenced by a note, bond, debenture or similar instrument, (2) all
obligations of such Person under capital leases (including obligations under
any leases Customer may enter into, now or in the future, with IBM Credit),
(3) all obligations of such Person in respect of letters of credit, banker's
acceptances or similar obligations issued or created for the account of such
Person, (4) liabilities arising under any interest rate protection, future,
option swap, cap or hedge agreement or arrangement under which such Person is
a party or beneficiary, (5) all obligations under guaranties by such Person
and (6) all liabilities secured by any Lien on any property owned by such
Person even though such Person has not assumed or otherwise become liable for
the payment thereof.
<P ALIGN="JUSTIFY">"Intellectual Property":  as defined in Section 6.14.
<P ALIGN="JUSTIFY">"Investment":  with respect to any Person (the "Investor"), (1) any
investment by the Investor in any other Person, whether by means of share
purchase, capital contribution, purchase or other acquisition of a
partnership or joint venture interest, loan, time deposit, demand deposit or
otherwise, and (2) any guaranty by the Investor of any Indebtedness or other
obligation of any other Person.
<P ALIGN="JUSTIFY">"Lien(s)":  any lien, claim, charge, pledge, security interest, deed of
trust, mortgage, other encumbrance or other arrangement having the practical
effect of the foregoing, including the interest of a vendor or lessor under
any conditional sale agreement, capital lease or other title retention
agreement.
<P ALIGN="JUSTIFY">"Lockbox":  as defined in Section 3.3.
<P ALIGN="JUSTIFY">"Material Adverse Effect":  a material adverse effect (1) on the business,
operations, results of operations, assets, or financial condition of the
Customer, (2) on the aggregate value of the Collateral or the aggregate
amount which IBM Credit would be likely to receive (after giving
consideration to reasonably likely delays in payment and reasonable costs of
enforcement) in the liquidation of such Collateral to recover the Obligations
in full, or (3) on the rights and remedies of IBM Credit under this
Agreement.
<P ALIGN="JUSTIFY">"Maximum Advance Amount":  at any time, the lesser of (1) the Credit Line and
(2) the Borrowing Base at such time.
<P ALIGN="JUSTIFY">"Obligations":  all covenants, agreements, warranties, duties,
representations, loans, advances, interest (including interest accruing on or
after the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to Customer, whether
or not a claim for post-filing or post-petition interest is allowed in such
proceeding), fees, reasonable expenses, indemnities, liabilities and
Indebtedness of any kind and nature whatsoever now or hereafter arising,
owing, due or payable from Customer to IBM Credit.
<P ALIGN="JUSTIFY">"Other Charges":  as set forth in Attachment A.
<P ALIGN="JUSTIFY">"Other Documents":  all security agreements, mortgages, leases, instruments,
documents, guarantees, schedules of assignment, contracts and similar
agreements executed by Customer and delivered to IBM Credit, pursuant to this
Agreement or otherwise, and all amendments, supplements and other
modifications to the foregoing from time to time.
<P ALIGN="JUSTIFY">"Outstanding Advances":  at any time of determination, the sum of (1) the
unpaid principal amount of all Advances made by IBM Credit under this
Agreement; and (2) any finance charge, fee, expense or other amount related
to Advances charged to Customer's account with IBM Credit.
<P ALIGN="JUSTIFY">"Outstanding Product Advances":  at any time of determination, the sum of (1)
the unpaid principal amount of all Product Advances made by IBM Credit under
this Agreement; and (2) any finance charge, fee, expense or other amount
related to Product Advances charged to Customer's account with IBM Credit.
<P ALIGN="JUSTIFY">"PBGC":  as defined in Section 6.12.


<P ALIGN="JUSTIFY">"Permitted Indebtedness":  any of the following:
<P ALIGN="JUSTIFY">(1)     Indebtedness to IBM Credit;
<P ALIGN="JUSTIFY">(2)     Indebtedness described in Section VII of Attachment B;
<P ALIGN="JUSTIFY">(3)     Indebtedness to any Floor Plan Lender,
<P ALIGN="JUSTIFY">(4)     Purchase Money Indebtedness;
<P ALIGN="JUSTIFY">(5)     guaranties in favor of IBM Credit; and
<P ALIGN="JUSTIFY">(6)     other Indebtedness consented to by IBM Credit in writing prior to
incurring such Indebtedness.


<P ALIGN="JUSTIFY">"Permitted Liens":  any of the following:
<P ALIGN="JUSTIFY">(1)     Liens which are the subject of an Intercreditor Agreement, in effect
from time to time between IBM Credit and any other secured creditor;
<P ALIGN="JUSTIFY">(2)     Purchase Money Security Interests;
<P ALIGN="JUSTIFY">(3)     Liens described in Section I of Attachment B;
<P ALIGN="JUSTIFY">(4)     Liens of warehousemen, mechanics, materialmen, workers, repairmen,
common carriers, landlords and other similar Liens arising by operation
of law or otherwise, not waived in connection herewith, for amounts
that are not yet due and payable or being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted if
an adequate reserve or other appropriate provisions shall have been
made therefor as required to be in conformity with GAAP and an adverse
determination in such proceedings could not reasonably be expected to
have a Material Adverse Effect;
<P ALIGN="JUSTIFY">(5)     attachment or judgment Liens individually or in the aggregate not in
excess of $50,000 (exclusive of (A) any amounts that are duly bonded to
the satisfaction of IBM Credit or (B) any amount fully covered by
insurance as to which the insurance company has acknowledged its
obligation to pay such judgment in full);
<P ALIGN="JUSTIFY">(6)     easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate,
are not substantial in amount and which do not materially detract from
the value of the property subject thereto or materially interfere with
the ordinary conduct of the business of Customer,
<P ALIGN="JUSTIFY">(7)     extensions and renewals of the foregoing Permitted Liens; provided that
(A) the aggregate amount of such extended or renewed Liens do not
exceed the original principal amount of the Indebtedness which it
secures, (B) such Liens do not extend to any property other than
property already previously subject to the Lien and (C) such extended
or renewed Liens are on terms and conditions no more restrictive than
the terms and conditions of the Liens being extended or renewed;
<P ALIGN="JUSTIFY">(8)     Liens arising from deposits or pledges to secure bids, tenders,
contracts, leases, surety and appeal bonds and other obligations of
like nature arising in the ordinary course of the Customer's business;
<P ALIGN="JUSTIFY">(9)     Liens for taxes, assessments or governmental charges not delinquent or
being contested, in good faith, by appropriate proceedings promptly
instituted and diligently conducted if an adequate reserve or other
appropriate provisions shall have been made therefor as required in
order to be in conformity with GAAP and an adverse determination in
such proceedings could not reasonably be expected to have a Material
Adverse Effect;
<P ALIGN="JUSTIFY">(10)    Liens arising out of deposits in connection with workers' compensation,
unemployment insurance or other social security or similar legislation;
<P ALIGN="JUSTIFY">(11)    Liens arising pursuant to this Agreement; and
<P ALIGN="JUSTIFY">(12)    other Liens consented to by IBM Credit in writing prior to incurring
such Lien.
<P ALIGN="JUSTIFY">"Person":  any individual, association, firm, corporation, partnership,
trust, unincorporated organization or other entity whatsoever,
<P ALIGN="JUSTIFY">"Plans":  as defined in Section 8.12.
<P ALIGN="JUSTIFY">"Policies":  all policies of insurance required to be maintained by Customer
under this Agreement or any of the Other Documents.
<P ALIGN="JUSTIFY">"Prime Rate":  as of the date of determination, the average of the rates of
interest announced by Citibank, N.A., Chase Manhattan Bank and Bank of
America National Trust 8 Savings Association (or any other bank which IBM
Credit uses in its normal course of business of determining Prime Rate) as
their prime or base rate, as of the last Business Day of the calendar month
immediately preceding the date of determination, whether or not such
announced rates are the actual rates charged by such banking institutions to
their most creditworthy borrowers.
<P ALIGN="JUSTIFY">"Products":  as defined in the recitals of this Agreement.
<P ALIGN="JUSTIFY">"Product Advance":  any advance of funds made or committed to be made by IBM
Credit for the account of Customer to an Authorized Supplier in respect of an
invoice delivered or to be delivered by such Authorized Supplier to IBM
Credit describing Products purchased by Customer.
<P ALIGN="JUSTIFY">"Product Financing Charge":  as specified in a billing statement.
<P ALIGN="JUSTIFY">"Product Financing Period":  for each Product Advance, equal to the Free
Financing Period for such Product Advance or if there is no Free Financing
Period, such period as IBM Credit may determine from time to time.
<P ALIGN="JUSTIFY">"Purchase Money Indebtedness":  any Indebtedness (including capital leases)
incurred to finance the acquisition of assets (other than assets manufactured
or distributed by or bearing any trademark or trade name of any Authorized
Supplier) to be used in the Customer's business not to exceed the lesser of
(1) the purchase price or acquisition cost of such asset and (2) the fair
market value of such asset.
<P ALIGN="JUSTIFY">"Purchase Money Security Interest": any security interest securing Purchase
Money Indebtedness, which security interest applies solely to the particular
asset acquired with the Purchase Money Indebtedness.
<P ALIGN="JUSTIFY">"Requirement of Law":  as to any Person, the articles of incorporation and
by-laws of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other governmental authority, in
each case applicable to or binding upon such Person or any of its property or
to which such Person or any of its property is subject.
<P ALIGN="JUSTIFY">"Shortfall Amount":  as defined in Section 2.5.
<P ALIGN="JUSTIFY">"Shortfall Transaction Fee":  as defined in Attachment A.
<P ALIGN="JUSTIFY">"Special Account":  as defined in Section 3.3.
<P ALIGN="JUSTIFY">"Subsidiary": with respect to any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other Persons performing
similar functions are at the time directly or indirectly owned by such
Person.
<P ALIGN="JUSTIFY">"Supplier Credits": as defined in Section 2.2.
<P ALIGN="JUSTIFY">"Termination Date": shall mean the first anniversary of the date of this
Agreement or such other date as IBM Credit and Customer may agree to from
time to time.
<P ALIGN="JUSTIFY">"Voting Stock": securities, the holders of which are ordinarily, in the
absence of contingencies, entitled to elect the corporate directors (or
persons performing similar functions).
<P ALIGN="JUSTIFY"> Other Defined Terms.  Terms not otherwise defined in this agreement which
are defined in the Uniform Commercial Code as in effect in the State of New
York (the "U.C.C.") shall have the meanings assigned to them therein.
<P ALIGN="JUSTIFY"> Attachments.  All attachments, exhibits, schedules and other addenda
hereto, including, but not limited to, Attachment A and Attachment B, are
specifically incorporated herein by reference and made a part of this
Agreement.
<p align="center"><strong>SECTION 2.  CREDIT LINE; FINANCE CHARGES; OTHER CHARGES</strong></p>
<P ALIGN="JUSTIFY"> Credit Line.  Subject to the terms and conditions set forth in this
Agreement, on and after the Closing Date to but not including the date that
is the earlier of (i) the date on which this Agreement is terminated pursuant
to Section 10.1 and (ii) the date on which IBM Credit terminates the Credit
Line pursuant to Section 9.2, 10.1 Credit agrees to extend to the Customer a
credit line ("Credit Line") in the amount set forth in Attachment A pursuant
to which IBM Credit will make to the Customer, from time to time, Advances in
an aggregate amount at any one time outstanding not to exceed the Credit
Line. Notwithstanding any other term or provision of this Agreement, IBM
Credit may, at any time and from time to time, in its sole and absolute
discretion (x) temporarily increase the amount of the Credit Line set forth
in Attachment A and decrease the amount of the Credit Line to the amount of
the Credit Line set forth in Attachment A, in each case upon written notice
to the Customer, and (y) make Advances pursuant to this Agreement upon the
request of Customer in an aggregate amount at any one time outstanding in
excess of the Credit Line.
<P ALIGN="JUSTIFY"><B> Product Advances.</B>
<P ALIGN="JUSTIFY"> Subject to the terms and conditions of this Agreement, IBM Credit shall
make Product Advances in connection with Customer's purchase of Products from
Authorized Suppliers upon at least a two-day prior written notice from
Authorized Suppliers. Customer hereby authorizes and directs IBM Credit to
pay the proceeds of Product Advances directly to the applicable Authorized
Supplier in respect of invoices delivered to IBM Credit for such Products by
such Authorized Supplier and acknowledges that (i) any delivery to IBM Credit
of an invoice by an Authorized Supplier shall be deemed as a request for a
Product Advance by Customer, and (ii) each such Product Advance constitutes a
loan by IBM Credit to Customer pursuant to this Agreement as if the Customer
received the proceeds of the Product Advance directly from IBM Credit. IBM
Credit may, upon written notice to Customer, cease to Include a supplier as
an Authorized Supplier.
<P ALIGN="JUSTIFY"> No finance charge shall accrue on any Product Advance during the Free
Financing Period, if any, applicable to such Product Advance. Each Product
Advance shall be due and payable on the Common Due Date for such Product
Advance. Each Product Advance shall accrue a finance charge on the Average
Daily Balance thereof from and including the first (1st) day following the
end of the Free Financing Period, if any, for such Product Advance, or if no
such Free Financing Period shall be in effect, from and including the date of
invoice for such Product Advance, in each case, to and including the date
such Product Advance shall become due arid payable in accordance with the
terms of this Agreement. In addition, for any Product Advance with respect to
which a Free Financing Period shall not be in effect, Customer shall pay a
Free Financing Period Exclusion Fee. Such fee shall be due and payable on the
Common Due Date for such Product Advance. If it is determined that amounts
received from Customer were in excess of the highest rate permitted by law,
then the amount representing such excess shall be considered reductions to
principal of Advances.
<P ALIGN="JUSTIFY"> Customer acknowledges that IBM Credit does not warrant the Products.
Customer shall be obligated to pay IBM Credit in full even if the Products
are defective or fail to conform to the warranties extended by the Authorized
Supplier. The Obligations of Customer shall not be affected by any dispute
Customer may have with any manufacturer, distributor or Authorized Supplier.
Customer will not assert any claim or defense which it may have against any
manufacturer, distributor or Authorized Supplier against IBM Credit.
<P ALIGN="JUSTIFY"> Customer hereby authorizes IBM Credit to collect directly from any
Authorized Supplier any credits, rebates, bonuses or discounts owed by such
Authorized Supplier to Customer ("Supplier Credits"). Any Supplier Credits
received by IBM Credit may be applied by IBM Credit to the Outstanding
Advances. Any Supplier Credits collected by IBM Credit shall in no way reduce
Customer's debt to IBM Credit in respect of the Outstanding Advances until
such Supplier Credits are applied by IBM Credit; provided, however, that in
the event any such Supplier Credits must be returned or disgorged or are
otherwise unavailable for application, then Customer's Obligations will be
reinstated as if such Supplier Credits had never been applied.
<P ALIGN="JUSTIFY"> IBM Credit may apply any payments and Supplier Credits received by IBM
Credit to reduce finance charges first and then to principal amounts of
Advances owed by Customer. IBM Credit may apply principal payments to the
oldest (earliest) invoices (and related Product Advances) first, but, in any
case, all principal payments will be applied in respect of the Outstanding
Product Advances made for Products which have been sold, lost, stolen,
destroyed, damaged or otherwise disposed of prior to any other application
thereof.
<P ALIGN="JUSTIFY"> Customer will indemnify and hold IBM Credit harmless from and against any
claims or demands asserted by any Person relating to or arising from the
Products for any reason whatsoever, including, without limitation, the
condition of the Products, any misrepresentation made about the Products by
any representative of Customer, or any act or failure to act by Customer
except to the extent such claims or demands are directly attributable to IBM
Credit's gross negligence or willful misconduct. Nothing contained in the
foregoing shall impair any rights or claims which the Customer may have
against any manufacturer, distributor or Authorized Supplier.
<P ALIGN="JUSTIFY"><B> Finance and Other Charges. </B>
<P ALIGN="JUSTIFY"> Finance charges for an Advance for a calendar month shall be equal to (i)
one twelfth (1/12) of the applicable Product Financing Charge multiplied by
(ii) the Average Daily Balance of such Advance for the period when such
finance charge accrues during such calendar month multiplied by (iii) the
actual number of days during such calendar month when such finance charge
accrues divided by (iv) thirty (30).
<P ALIGN="JUSTIFY">Late charges pursuant to subsection (D) of this Section 2.3 for an Advance
for a calendar month shall be equal to (i) one twelfth (1/12) of the
Delinquency Fee Rate multiplied by (ii) the Average Daily Balance of such
Advance for the period when such Advance is past due during such calendar
month multiplied by (iii) the actual number of days during such calendar
month when such Advance is past due divided by (iv) thirty (30).
<P ALIGN="JUSTIFY"> The Customer hereby agrees to pay to IBM Credit the charges set forth as
"Other Charges" in Attachment A.  The Customer also agrees to pay IBM Credit
additional charges for any returned items of payment received by IBM Credit.
The Customer hereby acknowledges that any such charges are not interest but
that such charges, if unpaid, will constitute part of the Outstanding Product
Advances.
<P ALIGN="JUSTIFY"> The finance charges and Other Charges owed under this Agreement, and any
charges hereafter agreed to in writing by the parties, are payable monthly on
receipt of IBM Credit's bill or statement therefor or IBM Credit may, in its
sole discretion, add unpaid finance charges and Other Charges to the
Customer's Outstanding Product Advances.
<P ALIGN="JUSTIFY"> If any amount owed under this Agreement, including, without limitation,
any Advance, is not paid within two (2) Business Days of the date of
determination (whether at maturity, by acceleration or otherwise), the unpaid
amount thereof will bear a late charge from and including the day after it
was due and payable to and including the date IBM Credit receives payment
thereof, at a per annum rate equal to the lesser of (a) the amount set forth
in Attachment A to this Agreement as the "Delinquency Fee Rate" and (b) the
highest rate from time to time permitted by applicable law. In addition, if
any Shortfall Amount shall not be paid when due pursuant to Section 2.5
hereof, Customer shall pay IBM Credit a Shortfall Transaction Fee. If it is
determined that amounts received from Customer were in excess of such highest
rate, then the amount representing such excess, shall be considered
reductions to principal of Advances.
<P ALIGN="JUSTIFY"> Customer Account Statements.  IBM Credit will send statements of each
transaction hereunder as well as monthly billing statements to Customer with
respect to Advances and other charges due on Customer's account with IBM
Credit. Each statement of transaction and monthly billing statement shall be
deemed, absent manifest error, to be correct and shall constitute an account
stated with respect to each transaction or amount described therein unless
within seven (7) Business Days after such statement of transaction or billing
statement is received by Customer, Customer provides IBM Credit written
notice objecting that such amount or transaction is incorrectly described
therein and specifying the error(s), if any, contained therein. IBM Credit
may at any time adjust such statements of transaction or billing statements
to comply with applicable law and this Agreement.
<P ALIGN="JUSTIFY"> Shortfall.  If on any date the Outstanding Advances owed by Customer to
IBM Credit exceeds the Maximum Advance Amount (such excess, the "Shortfall
Amount"), Customer shall immediately pay to IBM Credit within two (2)
Business Days an amount equal to such Shortfall Amount provided, however,
payment by Customer to IBM Credit of such Shortfall Amount is accompanied by
a current Collateral Management Report.
<P ALIGN="JUSTIFY"> Application of Payments.  The Customer hereby agrees that all checks and
other instruments delivered to IBM Credit on account of Customers Obligations
shall constitute conditional payment until such items are actually collected
by IBM Credit. The Customer waives the right to direct the application of any
and all payments at any time or times hereafter received by IBM Credit on
account of the Customer's Obligations. Customer agrees that IBM Credit shall
have the continuing exclusive right to apply and reapply any and all such
payments to Customer's Obligations in such manner as IBM Credit may deem
advisable notwithstanding any entry by IBM Credit upon any of its books and
records.
<P ALIGN="JUSTIFY"> Prepayment and Reborrowing By Customer.  (A)  Customer may at any time
prepay, without notice or penalty, in whole or in part amounts owed under
this Agreement.  IBM Credit may apply payments made to it (whether by the
Customer or otherwise) to pay finance charges and other amounts owing under
this Agreement first and then to the principal amount owed by the Customer.
<P ALIGN="JUSTIFY">        (B)     Subject to the terms and conditions of this Agreement, any amount
prepaid or repaid to IBM Credit in respect to the Outstanding Advances may be
reborrowed by Customer in accordance with the provisions of this Agreement.
<p align="center"><strong>SECTION 3.  CREDIT LINE ADDITIONAL PROVISIONS</strong></p>
<P ALIGN="JUSTIFY"> Ineligible Accounts.  IBM Credit and Customer agree that IBM Credit shall
have the sole right to determine eligibility of Accounts from an Account
debtor for purposes of determining the Borrowing Base; however, without
limiting such right, the following Accounts will be deemed to be ineligible
for purposes of determining the Borrowing Base:
<P ALIGN="JUSTIFY"> Accounts created from the sale of goods and/or performance of services on
non-standard terms or that allow for payment to be made more than thirty (30)
days from the date of such sale or performance of services;
<P ALIGN="JUSTIFY"> Accounts unpaid more than ninety (90) days from date of invoice;
<P ALIGN="JUSTIFY"> Accounts payable by an account debtor if fifty percent (50%) or more of
the aggregate outstanding balance of all such Accounts remain unpaid for more
than ninety (90) days from the date of invoice;
<P ALIGN="JUSTIFY"> Accounts payable by an account debtor that is an Affiliate of Customer, or
an officer, employee, agent, guarantor or stockholder of Customer or
Affiliate of Customer, or is related to or has common shareholders, officers
or directors with Customer,
<P ALIGN="JUSTIFY"> Accounts arising from consignment sales;
<P ALIGN="JUSTIFY"> Except for state, local and United States government institutions and
public educational institutions, Accounts with respect to which the payment
by the Account debtor is or may be conditional;
<P ALIGN="JUSTIFY"> Except for state, local and United States government institutions and
public educational institutions, Accounts with respect to which:
<DIR>


<P ALIGN="JUSTIFY"> the Account debtor is not a commercial entity, or
<P ALIGN="JUSTIFY"> the Account debtor is not a resident of the United States;

</DIR>
<P ALIGN="JUSTIFY"> Accounts payable by any Account debtor to which Customer is or may become
liable for goods sold or services rendered by such account debtor to
Customer,
<P ALIGN="JUSTIFY"> Accounts arising from the sale or lease of goods purchased for a personal,
family or household purpose;
<P ALIGN="JUSTIFY"> Accounts arising from the sale or other disposition of goods that have
been used for demonstration purposes or loaned or leased by the Customer to
another party;
<P ALIGN="JUSTIFY"> Accounts which are progress payment accounts or contra accounts;
<P ALIGN="JUSTIFY"> Accounts upon which IBM Credit does not have a valid, perfected, first
priority security interest;
<P ALIGN="JUSTIFY"> Accounts payable by an Account debtor that is or Customer knows will
become, subject to proceedings under United States Bankruptcy Law or other
law for the relief of debtors;
<P ALIGN="JUSTIFY"> Accounts that are not payable in US dollars;
<P ALIGN="JUSTIFY"> Accounts payable by any Account debtor that is a remarketer of computer
hardware and software products and whose purchases of such products from
Customer have been financed by another person, other than IBM Credit, who
pays the proceeds of such financing directly to Customer on behalf of such
debtor ("Third Party Financer") unless (i) such Third Party Financer does not
have a separate financing relationship with Customer or (ii) such Third Party
Financer has a separate financing relationship with Customer and has waived
its right to set off its obligations to Customer
<P ALIGN="JUSTIFY"> Accounts arising from the sale or lease of goods which are billed to any
Account debtor but have not yet been shipped by Customer;
<P ALIGN="JUSTIFY"> Accounts with respect to which Customer has permitted or agreed to any
extension, compromise or settlement, or made any change or modification of
any kind or nature, including, but not limited to, any change or modification
to the terms relating thereto;
<P ALIGN="JUSTIFY"> Accounts that do not arise from undisputed bonafide transactions completed
in accordance with the terms and conditions contained in the invoices,
purchase orders and contracts relating thereto;
<P ALIGN="JUSTIFY"> Accounts that are discounted for the full payment term specified in
Customer's terms and conditions with its Account debtors, or for any longer
period of time;
<P ALIGN="JUSTIFY"> Accounts on cash on delivery (C.O.D.) terms;
<P ALIGN="JUSTIFY"> Accounts arising from maintenance or service contracts that are billed in
advance of full performance of service;
<P ALIGN="JUSTIFY"> Accounts arising from bartered transactions;
<P ALIGN="JUSTIFY"> Accounts arising from Incentive payments, rebates, discounts, credits, and
refunds from a supplier unless (y) each incentive payment, rebate, discount,
credit, and refund is (i) verifiable with Authorized Supplier, (ii) payable
in cash, and (iii) deposited directly or indirectly into the Lockbox and (y)
Authorized Supplier waives its right to setoff such amounts owed to Customer
with any amount Customer may owe to the Authorized Supplier; and
<P ALIGN="JUSTIFY"> Any and all other Accounts that IBM Credit deems, in its sole and absolute
discretion, to be ineligible.
<P ALIGN="JUSTIFY">The aggregate of all Accounts that are not ineligible Accounts shall
hereinafter be referred to as "Eligible Accounts".
<P ALIGN="JUSTIFY"> Reimbursement for Charges.  Customer agrees to pay for all costs and
expenses of Customer's bank in respect to collection of checks and other
items of payment, all fees relating to the use and maintenance of the Lockbox
and the Special Account and with respect to remittances of proceeds of the
Advances hereunder.
<P ALIGN="JUSTIFY"> Lockbox and Special Account.  Customer shall establish and maintain
lockbox(es) (each, a "Lockbox") at the address(es) set forth in Attachment A
with the financial institution(s) listed in Attachment A (each, a "Bank")
pursuant to an agreement between the Customer and each Bank in form and
substance satisfactory to IBM Credit. Customer shall also establish and
maintain a deposit account which shall contain only proceeds of Customer's
Accounts ("Special Account") with each Bank. Customer shall enter into and
maintain a contingent blocked account agreement with each Bank for the
benefit of IBM Credit in form and substance satisfactory to IBM Credit
pursuant to which, among other things, such Bank shall agree that, upon an
Event of Default, IBM Credit may provide notice to Bank that disbursements
from the Special Account shall be made only as IBM Credit shall direct.
However, upon the cure of such Event of Default, IBM Credit shall not be
required to return the control of the Special Account to the Customer.
<P ALIGN="JUSTIFY"> Collections.  Customer shall instruct all Account debtors to remit
payments directly to a Lockbox. In addition, Customer shall have such
instruction printed in conspicuous type on all invoices.  Customer shall
instruct such Bank to deposit all remittances to such Bank's Lockbox into its
Special Account. Customer further agrees that it shall not deposit or permit
any deposits of funds other than remittances paid in respect of the Accounts
into the Special Account(s) or permit any commingling of funds with such
remittances in any Lockbox or Special Account.
<P ALIGN="JUSTIFY">Without limiting the Customer's foregoing obligations, if, at any time,
Customer receives a remittance directly from an Account debtor, then Customer
shall make entries on its books and records in a manner that shall reasonably
identify such remittances and shall keep a separate account on its record
books of all remittances so received and deposit the same into a Special
Account. Until so deposited into the Special Account, Customer shall keep all
remittances received in respect of Accounts separate and apart from
customer's other property so that they are capable of identification as the
proceeds of Accounts in which IBM Credit has a security interest.
<P ALIGN="JUSTIFY"> Application of Remittances and Credits.  Customer shall apply all
remittances against the aggregate of Customer's outstanding Accounts no later
than the end of the Business Day on which such remittances are deposited Into
the Special Account. Customer also agrees to apply each remittance against
its respective Account no later than three (3) Business Days from the date
such remittance is deposited into the Special Account.  In addition, Customer
shall promptly apply any credits owing in respect to any Account when due.
<P ALIGN="JUSTIFY"> Power of Attorney.  Customer hereby irrevocably appoints IBM Credit, with
full power of substitution, as its true and lawful attorney-in-fact with full
power, in good faith and in compliance with commercially reasonable
standards, in the discretion of IBM Credit, to:
<P ALIGN="JUSTIFY"> sign the name of Customer on any document or instrument that IBM Credit
shall deem necessary or appropriate to perfect and maintain perfected the
security interest in the Collateral contemplated under this Agreement and the
Other Documents;
<P ALIGN="JUSTIFY"> endorse the name of Customer upon any of the items of payment of proceeds
and deposit the same in the account of IBM Credit for application to the
Obligations; and
<P ALIGN="JUSTIFY">upon the occurrence and during the continuance of an Event of Default as
defined in Section 9.1 hereof:
<P ALIGN="JUSTIFY"> demand payment, enforce payment and otherwise exercise all Customer's
rights and remedies with respect to the collection of any Accounts;
<P ALIGN="JUSTIFY"> settle, adjust, compromise, extend or renew any Accounts;
<P ALIGN="JUSTIFY"> settle, adjust or compromise any legal proceedings brought to collect
any Accounts;
<P ALIGN="JUSTIFY"> sell or assign any Accounts upon such terms, for such amounts and at such
time or times as IBM Credit may deem advisable;
<P ALIGN="JUSTIFY"> discharge and release any Accounts;
<P ALIGN="JUSTIFY"> prepare, file and sign Customer's name on any Proof of Claim in Bankruptcy
or similar document against any Account debtor;
<P ALIGN="JUSTIFY"> prepare, file and sign Customers name on any notice of lien, claim of
mechanic's lien, assignment or satisfaction of lien or mechanic's lien, or
<P ALIGN="JUSTIFY">similar document in connection with any Accounts;
<P ALIGN="JUSTIFY"> endorse the name of Customer upon any chattel paper, document, instrument,
invoice, freight bill, bill of lading or similar document or agreement
relating to any Account or goods pertaining thereto;
<P ALIGN="JUSTIFY"> endorse the name of Customer upon any of the items of payment of proceeds
and deposit the same in the account of IBM Credit for application to the
Obligation;
<P ALIGN="JUSTIFY"> sign the name of Customer to requests for verification of Accounts and
notices thereof to Account debtors;
<P ALIGN="JUSTIFY"> sign the name of Customer on any document or instrument that IBM Credit
shall deem necessary or appropriate to enforce any and all remedies it may
have under this Agreement, at law or otherwise;
<P ALIGN="JUSTIFY"> make, settle and adjust claims under the Policies with respect to the
Collateral and endorse Customer's name on any check, draft, instrument or
other item of payment of the proceeds of the Policies with respect to the
Collateral; and
<P ALIGN="JUSTIFY"> take control in any manner of any term of payment or proceeds and for such
purpose to notify the postal authorities to change the address for delivery
of mail addressed to Customer to such address as IBM Credit may designate.
<P ALIGN="JUSTIFY">The power of attorney granted by this Section is for value and coupled with
an interest and is irrevocable so long as this Agreement is in effect or any
Obligations remain outstanding.  Nothing done by IBM Credit pursuant to such
power of attorney will reduce any of Customer's Obligations other than
Customer's payment Obligations to the extent IBM Credit has received monies.

<p align="center"><strong>SECTION 4.  SECURITY -- COLLATERAL</strong></p>
<P ALIGN="JUSTIFY">Grant.  To secure Customer's full and punctual payment and performance of
the Obligations (including obligations under any leases Customer may enter
into, now or in the future, with IBM Credit) when due (whether at the stated
maturity, by acceleration or otherwise), Customer hereby grants IBM Credit a
security interest in all of Customers right, title and interest in and to the
following property, whether now owned or hereafter acquired or existing and
wherever located:
<P ALIGN="JUSTIFY"> all inventory and equipment and all parts thereof, attachments,
accessories and accessions thereto, products thereof and documents therefor;
<P ALIGN="JUSTIFY"> all accounts, contract rights, chattel paper, instruments, deposit
accounts, obligations of any kind owing to Customer, whether or not arising
out of or in connection with the sale or lease of goods or the rendering of
services and all books, invoices, documents and other records in any form
evidencing or relating to any of the foregoing;
<P ALIGN="JUSTIFY"> general intangibles;
<P ALIGN="JUSTIFY"> all rights now or hereafter existing in and to all mortgages, security
agreements, leases or other contracts securing or otherwise relating to any
of the foregoing; and
<P ALIGN="JUSTIFY"> all substitutions and replacements for all of the foregoing, all proceeds
of all of the foregoing and, to the extent not otherwise included, all
payments under insurance or any indemnity, warranty or guaranty, payable by
reason of loss or damage to or otherwise with respect to any of the
foregoing.
<P ALIGN="JUSTIFY">All of the above assets shall be collectively defined herein as the
"Collateral", provided, however, that Collateral shall not include leasehold
interests as a lessee, sub-lessee or sub-lessor with regard to real property
leases and provided further that Collateral shall not include leasehold
interests as a lessee under equipment leases.  Customer covenants and agrees
with IBM Credit that:  (a) the security constituted to by this Agreement is
in addition to any other security from time to time held by IBM Credit and
(b) the security hereby created is a continuing security interest and will
cover and secure the payment of all Obligations both present and future of
Customer to IBM Credit.
<P ALIGN="JUSTIFY"> Further Assurances.  Customer shall, from time to time upon the request of
IBM Credit, execute and deliver to IBM Credit, or cause to be executed and
delivered, at such time or times as IBM Credit may request such other and
further documents, certificates and instruments that IBM Credit may deem
necessary to perfect and maintain perfected IBM Credit's security interests
in the Collateral and in order to fully consummate all of the transactions
contemplated under this Agreement and the Other Documents.  Customer shall
make appropriate entries on its books and records disclosing IBM Credits
security interests in the Collateral.
<p align="center"><strong>SECTION 5.  CONDITIONS PRECEDENT</strong></p>
<P ALIGN="JUSTIFY"> Conditions Precedent to the Effectiveness of this Agreement.  The
effectiveness of this Agreement is subject to the receipt by IBM Credit of,
or waiver in writing by IBM Credit of compliance with, the following
conditions precedent;
<P ALIGN="JUSTIFY"> this Agreement executed and delivered by Customer and IBM Credit;
<P ALIGN="JUSTIFY"> a favorable opinion of counsel for Customer in substantially the form of
Attachment H;
<P ALIGN="JUSTIFY"> a certificate of the secretary or an assistant secretary of Customer,
substantially in the form and substance of Attachment I hereto, certifying
that, among other items, (i) Customer is duly organized under the laws of the
State of its organization or incorporation and has its principal place of
business as stated therein, (ii) Customer is registered to conduct business
in specified states and localities, (iii) true and complete copies of the
articles of incorporation, or corresponding organizational documents, as
applicable, and by-laws of Customer are delivered therewith, together with
all amendments and addenda thereto as in effect on the date thereof, (iv) the
resolution as stated in the certificate is a true, accurate and compared copy
of the resolution adopted by the Customer's Board of Directors or, if
Customer is a limited liability company, by Customer's authorized members,
authorizing the execution, delivery and performance of this Agreement and
each Other Document executed and delivered in connection herewith, and (v)
the names and true signatures of the officers of Customer authorized to sign
this Agreement and the Other Documents;
<P ALIGN="JUSTIFY"> certificates dated as of a recent date from the Secretary of State or
other appropriate authority evidencing the good standing of Customer in the
jurisdiction of its organization and in each other jurisdiction where the
ownership or lease of its property or the conduct of its business requires it
to qualify to do business;
<P ALIGN="JUSTIFY"> copies of all approvals and consents from any Person in each case in form
and substance satisfactory to IBM Credit, which are required to enable
Customer to authorize, or required in connection with, (a) the execution,
delivery or performance of this Agreement and each of the Other Documents,
and (b) the legality, validity, binding effect or enforceability of this
Agreement and each of the Other Documents;
<P ALIGN="JUSTIFY"> a lockbox agreement executed by Customer and each Bank, in form and
substance satisfactory to IBM Credit;
<P ALIGN="JUSTIFY"> a contingent blocked account agreement executed by Customer and each Bank
in form and substance satisfactory to IBM Credit;
<P ALIGN="JUSTIFY"> intercreditor agreements ("Intercreditor Agreement"), in form and
substance satisfactory to IBM Credit, executed by each other secured creditor
of Customer as set forth in Attachment A;
<P ALIGN="JUSTIFY"> UCC-1 financing statements for each jurisdiction reasonably requested by
IBM Credit executed by Customer and each guarantor whose guaranty to IBM
Credit is intended to be secured by a pledge of its assets;
<P ALIGN="JUSTIFY"> the statements, certificates, documents, instruments, financing
statements, agreements and information set forth in Attachment A and
Attachment B; and
<P ALIGN="JUSTIFY"> all such other statements, certificates, documents, instruments, financing
statements, agreements and other information with respect to the matters
contemplated by this Agreement as IBM Credit shall have reasonably requested.
<P ALIGN="JUSTIFY"> Conditions Precedent to Each Advance.  No Advance will be required to be
made or renewed by IBM Credit under this Agreement unless, on and as of the
date of such Advance, the following statements shall be true to the
satisfaction of IBM Credit:
<P ALIGN="JUSTIFY"> The representations and warranties contained in this Agreement or in any
document, instrument or agreement executed in connection herewith are true
and correct in all material respects on and as of the date of such Advance as
though made on and as of such date;
<P ALIGN="JUSTIFY"> No event has occurred and is continuing or after giving effect to such
Advance or the application of the proceeds thereof would result in or would
constitute a Default;
<P ALIGN="JUSTIFY"> No event has occurred and is continuing which could reasonably be expected
to have a Material Adverse Effect; and
<P ALIGN="JUSTIFY"> Both before and after giving effect to the making of such Advance, no
Shortfall Amount exists.
<P ALIGN="JUSTIFY">Except as Customer has otherwise disclosed to IBM Credit in writing prior to
each request, each request (or deemed request pursuant to Section 2.2(A)) for
an Advance hereunder shall be deemed to be a representation and warranty by
Customer that, as of and on the date of such Advance, the statements set
forth in (A) through (D) above are true statements.  No such disclosures by
Customer to IBM Credit shall in any manner be deemed to satisfy the
conditions precedent to each Advance that are set forth in this Section 5.2.

<p align="center"><strong>SECTION 6.  REPRESENTATIONS AND WARRANTIES</strong></p>
<P ALIGN="JUSTIFY">To induce IBM Credit to enter into this Agreement, Customer represents and
warrants to IBM Credit as follows:
<P ALIGN="JUSTIFY"> Organization and Qualifications.  Customer and each of its Subsidiaries
(i) is duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization, (ii) has the power and authority to
own its properties and assets and to transact the businesses in which it
presently is engaged and (iii) is duly qualified and is authorized to do
business and is in good standing in each jurisdiction where it presently is
engaged in business and is required to be so qualified. As of the Closing
Date, Egghead.com Advertising, Inc., EO Corporation, Surplus Software, Inc.,
EH Direct, Inc., MPI Corp., and D.J. & J. Software Corp. are dormant
companies that own no assets.
<P ALIGN="JUSTIFY"> Rights in Collateral; Priority of Liens.  Customer and each of its
Subsidiaries owns the property granted by it respectively as Collateral to
IBM Credit, free and clear of any and all Liens in favor of third parties
except for the Liens otherwise permitted pursuant to Section 8.1.  The Liens
granted by the Customer and each of its Subsidiaries pursuant to this
Agreement, the Guaranties and the Other Documents in the Collateral
constitute the valid and enforceable first, prior and perfected Liens on the
Collateral, except to the extent any Liens that are prior to IBM Credit's
Liens are (i) the subject of an Intercreditor Agreement or (ii) Purchase
Money Security Interests in product of a brand that is not financed by IBM
Credit.
<P ALIGN="JUSTIFY"> No Conflicts.  The execution, delivery and send performance by Customer of
this Agreement and each of the Other Documents (i) are within its corporate
or limited liability company power, (ii) are duly authorized by all necessary
corporate or limited liability company actions; (iii) are not in
contravention in any respect of any Requirement of Law or any indenture,
contract, lease, agreement, instrument or other commitment to which it is a
party or by which it or any of its properties are bound; (iv) do not require
the consent, registration or approval of any Governmental Authority or any
other Person (except such as have been duly obtained, made or given, and are
in full force and effect); and (v) will not, except as contemplated herein,
result in the imposition of any Liens upon any of its properties.
<P ALIGN="JUSTIFY"> Enforceability.  This Agreement and all of the other documents executed
and delivered by the Customer in connection herewith are the legal, valid and
binding obligations of Customer, and are enforceable in accordance with their
terms, except as such enforceability may be limited by the effect of any
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar laws affecting creditors' rights generally or the
general equitable principles relating thereto.
<P ALIGN="JUSTIFY"> Locations of Offices, Records and Inventory.  The address of the principal
place of business and chief executive office of Customer is as set forth on
Attachment B or on any notice provided by Customer to IBM Credit pursuant to
Section 7.7(C) of this Agreement.  The books and records of Customer are
maintained exclusively at such location.
<P ALIGN="JUSTIFY">There is no jurisdiction in which Customer has any assets, equipment or
inventory (except for vehicles and inventory in transit for processing) other
than those jurisdictions identified on Attachment B or on any notice provided
by Customer to IBM Credit pursuant to Section 7.7(C) of this Agreement.
Attachment B, as amended from time to time by any notice provided by Customer
to IBM Credit in accordance with Section 7.7(C) of this Agreement, also
contains a complete list of the legal names and addresses of each warehouse
at which the Customer's inventory is stored.  None of the receipts received
by Customer from any warehouseman states that the goods covered thereby are
to be delivered to bearer or to the order of a named person or to a named
person and such named person's assigns.
<P ALIGN="JUSTIFY"> Fictitious Business Names.  Customer has not used any company or
fictitious name during the five (5) years preceding the date of this
Agreement, other than those listed on Attachment B.
<P ALIGN="JUSTIFY"> Organization.  If Customer is a corporation, all of the outstanding
capital stock of Customer has been validly issued, is fully paid and
nonassessable.
<P ALIGN="JUSTIFY"> No Judgments or Litigation.  Except as set forth on Attachment B, no
judgments, orders, writs or decrees are outstanding against Customer in
excess of $100,000 nor is there now pending or, to the best of Customers
knowledge after due inquiry, threatened, any litigation, contested claim,
investigation, arbitration, or governmental proceeding by or against Customer
which has had or could reasonably be expected to have a Material Adverse
Effect.
<P ALIGN="JUSTIFY"> No Defaults.  The Customer is not in default under any term of any
indenture, contract, lease, agreement, instrument or other commitment to
which it is a party or by which it, or any of its properties are bound.
Customer has no knowledge of any dispute regarding any such indenture,
contract, lease, agreement, instrument or other commitment.  No Default or
Event of Default has occurred and is continuing.
<P ALIGN="JUSTIFY"> Labor Matters.  Except as set forth on any notice provided by Customer to
IBM Credit pursuant to Section 7.1(H) of this Agreement, the Customer is not
a party to any labor dispute.  There are no strikes or walkouts or labor
controversies pending or threatened against the Customer which could
reasonably be expected to have a Material Adverse Effect.
<P ALIGN="JUSTIFY"> Compliance with Law.  Customer has not violated or failed to comply with
any Requirement of Law or any requirement of any self regulatory
organization.
<P ALIGN="JUSTIFY"> ERISA.  Each "employee benefit plan", "employee pension benefit plan",
"defined benefit plan", or "multi-employer benefit plan", which Customer has
established, maintained, or to which it is required to contribute
(collectively, the "Plans") is in compliance with all applicable provisions
of ERISA and the Code and the rules and regulations thereunder as well as the
Plan's terms and conditions.  There have been no "prohibited transactions"
and no "reportable event" has occurred within the last 60 months with respect
to any Plan.  Customer has no "multi-employer benefit plan".  As used in this
Agreement the terms "employee benefit plan", "employee pension benefit plan",
"defined benefit plan", and "multi-employer benefit plan" have the respective
meanings assigned to them in Section 3 of ERISA and any applicable rules and
regulations thereunder.  The Customer has not incurred any "accumulated
funding deficiency" within the meaning of ERISA or incurred any liability to
the Pension Benefit Guaranty Corporation (the "PBGC") in connection with a
Plan (other than for premiums due in the ordinary course).
<P ALIGN="JUSTIFY"> Compliance with Environmental Laws.  Except as otherwise disclosed in
Attachment B:
<P ALIGN="JUSTIFY"> The Customer has obtained all government approvals required with respect
to the operation of their businesses under any Environmental Law.
<P ALIGN="JUSTIFY"> (i) the Customer has not generated, transported or disposed of any
Hazardous Substances; (ii) the Customer is not currently generating,
transporting or disposing of any Hazardous Substances; (iii) the Customer has
no knowledge that (a) any of its real property (whether owned, leased, or
otherwise directly or indirectly controlled) has been used for the disposal
of or has been contaminated by any Hazardous Substances, or (b) any of its
business operations have contaminated lands or waters of others with any
Hazardous Substances; (iv) the Customer and its respective assets are not
subject to any Environmental Liability and, to the best of the Customer's
knowledge, any threatened Environmental Liability; (v) the Customer has not
received any notice of or otherwise learned of any governmental investigation
evaluating whether any remedial action is necessary to respond to a release
or threatened release of any Hazardous Substance for which the Customer may
be liable; (vi) the Customer is not in violation of any Environmental Law,
(vii) there are no proceedings or investigations pending against Customer
with respect to any violation or alleged violation of any Environmental Law;
provided however, that the parties acknowledge that any generation,
transportation, use, storage and disposal of certain such Hazardous
Substances in Customer's or its Subsidiaries' business shall be excluded from
representations (i) and (ii) above, provided, further, that Customer is at
all times generating, transporting, utilizing, storing and disposing such
Hazardous Substances in accordance with all applicable Environmental Laws and
in a manner designed to minimize the risk of any spill, contamination,
release or discharge of Hazardous Substances other than as authorized by
Environmental Laws,
<P ALIGN="JUSTIFY"> Intellectual Property.  Customer possesses such assets, licenses, patents,
patent applications, copyrights, service marks, trademarks, trade names and
trade secrets and all rights and other property relating thereto or arising
therefrom ("Intellectual Property") as are necessary or advisable to continue
to conduct its present and proposed business activities.
<P ALIGN="JUSTIFY"> Licenses and Permits.  Customer has obtained and holds in full force and
effect all franchises, licenses, leases, permits, certificates,
authorizations, qualifications, easements, rights of way and other rights and
approvals which are necessary for the operation of its businesses as
presently conducted.  Customer is not in violation of the terms of any such
franchise, license, lease, permit, certificate, authorization, qualification,
easement, right of way, right or approval.
<P ALIGN="JUSTIFY"> Investment Company.  The Customer is not (i) an investment company or a
company controlled by an investment company within the meaning of the
Investment Company Act of 1940, as amended, (ii) a holding company or a
subsidiary of a holding company, or an Affiliate of a holding company or of a
subsidiary of a holding company, within the meaning of the Public Utility
Holding Company Act of 1935, as amended, or (iii) subject to any other law
which purports to regulate or restrict its ability to borrow money or to
consummate the transactions contemplated by this Agreement or the Other
Documents or to perform its obligations hereunder or thereunder.
<P ALIGN="JUSTIFY"> Taxes and Tax Returns.  Customer has timely filed all federal, state, and
local tax returns and other reports which it is required by law to file, and
has either duly paid all taxes, fees and other governmental charges indicated
to be due on the basis of such reports and returns or pursuant to any
assessment received by the Customer, or made provision for the payment
thereof in accordance with GAAP.  The charges and reserves on the books of
the Customer in respect of taxes or other governmental charges are in
accordance with GAAP.  No tax liens have been filed against Customer or any
of its property.
<P ALIGN="JUSTIFY"> Status of Accounts.  Each Account is based on an actual and bonafide sale
and delivery of goods or rendition of services to customers, made by
Customer, in the ordinary course of its business; the goods and inventory
being sold and the Accounts created are its exclusive property and are not
and shall not be subject to any Lien, consignment arrangement, encumbrance,
security interest or financing statement whatsoever (other than Permitted
Liens).  The Customer's customers have accepted goods or services and owe and
are obligated to pay the full amounts stated in the invoices according to
their terms.  There are no proceedings or actions known to Customer which are
pending or threatened against any Material Account debtor (as defined in
Section 7.14(B) of this Agreement) of any of the Accounts which could
reasonably be expected to result in a Material Adverse Effect on the debtor's
ability to pay the full amounts due to Customer.
<P ALIGN="JUSTIFY"> Affiliate/Subsidiary Transactions.  Customer is not a party to or bound by
any agreement or arrangement (whether oral or written) to which any Affiliate
or Subsidiary of the Customer is a party except (i) in the ordinary course of
and pursuant to the reasonable requirements of Customer's business and (ii)
upon fair and reasonable terms no less favorable to Customer than it could
obtain in a comparable arm's-length transaction with an unaffiliated Person.
<P ALIGN="JUSTIFY"> Accuracy and Completeness of Information.  All factual information
furnished by or on behalf of the Customer to IBM Credit or the Auditors for
purposes of or in connection with this Agreement or any of the Other
Documents, or any transaction contemplated hereby or thereby is or will be
true and accurate in all material respects on the date as of which such
information is dated or certified and not incomplete by omitting to state any
material fact necessary to make such information not misleading at such time.
<P ALIGN="JUSTIFY"> Recording Taxes.  All recording taxes, recording fees, filing fees and
other charges payable in connection with the filing and recording of this
Agreement have either been paid in full by Customer or arrangements for the
payment of such amounts by Customer have been made to the satisfaction of IBM
Credit.
<P ALIGN="JUSTIFY"> Indebtedness.  Customer (i) has no indebtedness, other than Permitted
Indebtedness; and (ii) has not guaranteed the obligations of any other Person
(except as permitted by Section 8,4).

<p align="center"><strong>SECTION 7.  AFFIRMATIVE COVENANTS</strong></p>
Until termination of this Agreement and the indefeasible payment and
satisfaction of all Obligations:
<P ALIGN="JUSTIFY"> Financial and Other Information.  Customer shall cause to be furnished to
IBM Credit the following information within the following time periods:
 as soon as available and in any event within ninety (90) days after the
end of each fiscal year of Customer the Form 10-K Annual Report filed with
the Securities and Exchange Commission for that fiscal year just ended;
<P ALIGN="JUSTIFY"> as soon as available and in any event within forty-five (45) days after
the end of each fiscal quarter of Customer the Form 10-Q Quarterly Report
filed with the Securities and Exchange Commission for that quarter just
ended;
<P ALIGN="JUSTIFY"> as soon as available and in any event within sixty (60) days after the end
of each fiscal year of Customer (i) projected Financial Statements, broken
down by quarter, for the current and following fiscal year; and (ii) if
composed, a narrative discussion relating to such projected Financial
Statements;
<P ALIGN="JUSTIFY"> as soon as available and in any event within thirty (30) days after the
end of each six-month period ending June 30, revised projected Financial
Statements, broken down by quarter, for (i) the current fiscal year from the
beginning of such six-month period to the fiscal year end and (ii) the
following fiscal year;
<P ALIGN="JUSTIFY"> promptly after Customer obtains knowledge of (i) the occurrence of a
Default or Event of Default, or (ii) the existence of any condition or event
which would result in the Customer's failure to satisfy the conditions
precedent to Advances set forth in Section 5, a certificate of the chief
executive officer or chief financial officer of Customer specifying the
nature thereof and the Customer's proposed response thereto, each in
reasonable detail;
<P ALIGN="JUSTIFY"> promptly after Customer obtains knowledge of (i) any proceeding(s) being
instituted or threatened to be instituted by or against Customer in any
federal, state, local or foreign court or before any commission or other
regulatory body (federal, state, local or foreign), or (ii) any actual or
prospective change, development or event which, in any such case, has had or
could reasonably be expected to have a Material Adverse Effect, a certificate
of the chief executive officer or chief financial officer of Customer
specifying the nature thereof and the Customer's proposed response thereto,
each in reasonable detail;
<P ALIGN="JUSTIFY"> promptly after Customer obtains knowledge that (i) any order, judgment or
decree in excess of $100,000 shall have been entered against Customer or any
of its properties or assets, or (ii) it has received any notification of a
material violation of any Requirement of Law from any Governmental Authority,
a certificate of the chief executive officer or chief financial officer of
Customer specifying the nature thereof and the Customer's proposed response
thereto, each in reasonable detail;
<P ALIGN="JUSTIFY"> promptly after Customer learns of any material labor dispute to which
Customer may become a party, any strikes or walkouts relating to any of its
plants or other facilities, and the expiration of any labor contract to which
Customer is a party or by which it is bound, a certificate of the chief
executive officer or chief financial officer of Customer specifying the
nature thereof and the Customer's proposed response thereto, each in
reasonable detail;
<P ALIGN="JUSTIFY"> within five (5) Business Days after request by IBM Credit, any written
certificates, schedules and reports together with all supporting documents as
IBM Credit may reasonably request relating to the Collateral or the
Customer's or any guarantor's business affairs and financial condition;
<P ALIGN="JUSTIFY"> by the fifth and twentieth day of each month, or as otherwise agreed in
writing, a Collateral Management Report as of a date no earlier than the last
day of the immediately preceding month and the fifteenth of each month,
respectively;
<P ALIGN="JUSTIFY"> Along with the Financial Statements set forth in Section 7.1(A) and (B),
the name, address and phone number of each of its Account debtors primary
contacts for each Account on the Accounts aging report contained in its most
recent Collateral Management Report; and
<P ALIGN="JUSTIFY"> upon the request of IBM Credit, copies of all Financial Statements and
reports which Customer sends to its stockholders, and all Financial
Statements and reports which Customer may make to, or file with, the
Securities and Exchange Commission or any successor or analogous governmental
authority.
<P ALIGN="JUSTIFY">Each certificate, schedule and report provided by Customer to IBM Credit
shall be signed by an authorized officer of Customer, which signature shall
be deemed a representation and warranty that the information contained in
such certificate, schedule or report is true and accurate in all material
respects on the date as of which such certificate, schedule or report is made
and does not omit to state a material fact necessary in order to make the
statements contained therein not misleading at such time.  Each Financial
Statement delivered pursuant to this Section 7.1 shall be prepared in
accordance with GAAP applied consistently throughout the periods reflected
therein and with prior periods.  Customer shall cause the audited Financial
Statements and accompanying documents set forth in Section 7.1(A)(i) to be
delivered directly by the Auditors to IBM Credit only via first class mail.
<P ALIGN="JUSTIFY"> Location of Collateral.  The inventory, equipment and other tangible
Collateral shall be kept or sold at the addresses as set forth on Attachment
B or on any notice provided by Customer to IBM Credit in accordance with
Section 7.7(C).  Such locations shall be certified quarterly to IBM Credit
substantially in the form of Attachment G.
<P ALIGN="JUSTIFY"> Changes in Customer.  Customer shall provide thirty (30) days prior
written notice to IBM Credit of any change in Customer's name, chief
executive office and principal place of business, organization, form of
ownership or structure; provided, however, that Customer's compliance with
this covenant shall not relieve it of any of its other obligations or any
other provisions under this Agreement or any of the Other Documents limiting
actions of the type described in this Section.
<P ALIGN="JUSTIFY"> Legal Entity Existence.  Customer shall (A) maintain its legal entity
existence, maintain in full force and effect all licenses, bonds, franchises,
leases and qualifications to do business, and all contracts and other rights
necessary to the profitable conduct of its business, (B) continue in, and
limit Its operations to, the same general lines of business as presently
conducted by it unless otherwise permitted in writing by IBM Credit and (C)
comply with all Requirements of Law.
<P ALIGN="JUSTIFY"> ERISA.  Customer shall promptly notify IBM Credit in writing after it
learns of the occurrence of any event which would constitute a "reportable
event" under ERISA or any regulations thereunder with respect to any Plan, or
that the PBGC has instituted or will institute proceedings to terminate any
Plan.  Notwithstanding the foregoing, the Customer shall have no obligation
to notify IBM Credit as to any "reportable event" as to which the 30-day
notice requirement of Section 4043(b) has been waived by the PBGC, until such
time as such Customer is required to notify the PBGC of such reportable
event.  Such notification shall include a certificate of the chief financial
officer of Customer's setting forth details as to such "reportable event" and
the action which Customer proposes to take with respect thereto, together
with a copy of any notice of such "reportable event" which may be required to
be filed with the PBGC, or any notice delivered by the PBGC evidencing its
intent to institute such proceedings.  Upon request of IBM Credit, Customer
shall furnish, or cause the plan administrator to furnish, to IBM Credit the
most recently filed annual report for each Plan.
<P ALIGN="JUSTIFY"> Environmental Matters.  (A) Customer and any other Person under Customer's
control (including, without limitation, agents and Affiliates under such
control) shall (1) comply with all Environmental Laws in all material
respects, and (ii) undertake to use commercially reasonable efforts to
prevent any unlawful release of any Hazardous Substance by Customer or such
Person into, upon, over or under any property now or hereinafter owned,
leased or otherwise controlled (directly or indirectly) by Customer.
<P ALIGN="JUSTIFY">(B)     Customer shall notify IBM Credit, promptly upon its obtaining
knowledge of (i) any non-routine proceeding or investigation by any
Governmental Authority with respect to the presence of any Hazardous
Substances on or in any property now or hereinafter owned, leased or
otherwise controlled (directly or indirectly) by Customer, (ii) all claims
made or threatened by any Person or Governmental Authority against Customer
or any of Customer's assets relating to any loss or injury resulting from any
Hazardous Substance, (iii) Customer's discovery of evidence of unlawful
disposal of or environmental contamination by any Hazardous Substance on any
property now or hereinafter owned, leased or otherwise controlled (directly
or indirectly) by Customer, and (iv) any occurrence or condition which could
constitute a violation of any Environmental Law.
<P ALIGN="JUSTIFY"> Collateral Books and Records/Collateral Audit.  (A) Customer agrees to
maintain books and records pertaining to the Collateral in such detail, form
and scope as is consistent with good business practice, and agrees that such
books and records will reflect IBM Credit's interest in the Collateral.
<P ALIGN="JUSTIFY">(B)     Customer agrees that IBM Credit or its agents may enter upon the
premises of Customer at any time and from time to time, during normal
business hours and upon reasonable notice under the circumstances, and at any
time at all on and after the occurrence and during the continuance of an
Event of Default for the purposes of (i) inspecting the Collateral,
(ii) inspecting and/or copying (at Customer's expense) any and all records
pertaining thereto, and (iii) discussing the affairs, finances and business
of Customer with any officers, employees and directors of Customer or with
the Auditors.  Customer also agrees to provide IBM Credit with such
reasonable information and documentation that IBM Credit deems necessary to
conduct the foregoing activities,
<P ALIGN="JUSTIFY">Upon the occurrence and during the continuance of an Event of Default which
has not been waived by IBM Credit in writing, IBM Credit may conduct any of
the foregoing activities in any manner that IBM Credit deems reasonably
necessary.
<P ALIGN="JUSTIFY">(C)     Customer shall give IBM Credit thirty (30) days prior written
notice of any change in the location of any Collateral, the location of its
books and records or in the location of its chief executive office or place
of business from the locations specified in Attachment B, and will execute in
advance of such change and cause to be filed and/or delivered to IBM Credit
any financing statements, landlord or other lien waivers, or other documents
reasonably required by IBM Credit, all in form and substance reasonably
satisfactory to IBM Credit.
<P ALIGN="JUSTIFY">(D)     Customer agrees to advise IBM Credit promptly, in reasonably
sufficient detail, of any substantial change relating to the type, quantity
or quality of the Collateral, or any event which could reasonably be expected
to have a Material Adverse Effect on the value of the Collateral or on the
security interests granted to IBM Credit herein.
<P ALIGN="JUSTIFY"> Insurance; Casualty Loss.  (A) Customer agrees to maintain with
financially sound and reputable insurance companies: (i) insurance on its
properties, (ii) public liability insurance against claims for personal
injury or death as a result of the use of any products sold by it and (iii)
insurance coverage against other business risks, in each case, in at least
such amounts and against at least such risks as are usually and prudently
insured against in the same general geographical area by companies of
established repute engaged in the same or a similar business.  Customer will
furnish to IBM Credit, upon its written request, the insurance certificates
with respect to such insurance.  In addition, all Policies so maintained are
to name IBM Credit as an additional insured as its interest may appear.
<P ALIGN="JUSTIFY">(B)     Without limiting the generality of the foregoing, Customer shall
keep and maintain, at its sole expense, the Collateral insured for an amount
not less than the amount set forth on Attachment A from time to time opposite
the caption "Collateral Insurance Amount" against all loss or damage under an
"all risk" Policy with companies mutually acceptable to IBM Credit and
Customer, with a lender's loss payable endorsement or mortgage clause in form
and substance reasonably satisfactory to IBM Credit designating that any loss
payable thereunder with respect to such Collateral shall be payable to IBM
Credit.  Upon receipt of proceeds by IBM Credit the same shall be applied on
account of the Customer's Outstanding Advances.  Customer agrees to instruct
each insurer to give IBM Credit, by endorsement upon the Policy issued by it
or by independent instruments furnished to IBM Credit, at least ten (10) days
written notice before any Policy shall be altered or canceled and that no act
or default of Customer or any other person shall affect the right of IBM
Credit to recover under the Policies.  Customer hereby agrees to direct all
insurers under the Policies to pay all proceeds with respect to the
Collateral directly to IBM Credit.  If Customer fails to pay any cost,
charges or premiums, or if Customer fails to insure the Collateral, IBM
Credit may pay such costs, charges or premiums.  Any amounts paid by IBM
Credit hereunder shall be considered an additional debt owed by Customer to
IBM Credit and are due and payable immediately upon receipt of an invoice by
IBM Credit.
<P ALIGN="JUSTIFY"> Taxes.  Customer agrees to pay, when due, all taxes lawfully levied or
assessed against Customer or any of the Collateral before any penalty or
interest accrues thereon unless such taxes are being contested, in good
faith, by appropriate proceedings promptly instituted and diligently
conducted and an adequate reserve or other appropriate provisions have been
made therefor as required in order to be in conformity with GAAP and an
adverse determination in such proceedings could not reasonably be expected to
have a Material Adverse Effect.
<P ALIGN="JUSTIFY"> Compliance With Laws.  Customer agrees to comply with all Requirements of
Law applicable to the Collateral or any part thereof, or to the operation of
its business.
<P ALIGN="JUSTIFY"> Fiscal Year.  Customer agrees to maintain its fiscal year as a year ending
December 31 unless Customer provides IBM Credit at least thirty (30) days
prior written notice of any change thereof.
<P ALIGN="JUSTIFY"> Intellectual Property.  Customer shall do and cause to be done all things
necessary to preserve and keep in full force and effect all registrations of
Intellectual Property which the failure to do or cause to be done could
reasonably be expected to have a Material Adverse Effect.
<P ALIGN="JUSTIFY"> Maintenance of Property.  Customer shall maintain all of its material
properties (business and otherwise) in good condition and repair (ordinary
wear and tear excepted) and pay and discharge all costs of repair and
maintenance thereof and all rental and mortgage payments and related charges
pertaining thereto and not commit or permit any waste with respect to any of
its material properties.
<P ALIGN="JUSTIFY"> Collateral.  Customer shall:
<P ALIGN="JUSTIFY"> from time to time upon request by IBM Credit, provide IBM Credit with
access to copies of all invoices, delivery evidences and other such documents
relating to each Account;
<P ALIGN="JUSTIFY"> promptly upon Customer's obtaining knowledge thereof, furnish to and
inform IBM Credit of all material adverse information relating to the
financial condition of any Account debtor whose outstanding obligations to
Customer constitute two percent (2%) or more of the Accounts at such time (a
"Material Account Debtor");
<P ALIGN="JUSTIFY"> promptly upon Customer's learning thereof, notify IBM Credit in writing of
any event which would cause any obligation of a Material Account debtor to
become an Ineligible Account;
<P ALIGN="JUSTIFY"> keep all goods rejected or returned by any Account debtor and all goods
repossessed or stopped in transit by Customer from any Account debtor
segregated from other property of Customer, holding the same in trust for IBM
Credit until Customer applies a credit against such Account debtor's
outstanding obligations to Customer or sells such goods in the ordinary
course of business, whichever occurs earlier;
<P ALIGN="JUSTIFY"> stamp or otherwise mark chattel paper and instruments now owned or
hereafter acquired by it in conspicuous type to show that the same are
subject to IBM Credit's security interest and immediately thereafter deliver
or cause such chattel paper and instruments to be delivered to IBM Credit or
any agent designated by IBM Credit with appropriate endorsements and
assignments to vest title and possession in IBM Credit;
<P ALIGN="JUSTIFY"> use commercially reasonable efforts to collect all Accounts owed;
<P ALIGN="JUSTIFY"> promptly notify IBM Credit of any loss, theft or destruction of or damage
to any of the Collateral.  Customer shall diligently file and prosecute its
claim for any award or payment in connection with any such loss, theft,
destruction of or damage to Collateral.  Customer shall, upon demand of IBM
Credit, make, execute and deliver any assignments and other instruments
sufficient for the purpose of assigning any such award or payment to IBM
Credit, free of encumbrances of any kind whatsoever;
<P ALIGN="JUSTIFY"> consistent with reasonable commercial practice, observe and perform all
matters and things necessary or expedient to be observed or performed under
or by virtue of any lease, license, concession or franchise forming part of
the Collateral in order to preserve, protect and maintain all the rights of
IBM Credit thereunder;
<P ALIGN="JUSTIFY"> consistent with reasonable commercial practice, maintain, use and operate
the Collateral and carry on and conduct its business in a proper and
efficient manner so as to preserve and protect the Collateral and the
earnings, incomes, rents, issues and profits thereof; and
<P ALIGN="JUSTIFY"> at any time and from time to time, upon the request of IBM Credit, and at
the sole expense of Customer, Customer will promptly and duly execute and
deliver such further instruments and documents and take such further action
as IBM Credit may reasonably request for the purpose of obtaining or
preserving the full benefits of this Agreement and of the rights and powers
herein granted, including, without limitation, the filing of any financing or
continuation statements under the Uniform Commercial Code in effect in any
jurisdiction with respect to the security interests granted herein and the
payment of any and all recording taxes and filing fees in connection
therewith.
<P ALIGN="JUSTIFY"> Subsidiaries.  Customer shall immediately notify IBM Credit in writing in
the event Egghead.com Advertising, Inc., EO Corporation, Surplus Software,
Inc., EH Direct, Inc., MPI Corp., D.J. & J. Software Corp. or any other
Subsidiary of Customer has assets in excess of $10,000 or otherwise becomes
operational or active.  In addition, Customer will immediately, but in no
event later than five (5) days after such notification, cause any Subsidiary
that is an operating company, becomes active or has assets in excess of
$10,000, to (i) execute a collateralized guaranty guarantying Customer's
Obligations, such guaranty to be in form and substance satisfactory to IBM
Credit, in its sole discretion, (ii) grant to IBM Credit a security interest
in all of such Subsidiary's assets pursuant to the collateralized guaranty,
and (iii) execute UCC-1 Financing Statements for each jurisdiction requested
by IBM Credit.  In connection with the foregoing, IBM Credit shall receive an
opinion of counsel in form and substance satisfactory to it and from counsel
satisfactory to it.  IBM Credit may require that any Subsidiaries of Customer
become parties to this Agreement or any other agreement executed in
connection with this Agreement as guarantors or sureties.  Customer will
comply, and cause all Subsidiaries of Customer to comply with Sections 7 and
8 of this Agreement, as if such sections applied directly to such
Subsidiaries.
<P ALIGN="JUSTIFY"> Financial Covenants; Additional Covenants.  Customer acknowledges and
agrees that Customer shall comply with the financial covenants and other
covenants set forth in the attachments, exhibits and other addenda
incorporated herein and made a part of this Agreement.
<p align="center"><strong>SECTION 8.  NEGATIVE COVENANTS</strong></p>
Until termination of this Agreement and the indefeasible payment and
satisfaction of all Obligations hereunder.
<P ALIGN="JUSTIFY"> Liens.  The Customer will not, directly or indirectly mortgage, assign,
pledge, transfer, create, incur, assume, permit to exist or otherwise permit
any Lien or judgment to exist on any of its property, assets, revenues or
goods, whether real, personal or mixed, whether now owned or hereafter
acquired, except for Permitted Liens.
<P ALIGN="JUSTIFY"> Disposition of Assets.  The Customer will not, directly or indirectly,
sell, lease, assign, transfer or otherwise dispose of any assets other than
(i) sales of inventory in the ordinary course of business and short term
rental of inventory as demonstrations in amounts not material to Customer,
and (ii) voluntary dispositions of individual assets and obsolete or worn out
property in the ordinary course of business, provided, that the aggregate
book value of all such assets and property so sold or disposed of under this
section 8.2 (ii) in any fiscal year shall not exceed 5% of the consolidated
assets of the Customer as of the beginning of such fiscal year.
<P ALIGN="JUSTIFY"> Legal Entity Changes.  The Customer will not, without the prior written
consent of IBM Credit, directly or indirectly, merge, consolidate, liquidate,
dissolve or enter into or engage in any operation or activity materially
different from that presently being conducted by Customer.
<P ALIGN="JUSTIFY"> Guaranties.  The Customer will not, directly or indirectly, assume,
guaranty, endorse, or otherwise become liable upon the obligations of any
other Person except (i) by the endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of
business, (ii) by the giving of indemnities in connection with the sale of
inventory or other asset dispositions permitted hereunder, and (iii) for
guaranties in favor of IBM Credit.
<P ALIGN="JUSTIFY"> Restricted Payments.  The Customer will not, directly or indirectly:  (i)
declare or pay any dividend (other than dividends payable solely in common
stock of Customer or membership interest if Customer is a limited liability
company) on, or make any payment on account of, or set apart assets for a
sinking or other analogous fund for, the purchase, redemption, defeasance,
retirement or other acquisition of, any shares of any class of capital stock
of Customer or any warrants, options or rights to purchase any such capital
stock, whether now or hereafter outstanding, or make any other distribution
in respect thereof, either directly or indirectly, whether in cash or
property or in obligations of Customer; or (ii) make any optional payment or
prepayment on or redemption (including, without limitation, by making
payments to a sinking or analogous fund) or repurchase of any indebtedness
(other than the Obligations).
<P ALIGN="JUSTIFY"> Investments.  The Customer will not, directly or indirectly, make,
maintain or acquire any Investment in any Person other than:
<P ALIGN="JUSTIFY"> interest bearing deposit accounts (including certificates of deposit)
which are insured by the Federal Deposit Insurance Corporation ("FDIC") or a
similar federal insurance program;
<P ALIGN="JUSTIFY"> direct obligations of the government of the United States of America or
any agency or instrumentality thereof or obligations guaranteed as to
principal and interest by the United States of America or any agency thereof;
<P ALIGN="JUSTIFY"> stock or obligations issued to Customer in settlement of claims against
others by reason of an event of bankruptcy or a composition or the
readjustment of debt or a reorganization of any debtor of Customer;
<P ALIGN="JUSTIFY"> commercial paper of any company organized under the laws of any State of
the United States or any bank organized or licensed to conduct a banking
business under the laws of the United States or any State thereof having the
short-term highest rating then given by Moody's Investor's Services, Inc. or
Standard & Poor's Corporation; and
<P ALIGN="JUSTIFY"> the publicly traded equity or debt obligations of any corporation provided
all such investments shall be and at all times remain rated "investment
grade" by Moody's or S&P.
<P ALIGN="JUSTIFY"> Affiliate/Subsidiary Transactions.  The Customer will not, directly or
indirectly, enter into any transaction with any Affiliate or Subsidiary,
including, without limitation, the purchase, sale or exchange of property or
the rendering of any service to any Affiliate or Subsidiary of Customer
except in the ordinary course of business and pursuant to the reasonable
requirements of Customer's business upon fair and reasonable terms no less
favorable to Customer than could be obtained in a comparable arm's-length
transaction with an unaffiliated Person.
<P ALIGN="JUSTIFY"> ERISA.  The Customer will not (A) terminate any Plan so as to incur a
material liability to the FBGC, (B) permit any "prohibited transaction"
involving any Plan (other than a "multi-employer benefit plan") which would
subject the Customer to a material tax or penalty on "prohibited
transactions" under the Code or ERISA, (C) fail to pay to any Plan any
contribution which they are obligated to pay under the terms of such Plan, if
such failure would result in a material "accumulated funding deficiency",
whether or not waived, (D) allow or suffer to exist any occurrence of a
"reportable event" or any other event or condition, which presents a material
risk of termination by the PBGC of any Plan (other than a "multi-employer
benefit plan"), or (E) fail to notify IBM Credit as required in Section 7.5.
As used in this Agreement, the terms "accumulated funding deficiency" and
"reportable event" shall have the respective meanings assigned to them in
ERISA, and the term "prohibited transaction" shall have the meaning assigned
to it in the Code and ERISA.  For purposes of this Section 8.8, the terms
"material liability", "tax", "penalty', "accumulated funding deficiency" and
"risk of termination" shall mean a liability, tax, penalty, accumulated
funding deficiency or risk of termination which could reasonably be expected
to have a Material Adverse Effect.
<P ALIGN="JUSTIFY"> Additional Negative Pledges.  Customer will not, directly or indirectly,
create or otherwise cause or permit to exist or become effective any
contractual obligation which may restrict or inhibit IBM Credit's rights or
ability to sell or otherwise dispose of the Collateral or any part thereof
after the occurrence and during the continuance of an Event of Default.
<P ALIGN="JUSTIFY"> Storage of Collateral with Bailees and Warehousemen.  Collateral shall not
be stored with a bailee, warehouseman or similar party without the prior
written consent of IBM Credit unless Customer will, concurrently with the
delivery of such Collateral to such party, cause such party to issue and
deliver to IBM Credit, warehouse receipts in the name of IBM Credit
evidencing the storage of such Collateral.
<P ALIGN="JUSTIFY"> Accounts.  The Customer shall not permit or agree to any extension,
compromise or settlement or make any change or modification of any kind or
nature with respect to any Account, including any of the terns relating
thereto, which would affect IBM Credit's ability to collect payment on any
Account in whole or in part, except for such extensions, compromises or
settlements made by Customer in the ordinary course of its business,
provided, however, that the aggregate amount of such extensions, compromises
or settlements does not exceed five percent (5%) of the Customers Accounts at
any time.
<P ALIGN="JUSTIFY"> Indebtedness.  The Customer will not create, incur, assume or permit to
exist any Indebtedness, except for Permitted Indebtedness.
<P ALIGN="JUSTIFY"> Loans.  The Customer will not make any loans, advances, contributions or
payments of money or goods to any Subsidiary, Affiliate or parent company or
to any officer, director or stockholder of Customer or of any such company
(except for compensation for personal services actually rendered), except for
transactions expressly authorized in this Agreement.


<p align="center"><strong>SECTION 9.  DEFAULT</strong></p>
<P ALIGN="JUSTIFY"> Event of Default.  Any one or more of the following events shall
constitute an Event of Default by the Customer under this Agreement and the
Other Documents;
<P ALIGN="JUSTIFY"> The failure to make timely payment of the Obligations or any part thereof
when due and payable; if such failure shall remain unremedied for two (2)
Business Days after written notice thereof shall have been given to Customer
by IBM Credit during which period Customer shall be charged the Delinquency
Fee Rate set forth in Attachment A beginning on the day after the payment was
due and including the day payment is received;
<P ALIGN="JUSTIFY"> Customer fails to comply with the financial covenants set forth on
Attachment A, Section 7.4 or Section 8 hereof;
<P ALIGN="JUSTIFY"> Customer or any of its Affiliates fail to comply with or observe any term,
covenant or agreement contained in this Agreement or any Other Documents (not
covered by (A) or (B) above), if such failure shall remain unremedied for two
(2) Business Days after the earlier of (i) Customer obtains actual knowledge
thereof and (ii) written notice thereof shall have been given to Customer by
IBM Credit or for such other period of time as IBM Credit may agree to in
writing;
<P ALIGN="JUSTIFY"> Any representation, warranty, statement, report or certificate made or
delivered by or on behalf of Customer or any of its officers, employees or
agents or by or on behalf of any guarantor to IBM Credit was false in any
material respect at the time when made or deemed made;
<P ALIGN="JUSTIFY"> The occurrence of any event or circumstance which could reasonably be
expected to have a Material Adverse Effect;
<P ALIGN="JUSTIFY"> Customer, any Subsidiary or any guarantor shall generally not pay its
debts as such debts become due, become or otherwise declare itself insolvent,
file a voluntary petition for bankruptcy protection, have filed against it
any involuntary bankruptcy petition, cease to do business as a going concern,
make any assignment for the benefit of creditors, or a custodian, receiver,
trustee, liquidator, administrator or person with similar powers shall be
appointed for Customer, any Subsidiary or any guarantor or any of its
respective properties or have any of its respective properties seized or
attached, or take any action to authorize, or for the purpose of
effectuating, the foregoing, provided, however, that Customer, any Subsidiary
or any guarantor shall have a period of forty-five (45) days within which to
discharge any involuntary petition for bankruptcy or similar proceeding;
<P ALIGN="JUSTIFY"> The use of any funds borrowed from IBM Credit under this Agreement for any
purpose other than as provided in this Agreement;
<P ALIGN="JUSTIFY"> The entry of any judgment against Customer or any guarantor in an amount
in excess of $100,000 and such judgment is not satisfied, dismissed, stayed
or superseded by bond within thirty (30) days after the day of entry thereof
(and in the event of a stay or supersedes bond, such judgment is not
discharged within thirty (30) days after termination of any such stay or
bond) or such judgment is not fully covered by insurance as to which the
insurance company has acknowledged its obligation to pay such judgment in
full;
<P ALIGN="JUSTIFY"> The dissolution or liquidation of Customer, any Subsidiary or any
guarantor, or Customer or any guarantor or its directors or stockholders
shall take any action to dissolve or liquidate Customer or any guarantor;
<P ALIGN="JUSTIFY"> Any "going concern" or like qualification or exception, or qualification
arising out of the scope of an audit by an Auditor of its opinion relative to
any Financial Statement delivered to IBM Credit under this Agreement;
<P ALIGN="JUSTIFY"> The issuance of a warrant of distress for any rent or taxes with respect
to any premises occupied by Customer in or upon which the Collateral, or any
part thereof, may at any time be situated and such warrant shall continue for
a period of ten (10) Business Days from the date such warrant is issued;
<P ALIGN="JUSTIFY"> Customer suspends business;
<P ALIGN="JUSTIFY"> The occurrence of any event or condition that permits the holder of any
Indebtedness arising in one or more related or unrelated transactions to
accelerate the maturity thereof or the failure of Customer to pay when due
any such Indebtedness;
<P ALIGN="JUSTIFY"> Any guaranty of any or all of the Customer's Obligations executed by any
guarantor in favor of IBM Credit, shall at any time for any reason cease to
be in full force and effect or shall be declared to be null and void by a
court of competent jurisdiction or the validity or enforceability thereof
shall be contested or denied by any such guarantor, or any such guarantor
shall deny that it has any further liability or obligation thereunder or any
such guarantor shall fail to comply with or observe any of the terms,
provisions or conditions contained in any such guaranty;
<P ALIGN="JUSTIFY"> Customer is in default under the material terms of any of the Other
Documents after the expiration of any applicable cure periods;
<P ALIGN="JUSTIFY"> There shall occur a "reportable event" with respect to any Plan, or any
Plan shall be subject to termination proceedings (whether voluntary or
involuntary) and there shall result from such "reportable event" or
termination proceedings a liability of Customer to the PBGC which in the
reasonable opinion of IBM Credit will have a Material Adverse Effect;
<P ALIGN="JUSTIFY"> Any "person" (as defined in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended) acquires a beneficial interest in 50% or more of the
Voting Stock of Customer.
<P ALIGN="JUSTIFY"> Acceleration.  Upon the occurrence and during the continuance of an Event
of Default which has not been waived in writing by IBM Credit, IBM Credit
may, in its sole discretion, take any or all of the following actions,
without prejudice to any other rights it may have at law or under this
Agreement to enforce its claims against the Customer. (a) declare all
Obligations to be immediately due and payable (except with respect to any
Event of Default set forth in Section 9.1(F) hereof, in which case all
Obligations shall automatically become immediately due and payable without
the necessity of any notice or other demand) without presentment, demand,
protest or any other action or obligation of IBM Credit; and (b) immediately
terminate the Credit Line hereunder.
<P ALIGN="JUSTIFY"> Remedies.  (A) Upon the occurrence and during the continuance of any Event
of Default which has not been waived in writing by IBM Credit, IBM Credit may
exercise all rights and remedies of a secured patty under the U.C.C.  Without
limiting the generality of the foregoing, IBM Credit may: (i) remove from any
premises where same may be located any and all documents, instruments, files
and records (including the copying of any computer records), and any
receptacles or cabinets containing same, relating to the Collateral, or IBM
Credit may use (at the expense of the Customer) such of the supplies or space
of the Customer at Customer's place of business or otherwise, as may be
necessary to properly administer and control the Collateral or the handling
of collections and realizations thereon; (ii) bring suit, in the name of the
Customer or IBM Credit and generally shall have all other rights respecting
said Accounts, including without limitation the right to accelerate or extend
the time of payment, settle, compromise, release in whole or in part any
amounts owing on any Accounts and issue credits in the name of the Customer
or IBM Credit; (iii) sell, assign and deliver the Accounts and any returned,
reclaimed or repossessed merchandise, with or without advertisement, at
public or private sale, for cash, on credit or otherwise, at IBM Credit's
sole option and discretion, and IBM Credit may bid or become a purchaser at
any such sale; and (iv) foreclose the security interests created pursuant to
this Agreement by any available judicial procedure, or to take possession of
any or all of the Collateral without judicial process and to enter any
premises where any Collateral may be located for the purpose of taking
possession of or removing the same.
<P ALIGN="JUSTIFY">(B)     Upon the occurrence and during the continuance of an Event of
Default which has not been waived in writing by IBM Credit, IBM Credit shall
have the right to sell, lease, or otherwise dispose of all or any part of the
Collateral, whether in its then condition or after further preparation or
processing, in the name of Customer or IBM Credit, or in the name of such
other party as IBM Credit may designate, either at public or private sale or
at any broker's board, in lots or in bulk, for cash or for credit, with or
without warranties or representations, and upon such other terms and
conditions as IBM Credit in its sole discretion may deem advisable, and IBM
Credit shall have the right to purchase at any such sale.  If IBM Credit, in
its sole discretion determines that any of the Collateral requires
rebuilding, repairing, maintenance or preparation, IBM Credit shall have the
right, at its option, to do such of the aforesaid as it deems necessary for
the purpose of putting such Collateral in such saleable form as IBM Credit
shall deem appropriate.  The Customer hereby agrees that any disposition by
IBM Credit of any Collateral pursuant to and in accordance with the terms of
a repurchase agreement between IBM Credit and the manufacturer or any
supplier (including any Authorized Supplier) of such Collateral constitutes a
commercially reasonable sale.  The Customer agrees, at the request of IBM
Credit, to assemble the Collateral and to make it available to IBM Credit at
places which IBM Credit shall select, whether at the premises of the Customer
or elsewhere, and to make available to IBM Credit the premises and facilities
of the Customer for the purpose of IBM Credit's taking possession of,
removing or putting such Collateral in saleable form.  If notice of intended
disposition of any Collateral is required by law, it is agreed that ten (10)
Business Days notice shall constitute reasonable notification.
<P ALIGN="JUSTIFY">(C)     Unless expressly prohibited by the licensor thereof, if any, IBM
Credit is hereby granted, upon the occurrence and during the continuance of
any Event of Default which has not been waived in writing by IBM Credit, an
irrevocable, non-exclusive license to use, assign, license or sublicense all
computer software programs, data bases, processes and materials used by the
Customer in its businesses or in connection with any of the Collateral.
<P ALIGN="JUSTIFY">(D)     The net cash proceeds resulting from IBM Credit's exercise of any
of the foregoing rights (after deducting all charges, costs and expenses,
including reasonable attorneys' fees) shall be applied by IBM Credit to the
payment of Customer's Obligations, whether due or to become due, in such
order as IBM Credit may in it sole discretion elect.  Customer shall remain
liable to IBM Credit for any deficiencies, and IBM Credit in turn agrees to
remit to Customer or its successors or assigns, any surplus resulting
therefrom.
<P ALIGN="JUSTIFY">(E)     The enumeration of the foregoing rights is not intended to be
exhaustive and the exercise of any right shall not preclude the exercise of
any other rights, all of which shall be cumulative.
<P ALIGN="JUSTIFY"> Waiver.  If IBM Credit seeks to take possession of any of the Collateral
by any court process Customer hereby irrevocably waives to the extent
permitted by applicable law any bonds, surety and security relating thereto
required by any statute, court rule or otherwise as an incident to such
possession and any demand for possession of the Collateral prior to the
commencement of any suit or action to recover possession thereof.  In
addition, Customer waives to the extent permitted by applicable law all
rights of set-off it may have against IBM Credit.  Customer further waives to
the extent permitted by applicable law presentment, demand and protest, and
notices of non-payment, non-performance, any right of contribution, dishonor,
and any other demands, and notices required by law.

<p align="center"><strong>SECTION 10.  MISCELLANEOUS</strong></p>
<P ALIGN="JUSTIFY"> Term; Termination.     This Agreement shall remain in force until the
earlier of (i) the Termination Date, (ii) the date specified in a written
notice by the Customer that they intend to terminate this Agreement which
date shall be no less than thirty (30) days following the receipt by IBM
Credit of such written notice, and (iii) termination by IBM Credit after the
occurrence and during the continuance of an Event of Default.  Upon the date
that this Agreement is terminated, all of Customer's Obligations shall be
immediately due and payable in their entirety, even if they are not yet due
under their terms.
<P ALIGN="JUSTIFY"> Until the indefeasible payment in full of all of Customer's Obligations,
no termination of this Agreement or any of the Other Documents shall in any
way affect or impair (i) Customer's Obligations to IBM Credit including,
without limitation, any transaction or event occurring prior to and after
such termination, or (ii) IBM Credit's rights hereunder, including, without
limitation, IBM Credit's security interest in the Collateral.  On and after a
Termination Date IBM Credit may, but shall not be obligated to, upon the
request of Customer, continue to provide Advances hereunder.
<P ALIGN="JUSTIFY"> Indemnification.     The Customer hereby agrees to Indemnify and hold
harmless IBM Credit and each of its officers, directors, agents and assigns
(collectively, the "Indemnified Persons") against all losses, claims,
damages, liabilities or other expenses (including reasonable attorneys' fees
and court costs now or hereinafter arising from the enforcement of this
Agreement, the "Losses") to which any of them may become subject insofar as
such Losses arise out of or are based upon any event, circumstance or
condition (a) occurring or existing on or before the date of this Agreement
relating to any financing arrangements IBM Credit may from time to time have
with (i) Customer, (ii) any Person that shall be acquired by Customer or
(iii) any Person that Customer may acquire all or substantially all of the
assets of, or (b) directly or indirectly, relating to the execution, delivery
or performance of this Agreement or the consummation of the transactions
contemplated hereby or thereby or to any of the Collateral or to any act or
omission of the Customer in connection therewith.  Notwithstanding the
foregoing, the Customer shall not be obligated to indemnify IBM Credit for
any Losses incurred by IBM Credit which are a result of IBM Credit's gross
negligence or willful misconduct.  The indemnity provided herein shall
survive the termination of this Agreement.
<P ALIGN="JUSTIFY"> If either party brings any action or asserts any claim against the other
party which arises out of this Agreement or any Other Documents, the party
which does not prevail in such action or claim shall pay to the prevailing
party all costs and expenses of the prevailing party's defense of such action
or claim including, but not limited to, all attorney's fees.
<P ALIGN="JUSTIFY"> Additional Obligations.  IBM Credit, without waiving or releasing any
Obligation or Default of the Customer, may perform any Obligations of the
Customer that the Customer shall fail or refuse to perform and IBM Credit
may, at any time or times hereafter, but shall be under no obligation to do
so, pay, acquire or accept any assignment of any security interest, lien,
encumbrance or claim against the Collateral asserted by any person.  All sums
paid by IBM Credit in performing in satisfaction or on account of the
foregoing and any expenses, including reasonable attorney's fees, court
costs, and other charges relating thereto, shall be a part of the
Obligations, payable on demand and secured by the Collateral.
<P ALIGN="JUSTIFY"> LIMITATION OF LIABILITY.  NEITHER IBM CREDIT NOR ANY OTHER INDEMNIFIED
PERSON SHALL HAVE ANY LIABILITY WITH RESPECT TO ANY SPECIAL, INDIRECT OR
CONSEQUENTIAL DAMAGES SUFFERED BY CUSTOMER IN CONNECTION WITH THIS AGREEMENT,
ANY OTHER AGREEMENT, ANY DELAY, OMISSION OR ERROR IN THE ELECTRONIC
TRANSMISSION OR RECEIPT OF ANY E-DOCUMENT, OR ANY CLAIMS IN ANY MANNER
RELATED THERETO.  NOR SHALL IBM CREDIT OR ANY OTHER INDEMNIFIED PERSON HAVE
ANY LIABILITY TO CUSTOMER OR ANY OTHER PERSON FOR ANY ACTION TAKEN OR OMITTED
TO BE TAKEN BY IT OR THEM HEREUNDER, EXCEPT FOR ITS OR THEIR OWN GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT.  IN THE EVENT CUSTOMER REQUESTS IBM CREDIT
TO EFFECT A WITHDRAWAL OR DEBIT OF FUNDS FROM AN ACCOUNT OF CUSTOMER, THEN IN
NO EVENT SHALL IBM CREDIT BE LIABLE FOR ANY AMOUNT IN EXCESS OF ANY AMOUNT
INCORRECTLY DEBITED, EXCEPT IN THE EVENT OF IBM CREDIT'S GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT.  NO PARTY SHALL BE LIABLE FOR ANY FAILURE TO PERFORM ITS
OBLIGATIONS IN CONNECTION WITH ANY E-DOCUMENT, WHERE SUCH FAILURE RESULTS
FROM ANY ACT OF GOD OR OTHER CAUSE BEYOND SUCH PARTY'S REASONABLE CONTROL
(INCLUDING, WITHOUT LIMITATION, ANY MECHANICAL, ELECTRONIC OR COMMUNICATIONS
FAILURE) WHICH PREVENTS SUCH PARTY FROM TRANSMITTING OR RECEIVING
E-DOCUMENTS.
<P ALIGN="JUSTIFY"> Alteration/Waiver.  This Agreement and the Other Documents may not be
altered or amended except by an agreement in writing signed by the Customer
and by IBM Credit.  No delay or omission of IBM Credit to exercise any right
or remedy hereunder, whether before or after the occurrence of any Event of
Default, shall impair any such right or remedy or shall operate as a waiver
thereof or as a waiver of any such Event of Default.  In the event that IBM
Credit at any time or from time to time dispenses with any one or more of the
requirements specified in this Agreement or any of the Other Documents, such
dispensation may be revoked by IBM Credit at any time and shall not be deemed
to constitute a waiver of any such requirement subsequent thereto.  IBM
Credit's failure at any time or times to require strict compliance and
performance by the Customer of any undertakings, agreements, covenants,
warranties and representations of this Agreement or any of the Other
Documents shall not waive, affect or diminish any right of IBM Credit
thereafter to demand strict compliance and performance thereof.  Any waiver
by IBM Credit of any Default by the Customer under this Agreement or any of
the Other Documents shall not waive or affect any other Default by the
Customer under this Agreement or any of the Other Documents, whether such
Default is prior or subsequent to such other Default and whether of the same
or a different type.  None of the undertakings, agreements, warranties,
covenants, and representations of the Customer contained in this Agreement or
the Other Documents and no Default by the Customer shall be deemed waived by
IBM Credit unless such waiver is in writing signed by an authorized
representative of IBM Credit.
<P ALIGN="JUSTIFY"> Severability.  If any provision of this Agreement or the Other Documents
or the application thereof to any Person or circumstance is held invalid or
unenforceable, the remainder of this Agreement and the Other Documents and
the application of such provision to other Persons or circumstances will not
be affected thereby, the provisions of this Agreement and the Other Documents
being severable in any such instance.
<P ALIGN="JUSTIFY"> One Loan.  All Advances heretofore, now or at any time or times hereafter
made by IBM Credit to the Customer under this Agreement or the Other
Documents shall constitute one loan secured by IBM Credit's security
interests in the Collateral and by all other security interests, liens and
encumbrances heretofore, now or from time to time hereafter granted by the
Customer to IBM Credit or any assignor of IBM Credit.
<P ALIGN="JUSTIFY"> Additional Collateral.  All monies, reserves and proceeds received or
collected by IBM Credit with respect to other property of the Customer in
possession of IBM Credit at any time or limes hereafter are hereby pledged by
Customer to IBM Credit as security for the payment of Customer's Obligations
and shall be applied promptly by IBM Credit on account of the Customer's
Obligations; provided, however, IBM Credit may release to the Customer such
portions of such monies, reserves and proceeds as IBM Credit may from time to
time determine, in its sole discretion.
<P ALIGN="JUSTIFY"> No Merger or Novations.     Notwithstanding anything contained in any
document to the contrary, it is understood and agreed by the Customer and IBM
Credit that the claims of IBM Credit arising hereunder and existing as of the
date hereof constitute continuing claims arising out of the Obligations of
Customer under any Other Documents.  Customer acknowledges and agrees that
such Obligations outstanding as of the date hereof have not been satisfied or
discharged and that this Agreement is not intended to effect a novation of
the Customer's Obligations under any Other Documents.
<P ALIGN="JUSTIFY"> Neither the obtaining of any judgment nor the exercise of any power of
seizure or sale shall operate to extinguish the Obligations of the Customer
to IBM Credit secured by this Agreement and shall not operate as a merger of
any covenant in this Agreement, and the acceptance of any payment or
alternate security shall not constitute or create a novation and the
obtaining of a judgment or judgments under a covenant herein contained shall
not operate as a merger of that covenant or affect IBM Credit's rights under
this Agreement.
<P ALIGN="JUSTIFY"> Paragraph Titles.  The Section titles used in this Agreement and the Other
Documents are for convenience only and do not define or limit the contents of
any Section.
<P ALIGN="JUSTIFY"> Binding Effect; Assignment.  This Agreement and the Other Documents shall
be binding upon and inure to the benefit of IBM Credit and the Customer and
their respective successors and assigns: provided, that the Customer shall
have no right to assign this Agreement or any of the Other Documents without
the prior written consent of IBM Credit.
<P ALIGN="JUSTIFY"> Notices; E-Business Acknowledgment.     Except as otherwise expressly
provided in this Agreement, any notice required or desired to be served,
given or delivered hereunder shall be in writing, and shall be deemed to have
been validly served, given or delivered (i) upon receipt if deposited in the
United States mails, first class mail, with proper postage prepaid, (ii) upon
receipt of confirmation or answerback if sent by telecopy, or other similar
facsimile transmission, (iii) one Business Day after deposit with a reputable
overnight courier with all charges prepaid, or (iv) when delivered, if
hand-delivered by messenger, all of which shall be properly addressed to the
party to be notified and sent to the address or number indicated as follows:

<PRE>

(i)     If to IBM Credit at:                     (ii)    If to Customer at:
        IBM Credit Corporation                           Egghead.Com, Inc.
        5000 Executive Parkway, Suite 450                1350 Willow Road
        San Ramon, CA 94583                              Menlo Park, CA 94025
        Attention: Region Manager, West                  Attention: John Labbett
        Facsimile: 925-277-5675                          EVP, Chief Financial Officer
                                                         Facsimile: 650-328-7858

</PRE>

<P ALIGN="JUSTIFY">or to such other address or number as each party designates to the other in
the manner prescribed herein.
<P ALIGN="JUSTIFY">    Each party may electronically transmit to or receive from the other
party certain documents set forth in Attachment J ("E-Documents") via the
Internet or electronic data interchange ("EDI"). Any transmission of data
which is not an E-Document shall have no force or effect between the parties.
EDI transmissions may be sent directly or through any third party service
provider ("Provider") with which either party may contract. Each party shall
be liable for the acts or omissions of its Provider while handling
E-Documents for such party, provided, that if both parties use the same
Provider, the originating party shall be liable for the acts or omissions of
such Provider as to such E-Document. Some information to be made available to
Customer will be specific to Customer and will require Customer's
registration with IBM Credit before access is provided. After IBM Credit has
approved the registration submitted by Customer, IBM Credit shall provide an
ID and password(s) to an individual designated by Customer ("Customer
Recipient"). Customer accepts responsibility for the designated individual's
distribution of the ID and password(s) within its organization and Customer
will take reasonable measures to ensure that passwords are not shared or
disclosed to unauthorized individuals.  Customer will conduct an annual
review of all IDs and passwords to ensure they are accurate and properly
authorized. IBM CREDIT MAY CHANGE OR DISCONTINUE USE OF AN ID OR PASSWORD AT
ITS DISCRETION AT ANY TIME. E-Documents shall not be deemed to have been
properly received, and no E-Document shall give rise to any obligation, until
accessible to the receiving party at such party's receipt computer at the
address specified herein. Upon proper receipt of an E-Document, the receiving
party shall promptly transmit a functional acknowledgment in return. A
functional acknowledgment shall constitute conclusive evidence that an
E-Document has been properly received. If any transmitted E-Document is
received in an unintelligible or garbled form, the receiving party shall
promptly notify the originating party in a reasonable manner. In the absence
of such a notice, the originating party's records of the contents of such
E-Document shall control.
<P ALIGN="JUSTIFY"> Each party shall use those security procedures which
are reasonably sufficient to ensure that all transmissions of E-Documents are
authorized and to protect its business records and data from improper access.
Any E-Document received pursuant to this Section 10.12 shall have the same
effect as if the contents of the E-Document had been sent in paper rather
than electronic form. The conduct of the parties pursuant to this Section
10.12 shall, for all legal purposes, evidence a course of dealing and a
course of performance accepted by the parties. The parties agree not to
contest the validity or enforceability of E-Documents under the provisions of
any applicable law relating to whether certain agreements are to be in
writing or signed by the party to be bound thereby, The parties agree, as to
any E-Document accompanied by the Customer's ID, that IBM Credit can
reasonably rely on the fact that such E-Document is properly authorized by
Customer. E-Documents, if introduced as evidence on paper in any judicial,
arbitration, mediation or administrative proceedings, will be admissible as
between the parties to the same extent and under the same conditions as other
business records originated and maintained in documentary form. Neither party
shall contest the admissibility of copies of E-Documents under either the
business records exception to the hearsay rule or the best evidence rule on
the basis that the E-Documents were not originated or maintained in
documentary form.

<P ALIGN="JUSTIFY">CUSTOMER RECIPIENT INFORMATION for Internet transmissions:
<P ALIGN="JUSTIFY">Name of Customer's Designated Central Contact Authorized to Receive IDs and
Passwords:
<P ALIGN="JUSTIFY">        John Labbett, Executive Vice President, Chief Financial
Officer
<P ALIGN="JUSTIFY">e-mail Address: jlabbett@egghead.com
<P ALIGN="JUSTIFY">Phone Number:   (650) 470-2783

<P ALIGN="JUSTIFY"> Counterparts.  This Agreement may be executed in any number of
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto were upon the same instrument.
<P ALIGN="JUSTIFY"> ATTACHMENT A MODIFICATIONS.  IBM Credit may modify the Collateral
Insurance Amount set forth in Attachment A from time to time by providing
Customer with a new Attachment A.  Any such new Attachment A shall be
effective as of the date specified in the new Attachment A.
<P ALIGN="JUSTIFY"> SUBMISSION AND CONSENT TO JURISDICTION AND CHOICE OF LAW.  TO INDUCE IBM
CREDIT TO ACCEPT THIS AGREEMENT AND THE OTHER DOCUMENTS, THE CUSTOMER HEREBY
IRREVOCABLY AND UNCONDITIONALLY:
<P ALIGN="JUSTIFY"> SUBMITS ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS AGREEMENT AND ANY OTHER AGREEMENT, OR FOR THE RECOGNITION AND
ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND ANY FEDERAL DISTRICT
COURT IN NEW YORK;
<P ALIGN="JUSTIFY"> CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS
AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREINAFTER HAVE TO THE VENUE OF
ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR
PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR
CLAIM THE SAME;
<P ALIGN="JUSTIFY"> AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE
EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY
SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID. TO CUSTOMER AT ITS
ADDRESS SET FORTH IN SECTION 10.13 OR AT SUCH OTHER ADDRESS OF WHICH IBM
CREDIT SHALL HAVE BEEN NOTIFIED PURSUANT THERETO;
<P ALIGN="JUSTIFY"> AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE
IN ANY OTHER JURISDICTION.
<P ALIGN="JUSTIFY"> AGREES THAT THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT
AND THE OTHER DOCUMENTS SHALL BE GOVERNED BY THE LAWS (WITHOUT GIVING EFFECT
TO CONFLICT OF LAW PROVISIONS) OF THE STATE OF NEW YORK.
<P ALIGN="JUSTIFY"> JURY TRIAL WAIVER.  EACH OF IBM CREDIT AND THE CUSTOMER HEREBY IRREVOCABLY
WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING (INCLUDING ANY
COUNTERCLAIM) OF ANY TYPE IN WHICH IBM CREDIT AND THE CUSTOMER ARE PARTIES AS
TO ALL MATTERS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS AGREEMENT OR ANY
DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED IN CONNECTION HEREWITH.
<P ALIGN="JUSTIFY">IN WITNESS WHEREOF, the Customer has read this entire Agreement, and
has caused its authorized representatives to execute this Agreement and has
caused its corporate seal, if any, to be affixed hereto as of the date first
written above.

<PRE>

IBM Credit Corporation                  Egghead.Com, Inc.
By:  /s/ Thomas S. Curcio               By:   /s/ John E. Labbett
Print Name: Thomas S. Curcio            Print Name: John E. Labbett
Title: Manager of Credit                Title: Executive Vice President/Chief Financial Officer


</PRE>

<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>

<B><FONT FACE="Arial" SIZE=2><P ALIGN="CENTER">ATTACHMENT A,
("AIF ATTACHMENT A") TO</P>
<P ALIGN="CENTER">AGREEMENT FOR INVENTORY FINANCING ("AIF AGREEMENT")</P>
<P ALIGN="CENTER">DATED February 28, 2001</P>
</B><P ALIGN="JUSTIFY">Customer Name: Egghead.com, Inc.</P>
<P ALIGN="JUSTIFY">Effective Date of this AIF Attachment A: February 28,
2001</P>
<OL TYPE="I">

<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336590">Fees, Rates and Repayment
Terms:</A></LI></P>
<OL TYPE="A">

<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336591">Credit Line: Twenty Million
Dollars ($20,000,000.00);</A></LI></P>
<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336592">Borrowing Base:</A></LI></P>
<OL TYPE="i">

<P ALIGN="JUSTIFY"><LI>70% of the amount of the Customer's Eligible Accounts as
of the date of determination as reflected in the Customer's most recent
Collateral Management Report;</LI></P>
<P ALIGN="JUSTIFY">Notwithstanding the terms of Section 3.1(W) of the Agreement,
Accounts arising from Incentive payments, rebates, discounts and refunds which
are (i)&nbsp;verifiable by Authorized Suppliers, and (ii) payable by Authorized
Suppliers by check to the Lockbox will be deemed to be Eligible Accounts.</P>
<P ALIGN="JUSTIFY"><LI>100% of the Customer's inventory in the Customer's
possession as of the date of determination as reflected in the Customer's most
recent Collateral Management Report constituting Products (other than service
parts) financed through a Product Advance by IBM Credit, provided, however, IBM
Credit has a first priority security interest in such Products and such Products
are new and in un-opened boxes. The value to be assigned to such inventory shall
be based upon the Authorized Supplier's invoice price to Customer for Products
net of all applicable price reduction credits.</LI></P></OL>

<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336593">Collateral Insurance Amount:
Eight Million Dollars ($8,000,000.00)</A></LI></P>
<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336594">Delinquency Fee Rate: Prime Rate
plus 6.500%</A></LI></P>
<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336595">Shortfall Transaction Fee:
Shortfall Amount multiplied by 0.30%</A></LI></P>
<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336596">Free Financing Period Exclusion
Fee: For each Product Advance made by IBM Credit pursuant to Customers financing
plan where there is no Free Financing Period associated with such Product
Advance there will be a fee equal to the Free Financing Period Exclusion Fee.
For a 30 day payment plan when Prime Rate is 8% the Free Financing Period
Exclusion Fee is 1.08% of the invoice amount. This fee will very by .0125% with
each .25% change in Prime Rate (e.g. Prime Rate of 7.25%, the charge is 1.0425%
of the invoice amount). The fee accrues as of the Date of Note and is payable as
stated in the billing Statement.</A></LI></P>
<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336597">Other Charges:</A></LI></P>
<OL TYPE="i">

<P ALIGN="JUSTIFY"><LI>Application Processing Fee: $15,000.00 (Paid)</LI></P>
<P ALIGN="JUSTIFY"><LI>Closing Fee: $25,000.00</LI></P>
<P ALIGN="JUSTIFY"><LI>Annual Facility Fee (payable annually on the facility
anniversary date): $40,000.00, or .20% of the maximum credit line, whichever is
greater.</LI></P></OL>
</OL>

<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336598">Bank Account</A></LI></P>
<P ALIGN="JUSTIFY">Customer's Lockbox(es) and Special Account(s) will be
maintained at the following Bank(s):</P>
<P ALIGN="JUSTIFY">&#9;Name of Bank:</P>
<P ALIGN="JUSTIFY">&#9;Address:</P>
<P ALIGN="JUSTIFY">&#9;Phone:</P>
<P ALIGN="JUSTIFY">&#9;Lockbox Address:</P>
<P ALIGN="JUSTIFY">&#9;Special Account #:</P>
<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336599">Financial Covenants: Not
Applicable</A></LI></P>
<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336600">Additional Conditions Precedent
Pursuant to Section 5.1(J) of the Agreement:</A></LI></P></OL>


<UL>

<UL>
<P ALIGN="JUSTIFY"><LI>Executed Contingent Blocked Account Amendment:</LI></P>
<P ALIGN="JUSTIFY"><LI>Executed Waiver of Landlord Lien for all premises in
which a landlord has the right of levy for rent;</LI></P>
<P ALIGN="JUSTIFY"><LI>A Certificate of Location of Collateral whereby the
Customer certifies where Customer presently keeps or sells inventory, equipment
and other tangible Collateral;</LI></P>
<P ALIGN="JUSTIFY"><LI>Subordination or Intercreditor Agreements from all
creditors having a lien which is superior to IBM Credit in any assets that IBM
Credit relies on to satisfy Customer's obligations to IBM Credit;</LI></P>
<P ALIGN="JUSTIFY"><LI>Listing of all creditors providing accounts receivable
financing to Customer;</LI></P>
<P ALIGN="JUSTIFY"><LI>A Collateral Management Report in the form of Attachment
F as of the Closing Date;</LI></P>
<P ALIGN="JUSTIFY"><LI>An Opinion of Counsel substantially in the form and
substance of Attachment H whereby the Customers counsel states his or her
opinion about the execution, delivery and performance of the Agreement and other
documents by the Customer;</LI></P>
<P ALIGN="JUSTIFY"><LI>A Corporate Secretary's Certificate substantially in the
form and substance of Attachment I certifying to, among other items, the
resolutions of Customer's Board of Directors authorizing borrowing by
Customer;</LI></P>
<P ALIGN="JUSTIFY"><LI>Termination or release of Uniform Commercial Code filing
by another creditor as required by IBM Credit;</LI></P>
<P ALIGN="JUSTIFY"><LI>A copy of an all-risk insurance certificate pursuant to
Section 7.8 (B) of the Agreement;</LI></P></UL>
</UL>

<B><P ALIGN="CENTER">AIF ATTACHMENT B TO</P>
<P ALIGN="CENTER">AGREEMENT FOR INVENTORY FINANCING ("AIF AGREEMENT")</P>
</B><P ALIGN="JUSTIFY">Customer: Egghead.com, Inc.</P>
<OL TYPE="I">

<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336601">Liens:</A></LI></P>
<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336602">Locations of Offices, Records and
Inventory:</A></LI></P>
<OL TYPE="A">

<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336603">Principal Place of Business and
Chief Executive Office:</A></LI></P>
<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336604">Locations of Assets, Inventory
and Equipment (including warehouses):</A></LI></P></OL>

<P ALIGN="JUSTIFY">&#9;<U>Location</U>&#9;<U>Leased (Y/N)</P>
<P ALIGN="JUSTIFY">&nbsp;</P>
<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336605"></U>Fictitious
Names:</A></LI></P>
<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336606">Organization:</A></LI></P>
<OL TYPE="A">

<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336607">Subsidiaries:</A></LI></P></FONT>
<P ALIGN="RIGHT"><TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=540>
<TR><TD WIDTH="41%" VALIGN="TOP">
<P ALIGN="JUSTIFY"><U><FONT FACE="Arial" SIZE=2>Name</U></FONT></TD>
<TD WIDTH="16%" VALIGN="TOP">
<U><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">Jurisdiction</U></FONT></TD>
<TD WIDTH="29%" VALIGN="TOP">
<U><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">Owner</U></FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<U><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">% Owned</U></FONT></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="16%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="29%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="16%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="29%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="16%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="29%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
</TABLE>
</P>

<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336608"><FONT FACE="Arial"
SIZE=2>Affiliates:</A></LI></P></OL>
</FONT>
<P ALIGN="RIGHT"><TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=535>
<TR><TD WIDTH="54%" VALIGN="TOP">
<P ALIGN="JUSTIFY"><U><FONT FACE="Arial" SIZE=2>Name</U></FONT></TD>
<TD WIDTH="46%" VALIGN="TOP">
<U><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">Capacity</U></FONT></TD>
</TR>
<TR><TD WIDTH="54%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="46%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="54%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="46%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="54%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="46%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
</TABLE>
</P>

<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336609"><FONT FACE="Arial"
SIZE=2>Judgments:</A></LI></P>
<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336610">Environmental
Matters:</A></LI></P>
<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336611">Indebtedness:</A></LI></P>
<B><P ALIGN="CENTER">AIF ATTACHMENT B TO</P>
<P ALIGN="CENTER">AGREEMENT FOR INVENTORY FINANCING ("AIF AGREEMENT")</P>
</B><P ALIGN="JUSTIFY">Customer: Egghead.com, Inc.</P>
<P ALIGN="JUSTIFY"><LI VALUE=1><A NAME="_Toc510336612">Liens: </A></LI></P>
<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336613">Locations of Offices, Records and
Inventory: </A></LI></P>
<OL TYPE="A">

<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336614">Principal Place of Business and
Chief Executive Office:</A></LI></P>
<P ALIGN="JUSTIFY">1350 Willow Road, Menlo Park, CA 94025</P>
<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336615">Locations of Assets, Inventory
and Equipment (including warehouses): </A></LI></P></OL>

<P ALIGN="JUSTIFY">&#9;<U>Location</U>&#9;<U>Leased (Y/N)</P>
</U><P ALIGN="JUSTIFY">&#9;521 Chkalou Drive, Vancouver, WA 98683&#9;&#9;Y</P>
<P ALIGN="JUSTIFY">&#9;3301 SE Columbia Way, Bldg 45, Vancouver, WA
98661&#9;Y</P>
<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336616">Fictitious Names:</A></LI></P>
<P ALIGN="JUSTIFY">&#9;</P>
<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336617">Organization: </A></LI></P>
<OL TYPE="A">

<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336618">Subsidiaries:
</A></LI></P></FONT>
<P ALIGN="RIGHT"><TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=540>
<TR><TD WIDTH="41%" VALIGN="TOP">
<P ALIGN="JUSTIFY"><U><FONT FACE="Arial" SIZE=2>Name</U></FONT></TD>
<TD WIDTH="16%" VALIGN="TOP">
<U><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">Jurisdiction</U></FONT></TD>
<TD WIDTH="29%" VALIGN="TOP">
<U><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">Owner</U></FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<U><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">% Owned</U></FONT></TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">See attached list. None
operational.</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="29%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="41%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="16%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="29%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
</TABLE>
</P>

<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336619"><FONT FACE="Arial"
SIZE=2>Affiliates: </A></LI></P></OL>
</FONT>
<P ALIGN="RIGHT"><TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=535>
<TR><TD WIDTH="54%" VALIGN="TOP">
<P ALIGN="JUSTIFY"><U><FONT FACE="Arial" SIZE=2>Name</U></FONT></TD>
<TD WIDTH="46%" VALIGN="TOP">
<U><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">Capacity</U></FONT></TD>
</TR>
<TR><TD WIDTH="54%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">None.</FONT></TD>
<TD WIDTH="46%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="54%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="46%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
</TABLE>
</P>

<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336620"><FONT FACE="Arial"
SIZE=2>Judgments:</A></LI></P>
<P ALIGN="JUSTIFY">&#9;&#9;None.</P>
<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336621">Environmental
Matters:</A></LI></P>
<P ALIGN="JUSTIFY">&#9;&#9;None.</P>
<P ALIGN="JUSTIFY"><LI><A NAME="_Toc510336622">Indebtedness:</A></LI></P></OL>

</FONT><FONT FACE="Arial"><P ALIGN="JUSTIFY">&#9;&#9;None.</P>
<P ALIGN="JUSTIFY">Egghead.com, Inc.</P>
</FONT><B><FONT FACE="Arial" SIZE=2><P ALIGN="CENTER">Subsidiaries</P>
</B><P ALIGN="JUSTIFY">Item IV.(A) Subsidiaries</P></FONT>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=638>
<TR><TD WIDTH="32%" VALIGN="TOP">
<P ALIGN="JUSTIFY"><U><FONT FACE="Arial" SIZE=2>Legal/dba Name</U></FONT></TD>
<TD WIDTH="39%" VALIGN="TOP">
<U><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">Address</U></FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<U><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">Relation</U></FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<U><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">FEIN</U></FONT></TD>
</TR>
<TR><TD WIDTH="32%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">E O Corporation</FONT></TD>
<TD WIDTH="39%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">1350 Willow Road, Menlo Park CA
94025</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">Subsidiary</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="32%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">D J &amp; J Software
Corporation</FONT></TD>
<TD WIDTH="39%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">1350 Willow Road, Menlo Park CA
94025</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">Subsidiary</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">91-1233491</FONT></TD>
</TR>
<TR><TD WIDTH="32%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">Surplus Software, Inc.</FONT></TD>
<TD WIDTH="39%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">1350 Willow Road, Menlo Park CA
94025</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">Subsidiary</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">93-1083982</FONT></TD>
</TR>
<TR><TD WIDTH="32%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">EH Direct, Inc.</FONT></TD>
<TD WIDTH="39%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">1350 Willow Road, Menlo Park CA
94025</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">Subsidiary</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">91-1610131</FONT></TD>
</TR>
<TR><TD WIDTH="32%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">MPI Corporation</FONT></TD>
<TD WIDTH="39%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">1350 Willow Road, Menlo Park CA
94025</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">Subsidiary</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">91-1610133</FONT></TD>
</TR>
<TR><TD WIDTH="32%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">Egghead.com Advertising,
Inc.</FONT></TD>
<TD WIDTH="39%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">1350 Willow Road, Menlo Park CA
94025</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">Subsidiary</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
</TABLE>

<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">EH Direct is known as Surplus
Direct</P>
<B><P ALIGN="JUSTIFY">&nbsp;</P>
<P ALIGN="CENTER">IF ATTACHMENT E TO</P>
<P ALIGN="CENTER">AGREEMENT FOR INVENTORY FINANCING ("AIF AGREEMENT")</P>
</B><P ALIGN="JUSTIFY">Customer: Egghead.com, Inc.</P>
<B><P ALIGN="JUSTIFY">AUTHORIZED SUPPLIERS</P>
</B><P ALIGN="JUSTIFY">IBM</P>
<P ALIGN="JUSTIFY">Tech Data Corp.</P>
<P ALIGN="JUSTIFY">Ingram</P>
<B><P ALIGN="CENTER">AIF ATTACHMENT F TO</P>
<P ALIGN="CENTER">AGREEMENT FOR INVENTORY FINANCING ("AIF AGREEMENT")</P>
</B><P ALIGN="CENTER">Customer. Egghead.com, Inc.<BR>
Collateral Management Report (CMR)<BR>
Accounts as of _________ (Date)</P>
<U><P ALIGN="JUSTIFY">COLLATERAL STATUS</U>:</P>
<P ALIGN="JUSTIFY">Accounts Receivable less than 90 days aged from invoice
date:</P></FONT>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=638>
<TR><TD WIDTH="36%" VALIGN="TOP">
<P ALIGN="JUSTIFY"><FONT FACE="Arial" SIZE=2>&#9;Commercial</FONT></TD>
<TD WIDTH="25%" VALIGN="TOP">
<U><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;</U></FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="25%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="36%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;Total Eligible</FONT></TD>
<TD WIDTH="25%" VALIGN="TOP">
<U><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;</U></FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">X 70%</FONT></TD>
<TD WIDTH="25%" VALIGN="TOP">
<U><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;</U></FONT></TD>
</TR>
<TR><TD WIDTH="36%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="25%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">plus</FONT></TD>
<TD WIDTH="25%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="36%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">IBMCC Financed
Inventory</FONT></TD>
<TD WIDTH="25%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">X 100%</FONT></TD>
<TD WIDTH="25%" VALIGN="TOP">
<U><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;</U></FONT></TD>
</TR>
<TR><TD WIDTH="36%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">Total Collateral</FONT></TD>
<TD WIDTH="25%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">=</FONT></TD>
<TD WIDTH="25%" VALIGN="TOP">
<U><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;</U></FONT></TD>
</TR>
<TR><TD WIDTH="36%" VALIGN="TOP">
<B><U><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">LOAN
STATUS</U>:</B></FONT></TD>
<TD WIDTH="25%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="25%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="36%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">IBMCC Loan Value</FONT></TD>
<TD WIDTH="25%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">less</FONT></TD>
<TD WIDTH="25%" VALIGN="TOP">
<U><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;</U></FONT></TD>
</TR>
<TR><TD WIDTH="36%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="25%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="25%" VALIGN="TOP">
<U><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;</U>*</FONT></TD>
</TR>
</TABLE>

<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">* if negative please include
paydown.</P>
<P ALIGN="JUSTIFY">Signatures:</P>
<U><P ALIGN="JUSTIFY">&#9;</P>
</U><P ALIGN="JUSTIFY">Authorized Customer Signature&#9;(Date)</P>
<U><P ALIGN="JUSTIFY">&#9;</P>
</U><P ALIGN="JUSTIFY">IBM Credit Corporation&#9;(Date)</P>
<P ALIGN="JUSTIFY">The above officer or delegated individual of
_________________ certifies that he or she is authorized to provide this
information on behalf of _________________ and agrees that to the best of his or
her knowledge the information is accurate.</P>
<B><P ALIGN="CENTER">&nbsp;</P>
<P ALIGN="CENTER">AIF ATTACHMENT F TO</P>
<P ALIGN="CENTER">AGREEMENT FOR INVENTORY FINANCING ("AIF AGREEMENT')</P>
</B><P ALIGN="CENTER">Customer (Legal Name) Egghead.com, Inc.</P>
<B><P ALIGN="CENTER">Collateral Management Report (CMR)</P>
</B><P ALIGN="CENTER">Accounts as of: 2-21-2001</P>
<B><U><P ALIGN="JUSTIFY">COLLATERAL STATUS</U>:</P></B></FONT>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=638>
<TR><TD WIDTH="51%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">Other<BR>
<U>Values</U></FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">Gross<BR>
<U>Collateral</U></FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">Advance <U>%</U></FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">Net <U>Collateral</U></FONT></TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">1.&#9;Previous assigned A/R
balance:</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;(previous CMR line 4) Date:
__/__/__</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">2.&#9;Additions to A/R
(2A+B):</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;A.&#9;New Billings</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;B.&#9;Adjustments</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">3.&#9;Deductions from A/R
(3A+B+C):</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;A.&#9;Cash Receipts</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;B.&#9;Credits</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;C.&#9;Adjustments</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">4.&#9;New Assigned A/R balance
(1+2-3):</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">5.&#9;A/R Aging Report (Date:
__/__/__)</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;<B>**New Assigned A/R Balance
and A/R Aging Report</B></FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<B><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;(Lines 4 and 5) must be
equal**</B></FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<U><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;</U></FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<U><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;</U></FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<U><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;</U></FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<U><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;</U></FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<U><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;</U></FONT></TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">6.&#9;Less Adjustments:</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;A.&#9;Unapplied
Cash</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;B.&#9;Other</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">7.&#9;Adjusted assigned A/R balance
(4-6):</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$27,651,231</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">8.&#9;Less Ineligible
A/R:</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;A.&#9;A/R Over 90
Days</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$671,597</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;B.&#9;50% Rule
(estimate)</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$30,000</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;C.&#9;Contra Accts (A/P
offsets)</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;D.&#9;Other</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;E.&#9;Non-Trade (<B>see Note
below</B>)</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$22,066,094</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;F.&#9;Egghead.com
related</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$43,018</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P
ALIGN="JUSTIFY">&#9;G.&#9;____________________</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P
ALIGN="JUSTIFY">&#9;H.&#9;____________________</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">9.&#9;Total Eligible A/R
Collateral:</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$4,840,522</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">70%</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$3,388,365</FONT></TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;(Line 7 - Line 8 X Advance
Rate)</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">10.&#9;Other A/R
Collateral:</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;A.&#9;MDF (&lt;90
days)</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$596,646</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">70%</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$417,652</FONT></TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P
ALIGN="JUSTIFY">&#9;B.&#9;____________________</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">11.&#9;Inventory
Collateral:</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;A.&#9;IBM Credit Financed
Eligible Inventory</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P
ALIGN="JUSTIFY">&#9;B.&#9;____________________</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P
ALIGN="JUSTIFY">&#9;C.&#9;____________________</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">12.&#9;Other
Collateral:</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;A.&#9;RMA</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;B.&#9;Price
Protection</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P
ALIGN="JUSTIFY">&#9;C.&#9;____________________</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P
ALIGN="JUSTIFY">&#9;D.&#9;____________________</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">13.&#9;Total Net Eligible
Collateral (9+10+11+12)</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$3,806,017</FONT></TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<U><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;</U></FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<U><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;</U></FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<U><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;</U></FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<U><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;</U></FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<U><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;</U></FONT></TD>
</TR>
</TABLE>

<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">Note: Non-trade account balance is
high do to several days credit card cash receipts not yet applied to Accounts
Receivable</P>
<U><P ALIGN="JUSTIFY">&nbsp;</P>
<P ALIGN="JUSTIFY">LOAN STATUS</U>:</P></FONT>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=637>
<TR><TD WIDTH="57%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">Other<BR>
<U>Values</U></FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" COLSPAN=2>
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">Gross<BR>
<U>Collateral</U></FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" COLSPAN=2>
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">Advance <U>%</U></FONT></TD>
<TD WIDTH="9%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">Net <U>Collateral</U></FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP" COLSPAN=2>
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">1.&#9;Net IBM Credit
Outstandings</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="15%" VALIGN="TOP" COLSPAN=2>
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="9%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP" COLSPAN=2>
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;(1A-
(B+C+D+E+F+G+H+I)+J)</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="15%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="9%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;A.&#9;Gross IBM Credit
Outstandings (RFS):</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2>
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;&#9;Less:</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2>
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;B.&#9;Suspense</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2>
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;C.&#9;Disputes</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2>
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;D.&#9;In Transit (__
Days)</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2>
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;E.&#9;QSL / QSA</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2>
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;F.&#9;Other</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2>
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P
ALIGN="JUSTIFY">&#9;G.&#9;____________________</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2>
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P
ALIGN="JUSTIFY">&#9;H.&#9;____________________</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2>
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P
ALIGN="JUSTIFY">&#9;I.&#9;____________________</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2>
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;&#9;Plus:</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;J.&#9;Product Received Not
Billed (RNB)</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2>
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">2.&#9;Funds in Lockbox
(2A+B)</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;A.&#9;Cleared Funds
(transferred not posted)</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2>
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;B.&#9;Unavailable Funds
(float)</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2>
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">3.&#9;Loan Balance (Line 1 - Line
2)</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">4.&#9;Collateral Excess /
Shortfall:</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;(Collateral Line 13 - Loan Line
3:</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;(Loan balance
available)</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">5.&#9;Advances from IBM Credit to
Customer</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;(5A+B+C)</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;A.&#9;Cash Advances from
Lockbox</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2>
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;B.&#9;Cash Advances from IBM
Credit </FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2>
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;C.&#9;WCO Cash
Advance</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2>
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">6.&#9;New Adjusted O/S Balance
(3+5)</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">7.&#9;Remaining Credit Line
Availability</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&#9;(Collateral Line 13 - Loan Line
6)</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="51%" VALIGN="TOP">
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">8.&#9;WCO Payment
Advance</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2>
<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">$0</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP" COLSPAN=2>
<P>&nbsp;</TD>
</TR>
</TABLE>

<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">&nbsp;</P>
<P ALIGN="JUSTIFY">Signatures:</P>
<U><P ALIGN="JUSTIFY">/s/ John E. Labbett&#9;2/21/01</P>
</U><P ALIGN="JUSTIFY">Authorized Customer Signature&#9;(Date)</P>
<U><P ALIGN="JUSTIFY">&#9;</P>
</U><P ALIGN="JUSTIFY">IBM Credit Corporation&#9;(Date)</P>
<P ALIGN="JUSTIFY">The above officer or delegated individual of Egghead.com,
Inc. certifies that he or she is authorized to provide this information on
behalf of Egghead.com, Inc. and agrees that to the best of his or her knowledge
the information is accurate.</P>
<B><P ALIGN="CENTER">&nbsp;</P>
<P ALIGN="CENTER">AIF ATTACHMENT H TO</P>
<P ALIGN="CENTER">AGREEMENT FOR INVENTORY FINANCING ("AIF AGREEMENT")</P>
<P ALIGN="CENTER">Form of Opinion of Customer's Counsel</P>
</B><P ALIGN="CENTER">{LETTERHEAD OF CUSTOMER'S COUNSEL}</P>
<P ALIGN="JUSTIFY">&#9;{DATE}</P>
<P ALIGN="JUSTIFY">IBM Credit Corporation<BR>
_____________________<BR>
_____________________</P>
<P ALIGN="JUSTIFY">Re: ________________________</P>
<P ALIGN="JUSTIFY">Ladies and Gentlemen:</P>
<P ALIGN="JUSTIFY">We have acted as counsel for _________________________, a
_________________________ corporation (the "Borrower") in connection with (A)
the execution and delivery of that certain Agreement for Inventory Financing,
dated as of _________________________, 20___ (the "Financing Agreement"), by and
among the Borrower and IBM Credit Corporation ("IBM Credit"), and (B) the other
agreements, instruments, and documents executed and delivered by the Borrower in
connection with the Financing Agreement. Unless otherwise defined herein,
capitalized terms used herein shall have the meanings ascribed to such terms in
the Financing Agreement.</P>
<P ALIGN="JUSTIFY">In this connection, we have examined the following
documents:</P><DIR>
<DIR>
<DIR>
<DIR>

<P ALIGN="JUSTIFY">i.&#9;The Certificate of Incorporation and the By-laws of the
Borrower, each as amended to date;</P>
<P ALIGN="JUSTIFY">ii.&#9;The records of the proceedings taken by the Board of
Directors of the Borrower in connection with the execution, delivery, and
performance of the Financing Documents to which they are a party (as defined
below);</P>
<P ALIGN="JUSTIFY">iii.&#9;The Financing Agreement;</P>
<P ALIGN="JUSTIFY">iv.&#9;The Contingent Blocked Account Amendment;</P>
<P ALIGN="JUSTIFY">v.&#9;Acknowledgment copies of the UCC-1 Financing Statements
listed on Exhibit A hereto (the "Financing Statements") executed by the Borrower
naming it as Debtor and IBM Credit as Secured Party and filed in the offices set
forth on Exhibit A;</P>
<P ALIGN="JUSTIFY">vi.&#9;{Additional Documents ff necessary}</P></DIR>
</DIR>
</DIR>
</DIR>

<P ALIGN="JUSTIFY">The documents referred to in clauses (iii) through (vi) above
are hereinafter referred to as the Financing Documents.</P>
<P ALIGN="JUSTIFY">In our examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such latter documents, and, regarding documents
executed by parties other than the Borrower, that those parties had the power
and the capacity to enter into, execute, deliver and perform all obligations
under such documents, the due authorization of all requisite action with respect
to such documents, and the validity and binding effect of such documents upon
such other patties.</P>
<P ALIGN="JUSTIFY">As to any facts material to this opinion, we have relied upon
the representations and warranties of the Borrower contained in each of the
Financing Documents, and in certificates delivered by the Borrower pursuant to
each of the Financing Documents, statements, and representations of officers and
other representatives of the Borrower, and, as to the matters addressed therein,
certificates or correspondence from public officials. For purposes of the
opinion set forth in Paragraph 4, the term "Material Contracts" means the
agreements and instruments to which the Borrower is subject which have been
identified to us by officers of the Borrower and set forth on Exhibit B hereto
as the agreements and instruments which are material to the business or
financial condition of the Borrower; and the term "Material Orders" means those
orders and decrees to which the Borrower is subject which have been identified
to us by officers of the Borrower and set forth in Exhibit C hereto as the
orders and decrees, agreements, and instruments which are material to the
business or financial condition of the Borrower.</P>
<P ALIGN="JUSTIFY">As used herein, the term "UCC" refers to the Uniform
Commercial Code as in effect in the State of New York.</P>
<P ALIGN="JUSTIFY">We are members of the bar in the State of ____________ and
express no opinion as to the laws of any other jurisdiction except the General
Corporation Law of the State of ________________ and the federal laws of the
United States of America.</P>
<P ALIGN="JUSTIFY">Based on the foregoing, and subject to the assumptions and
qualifications set forth herein, we are of the opinion that:</P>
<P ALIGN="JUSTIFY">1.&#9;Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and is duly qualified and authorized to do business and in good
standing as a foreign corporation in each jurisdiction where, to our knowledge,
it presently is engaged in business and is required to be qualified.</P>
<P ALIGN="JUSTIFY">2.&#9;Borrower has all requisite corporate power and
authority (a) to own, lease, and operate its properties and assets and to carry
on its business as now being conducted; and (b) to execute, delivery, and
performance of the Financing Documents to which it is a party.</P>
<P ALIGN="JUSTIFY">3.&#9;All corporate action on the part of the Borrower
requisite for the execution, delivery, and performance of the Financing
Documents to which it is a party has been duly taken.</P>
<P ALIGN="JUSTIFY">4.&#9;The execution, delivery, and performance by the
Borrower of the Financing Documents to which it is a party will not (a) violate,
be in conflict with, result in the breach of, or constitute (with due notice or
lapse of time, or both) a default under (i) the Certificate of Incorporation or
By-laws of Borrower or any resolution of its Board of Directors or any committee
thereof, (ii) any Material Contract, or (iii) any federal or state law
(including, without limitation, environmental or occupational health, and safety
law), regulation, rule, Material Order, or legal requirement of any federal,
state, or public authority or agency applicable to Borrower; or (b) result in
the creation or imposition of a lien of any nature whatsoever upon any of the
Borrower's property or assets other than as represented by the Financing
Documents.</P>
<P ALIGN="JUSTIFY">5.&#9;Borrower has obtained any and all consents, approvals,
or other authorizations required to be obtained pursuant to its Certificate of
Incorporation and By-laws in connection with the execution, delivery, and
performance of the Financing Documents. No consent, approval, or authorization
of or by any court, administrative agency, other governmental authority, or any
other Person is required in connection with the execution, delivery, and
performance by the Borrower of the Financing Documents that has not already been
obtained.</P>
<P ALIGN="JUSTIFY">6.&#9;To our knowledge, there are no actions, proceedings, or
investigations pending or threatened against the Borrower which question the
validity of the Financing Documents to which it is a party or relating to the
transactions contemplated thereby.</P>
<P ALIGN="JUSTIFY">7.&#9;Each of the Financing Documents has been duly executed
and delivered by duly authorized officer of the Borrower and constitutes the
legal, valid, and binding obligation of the Borrower, enforceable against the
Borrower in accordance with its terms, except that, in each case,
(i)&nbsp;enforcement may be subject to and limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or other laws now or hereafter in effect
relating to creditors' rights generally, (ii) the remedy of specific performance
and injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought, and (iii) certain of the remedial provisions including waivers
with respect to the exercise of remedies against the Collateral contained in the
Financing Documents may be unenforceable in whole or in part, but the inclusion
of such provisions does not affect the validity of the Financing Documents, each
taken as a whole and, the Financing Documents, each taken as a whole, contain
adequate remedial provisions for the practical realization of the security
purported to be afforded thereby.</P>
<P ALIGN="JUSTIFY">8.&#9;The Financing Agreement is effective to create in favor
of IBM Credit a valid security interest within the meaning of the UCC in the
Collateral as security for the obligations purported to be secured thereby; and
(ii) the Financing Statements are in appropriate form and upon filing in the
state where Customer's principal place of business and chief executive office is
located will result in a perfected security interest (as such term is defined in
Section 9-303 of the UCC) of IBM Credit in the Collateral in which security
interests to which Article 9 of the UCC applies.</P>
<P ALIGN="JUSTIFY">9.&#9;Borrower is not an "investment company" or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, as amended.</P>
<P ALIGN="JUSTIFY">This opinion is rendered solely to and for the benefit of IBM
Credit in connection with the execution and delivery of the Financing Documents
and may not be relied upon by any other person, firm, or corporation without our
prior written consent, except that it may be furnished to any prospective
purchaser of a participation in the rights of IBM Credit and may be furnished to
and relied upon by any Person which hereafter acquires such a participation.</P>
<P ALIGN="JUSTIFY">This opinion is limited to laws as currently in effect on the
date hereto and to the facts as they currently exist, We assume no obligation to
revise, supplement or otherwise update this opinion.</P>
<P ALIGN="JUSTIFY">&#9;Very truly yours,</P>
<P ALIGN="JUSTIFY">&nbsp;</P>
<B><P ALIGN="CENTER">&nbsp;</P>
<P ALIGN="CENTER">AIF ATTACHMENT I TO</P>
<P ALIGN="CENTER">AGREEMENT FOR INVENTORY FINANCING ("AIF AGREEMENT")</P>
<P ALIGN="CENTER">CORPORATE SECRETARY'S CERTIFICATE AS TO RESOLUTIONS</P>
<P ALIGN="CENTER">AUTHORIZING BORROWING BY CORPORATION</P>
</B><P ALIGN="CENTER">IBM CREDIT CORPORATION</P>
<U><P>&#9;</P>
<P>&#9;</P>
</U><P>I, John Labbett, certify that I am the Secretary of Egghead.com, Inc.
("Customer") and that I am custodian of the Customer's organizational books and
records, including the minutes of the meetings of the Customer's Board of
Directors. I further certify as follows:</P>
<P>&#9;1.&#9;Customer is a corporation organized under the laws of the State of
Delaware, and has its principal of business at 1350 Willow Road, Menlo Park, CA
94025.</P>
<P>&#9;2.&#9;Customer is registered to conduct business or as otherwise required
in the following states and localities: California, Washington</P>
<P>&#9;3.&#9;True and complete copies of the Customer's Articles of
Incorporation and By-laws ("Governing Documents") are delivered herewith,
together with all amendments and addenda thereto as in effect on the date
hereof.</P>
<P>&#9;4.&#9;The following is a true, accurate and compared copy of a Resolution
(the "Resolution") adopted by the Customer's Board of Directors at a special
meeting thereof held on due notice at which there was present a quorum
authorized to adopt the Resolution and the entire proceedings of which were
proper and in accordance with the Customer's Governing Documents. The Resolution
was duly made, seconded and unanimously adopted, remains in full force and
effect and has not been revoked, annulled, amended or modified in any manner
whatsoever, and each authorization and empowerment contained in the Resolution
is permitted and proper under the Customer's Governing Documents:</P>
<P>&#9;Please see attached as a true excerpt from the minutes of the board of
directors meeting held on January 10, 2001.</P>
<P>&#9;5.&#9;Appearing below are the names, titles and specimen signatures of at
least three Authorized Person as defined in the Resolution cited in the
preceding paragraph, (list at least three such Authorized Persons):</P>
<P>Authorized Person(s)&#9;Title&#9;&#9;&#9;Signature</P>
<P>(print)&#9;&#9;&#9;(print)&#9;</P>
<P>Jeffrey F. Sheahan&#9;President &amp; CEO&#9;&#9;/s/ Jeffrey F. Sheahan</P>
<P>John E. Labbett&#9;EVP &amp; CFO&#9;&#9;&#9;/s/ John E. Labbett</P>
<P>David D. Tilton&#9;&#9;Director of Finance&#9;&#9;/s/ David D. Tilton</P>
<P>The foregoing is not intended to be a comprehensive or exclusive list of the
Customer's Authorized Persons. Upon request, Customer will promptly provide to
IBM Credit additional certificates containing the name, title and specimen
signature of other Authorized Persons, and IBM Credit may now and in the future
rely on the signature of any Authorized Person whether or not listed on this or
any other certificate or on the signature page(s) hereof, if consistent with the
books and records of the Customer.</P>
<P>&#9;IN WITNESS WHEREOF, I have signed this certificate this 28<SUP>th</SUP>
day of February, 2001.</P>
<P>&#9;&#9;&#9;&#9;&#9;&#9;&#9;/s/ John E. Labbett</P>
<P>&#9;&#9;&#9;&#9;&#9;&#9;&#9;Name: John E. Labbett</P>
<B><P ALIGN="CENTER">&nbsp;</P>
<P ALIGN="CENTER">&nbsp;</P>
<P ALIGN="CENTER">AIF ATTACHMENT J TO</P>
<P ALIGN="CENTER">AGREEMENT FOR INVENTORY FINANCING ("AIF AGREEMENT")</P>
</B><P ALIGN="CENTER">E-BUSINESS SCHEDULE A ("SCHEDULE A")</P>
<P ALIGN="JUSTIFY">Customer Name: Egghead.com, Inc.</P>
<P ALIGN="JUSTIFY">Effective Date of This Schedule A: <U>&#9;</U>, 20___</P>
<U><P ALIGN="JUSTIFY">E-DOCUMENTS - SUPPLIERS:</P>
</U><P ALIGN="JUSTIFY">&#9;Invoices</P>
<P ALIGN="JUSTIFY">&#9;Payment Report/Remittance Advice</P>
<U><P ALIGN="JUSTIFY">E-DOCUMENTS - CUSTOMERS:</P>
</U><P ALIGN="JUSTIFY">&#9;Invoices</P>
<P ALIGN="JUSTIFY">&#9;Remittance Advice</P>
<P ALIGN="JUSTIFY">&#9;Transaction Approval</P>
<P ALIGN="JUSTIFY">&#9;Billing Statement</P>
<P ALIGN="JUSTIFY">&#9;Payment Planner</P>
<P ALIGN="JUSTIFY">&#9;Auto Cash</P>
<P ALIGN="JUSTIFY">&#9;Statements of Transaction</P>
<P ALIGN="JUSTIFY">&#9;Common Dispute Form</P>
<B><P ALIGN="CENTER">&nbsp;</P>
<P ALIGN="CENTER">&nbsp;</P>
<P ALIGN="CENTER">Omitted Attachments to Exhibit 10.11</P>
</B><P ALIGN="CENTER">Attachment C - Compliance Certificate - Not applicable</P>
<P>Attachment D</P>
<P>Attachment G - Certificate of Location of Collateral</P><DIR>
<DIR>
<DIR>
<DIR>

<P><A NAME="mpTableOfContents">Section 1.&#9;DEFINITIONS; ATTACHMENTS&#9;1</P>
<P>1.1&#9;Special Definitions&#9;1</P>
<P>1.2&#9;Other Defined Terms&#9;7</P>
<P>1.3&#9;Attachments&#9;7</P>
<P>Section 2.&#9;CREDIT LINE; FINANCE CHARGES; OTHER CHARGES&#9;8</P>
<P>2.1&#9;Credit Line&#9;8</P>
<P>2.2&#9;Product Advances.&#9;8</P>
<P>2.3&#9;Finance and Other Charges.&#9;9</P>
<P>2.4&#9;Customer Account Statements&#9;10</P>
<P>2.5&#9;Shortfall&#9;10</P>
<P>2.6&#9;Application of Payments&#9;10</P>
<P>2.7&#9;Prepayment and Reborrowing By Customer&#9;11</P>
<P>Section 3.&#9;CREDIT LINE ADDITIONAL PROVISIONS&#9;11</P>
<P>3.1&#9;Ineligible Accounts&#9;11</P>
<P>3.2&#9;Reimbursement for Charges&#9;13</P>
<P>3.3&#9;Lockbox and Special Account&#9;13</P>
<P>3.4&#9;Collections.&#9;13</P>
<P>3.5&#9;Application of Remittances and Credits&#9;13</P>
<P>3.6&#9;Power of Attorney&#9;14</P>
<P>Section 4.&#9;SECURITY -- COLLATERAL&#9;15</P>
<P>4.1&#9;Grant&#9;15</P>
<P>4.2&#9;Further Assurances&#9;16</P>
<P>Section 5.&#9;CONDITIONS PRECEDENT&#9;16</P>
<P>5.1&#9;Conditions Precedent to the Effectiveness of this Agreement&#9;16</P>
<P>5.2&#9;Conditions Precedent to Each Advance&#9;17</P>
<P>Section 6.&#9;REPRESENTATIONS AND WARRANTIES&#9;18</P>
<P>6.1&#9;Organization and Qualifications&#9;18</P>
<P>6.2&#9;Rights in Collateral; Priority of Liens&#9;18</P>
<P>6.3&#9;No Conflicts&#9;18</P>
<P>6.4&#9;Enforceability&#9;18</P>
<P>6.5&#9;Locations of Offices, Records and Inventory&#9;18</P>
<P>6.6&#9;Fictitious Business Names&#9;19</P>
<P>6.7&#9;Organization&#9;19</P>
<P>6.8&#9;No Judgments or Litigation&#9;19</P>
<P>6.9&#9;No Defaults&#9;19</P>
<P>6.10&#9;Labor Matters&#9;19</P>
<P>6.11&#9;Compliance with Law&#9;19</P>
<P>6.12&#9;ERISA&#9;19</P>
<P>6.13&#9;Compliance with Environmental Laws.&#9;20</P>
<P>6.14&#9;Intellectual Property&#9;20</P>
<P>6.15&#9;Licenses and Permits&#9;20</P>
<P>6.16&#9;Investment Company&#9;20</P>
<P>6.17&#9;Taxes and Tax Returns&#9;21</P>
<P>6.18&#9;Status of Accounts&#9;21</P>
<P>6.19&#9;Affiliate/Subsidiary Transactions&#9;21</P>
<P>6.20&#9;Accuracy and Completeness of Information&#9;21</P>
<P>6.21&#9;Recording Taxes&#9;21</P>
<P>6.22&#9;Indebtedness&#9;21</P>
<P>Section 7.&#9;AFFIRMATIVE COVENANTS&#9;21</P>
<P>7.1&#9;Financial and Other Information&#9;22</P>
<P>7.2&#9;Location of Collateral&#9;23</P>
<P>7.3&#9;Changes in Customer&#9;23</P>
<P>7.4&#9;Legal Entity Existence&#9;23</P>
<P>7.5&#9;ERISA&#9;24</P>
<P>7.6&#9;Environmental Matters&#9;24</P>
<P>7.7&#9;Collateral Books and Records/Collateral Audit&#9;24</P>
<P>7.8&#9;Insurance; Casualty Loss&#9;25</P>
<P>7.9&#9;Taxes&#9;25</P>
<P>7.10&#9;Compliance With Laws&#9;26</P>
<P>7.11&#9;Fiscal Year&#9;26</P>
<P>7.12&#9;Intellectual Property&#9;26</P>
<P>7.13&#9;Maintenance of Property&#9;26</P>
<P>7.14&#9;Collateral&#9;26</P>
<P>7.15&#9;Subsidiaries&#9;27</P>
<P>7.16&#9;Financial Covenants; Additional Covenants&#9;27</P>
<P>Section 8.&#9;NEGATIVE COVENANTS&#9;28</P>
<P>8.1&#9;Liens&#9;28</P>
<P>8.2&#9;Disposition of Assets&#9;28</P>
<P>8.3&#9;Legal Entity Changes&#9;28</P>
<P>8.4&#9;Guaranties&#9;28</P>
<P>8.5&#9;Restricted Payments&#9;28</P>
<P>8.6&#9;Investments&#9;28</P>
<P>8.7&#9;Affiliate/Subsidiary Transactions&#9;29</P>
<P>8.8&#9;ERISA&#9;29</P>
<P>8.9&#9;Additional Negative Pledges&#9;29</P>
<P>8.10&#9;Storage of Collateral with Bailees and Warehousemen&#9;29</P>
<P>8.11&#9;Accounts&#9;30</P>
<P>8.12&#9;Indebtedness&#9;30</P>
<P>8.13&#9;Loans&#9;30</P>
<P>Section 9.&#9;DEFAULT&#9;30</P>
<P>9.1&#9;Event of Default&#9;30</P>
<P>9.2&#9;Acceleration&#9;32</P>
<P>9.3&#9;Remedies&#9;32</P>
<P>9.4&#9;Waiver&#9;33</P>
<P>Section 10.&#9;MISCELLANEOUS&#9;33</P>
<P>10.1&#9;Term; Termination&#9;33</P>
<P>10.2&#9;Indemnification&#9;34</P>
<P>10.3&#9;Additional Obligations&#9;34</P>
<P>10.4&#9;LIMITATION OF LIABILITY&#9;34</P>
<P>10.5&#9;Alteration/Waiver&#9;35</P>
<P>10.6&#9;Severability&#9;35</P>
<P>10.7&#9;One Loan&#9;35</P>
<P>10.8&#9;Additional Collateral&#9;36</P>
<P>10.9&#9;No Merger or Novations&#9;36</P>
<P>10.10&#9;Paragraph Titles&#9;36</P>
<P>10.11&#9;Binding Effect; Assignment&#9;36</P>
<P>10.12&#9;Notices; E-Business Acknowledgment&#9;36</P>
<P>10.13&#9;Counterparts&#9;38</P>
<P>10.14&#9;ATTACHMENT A MODIFICATIONS&#9;38</P>
<P>10.15&#9;SUBMISSION AND CONSENT TO JURISDICTION AND CHOICE OF LAW&#9;38</P>
<P>10.16&#9;JURY TRIAL WAIVER&#9;39</P></DIR>
</DIR>
</DIR>
</DIR>

<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>

</body>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>7
<FILENAME>sub10k.htm
<DESCRIPTION>SUBS
<TEXT>

<HTML>
<head>
<TITLE>2000 10K SUBS</TITLE>
</head>
<body bgcolor=white>




<B><FONT SIZE=2>
<P ALIGN="RIGHT">EXHIBIT 21.01</P>
<P ALIGN="CENTER">List of Egghead.com, Inc. Subsidiaries</P>
<P ALIGN="CENTER">Parent Company: Egghead.com, Inc.</P>
<P>Subsidiaries, wholly owned by Egghead.com, Inc.:</P>
</B><P>EO Corporation</P>
<P>D J &amp; J Software Corporation</P>
<P>Surplus Software, Inc.</P>
<P>EH Direct, Inc.</P>
<P>MPI Corporation</P>

<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>

</body>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.01
<SEQUENCE>8
<FILENAME>consek01.htm
<DESCRIPTION>CONSENT
<TEXT>

<HTML>
<head>
<TITLE>2000 10K Consent 23.01</TITLE>
</head>
<body bgcolor=white>

<B><P ALIGN="RIGHT">EXHIBIT 23.01</P>
</B><P>&nbsp;</P>
<B><P>INDEPENDENT AUDITORS' CONSENT</P>
</B><P>We consent to the incorporation by reference in Registration Statement
Nos. 333-43304, 333-91553 and
333-58991 on Form S-8 of Egghead.com, Inc. of our report dated March 29,
2001, appearing in this Annual
Report on Form 10-K of Egghead.com, Inc. for the year ended December 31,
2000.</P>
<P>/s/ Deloitte &amp; Touche LLP</P>
<P>San Francisco, California<br>
March 29, 2001</P>


<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>

</body>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.02
<SEQUENCE>9
<FILENAME>consek02.htm
<DESCRIPTION>CONSENT
<TEXT>

<HTML>
<head>
<TITLE>2000 10K Consent 23.02</TITLE>
</head>
<body bgcolor=white>

<B><P ALIGN="RIGHT">EXHIBIT 23.02</P>
</B><P>&nbsp;</P>
<P>CONSENT OF INDEPENDENT ACCOUNTANTS</P>
<P>We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File No. 333-91553), Form S-8 (File No. 333-58991) and
Form S-8 (File No.333-43304) of Egghead.com, Inc., of our report dated February
22, 2000, except for Note 16 which is as of March 29, 2000, which appears in
this Annual Report on Form 10-K</P>

<P ALIGN="JUSTIFY">PricewaterhouseCoopers LLP</P>

<P>San Jose, California<br>
March 30, 2001</P>

<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>

</body>
</HTML>
</TEXT>
</DOCUMENT>
</SUBMISSION>
