ONSALE INC, S-1/A, 1997-03-17

ONSALE INC
S-1/A, 1997-03-17
BUSINESS SERVICES, NEC

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 17, 1997

REGISTRATION NO. 333-18459

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

AMENDMENT NO. 1

TO
FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

ONSALE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 7389 77-0408319
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)

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

1861 LANDINGS DRIVE
MOUNTAIN VIEW, CALIFORNIA 94043
(415) 428-0600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

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

JOHN F. SAUERLAND
CHIEF FINANCIAL OFFICER
ONSALE, INC.
1861 LANDINGS DRIVE
MOUNTAIN VIEW, CALIFORNIA 94043
(415) 428-0600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)

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

COPIES TO:

LAIRD H. SIMONS III, ESQ. THOMAS A. BEVILACQUA, ESQ.
MARK C. STEVENS, ESQ. THERESE A. MROZEK, ESQ.
ADAM W. WEGNER, ESQ.
ROBERT Y. CHOW, ESQ. VALERIE L. RUSSELL, ESQ.
BROBECK, PHLEGER & HARRISON LLP
FENWICK & WEST LLP TWO EMBARCADERO PLACE
TWO PALO ALTO SQUARE 2200 GENG ROAD
PALO ALTO, CALIFORNIA 94306 PALO ALTO, CALIFORNIA 94303
(415) 494-0600 (415) 424-0160

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

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

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

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

<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION, DATED MARCH 17, 1997

2,800,000 SHARES

[LOGO OF ONSALE(TM)]

COMMON STOCK

All of the shares of Common Stock offered hereby are being sold by ONSALE,
Inc. ("ONSALE" or the "Company"). Prior to this offering, there has been no
public market for the Common Stock of the Company. It is currently estimated
that the initial public offering price will be between $8.00 and $10.00 per
share. See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. The Common Stock has been
approved for quotation on the Nasdaq National Market, upon completion of this
offering, under the symbol "ONSL."

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING
ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.

-----------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
================================================================================
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share..................................... $ $ $
Total (3)..................................... $ $ $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.

(2) Before deducting offering expenses payable by the Company estimated at
$850,000.

(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 420,000 additional shares of Common Stock, solely to cover over-
allotments, if any. If the Underwriters exercise this option in full, the
Price to Public will total $ , the Underwriting Discount will total $
and the Proceeds to Company will total $ . See "Underwriting."

The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them, and subject to their right
to reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of Montgomery Securities on or about , 1997.

-----------

MONTGOMERY SECURITIES ALEX. BROWN & SONS
INCORPORATED

, 1997
<PAGE>

<TABLE>
<S> <C> <C>
COVER GATEFOLD
Caption: ONSALE's live 24-hour auction house is located at http://www.onsale.com on
the Internet's World Wide Web.
Picture: A picture of the first page a person might see when they visit ONSALE's Web
site on the World Wide Web. It displays pictures of several products that
are being auctioned and lists other products that are being auctioned.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING SYNDICATE COVERING TRANSACTIONS OR THE IMPOSITION OF
PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING."

LEFT SIDE OF GATEFOLD TO INSIDE FRONT COVER
Graphic: ONSALE Logo
Caption: How ONSALE works
Caption: ONSALE's auctions are designed to be fun and exciting, adding the "lure of
the bargain" and "thrill of the hunt" to the retailing experience. At
ONSALE, customers do not purchase merchandise--they "WIN" it!
Graphic: A Web page button with the ONSALE logo and the word "HOME"
Caption: 1:45 PM--ONSALE customer JK of Hillsborough, CA logs into ONSALE's Web site.
Graphic: A Web page button with an image of a gavel and the word "BID"
Caption: 1:51 PM--JK places a bid on the Hewlett-Packard Vectra XU, bumping customer
TB of Twin Falls, ID off the Current High Bidders List.
Graphic: A Web page button with an image of a downward pointing arrow and the word
"OUTBID"
Caption: 1:51 PM--TB has been Outbid!! His bid is now replaced by JK's bid and
comment, "Hasta La Vista TB."
Graphic: A Web page button with an image of an envelope and the word "E-MAIL"
Caption: 1:54 PM--TB receives the "You've Been Outbid" E-mail.
Graphic: A Web page button with an image of a downward pointing arrow and the word
"OUTBID"
Caption: 2:05 PM--TB responds by increasing his bid, bumping JK off the Current High
Bidders List.
Graphic: A Web page button with an image of an envelope and the word "E-MAIL"
Caption: 2:15 PM--JK receives the "You've Been Outbid" E-mail and logs back into
ONSALE's Web site.
Graphic: A Web page button with an image of a gavel and the word "BID"
Caption: 2:17 PM--JK increases his bid online adding the comment "New Leader of the
Pack," bumping TB off the Current High Bidders List again.
Graphic: A Web page button with the ONSALE logo as if torn in half and the word
"CLOSED"
Caption: 2:30 PM--After several rounds of bidding, Auction #35786 is automatically
closed by ONSALE's custom auction software. JK is a winner! The winners are
now displayed online.
RIGHT SIDE OF GATEFOLD TO INSIDE FRONT COVER
Caption: THE ONSALE INTERACTIVE PROCESS (Caption runs across the entire top of the
page).
Caption: ONSALE Product Page
Picture: A page on ONSALE's World Wide Web site displaying a picture of a personal
computer being bid upon by bidders from around the country.
PAGE OPPOSITE GATEFOLD TO INSIDE FRONT COVER
Caption: Bid Page
Picture: The page on ONSALE's World Wide Web site that a person completes to bid in
an auction conducted by the Company.
Caption: Winner's Circle
Picture: A page displaying a list of winning bidders in the auction of a personal
computer.
</TABLE>

2
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus.

THE COMPANY

ONSALE has sold approximately $32 million of merchandise to more than 60,000
customer accounts from its first auction in May 1995 through December 31, 1996.
To date, the Company has auctioned over 362,000 merchandise items, of which
over 117,000 were auctioned in the fourth quarter of 1996. More than 1.2
million unique Internet users have visited ONSALE's electronic auctions. Over
109,000 of these users are bidders registered with the Company, with over
48,000 registering in the fourth quarter of 1996 alone.

The Internet is an increasingly significant global medium for communication
and commerce. International Data Corporation ("IDC") estimates that the total
value of goods and services purchased on the Web will increase from $318
million in 1995 to $95 billion in the year 2000. The Internet is evolving into
a unique marketing channel, just as retail stores, mail order catalogs and
television shopping have previously evolved as unique channels.

The Company believes the Internet is particularly well suited for selling
certain types of merchandise, such as refurbished and close-out merchandise,
because a large target market can be reached quickly and inexpensively. The
disposal of refurbished and close-out merchandise represents a substantial
burden on many manufacturers because such merchandise rapidly declines in value
making it difficult to establish a market price. Manufacturers have an interest
in accessing a distribution channel that enables them to dispose of significant
quantities of merchandise quickly and at the best prices possible, without
affecting their traditional sales channels.

The Company's auction sales format leverages a chief advantage of the
Internet--the ability to change dynamically merchandise mix, prices and visual
presentations. Currently, the Company auctions over 1,500 items each week.
These items generally range in price from $25 to $1,500 and are sold in
quantities of one to several hundred. Customers can bid 24 hours a day, 7 days
a week. As customer bids are received, ONSALE's Web pages are instantly updated
to display the current high bidders' initials, city and state, and an optional
comment to personalize the bidding. The entire auction process, from the
posting of the items for auction through notification of the winners, has been
automated by the Company through internally developed proprietary software. In
addition, the Company has developed proprietary software that automates product
fulfillment functions, including billing, shipping and tracking.

The Company's objective is to be one of the dominant retailers on the
Internet. The Company intends to leverage its position as a leading Internet
retailer of refurbished and close-out merchandise by enhancing its brand
recognition, continuing to provide a compelling shopping experience, developing
incremental revenue opportunities and building on its leading technology.
Moreover, ONSALE intends to increase the percentage of merchandise it purchases
for its own account with the goal of expanding gross margins and improving
customer service.

In addition, ONSALE believes that relationships with merchandise vendors are
critical to its long-term success. The Company employs a staff of experienced
buyers from the computer and consumer electronics industries to build
relationships with and purchase inventory from manufacturers and other vendors.
The Company intends to hire additional merchandise buying staff and enhance its
automated systems in order to expand and strengthen such relationships.
ONSALE's merchandise has included brands such as AST, AT&T, Aiwa, Apple, Canon,
Compaq, Dell, Hewlett-Packard, Intel, JVC, Kenwood, Lexmark, NEC, Packard Bell,
Sanyo, Seagate, Toshiba and Uniden.

RISK FACTORS

This offering involves a high degree of risk. See "Risk Factors" commencing
on page 5 for a discussion of certain factors that should be considered by
prospective purchasers of the Common Stock offered hereby.

3
<PAGE>

THE OFFERING

<TABLE>
<C> <S>
Common Stock offered by the Company................ 2,800,000 shares
Common Stock to be outstanding after this offering. 16,683,060 shares(1)
Use of proceeds.................................... Working capital and other
general corporate
purposes. See "Use of
Proceeds."
Nasdaq National Market symbol...................... ONSL
</TABLE>

SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PERIOD FROM
QUARTER ENDED INCEPTION YEAR
------------------------------------ (JULY 1994) TO ENDED
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, DECEMBER 31, DECEMBER 31,
1996 1996 1996 1996 1995 1996
-------- -------- --------- -------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenue.......... $ 577 $ 1,810 $ 3,576 $ 8,306 $ 140 $14,269
Gross profit........... 159 430 911 1,230 113 2,730
Income (loss) from
operations............ 17 111 115 124 (440) 367
Net income (loss)...... 15 100 106 140 (440) 361
Net income (loss) per
share(2).............. $ 0.00 $ 0.00 $ 0.01 $ 0.01 $ (0.03) $ 0.02
Shares used to compute
net income (loss) per
share(2).............. 15,326 15,326 15,326 15,326 15,326 15,326
SUPPLEMENTAL FINANCIAL
DATA:
Gross merchandise
sales(3).............. $ 1,792 $ 5,290 $ 9,246 $14,399 $ 1,252 $30,727
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------
PRO AS
ACTUAL FORMA(4) ADJUSTED(5)
------ -------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents. $2,649 $4,595 $27,181
Working capital........... 1,731 3,677 26,263
Total assets.............. 5,680 7,626 30,212
Long-term debt............ -- -- --
Total stockholders'
equity................... 2,328 4,274 26,860
</TABLE>
- --------

(1) Based on shares outstanding as of December 31, 1996. Also reflects 608,730
shares of Common Stock resulting from the exercise of outstanding warrants,
which occurred in March 1997. Does not include 1,612,910 shares issuable
upon the exercise of options outstanding as of such date under the
Company's 1995 Equity Incentive Plan, at a weighted average per share
exercise price of $1.27, or an aggregate of 2,122,090 shares available for
future grant or issuance under the Company's employee benefit plans. See
"Management--Director Compensation" and "Management--Employee Benefit
Plans."
(2) See Note 1 of Notes to Financial Statements for an explanation of the
determination of the number of shares used to compute net income (loss) per
share.

(3) Represents what the Company's total revenue would have been if sales where
the Company acted as a commissioned auction agent for its vendors ("Agent
Sales") were recorded as transactions where the Company purchased or
accepted consignment of merchandise from vendors for resale at auction
("Principal Sales"). This presentation of sales on a gross basis does not
affect the Company's gross profit or net income. Management believes that
gross merchandise sales provide a more consistent comparison between
historical periods and to future periods than does total revenue. Gross
merchandise sales should not be considered in isolation or as a substitute
for other information prepared in accordance with generally accepted
accounting principles ("GAAP"). See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Note 1 of Notes to
Financial Statements.

(4) Reflects the exercise of all outstanding warrants for aggregate proceeds to
the Company of approximately $1.9 million, which occurred in March 1997.

(5) Adjusted to reflect the sale of 2,800,000 shares of Common Stock in this
offering at an assumed initial public offering price per share of $9.00 and
after deducting the estimated underwriting discount and offering expenses.

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

Except where otherwise indicated, all share and per share data in this
Prospectus have been adjusted to reflect (i) the conversion of all outstanding
shares of Preferred Stock of the Company into shares of Common Stock, (ii) the
reincorporation of the Company as a Delaware corporation and associated changes
in the Company's charter documents and (iii) the adoption or amendment of
certain employee benefit plans, all of which have occurred or will occur before
the closing of this offering. See "Description of Capital Stock." In addition,
unless otherwise indicated, all information in this Prospectus (i) assumes the
Underwriters' over-allotment option will not be exercised and (ii) reflects a
three-for-one stock split of the Company's Common Stock effective on November
1, 1996. Certain information presented in this Prospectus, including
information relating to the number or amount of customer accounts, merchandise
items auctioned and units sold, unique and registered bidders, repeat customers
and average winning bid, has been derived from the Company's internal
information systems.

4
<PAGE>

RISK FACTORS

In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing the Common Stock offered hereby. This Prospectus
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results may differ significantly from the results discussed
in the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed below.

LIMITED OPERATING HISTORY

The Company was founded in July 1994 and began conducting auctions on the
Internet in May 1995. Accordingly, there is an extremely limited operating
history upon which to base an evaluation of the Company and its business and
prospects. The Company's business and prospects must be considered in light of
the risks, expenses and difficulties frequently encountered by companies in
their early stage of development, particularly companies in new and rapidly
evolving markets such as electronic commerce. Such risks for the Company
include a dependence on key vendors for merchandise, an evolving and
unpredictable business model, management of growth, the Company's ability to
anticipate and adapt to a developing market, acceptance by consumers of the
Company's Internet auctions and refurbished and close-out merchandise sold at
such auctions, development of equal or superior Internet auctions by
competitors, and the ability to identify, attract, retain and motivate
qualified personnel. To address these risks, the Company must, among other
things, continue to expand its vendor channels and buyer resources, manage
product obsolescence and pricing risks, maintain its customer base and attract
significant numbers of new customers, respond to competitive developments,
implement and execute successfully its business strategy and continue to
develop and upgrade its technologies and retailing services. There can be no
assurance that the Company will be successful in doing what is required to
address these risks. The Company's revenue depends substantially upon the
level of auction activity, which is, in turn, related to the availability of
merchandise from the Company's vendors and the expansion of its customer base.
This availability is difficult to forecast with any degree of certainty.
Accordingly, a substantial reduction in merchandise availability would have a
material adverse effect on the Company's business, results of operations and
financial condition. In addition, the Company has relatively low operating
margins and plans to increase its operating expenses significantly in order to
increase the size of its staff, expand its marketing efforts to enhance its
brand image, purchase larger volumes of merchandise to be sold at auction, and
support its growing infrastructure. As a result, the Company may experience
net losses through at least the four quarters of 1997. Moreover, at any time
to the extent that increases in such operating expenses precede or are not
subsequently followed by increased revenues, the Company's business, results
of operations and financial condition will be materially adversely affected.
Further, in view of the rapidly evolving nature of the Company's business and
its extremely limited operating history, the Company believes that period-to-
period comparisons of its financial results are not necessarily meaningful and
should not be relied upon as an indication of future performance. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

FLUCTUATIONS IN OPERATING RESULTS

5
<PAGE>

environment, the Company may from time to time make certain service, marketing
or supply decisions or acquisitions that could have a material adverse effect
on the Company's quarterly results of operations and financial condition. The
Company also expects that, in the future, it like other retailers may
experience seasonality in its business. Due to all of the foregoing factors,
in some future quarter the Company's operating results may fall below the
expectations of securities analysts and investors. In such event, the trading
price of the Company's Common Stock would likely be materially adversely
affected. In addition, the Company may experience net losses for at least the
four quarters of 1997. See "--Limited Operating History" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

RELIANCE ON MERCHANDISE VENDORS

The Company is entirely dependent upon vendors to supply it with merchandise
for sale through the Company's Internet auctions and the availability of
merchandise is unpredictable. In 1996, approximately 30% of the Company's
gross merchandise sales was derived from merchandise acquired from five
vendors, although no vendor accounted for more than 10% of gross merchandise
sales. The Company has no long-term contracts or arrangements with its vendors
that guarantee the availability of merchandise for its auctions. There can be
no assurance that the Company's current vendors will continue to sell
merchandise to the Company or otherwise provide merchandise for sale in the
Company's auctions or that the Company will be able to establish new vendor
relationships that ensure merchandise will be available for auction on the
Company's Web site. The Company also relies on many of its vendors to process
and ship merchandise to customers. The Company has limited control over the
shipping procedures of its vendors, and shipments by these vendors have often
been subject to delays. Although most merchandise sold by the Company carries
a warranty supplied either by the manufacturer or the vendor and the Company
is not obligated to accept merchandise returns, the Company in fact has
accepted returns from customers for which the Company did not receive
reimbursements from its vendors or manufacturers. If the Company is unable to
develop and maintain satisfactory relationships with vendors on acceptable
commercial terms, if the Company is unable to obtain sufficient quantities of
merchandise, if the quality of service provided by such vendors falls below a
satisfactory standard or if the Company's level of returns exceeds its
expectations, the Company's business, results of operations and financial
condition will be materially adversely affected. See "Business--Merchandise,"
"Business--Vendor Relationships" and "Business--Customer Support and Service."

RELIANCE ON OTHER THIRD PARTIES

In addition to its merchandise vendors, the Company's operations depend on a
number of third parties. The Company has limited control over these third
parties and no long-term relationships with any of them. The Company does not
own a gateway onto the Internet, but instead relies on an Internet service
provider to connect the Company's Web site to the Internet. From time to time,
the Company has experienced temporary interruptions in its Web site connection
and also its telecommunications access. Continuous or prolonged interruptions
in the Company's Web site connection or in its telecommunications access would
have a material adverse effect on the Company's business, results of
operations and financial condition. The Company's internally-developed auction
software depends on operating system, database and server software that was
developed and produced by and licensed from third parties. The Company has
from time to time discovered errors and defects in the software from these
third parties and, in part, relies, on these third parties to correct these
errors and defects in a timely manner. The Company does not currently own or
lease warehouse space and relies instead on a contract warehouse, Gage
Marketing Group ("Gage"). Accordingly, any service interruptions experienced
by this warehouse as a result of labor problems or otherwise could have a
material adverse effect on the Company's business, results of operations and
financial condition. Due to difficulties with its previous warehouse, the
Company entered into its relationship with Gage in December 1996 and
immediately began shifting its business to Gage. This transition resulted in a
significant diversion of management time, customer dissatisfaction from
shipment failures, delays and mistakes and significant additional customer
service requirements and expenses in an effort to address this customer
dissatisfaction. One customer has threatened a lawsuit on behalf of himself
and other customers whom he believes were damaged by the shipment problems
during the transition period. The Company has little experience on which to
assess whether Gage will be capable

6
<PAGE>

of adequately providing the warehouse and distribution services that it
currently requires or will require if the Company expands its volume. If the
Company is unable to develop and maintain satisfactory relationships with such
third parties on acceptable commercial terms, or the quality of products and
services provided by such third parties falls below a satisfactory standard,
the Company's business, results of operations and financial condition will be
materially adversely affected. See "Business--Merchandise Distribution" and
"Business--Technology and Operations."

RISKS OF A PRINCIPAL SALES MODEL

Historically, the Company had little inventory or price risk because it
either acted as a sales agent for vendors that retained title to the
merchandise auctioned by the Company or took merchandise from vendors on
consignment. Recently, the Company has begun purchasing merchandise from
vendors and thereby assuming the inventory and price risks of these products
to be sold at auction. These risks are especially significant because the
merchandise currently auctioned by the Company--computers, peripherals and
consumer electronics--is characterized by rapid technological change,
obsolescence and price erosion. As the Company transitions to the Principal
Sales model, its success will depend on its ability to liquidate its inventory
rapidly through its auctions and the ability of its buying staff to purchase
inventory at attractive prices relative to its resale value at auction. Due to
the inherently unpredictable nature of auctions, it is impossible to determine
with any certainty whether an item will sell for more than the price paid by
the Company. Further, because minimum bid prices for the merchandise listed on
the Company's Web site generally are lower than the Company's acquisition
costs for such merchandise, there can be no assurance that the Company will
achieve positive gross margins on any given sale. If the Company is unable to
liquidate its purchased inventory rapidly, if the Company's buying staff fails
to purchase inventory at attractive prices relative to its resale value at
auction, or if the Company fails to predict with accuracy the resale prices
for its purchased merchandise, the Company may be forced to sell its inventory
at a discount or at a loss and the Company's business, results of operations
and financial condition would be materially adversely affected. See
"Business--Merchandise" and "Business--Vendor Relationships."

COMPETITION

The electronic commerce market, particularly on the Internet, is new,
rapidly evolving and intensely competitive, and the Company expects
competition to intensify in the future. The Company currently or potentially
competes with a variety of other companies depending on the type of
merchandise and sales format offered to customers. These competitors include
(i) various small Internet auction houses, (ii) a number of indirect
competitors that specialize in electronic commerce or derive a substantial
portion of their revenue from electronic commerce, including Internet Shopping
Network, a wholly-owned subsidiary of Home Shopping Network Inc., New England
Circuit Exchange, America Online, Inc. ("America Online") and CUC
International Inc., (iii) a variety of other companies that offer merchandise
similar to that of the Company but through physical auctions and with which
the Company competes for sources of supply and (iv) companies with substantial
customer bases in the computer and peripherals catalog business, including
Micro Warehouse, Inc. and CDW Computer Centers, Inc., which may devote more
resources to Internet commerce in the future. In particular, America Online
has taken a minority equity interest in Internet Liquidators International,
Inc. ("ILI") and announced that the two companies have formed a strategic
partnership under which revenue from ILI's auction platforms will be shared
with America Online and America Online will provide a direct link for ILI's
members to reach ILI's electronic commerce site on the Web. Also, the Company
believes Micro Warehouse, Inc. is contemplating the introduction of an online
auction Web site in the next several months, that Ziff-Davis has reserved a
Web domain name including the word "auction" and that CompUSA is considering
opening an auction site on the Web for its refurbished products.

7
<PAGE>

likely to result in reduced operating margins, loss of market share and a
diminished brand franchise, any one of which could materially adversely affect
the Company's business, results of operations and financial condition. Many of
the Company's current and potential competitors have significantly greater
financial, technical, marketing and other resources than the Company. As a
result, they may be able to secure merchandise from vendors on more favorable
terms than the Company, and they may be able to respond more quickly to
changes in customer preferences or to devote greater resources to the
development, promotion and sale of their merchandise than can the Company. See
"Business--Competition."

MANAGEMENT OF GROWTH; LIMITED SENIOR MANAGEMENT RESOURCES

The Company has rapidly and significantly expanded its operations and
anticipates that significant expansion of its operations will continue to be
required in order to address potential market opportunities. This rapid growth
has placed, and is expected to continue to place, a significant strain on the
Company's management, operational and financial resources. The Company
expanded from 14 employees at June 30, 1996 to 54 employees at December 31,
1996 and its sales increased from approximately 3,300 units per week at the
beginning of the third quarter of 1996 to over 12,000 units per week at the
end of the fourth quarter of 1996. The Company's new employees include a
number of key managerial and technical employees who have not yet been fully
integrated into the Company's management team, and the Company expects to add
additional key personnel in the near future. Increases in the number of
employees and the volume of merchandise sales have placed significant demands
on the Company's management, which until January 1997 included only three
executive officers. In order to manage the expected growth of its operations,
the Company will be required to expand existing operations, particularly with
respect to customer service and merchandising, to improve existing and
implement new operational, financial and inventory systems, procedures and
controls, including improvement of its financial and other internal management
systems, on a timely basis, and to train, manage and expand its already
growing employee base. The Company also will be required to expand its
accounting staff. Further, the Company's management will be required to
maintain relationships with various merchandise vendors, freight companies,
warehouse operators, other Web sites and services, Internet service providers
and other third parties and to maintain control over the strategic direction
of the Company in a rapidly changing environment. In addition, during the
second half of 1997, the Company expects to begin offering credit to certain
of its customers that have been prequalified as having appropriate credit
ratings and, accordingly, will be required to manage the associated risks of
accounts receivable expansion and collection. There can be no assurance that
the Company's current personnel, systems, procedures and controls will be
adequate to support the Company's future operations, that management will be
able to identify, hire, train, retain, motivate and manage required personnel
or that management will be able to manage and exploit existing and potential
market opportunities successfully. If the Company is unable to manage growth
effectively, the Company's business, results of operations and financial
condition will be materially adversely affected. See "Business--Employees" and
"Management."

RISKS ASSOCIATED WITH TECHNOLOGICAL CHANGE; DEPENDENCE ON THE INTERNET

The Internet and electronic commerce industries are characterized by rapid
technological change, changes in user and customer requirements, frequent new
service or product introductions embodying new technologies and the emergence
of new industry standards and practices that could render the Company's
existing Web site and proprietary technology obsolete. The Company's
performance will depend, in part, on its ability to license leading
technologies, enhance its existing services, develop new proprietary
technology that addresses the increasingly sophisticated and varied needs of
its prospective customers, and respond to technological advances and emerging
industry standards and practices on a timely and cost-effective basis. The
development of Web site and other proprietary technology entails significant
technical and business risks. There can be no assurance that the Company will
be successful in using new technologies effectively or adapting its Web site
and proprietary technology to customer requirements or emerging industry
standards. If the Company is unable, for technical, legal, financial or other
reasons, to adapt in a timely manner in response to changing market conditions
or customer requirements, or if the Company's Web site and proprietary
technology do not achieve market

8
<PAGE>

acceptance, the Company's business, results of operations and financial
condition would be materially adversely affected.

The success of the Company's services will depend in large part upon the
development of an infrastructure for providing Internet access and services.
The Internet could lose its viability due to delays in the development or
adoption of new standards and protocols intended to handle increased levels of
Internet activity or due to increased governmental regulation. There can be no
assurance that the infrastructure or complementary services necessary to make
the Internet a viable commercial marketplace will be developed or that, if
they are developed, the Internet will become a viable marketing and sales
channel for refurbished and close-out merchandise such as that offered by the
Company. If the infrastructure or complementary services necessary to make the
Internet a viable commercial marketplace are not developed or if the Internet
does not become a viable commercial marketplace, the Company's business,
results of operations and financial condition will be materially adversely
affected. See "Business--Industry Background" and "Business--Technology and
Operations."

DEVELOPING MARKET; UNCERTAIN ACCEPTANCE OF THE INTERNET AS A MEDIUM FOR
COMMERCE

The market for the Company's services has only recently begun to develop and
is rapidly changing. As is typical for a new and rapidly evolving industry,
demand and market acceptance for recently introduced services and products
over the Internet are subject to a high level of uncertainty and there exist
few proven services and products. Moreover, since the market for the Company's
Internet auctions is new and evolving, it is difficult to predict the size of
this market or its future growth rate, if any. The success of the Company's
Internet auctions will depend upon the adoption of the Internet as a medium
for commerce by a broad base of consumers and vendors. There can be no
assurance that widespread acceptance of Internet commerce in general, or of
the Company's Internet auctions in particular, will occur. The Company has
historically relied on consumers and vendors who have historically used
traditional means of commerce to purchase and sell merchandise. For the
Company to be successful, these consumers and vendors must accept and utilize
novel ways of conducting business and exchanging information. In addition,
vendors must be persuaded to adopt new selling models. Moreover, critical
issues concerning the commercial use of the Internet, such as ease of access,
security, reliability, cost and quality of service, remain unresolved and may
affect the growth of Internet use or the attractiveness of conducting commerce
online. There can be no assurance that there will be broad acceptance of the
Internet as an effective medium for commerce by consumers and vendors or that
the market for the Company's Internet auctions will develop successfully or
achieve widespread acceptance. If the market for Internet-based online
auctions fails to develop, develops more slowly than expected or becomes
saturated with competitors, or if the Company's Internet auctions do not
achieve market acceptance, the Company's business, results of operations and
financial condition will be materially adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Business Strategy."

UNCERTAIN ACCEPTANCE OF THE ONSALE BRAND

The Company believes that the importance of brand recognition will increase
as more companies engage in commerce over the Internet. Development and
awareness of the ONSALE brand will depend largely on the Company's success in
maintaining its position as a leader in Internet commerce. If vendors do not
perceive the Company as an effective marketing and sales channel for their
merchandise, or consumers do not perceive the Company as offering an
entertaining and desirable way to purchase merchandise, the Company will be
unsuccessful in promoting and maintaining its brand. To the extent the Company
expands the focus of its operations beyond the auction and sale of refurbished
and close-out computers, peripherals and consumer electronics or explores the
use of the Company's Web site as an advertising medium for services and
products of other companies, the Company risks diluting its brand, confusing
consumers and decreasing interest from vendors. Furthermore, in order to
attract and retain customers and to promote and maintain the ONSALE brand in
response to competitive pressures, the Company may find it necessary to
increase its marketing and advertising budgets or otherwise to increase
substantially its financial commitment to creating and maintaining brand
loyalty

9
<PAGE>

among vendors and consumers. If the Company is unable to or incurs significant
expenses in an attempt to achieve or maintain a leading position in Internet
commerce or to promote and maintain its brand, the Company's business, results
of operations and financial condition will be materially adversely affected.
See "Business--Business Strategy" and "Business--Sales and Marketing."

GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES

The Company is not currently subject to direct regulation by any government
agency, other than regulations applicable to businesses generally, laws
applicable to auction companies and auctioneers, and laws or regulations
directly applicable to access to or commerce on the Internet. However, 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,
covering issues such as user privacy, pricing, and characteristics and quality
of products and services. Furthermore, 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 the Internet, which, in turn, could
decrease the demand for the Company's Internet auctions and increase the
Company's cost of doing business or otherwise have an adverse effect on the
Company's business, results of operations and financial condition. Moreover,
the applicability to the Internet of existing laws in various jurisdictions
governing issues such as property ownership, auction regulation, sales tax,
libel and personal privacy is uncertain and may take years to resolve. In
addition, as the Company's service is available over the Internet in multiple
states and foreign countries, and as the Company sells to numerous consumers
resident in such states and foreign countries, such jurisdictions may claim
that the Company is required to qualify to do business as a foreign
corporation in each such state and foreign country. The Company is qualified
to do business in only three states, and failure by the Company to qualify as
a foreign corporation in a jurisdiction where it is required to do so could
subject the Company to taxes and penalties for the failure to qualify. Any
such new legislation or regulation, or the application of laws or regulations
from jurisdictions whose laws do not currently apply to the Company's
business, could have a material adverse effect on the Company's business,
results of operations and financial condition.

DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL PERSONNEL

The Company's future performance depends to a significant degree upon the
continued contributions of members of the Company's senior management and
other key personnel, particularly its founder, President and Chief Executive
Officer, S. Jerrold Kaplan, and its founder, Vice President of Development and
Operations and Chief Technical Officer, Alan S. Fisher. The loss of either of
these individuals could have a material adverse effect on the Company's
business, results of operation and financial condition. The Company does not
have long-term employment agreements with any of its key personnel and
maintains no key person life insurance. In addition, the Company believes that
its future success will depend upon its ability to identify, attract, hire,
train, motivate and retain other highly skilled managerial, merchandising,
engineering, marketing and customer service personnel. Competition for such
personnel is intense. There can be no assurance that the Company will be
successful in attracting, assimilating or retaining the necessary personnel,
and the failure to do so could have a material adverse effect on the Company's
business, results of operations and financial condition. See "Business--
Employees" and "Management."

RISK OF SYSTEM FAILURE; SINGLE SITE

The Company's success is largely dependent upon its communications hardware
and computer hardware, substantially all of which are located at a leased
facility in Mountain View, California. The Company's systems are vulnerable to
damage from earthquake, fire, floods, power loss, telecommunications failures,
break-ins and similar events. The Company does not presently have redundant
systems or a formal disaster recovery plan. A substantial interruption in
these systems would have a material adverse effect on the Company's business,
results of operations and financial condition. The Company's coverage limits
on its property and business interruption insurance may not be adequate to
compensate the Company for all losses that may occur. Despite the
implementation of network security measures by the Company, its servers are
also vulnerable to computer

10
<PAGE>

viruses, physical or electronic break-ins and similar disruptive problems.
Computer viruses, break-ins or other problems caused by third parties could
lead to interruptions, delays, loss of data or cessation in service to users
of the Company's services and products. The occurrence of any of these risks
could have a material adverse effect on the Company's business, results of
operations and financial condition. See "Business--Facilities."

INTERNET COMMERCE SECURITY RISKS

A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. The
Company relies on encryption and authentication technology licensed from third
parties to provide the security and authentication necessary to effect secure
transmission of confidential information. There can be no assurance that
advances in computer capabilities, new discoveries in the field of
cryptography or other events or developments will not result in a compromise
or breach of the algorithms used by the Company to protect customer
transaction data. If any such compromise of the Company's security were to
occur, it could have a material adverse effect on the Company's business,
results of operations and financial condition. A party who is able to
circumvent the Company's security measures could misappropriate proprietary
information or cause interruptions in the Company's operations. The Company
may be required to expend significant capital and other resources to protect
against the threat of such security breaches or to alleviate problems caused
by such breaches. Concerns over the security of Internet transactions and the
privacy of users may also inhibit the growth of the Internet generally, and
the Web in particular, especially as a means of conducting commercial
transactions. To the extent that activities of the Company or third party
contractors involve the storage and transmission of proprietary information,
such as credit card numbers, security breaches could expose the Company to a
risk of loss or litigation and possible liability. There can be no assurance
that the Company's security measures will prevent security breaches or that
failure to prevent such security breaches will not have a material adverse
effect on the Company's business, results of operations and financial
condition. See "Business--Technology and Operations."

PROTECTION OF INTELLECTUAL PROPERTY

The Company's performance and ability to compete are dependent to a
significant degree on its proprietary technology. The Company relies on a
combination of patent, trademark, copyright and trade secret laws, as well as
confidentiality agreements and technical measures to establish and protect its
proprietary rights. The Company has applied for five patents in the United
States covering various aspects of electronically managed Internet auctions
and various aspects of providing customer service via automated email. There
can be no assurance that patents will issue from any of the Company's pending
applications, that any patents granted to the Company will not be challenged
and invalidated, or that any claims allowed from pending patents will be of
sufficient scope or strength to provide meaningful protection or any
commercial advantage to the Company. The Company has registered the ONSALE(R)
trademark in the United States and claims trademark rights in, and has applied
for trademark registrations in the United States for, a number of other marks.
There can be no assurance that the Company will be able to secure significant
protection for these trademarks. It is possible that competitors of the
Company or others will adopt product or service names similar to "ONSALE" and
the Company's other trademarks, thereby impeding the Company's ability to
build brand identity and possibly leading to customer confusion. The inability
of the Company to protect the name "ONSALE" adequately would have a material
adverse effect on the Company's business, results of operations and financial
condition. The Company's proprietary software is protected by copyright laws.
The source code for the Company's proprietary software also is protected as a
trade secret. As part of its confidentiality procedures, the Company generally
enters into agreements with its employees and consultants and limits access to
and distribution of its software, documentation and other proprietary
information. There can be no assurance that the steps taken by the Company
will prevent misappropriation of its technology or that agreements entered
into for that purpose will be enforceable. Notwithstanding the precautions
taken by the Company, it might be possible for a third party to copy or
otherwise obtain and use the Company's software or other proprietary
information without authorization or to develop similar software
independently. Policing unauthorized use of the Company's technology is
difficult, particularly because the global nature of the Internet makes it
difficult to control the ultimate destination or

11
<PAGE>

security of software or other data transmitted. The laws of other countries
may afford the Company little or no effective protection of its intellectual
property.

The Company may in the future receive notices from third parties claiming
infringement by the Company's software or other aspects of the Company's
business. While the Company is not currently subject to any such claim, any
future claim, with or without merit, could result in significant litigation
costs and diversion of resources, including the attention of management, and
require the Company to enter into royalty and licensing agreements, which
could have a material adverse effect on the Company's business, results of
operations and financial condition. Such royalty and licensing agreements, if
required, may not be available on terms acceptable to the Company or at all.
In the future, the Company may also need to file lawsuits to enforce the
Company's intellectual property rights, to protect the Company's trade
secrets, to determine the validity and scope of the proprietary rights of
others. Such litigation, whether successful or unsuccessful, could result in
substantial costs and diversion of resources, which could have a material
adverse effect on the Company's business, results of operations and financial
condition.

The Company also relies on a variety of technology that it licenses from
third parties, including its database and Internet server software, which is
used in the Company's Web site to perform key functions. There can be no
assurance that these third party technology licenses will continue to be
available to the Company on commercially reasonable terms. The loss of or
inability of the Company to maintain or obtain upgrades to any of these
technology licenses could result in delays in completing its proprietary
software enhancements and new developments until equivalent technology could
be identified, licensed or developed and integrated. Any such delays would
materially adversely affect the Company's business, results of operations and
financial condition. See "Business--Intellectual Property and Other
Proprietary Rights."

CONTROL BY PRINCIPAL STOCKHOLDERS, OFFICERS AND DIRECTORS

Upon completion of this offering, the Company's officers, directors and
greater than 5% stockholders (and their affiliates) will, in the aggregate,
beneficially own approximately 80.5% of the Company's outstanding Common Stock
(78.5% if the Underwriters' over-allotment option is exercised in full). As a
result, such persons, acting together, will have the ability to control all
matters submitted to stockholders of the Company for approval (including the
election and removal of directors and any merger, consolidation or sale of all
or substantially all of the Company's assets) and to control the management
and affairs of the Company. Accordingly, such concentration of ownership may
have the effect of delaying, deferring or preventing a change in control of
the Company, impede a merger, consolidation, takeover or other business
combination involving the Company or discourage a potential acquirer from
making a tender offer or otherwise attempting to obtain control of the
Company, which in turn could have an adverse effect on the market price of the
Company's Common Stock. See "Management" and "Principal Stockholders."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of the Company's Common Stock (including shares
issued upon the exercise of outstanding options) in the public market after
this offering could adversely affect the market price of the Common Stock.
Such sales also might make it more difficult for the Company to sell equity or
equity-related securities in the future at a time and price that the Company
deems appropriate. In addition to the 2,800,000 shares of Common Stock offered
hereby (assuming no exercise of the Underwriters' over-allotment option), as
of the date of this Prospectus, there will be 13,883,060 shares of Common
Stock outstanding, all of which are restricted shares ("Restricted Shares")
under the Securities Act of 1933, as amended (the "Securities Act"). As of
such date, no Restricted Shares will be eligible for sale in the public market
in addition to the shares offered hereby. Approximately 10,774,330 Restricted
Shares will be available for sale in the public market following the
expiration of 180-day lock-up agreements with the representatives of the
Underwriters. Of the remaining Restricted Shares, 250,000 shares held by
Messrs. Kaplan, Fisher and Mohiuddin will become eligible each month
thereafter until July 21, 1998 as certain repurchase rights of the Company
with respect to those shares lapse and 608,730 shares will be eligible for
sale upon the achievement of a one-year holding period.

12
<PAGE>

Montgomery Securities also may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to lock-up
agreements. In addition, beginning six months after the offering, the holders
of 13,704,303 Restricted Shares will be entitled to certain rights with
respect to registration of such shares for sale in the public market. If such
holders sell in the public market, such sales could have a material adverse
effect on the market price of the Company's Common Stock.

Soon after the offering, the Company expects to register approximately
3,735,000 shares of Common Stock reserved for issuance under its stock option
and purchase plans. As of December 31, 1996, options to purchase a total of
1,612,910 shares were outstanding (although all of the shares issuable upon
exercise of such options will be subject to lock-up restrictions on sale for
180 days after the Effective Date) and 2,122,090 shares of Common Stock were
reserved for future issuance under the Company's stock option and purchase
plans. See "Shares Eligible for Future Sale."

BROAD MANAGEMENT DISCRETION IN ALLOCATION OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby at an assumed initial public offering price of $9.00 per share,
after deducting the estimated underwriting discount and offering expenses, are
estimated to be approximately $22.6 million. The Company has no specific plan
for such net proceeds. The Company intends to use the net proceeds, over time,
primarily for working capital to fund operations (including expansion of the
Company's accounts receivable and merchandise inventory and increased
expenditures on sales and marketing) and for other general corporate purposes.
A portion of the net proceeds also may be used for the acquisition of
businesses, products and technologies that are complementary to those of the
Company. Accordingly, the Company's management will retain broad discretion as
to the allocation of the proceeds of this offering. The failure of management
to apply such funds effectively could have a material adverse effect on the
Company's business, results of operations and financial condition. See "Use of
Proceeds."

NO PRIOR MARKET FOR COMMON STOCK

Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market will
develop or be sustained after this offering or that investors will be able to
sell the Common Stock should they desire to do so. The initial public offering
price will be determined by negotiations between the Company and the
representatives of the Underwriters and may bear no relationship to the price
at which the Common Stock will trade upon completion of this offering. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price.

POSSIBLE VOLATILITY OF STOCK PRICE

The market price of the shares of Common Stock is likely to be highly
volatile and could be subject to wide fluctuations in response to factors such
as actual or anticipated variations in the Company's results of operations,
announcements of technological innovations, new sales formats by the Company
or its competitors, developments with respect to patents, copyrights or
proprietary rights, changes in financial estimates by securities analysts,
conditions and trends in the Internet and electronic commerce industries,
adoption of new accounting standards affecting the retail sales industry,
general market conditions and other factors. Further, the stock markets, and
in particular the Nasdaq National Market, have experienced extreme price and
volume fluctuations that have particularly affected the market prices of
equity securities of many technology companies and that often have been
unrelated or disproportionate to the operating performance of such companies.
The trading prices of many technology companies' stocks are at or near
historical highs and reflect price earnings ratios substantially above
historical levels. There can be no assurance that these trading prices and
price earnings ratios will be sustained. These broad market factors may
adversely affect the market price of the Company's Common Stock. These market
fluctuations, 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 the Common Stock. In the past, following
periods of volatility in the market price of a company's securities,
securities class action litigation has often been instituted against such
company. Such litigation, if instituted, could result in substantial

13
<PAGE>

costs and a diversion of management's attention and resources, which would
have a material adverse effect on the Company's business, results of
operations and financial condition.

IMMEDIATE AND SUBSTANTIAL DILUTION

Purchasers of the Common Stock in this offering will suffer immediate and
substantial dilution of $7.39 per share in the net tangible book value of the
Common Stock from the initial public offering price. To the extent that
outstanding options to purchase the Company's Common Stock are exercised,
there may be further dilution. See "Dilution."

14
<PAGE>

THE COMPANY

ONSALE was incorporated in California in July 1994 and reincorporated in
Delaware in March 1997. As used in this Prospectus, unless the context
otherwise requires, the terms "Company" and "ONSALE" refer to ONSALE, a
California corporation, and its successor Delaware corporation, ONSALE, Inc.
The Company's Web site is located at http://www.onsale.com. Information
contained in the Company's Web site shall not be deemed to be a part of this
Prospectus. The Company's principal executive offices are located at 1861
Landings Drive, Mountain View, California 94043. The Company's telephone
number is (415) 428-0600.

ONSALE(R) is a registered trademark, and the ONSALE tag logo, Dutch
Auction(TM), Yankee Auction(TM), Put your money where your mouse is(TM),
Steals and Deals(TM) and BidWatch(TM) are trademarks, of the Company. This
Prospectus also includes trade names and trademarks of other companies.

The Company intends to furnish to its stockholders annual reports containing
audited financial statements and an opinion thereon expressed by independent
certified public accountants.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,800,000 shares of
Common Stock offered hereby are estimated to be $22.6 million at an assumed
initial public offering price of $9.00 per share and after deducting the
estimated underwriting discount and offering expenses ($26.1 million if the
Underwriters' over-allotment option is exercised in full). The primary
purposes of this offering are to obtain additional capital, to create a public
market for the Common Stock and to facilitate future access to public markets.
The Company has no specific plan for the net proceeds of the offering. The
Company expects to use the net proceeds, over time, primarily for working
capital to fund operations (including expansion of the Company's accounts
receivable and merchandise inventory and increased expenditures on sales and
marketing) and for other general corporate purposes. A portion of the proceeds
also may be used to acquire or invest in complementary businesses or products
or to obtain the right to use complementary technologies. From time to time,
in the ordinary course of business, the Company evaluates potential
acquisitions of such businesses, products or technologies. However, the
Company has no present understandings, commitments or agreements with respect
to any material acquisition of businesses, products or technologies. Pending
use of the net proceeds for the above purposes, the Company intends to invest
such funds in short-term, interest-bearing, investment-grade securities.

DIVIDEND POLICY

The Company has not paid any cash dividends on its capital stock to date.
The Company currently anticipates that it will retain any future earnings for
use in its business and does not anticipate paying any cash dividends in the
foreseeable future.

15
<PAGE>

CAPITALIZATION

The following table sets forth the actual capitalization of the Company as
of December 31, 1996, the capitalization of the Company on a pro forma basis
to give effect to the exercise of all outstanding warrants and the conversion
of all outstanding shares of Preferred Stock into Common Stock, and the pro
forma capitalization of the Company as adjusted to give effect to the sale of
the 2,800,000 shares of Common Stock offered hereby (at an assumed initial
public offering price of $9.00 per share and after deducting the estimated
underwriting discount and offering expenses).

<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Stockholders' equity(1):
Preferred Stock, $0.001 par value; 2,000,000
shares authorized:
Convertible Series A; 600,000 shares
designated; 365,191 shares issued and
outstanding, actual; no shares designated,
issued or outstanding, pro forma and as
adjusted...................................... $ 1 $ -- $ --
Convertible Series B; 204,521 shares
designated; no shares
issued or outstanding, actual; no shares
designated, issued or outstanding, pro forma
and as adjusted............................... -- -- --
Common Stock, $0.001 par value; 30,000,000
shares authorized: 12,178,757 shares issued and
outstanding, actual; 13,883,060 shares issued
and outstanding, pro forma; 16,683,060 shares
issued and outstanding, as adjusted(2)......... 12 14 17
Additional paid-in capital...................... 2,494 4,439 27,022
Accumulated deficit............................. (79) (79) (79)
Less: note receivable from stockholder.......... (100) (100) (100)
------ ------ -------
Total stockholders' equity.................... 2,328 4,274 26,860
------ ------ -------
Total capitalization......................... $2,328 $4,274 $26,860
====== ====== =======
</TABLE>
- --------
(1) See Notes 4 and 5 of Notes to Financial Statements.

(2) Excludes (i) 1,612,910 shares of Common Stock issuable upon exercise of
stock options outstanding as of December 31, 1996 under the Company's 1995
Equity Incentive Plan, at a weighted average per share exercise price of
$1.27, (ii) 1,872,090 shares reserved for future grants under its 1995
Equity Incentive Plan, (iii) 100,000 shares reserved for future grants
under its 1996 Directors Stock Option Plan and (iv) 150,000 shares
reserved for future issuances under its 1996 Employee Stock Purchase Plan.
See "Management--Director Compensation," "Management--Employee Benefit
Plans" and Note 6 of Notes to Financial Statements.

16
<PAGE>

DILUTION

The pro forma net tangible book value of the Company as of December 31,
1996, assuming the exercise of all outstanding warrants for an aggregate
purchase price of approximately $1.9 million and the conversion of all
outstanding shares of Preferred Stock into shares of Common Stock, was
approximately $4.3 million, or $0.31 per share of Common Stock. "Pro forma net
tangible book value per share" is determined by dividing the number of
outstanding shares of Common Stock into the net tangible book value of the
Company (total tangible assets less total liabilities). After giving effect to
the sale by the Company of the 2,800,000 shares of Common Stock offered hereby
(based upon an assumed initial public offering price of $9.00 per share and
after deducting the estimated underwriting discount and offering expenses),
the pro forma net tangible book value of the Company as of December 31, 1996
would have been approximately $26.9 million, or $1.61 per share. This
represents an immediate increase in pro forma net tangible book value of $1.30
per share to existing stockholders and an immediate dilution of $7.39 per
share to new investors. The following table illustrates this per share
dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $9.00
Pro forma net tangible book value per share as of December 31,
1996........................................................... $0.31
Increase in pro forma net tangible book value per share
attributable to new investors.................................. 1.30
-----
Pro forma net tangible book value per share after offering...... 1.61
-----
Dilution per share to new investors............................. $7.39
=====
</TABLE>

The following table summarizes, on a pro forma basis as of December 31,
1996, the number of shares of Common Stock purchased from the Company, the
total consideration paid to the Company and the average price per share paid
by the existing stockholders and by the investors purchasing shares of Common
Stock in this offering, based upon an assumed initial public offering price of
$9.00 per share:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 13,883,060 83.2% $ 4,460,000 15.0% $0.32
New investors............... 2,800,000 16.8 25,200,000 85.0 $9.00
---------- ----- ----------- -----
Total..................... 16,683,060 100.0% $29,660,000 100.0%
========== ===== =========== =====
</TABLE>

The foregoing table assumes (i) the exercise of all outstanding warrants for
an aggregate purchase price of approximately $1.9 million and the conversion
of all outstanding shares of Preferred Stock into shares of Common Stock and
(ii) no exercise of the Underwriters' over-allotment option or stock options
outstanding under the Company's 1995 Incentive Stock Plan as of December 31,
1996. As of December 31, 1996, there were options outstanding under the
Company's 1995 Equity Incentive Plan to purchase a total of 1,612,910 shares
of Common Stock, at a weighted average exercise price of $1.27 per share. To
the extent that any of these options is exercised, there will be further
dilution to new investors. See "Capitalization" and Note 6 of Notes to
Financial Statements.

17
<PAGE>

SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with the
Company's financial statements and related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus. The statement of operations data for
the period from inception (July 1994) through December 31, 1995 and for the
year ended December 31, 1996 and the balance sheet data as of December 31,
1995 and 1996 are derived from financial statements of the Company that have
been audited by Price Waterhouse LLP, independent accountants, and are
included elsewhere in this Prospectus. The statement of operations data for
the quarters ended March 31, June 30, September 30 and December 31, 1996 are
derived from unaudited financial statements of the Company and include, in the
opinion of the Company, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the Company's results of
operations for those periods. The historical results are not necessarily
indicative of future results.

<TABLE>
<CAPTION>
PERIOD FROM
QUARTERS ENDED INCEPTION YEAR
--------------------------------------------- (JULY 1994) TO ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1996 1996 1996 1995(1) 1996
--------- -------- ------------- ------------ -------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue:
Merchandise............ $ 468 $1,493 $2,990 $ 7,622 $ 30 $12,573
Commission............. 109 317 586 684 110 1,696
------ ------ ------ ------- ------ -------
Total revenue.......... 577 1,810 3,576 8,306 140 14,269
Cost of revenue......... 418 1,380 2,665 7,076 27 11,539
------ ------ ------ ------- ------ -------
Gross profit............ 159 430 911 1,230 113 2,730
------ ------ ------ ------- ------ -------
Operating expenses:
Sales and marketing.... 58 115 339 379 144 891
General and
administrative........ 32 89 275 362 227 758
Engineering............ 52 115 182 365 182 714
------ ------ ------ ------- ------ -------
Total operating
expenses.............. 142 319 796 1,106 553 2,363
------ ------ ------ ------- ------ -------
Income (loss) from
operations............. 17 111 115 124 (440) 367
Interest and other
income................ -- -- 3 34 -- 37
------ ------ ------ ------- ------ -------
Income (loss) before
income taxes........... 17 111 118 158 (440) 404
Provision for income
taxes................. (2) (11) (12) (18) -- (43)
------ ------ ------ ------- ------ -------
Net income (loss)....... $ 15 $ 100 $ 106 $ 140 $ (440) $ 361
====== ====== ====== ======= ====== =======
Net income (loss) per
share(2)............... $ 0.00 $ 0.00 $ 0.01 $ 0.01 $(0.03) $ 0.02
====== ====== ====== ======= ====== =======
Shares used to compute
net income (loss) per
share(2)............... 15,326 15,326 15,326 15,326 15,326 15,326
====== ====== ====== ======= ====== =======
SUPPLEMENTAL FINANCIAL
DATA:
Gross merchandise
sales(3).............. $1,792 $5,290 $9,246 $14,399 $1,252 $30,727
====== ====== ====== ======= ====== =======
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
-------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................................. $ 20 $ 2,649
Working capital (deficiency)........................................... (449) 1,731
Total assets........................................................... 73 5,680
Long-term obligations.................................................. -- --
Total stockholders' equity (deficit)................................... (419) 2,328
</TABLE>
- --------
(1) The Company's results of operations for the period from inception (July
1994) to December 31, 1994 have been combined with the results of
operations for the year ended December 31, 1995 due to the Company's
limited activity during the earlier period. During 1994, the Company
incurred expenses and reported a net loss of $41,000.
(2) See Note 1 of Notes to Financial Statements for an explanation of the
determination of the number of shares used to compute net income (loss)
per share.

(3) Represents what the Company's total revenue would have been if sales where
the Company acted as a commissioned auction agent for its vendors ("Agent
Sales") were recorded as transactions where the Company purchased or
accepted consignment of merchandise from vendors for resale at auction
("Principal Sales"). This presentation of sales on a gross basis does not
affect the Company's gross profit or net income. Management believes that
gross merchandise sales provide a more consistent comparison between
historical periods and to future periods than does total revenue. Gross
merchandise sales should not be considered in isolation or as a substitute
for other information prepared in accordance with GAAP. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Note 1 of Notes to Financial Statements.

18
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."

OVERVIEW

ONSALE is a leading electronic retailer pioneering a new sales format, the
interactive 24-hour online auction, designed to serve as an efficient and
entertaining marketing channel. The Company currently specializes in selling
refurbished and close-out computers, peripherals and consumer electronics over
the Internet's World Wide Web. The Company was incorporated in July 1994 and
commenced auctioning products on the Internet in May 1995. For the period from
inception (July 1994) to December 31, 1995, the Company's operating activities
related primarily to recruiting personnel, purchasing operating assets,
establishing vendor relationships and developing the computer infrastructure
necessary to conduct live auctions on the Internet. During that period, the
Company had total revenue of $140,000. The Company achieved profitability in
the first quarter of 1996 and thereafter has increased its total revenue and
net income in each quarter. However, the Company has elected to increase its
operating expenses significantly and therefore may experience net losses at
least through the four quarters of 1997.

The Company obtains merchandise from vendors through one of two primary
arrangements, either the Principal Sales model or the Agent Sales model. For
certain of its vendors, the Company purchases or takes on consignment
merchandise for resale in its auctions (Principal Sales). In Principal Sales
transactions, the Company is responsible for the billing and shipping of the
merchandise and recognizes the full sales amount as revenue upon verification
of the credit card transaction authorization and shipment of the merchandise.
In Principal Sales transactions, the Company bears both inventory risk and
credit risk with respect to sales of its inventory. The Company believes its
ability to liquidate its inventory quickly through its Internet auctions
somewhat mitigates the cost of carrying inventory and the price erosion risk.
In instances where credit card authorization has been received but the
merchandise has not been shipped, the Company defers revenue recognition until
the merchandise is shipped. With other vendors, the Company acts as an agent,
conducts electronic auctions and processes orders in exchange for a commission
on the sale of the vendors' merchandise (Agent Sales). In Agent Sales
transactions, the Company recognizes the commissions as revenue upon
completion of the auction process and forwarding of the auction sales
information to the vendor. The Company is not subject to inventory risk under
Agent Sales arrangements but does bear credit risk with respect to collection
of receivables from its vendors. In certain circumstances, the Company will
allow customers to return products and, accordingly, provides for allowances
for estimated future returns at the time of shipment. See "Risk Factors--Risks
of a Principal Sales Model."

From its inception through the third quarter of 1995, the Company derived
all of its revenue from Agent Sales. However, as the Company grew, it
experienced increasing constraints on the amount of merchandise it could
obtain and sell under the Agent Sales model. Further, the Company believed
that, by utilizing the Principal Sales model, it could control the
availability of merchandise more effectively, improve customer service, and
achieve higher gross margins over time. As a result, the Company began to use
the Principal Sales model for an increasing number of transactions. By the
fourth quarter of 1996, Principal Sales transactions represented 52.9% of the
Company's gross merchandise sales. Gross merchandise sales amounts shown on
the Company's statement of operations represent what the Company's total
revenue would have been if all Agent Sales had been made as Principal Sales.
Due to the ongoing evolution in the Company's operations toward the Principal
Sales model, management believes that the information on gross merchandise
sales is relevant to a reader of the Company's financial statements since it
provides a more consistent comparison between historical periods and a more
accurate comparison to future periods than does total revenue. Gross
merchandise sales should not be considered in isolation or as a substitute for
other information prepared in accordance with GAAP.

19
<PAGE>

The Company has an extremely limited operating history upon which to base an
evaluation of the Company and its business and prospects. The Company's
business and prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stage of
development, particularly companies in new and rapidly evolving markets such
as electronic commerce. Although the Company has experienced significant
growth in merchandise and commission revenue in recent periods, there can be
no assurance that the Company's revenue will continue at its current level or
increase. The Company's revenue depends substantially upon the level of
auction activity on its Web site, which, in turn, depends upon the
availability of merchandise from the Company's vendors. This availability is
difficult to forecast with any degree of certainty. Accordingly, a substantial
reduction in merchandise availability would have a material adverse effect on
the Company's business, results of operations and financial condition. In
addition, the Company has relatively low operating margins and plans to
increase its operating expenses significantly in order to increase the size of
its staff, expand its marketing efforts, purchase larger volumes of
merchandise to be sold at auction and support its growing infrastructure.
Through 1996, neither the Company's President nor its Vice President of
Development and Operations received any salary or bonus. On January 1, 1997,
each began receiving a salary at the annual rate of $100,000. Had the Company
compensated its President and Vice President of Development and Operations
during 1996, the estimated pro forma net income and net income per share for
the year ended December 31, 1996, would have been $281,000 and $0.02,
respectively. Since December 1996, the Company has hired three additional Vice
Presidents. See "Management--Executive Compensation." To the extent that
increases in operating expenses precede or are not subsequently followed by
increased revenue, the Company's business, results of operations and financial
condition will be materially adversely affected. See "Risk Factors--Limited
Operating History."

RESULTS OF OPERATIONS

Total Revenue

Total revenue is comprised of commissions on Agent Sales and the gross value
of Principal Sales paid to the Company by the customer. The Company had only
$140,000 of total revenue in the period from inception (July 1994) to December
31, 1995, most of which was derived from Agent Sales. Gross merchandise sales
for that period were $1.3 million. In 1996, total revenue and gross
merchandise sales grew to $14.3 million and $30.7 million, respectively. The
Company's revenue growth was due to significant growth in the Company's
customer base and in the amount of merchandise obtained from vendors. During
1996, the portion of the Company's gross merchandise sales derived from
Principal Sales increased to 40.9%.

Cost of Revenue

Cost of revenue consists principally of the costs of merchandise acquired
under the Principal Sales model and the costs of warehouse handling, credit
card processing and inbound shipping for such merchandise. Cost of revenue was
minimal in absolute dollars and as a percentage of gross merchandise sales in
the period from inception (July 1994) to December 31, 1995 because most
transactions were structured as Agent Sales, which historically have had no
significant associated costs. Cost of revenue increased by approximately $11.6
million in 1996 both as a result of growth in the Company's overall business
and as a result of the ongoing shift from the Agent Sales model to the
Principal Sales model. In addition, the Company incurred approximately
$108,000 of costs associated with commission revenue due to certain write-offs
it experienced with respect to amounts due from certain vendors associated
with Agent Sales transactions.

Gross Profit

Overall gross profit was $113,000 in the period from inception (July 1994)
to December 31, 1995 and $2.7 million in 1996. In the latter period, gross
profit on Principal Sales was $1.1 million or 9.1% of merchandise revenue made
under the Principal Sales model after giving effect to the $108,000 of cost of
commission revenues. Gross profit on Principal Sales was adversely affected by
a non-recurring cost of $130,000, or 1.0% of merchandise revenue, under the
Principal Sales model, which resulted from the Company's shift in contract
warehouses. The remainder of gross profit ($1.9 million), which is
attributable to Agent Sales, represented 8.7% of gross merchandise sales made
under the Agent Sales model.

20
<PAGE>

Operating Expenses

The Company's operating expenses have increased significantly since the
Company's inception. This trend reflects the costs associated with the
formation of the Company, recruiting of personnel, the development of its
infrastructure, increased efforts to expand and market its services, and the
Company's continued focus on enhancing its internal accounting policies and
controls. The Company believes that continued expansion of its operations is
essential to enhancing its brand name and maintaining its market share.

Sales and Marketing. Sales and marketing expenses consist primarily of
payroll and related expenses for sales and marketing personnel, advertising
expenditures and promotional material. Sales and marketing expenses were
$144,000 and $891,000 for the period from inception (July 1994) to December
31, 1995 and for 1996, respectively. Sales and marketing expenses as a
percentage of gross merchandise sales were 11.5% and 2.9% for the period from
inception (July 1994) to December 31, 1995 and for 1996, respectively. The
dollar increase in sales and marketing expenses was primarily attributable to
expansion of the Company's Internet and print advertising, increases in the
Company's marketing staff and increased expenses associated with promotion and
marketing of the Company's services. The Company expects sales and marketing
expenses to increase in absolute dollars as it endeavors to enhance its brand
recognition but not to increase as a percentage of gross merchandise sales.
However, there can be no assurance that gross merchandise sales will increase
as rapidly as sales and marketing expenses.

General and Administrative. General and administrative expenses consist
primarily of payroll and related expenses for customer service, merchandising,
executive, accounting and logistical personnel, recruiting and other general
corporate expenses. General and administrative expenses were $227,000 and
$758,000 for the period from inception (July 1994) to December 31, 1995 and
for 1996, respectively. General and administrative expenses as a percentage of
gross merchandise sales were 18.1% and 2.5% for the period from inception
(July 1994) to December 31, 1995 and for 1996, respectively. The dollar
increase in general and administrative expenses was due to an increase in
salaries and benefits, primarily due to the hiring of additional personnel,
and facilities expenses. The Company expects general and administrative
expenses to increase in absolute dollars and to represent a more significant
percentage of gross merchandise sales in 1997 and 1998 than in 1996 as the
Company expands its executive officer group, staff and facilities, incurs
additional costs related to being a public company, and begins compensating
its President, Mr. Kaplan (see "Management--Executive Compensation").

Engineering. Engineering expenses consist primarily of payroll and related
expenses for engineering personnel and consultants who develop, operate and
monitor the Company's Web site and related systems. Engineering expenses were
$182,000 and $714,000 for the period from inception (July 1994) to December
31, 1995 and for 1996, respectively. Engineering costs as a percentage of
gross merchandise sales were 14.5% and 2.3% for the period from inception
(July 1994) to December 31, 1995 and for 1996, respectively. The dollar
increase in engineering expenses was primarily attributable to increased
staffing and associated costs relating to enhancing the features and
functionality of the Company's Web site and related systems. To date, all
engineering costs have been expensed as incurred. The Company did not
compensate Mr. Fisher, its Vice President of Development and Operations,
during these periods but began compensating Mr. Fisher in January 1997. The
Company expects engineering expenses to increase in absolute dollars in the
future but not to increase as a percentage of gross merchandise sales.
However, there can be no assurance that gross merchandise sales will increase
more rapidly than engineering expenses.

Income Taxes

The Company had a net loss for the period from inception (July 1994) to
December 31, 1995 and thus no provision for income taxes was recorded for that
period. For 1996, the Company generated income before income taxes of $404,000
and recorded a provision for income taxes of $43,000, representing an
effective income tax rate of 10.6%. This effective tax rate was below the
statutory rate primarily because the Company utilized its net operating loss
carryforwards. As of December 31, 1996, the Company had fully utilized its net
operating loss carryforwards for federal and state income tax purposes. See
Note 7 of Notes to Financial Statements.

21
<PAGE>

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth certain unaudited quarterly statement of
operations data for the eight quarters of 1995 and 1996. In the opinion of
management, this information has been prepared substantially on the same basis
as the financial statements appearing elsewhere in this Prospectus, and all
necessary adjustments, consisting only of normal recurring adjustments, have
been included in the amounts stated below to present fairly the unaudited
quarterly results when read in conjunction with the financial statements of
the Company and related notes thereto appearing elsewhere in this Prospectus.
The operating results for any quarter are not necessarily indicative of the
operating results for any future period.

<TABLE>
<CAPTION>
QUARTERS ENDED
-------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1995 (1) 1995 1995 1995 1996 1996 1996 1996
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Merchandise............ $ -- $ -- $ -- $ 30 $ 468 $1,493 $2,990 $7,622
Commission............. -- 17 23 70 109 317 586 684
---- ---- ----- ----- ------ ------ ------ -------
Total revenue......... -- 17 23 100 577 1,810 3,576 8,306
Cost of revenue......... -- -- -- 27 418 1,380 2,665 7,076
---- ---- ----- ----- ------ ------ ------ -------
Gross profit............ -- 17 23 73 159 430 911 1,230
---- ---- ----- ----- ------ ------ ------ -------
Operating expenses:
Sales and marketing.... 1 30 44 69 58 115 339 379
General and
administrative........ 54 49 61 63 32 89 275 362
Engineering............ 31 25 49 77 52 115 182 365
---- ---- ----- ----- ------ ------ ------ -------
Total operating
expenses............. 86 104 154 209 142 319 796 1,106
---- ---- ----- ----- ------ ------ ------ -------
Income (loss) from oper-
ations................. (86) (87) (131) (136) 17 111 115 124
Interest and other
income................ -- -- -- -- -- -- 3 34
---- ---- ----- ----- ------ ------ ------ -------
Income (loss) before in-
come taxes............. (86) (87) (131) (136) 17 111 118 158
Provision for income
taxes................. -- -- -- -- (2) (11) (12) (18)
---- ---- ----- ----- ------ ------ ------ -------
Net income (loss)....... $(86) $(87) $(131) $(136) $ 15 $ 100 $ 106 $ 140
==== ==== ===== ===== ====== ====== ====== =======
SUPPLEMENTAL FINANCIAL
DATA:
Gross merchandise sales
(2)................... $ -- $226 $ 199 $ 827 $1,792 $5,290 $9,246 $14,399
==== ==== ===== ===== ====== ====== ====== =======
</TABLE>

- --------
(1) The Company's results of operations for the period from inception (July
1994) to December 31, 1994 have been combined with the results of
operations for the quarter ended March 31, 1995 due to the Company's
limited activity during the earlier period. During 1994, the Company
incurred expenses and reported a net loss of $41,000.
(2) Represents what the Company's total revenue would have been if sales where
the Company acted as a commissioned auction agent for its vendors ("Agent
Sales") were recorded as transactions where the Company purchased or
accepted consignment of merchandise from vendors for resale at auction
("Principal Sales"). This increased sales amount does not affect the
Company's gross profit or net income. Management believes that gross
merchandise sales provide a more consistent comparison between historical
periods and to future periods than does total revenue. Gross merchandise
sales should not be considered in isolation or as a substitute for other
information prepared in accordance GAAP. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 1 of
Notes to Financial Statements.

22
<PAGE>

The Company's merchandise revenue, commission revenue, total revenue and
gross merchandise sales have all increased significantly from one quarter to
the next since the quarter ended September 30, 1995. Merchandise revenue has
increased as a percentage of gross merchandise sales each quarter since
September 30, 1995, representing 3.6%, 26.1%, 28.2%, 32.3% and 52.9% of such
sales in the quarters ended December 31, 1995, March 31, 1996, June 30, 1996,
September 30, 1996 and December 31, 1996, respectively.

Cost of revenue (less the $108,000 cost of commission revenue in the fourth
quarter of 1996) as a percentage of merchandise revenue increased from 89.1%
in the third quarter of 1996 to 91.4% in the fourth quarter of 1996,
representing a gross margin decrease on Principal Sales from 10.9% to 8.6%.
The fourth quarter gross margin was adversely affected by a non-recurring cost
of $130,000, or 1.7% of merchandise revenue, which resulted from the Company's
shift in contract warehouses. Gross margin on Agent Sales varied from 8.2% to
9.4% in the four quarters of 1996.

FLUCTUATION IN OPERATING RESULTS

The Company's operating results have fluctuated in the past, and are
expected to continue to fluctuate in the future, due to a number of factors,
many of which are outside the Company's control. These factors include (i) the
Company's ability to attract new customers at a steady rate, manage its
inventory mix and the mix of products offered at auction, meet certain pricing
targets, liquidate its inventory in a timely manner, maintain gross margins
and maintain customer satisfaction, (ii) the availability and pricing of
merchandise from vendors, (iii) product obsolescence and pricing erosion, (iv)
consumer confidence in encrypted transactions in the Internet environment, (v)
the amount and timing of costs relating to expansion of the Company's
operations, (vi) the announcement or introduction of new types of merchandise
or customer services by the Company or its competitors, (vii) technical
difficulties with respect to consumer use of the auction format on the
Company's Web site, (viii) delays in revenue recognition at the end of a
fiscal period as a result of shipping or logistical problems, (ix) the level
of merchandise returns experienced by the Company and (x) general economic
conditions and economic conditions specific to the Internet and electronic
commerce. As a strategic response to changes in the competitive environment,
the Company may from time to time make certain service, marketing or supply
decisions or acquisitions that could have a material adverse effect on the
Company's quarterly results of operations and financial condition. The Company
also expects that, in the future, it like other retailers may experience
seasonality in its business. Due to all of the foregoing factors, in some
future quarter the Company's operating results may fall below the expectations
of securities analysts and investors. In such event, the trading price of the
Company's Common Stock would likely be materially adversely affected.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, the Company has financed its operations primarily through
the private sale of convertible preferred stock for approximately $2.3
million, cash flows from operations and advances from its founders of $496,000
(which were repaid in December 1996). Net cash used in operating activities
for the period from inception (July 1994) to December 31, 1995 was $210,000
and net cash provided by operating activities for 1996 was $1.1 million. The
net cash used in operating activities from inception (July 1994) to December
31, 1995 was primarily attributable to the net loss from operations of
$440,000, partially offset by increases in accrued expenses and accounts
payable of $117,000 and $103,000, respectively. The net cash provided by
operating activities during 1996 was primarily attributable to net income of
$361,000 and increases in accounts payable of $2.2 million, deferred revenue
of $602,000 and accrued expenses of $363,000, partially offset by increases in
inventory, prepaid expenses and other current assets, and accounts receivable
of $1.5 million, $439,000 and $373,000, respectively.

Net cash of $270,000 provided by financing activities from inception (July
1994) to December 31, 1995 resulted entirely from advances from two of the
Company's founders. In 1996, a venture capital group purchased Series A
Preferred Stock and certain warrants for approximately $2.4 million and the
Company sold $26,000 of its Common Stock. The Company used these funds to
repay the advances to the Founders. Net cash used in investing activities
comprised purchases of property and equipment of $40,000 and $606,000 for the
period from inception (July 1994) to December 31, 1995 and for 1996,
respectively.

23
<PAGE>

As of December 31, 1996, the Company had approximately $2.6 million of cash
and cash equivalents. In March 1997, the Company received proceeds of
approximately $1.9 million upon exercise of outstanding warrants. Also in March
1997, the Company obtained a $2.0 million line of credit from Silicon Valley
Bank. However, the amount the Company may borrow may not exceed the Company's
monthly earnings before interest, taxes, depreciation and amortization,
annualized. Borrowings under the line bear interest at an annual rate of 1.5%
over the bank's prime rate. The credit line expires on September 30, 1997,
unless the Company completes as public offering of $10 million or more on or
before April 30, 1997 which then extends the maturity date to one year after
such public offering. Pursuant to the line of credit, Silicon Valley Bank has
been granted a continuing security interest in substantially all assets of the
Company, now owned or hereafter acquired, including intellectual property. The
Company is required to maintain certain financial ratios and has agreed to
certain negative covenants pursuant to the line of credit. In connection with
the line, the Company issued the bank a five-year warrant to purchase 8,571
shares of its Common Stock with an exercise price of $7.00. As of that date,
the Company's principal commitments consisted of obligations outstanding under
its operating leases. Although the Company has no material commitments for
capital expenditures, it anticipates purchasing approximately $550,000 of
property and equipment in 1997, primarily for computer equipment and furniture
and fixtures. As the Company continues to enter into more transactions
structured as Principal Sales, the Company will need to commit more cash to
support a larger merchandise inventory. Also, as a result of the Company's
intention to offer credit to certain customers, the Company may require
additional cash to support growth in account receivables. The Company believes
that the net proceeds from this offering, together with its current cash and
cash equivalents, borrowings under its line of credit and its cash flows from
operations, if any, will be sufficient to meet its anticipated cash needs for
working capital and capital expenditures for at least the next 12 months.
Thereafter, if cash generated from operations is insufficient to satisfy the
Company's liquidity requirements, the Company may seek to sell additional
equity or convertible debt securities or obtain a credit facility. The sale of
additional equity or convertible debt securities could result in additional
dilution to the Company's stockholders. There can be no assurance that
financing will be available to the Company in amounts or on terms acceptable to
the Company.

24
<PAGE>

BUSINESS

OVERVIEW

ONSALE has sold approximately $32 million of merchandise to more than 60,000
customer accounts from its first auction in May 1995 through December 31,
1996. To date, the Company has auctioned over 362,000 merchandise items, of
which over 117,000 were auctioned in the fourth quarter of 1996. More than 1.2
million unique Internet users have visited ONSALE's electronic auctions. Over
109,000 of these users are bidders registered with the Company, with over
48,000 registering in the fourth quarter of 1996 alone.

INDUSTRY BACKGROUND

Electronic Commerce on the Internet

The Internet is an increasingly significant global medium for communication
and commerce. Growth in Internet usage has been driven by the emergence of the
Web, which uses graphical user interface technology to simplify the
transmission and retrieval of information over the Internet. IDC estimates the
number of Web users will increase from approximately 16 million at the end of
1995 to approximately 34 million at the end of 1996 and to approximately 163
million by the year 2000. As the number of users has grown, retailers have
been attracted to the Internet as a medium for reaching millions of consumers
at low cost. IDC estimates that the total value of goods and services
purchased on the Web will increase from $318 million in 1995 to $95 billion in
the year 2000.

The Internet is evolving into a unique marketing channel, just as retail
stores, mail order catalogs and television shopping have previously evolved as
unique channels. By directly operating their own Web sites, Internet retailers
can interact with customers in real-time by frequently adjusting their product
mix, pricing and visual presentation. In addition, the global reach of the
Internet allows retailers to build large, geographically-dispersed customer
bases more quickly than traditional retailers and catalog marketers. Unlike
traditional marketing channels, Internet retailers do not have the burdensome
costs of a significant retail store infrastructure, the continuous printing
and mailing costs of a catalog marketer or the store personnel or call center
costs borne by traditional retailers and catalog marketers.

Historically, online "shopping malls" available on the larger private
networks, like America Online and CompuServe, as well as on the Internet, have
offered merchandise from major catalog and retail firms, such as Land's End,
Damark and L.L. Bean. In these online malls, the customer shops by moving from
one page to the next in an online catalog until an item of interest is
located. While straightforward in concept, this method of selling has
limitations. The merchandise available online is usually identical to that
available through the merchants' own catalogs and retail stores, providing no
unique advantage to online retailing. There typically is no price advantage to
online merchandise, because the merchants do not wish to compete with their
own catalogs and retail stores on the basis of price. As a result, traditional
implementations of online catalogs fail to exploit a chief advantage of the
Internet medium--the ability to change dynamically product mix, pricing and
visual presentation.

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Market for Refurbished and Close-out Merchandise

Each year, manufacturers dispose of significant volumes of refurbished and
close-out merchandise. Refurbished products are those that typically require a
nominal amount of service, such as minor repairs, cleaning and repackaging,
prior to being sold as refurbished goods. Close-out merchandise includes new
products that have or will shortly become obsolete, typically due to a change
in selling seasons or the introduction of new models.

While the market for refurbished and close-out products is difficult to
measure, the Company believes that several billions of dollars of such
merchandise are sold each year. The PC and consumer electronics markets in
particular are characterized by significant quantities of such merchandise due
to short product life cycles and the prevalence of returned items through the
consumer retailing channel. According to IDC, the total PC market in the
United States was estimated to be greater than $65.6 billion in 1996. The
Company estimates that the portion of this market that ends up as refurbished
and close-out goods exceeded $3.8 billion in 1996.

The disposal of refurbished and close-out goods represents a substantial
burden on many manufacturers. Refurbished and close-out goods are sold through
a fragmented industry consisting of auction houses, catalogs, company stores
or "outlets," resellers and specialized retailers, as well as large
superstores and mass merchants that are not committed to the resale of these
goods and generally sell them as a supplementary product line or "loss
leader." Since manufacturers lack control over pricing and product placement
in this fragmented channel, the prices they realize on products are often
affected. These channel conflicts also undermine channel loyalty and the
vendor's brand image. Manufacturers have an interest in accessing a
distribution channel that enables them to dispose of significant quantities of
merchandise quickly and at the best prices possible, without affecting their
traditional sales channels.

ONSALE TODAY

ONSALE has sold approximately $32 million of merchandise to more than 60,000
customer accounts from its first auction in May 1995 through December 31,
1996. To date, the Company has auctioned over 362,000 merchandise items, of
which over 117,000 were auctioned in the fourth quarter of 1996. More than 1.2
million unique Internet users have visited ONSALE's electronic auctions. Over
109,000 of these users are bidders registered with the Company, with over
48,000 registering in the fourth quarter of 1996 alone.

The Company posts online descriptions and images of merchandise for sale on
its Web site on a continuing basis. Currently, the Company operates three
auctions per week in two-day auction cycles. ONSALE generally offers over 500
different items at any given time, selling quantities from one to several
hundred of each item with items that generally range in price from $25 to
$1,500 each. Customers can bid 24 hours a day, 7 days a week. Each week, tens
of thousands of customers visit the Company's site to review the latest
merchandise and bid on items of interest. When customers are outbid, they
receive an email message alerting them and permitting them to increase their
bid by return email or via the Company's Web site. At the designated closing
time, the winning bidders are selected and an email message is sent to them
confirming their purchases. The entire auction process, from the posting of
the items for auction through notification of the winners, has been automated
by the Company through the use of internally developed proprietary software.
In addition, the Company has developed proprietary software that automates
product fulfillment functions, including billing, shipping and tracking.

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The Company believes that online auctions represent an exciting sales format
that leverages the unique characteristics of the Internet, such as
interactivity and the sense of community built by customers competitively
bidding in an auction environment. Furthermore, the Company believes the
knowledge, interests and spending habits of the typical Internet user make
computers, peripherals and consumer electronics ideal merchandise for this
sales format and that refurbished and close-out merchandise are particularly
well suited for the online auction format because there is no widely accepted
fair market value for those items. The difference of opinion among potential
purchasers regarding the value of such goods permits the spirited bidding of
the interactive auction process. In contrast to the market for new merchandise
where vendors traditionally set a fixed price, both the vendors and customers
for refurbished and close-out merchandise accept variability in pricing. The
Company's Internet auctions are designed to offer customers the following
benefits:

. Compelling Merchandise and Pricing. The Company's rotating merchandise
mix gives customers the opportunity to bid on desirable items and
includes a number of different product categories, mostly from well
known, name brand manufacturers. Every auction cycle includes new items,
which keeps the Web site fresh and appealing. This changing product/price
mix and the auction format give the Company's visitors the impression
that they may be able to obtain exceptional deals every time they visit
the site. This compelling sales format has led to repeat customers who
bid on average five times during the quarter ended December 31, 1996.

. Entertainment and Excitement. The Company's auctions are designed to be
fun and exciting, adding the "lure of the bargain" and the "thrill of the
hunt" to the retailing experience. The Company's customers do not simply
purchase merchandise--they "win" it. Competition and gamesmanship are
inherent in the Company's auction format, which the Company believes
enables it to attract and maintain a large and loyal customer base.
During September 1996, the average visitor to the Company's Web site
spent approximately 42 minutes watching and bidding in auctions,
according to a survey conducted by PC Meter.

. Community. As part of their bids, bidders are allowed to place brief
comments that are displayed in the list of currently winning bids on each
merchandise item page. Bidders use these comments to communicate with
other bidders in attempts to "psyche out" or cooperate with other
bidders. These comments, which generally are humorous, good-natured and
in the spirit of competition, build a sense of community. This
interactive shopping medium creates a sense of being "where the action
is."

. Convenience. The Company brings retail shopping directly into consumers'
homes and offices. Customers do not need to travel to fixed locations
during limited hours to purchase items. ONSALE's Web site enables
customers to place bids at any time during the day or night, in an
unintimidating atmosphere and without the pressure of salespeople or
auctioneers.

The Company believes that it also provides substantial benefits to vendors.
By pioneering a novel sales format in a new medium available to a very broad
audience, the Company believes that it offers vendors a way to sell
refurbished and close-out merchandise quickly at attractive prices with
minimal interference with other marketing channels. The Company's business
format is designed to offer vendors the following benefits:

. Efficient Distribution Solution. ONSALE's frequently updated electronic
auction format provides manufacturers a distribution channel designed to
accommodate unpredictable, odd lot quantities and to reach a
geographically broad group of consumers. The Company believes it
represents an efficient alternative to existing channels and a practical
solution to a large and growing problem for vendors--the disposal of
refurbished and close-out merchandise.

. Resolution of Channel Conflict. Sales of refurbished and close-out
merchandise through ONSALE are designed to avoid the channel conflicts
inherent in other distribution channels, where similar or identical
merchandise sell at different prices. By selling to a geographically-
broad customer base, the Company reduces the cannibalizing effect that
the sales of refurbished and close-out merchandise can have on the
distribution of new products in a limited local area.

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. Superior Inventory Liquidation. Manufacturers and vendors in the process
of liquidating refurbished and close-out merchandise are compelled to
liquidate inventory in a quick and expedient manner due to rapid price
declines while attempting to get the best prices possible for their
merchandise. By increasing the frequency of the Company's auctions and by
its ability to add new items continuously, the Company is able to post
the inventory items for auction immediately upon receipt of the
merchandise and increase the vendors' ability to dispose of inventory
quickly. By selling inventory quickly, vendors are able to avoid some of
the inventory price erosion that is typical in other channels and to
obtain attractive prices for their products. In addition, the Company's
automated systems simplify the liquidation process, creating a convenient
sales channel for vendors.

BUSINESS STRATEGY

The Company's objective is to become one of the dominant retailers on the
Internet. The Company intends to leverage its position as a leading Internet
retailer of refurbished and close-out merchandise by pursuing the following
key strategies:

Increase Market Awareness and Brand Recognition

The Company believes that ONSALE is a leading brand name in Internet
commerce. The Company operates in a market in which its brand franchise is
critical to attracting high quality vendors and a high level of customer
traffic. Accordingly, the Company's strategy is to promote, advertise and
increase its visibility through a variety of marketing and promotional
techniques, including advertising on leading Internet sites and in printed
media, conducting an ongoing public relations campaign and obtaining links
from other Web sites.

Provide Compelling Retailing Experience for Customers

The Company believes auction buyers are attracted by the perceived bargain
prices and the inherent excitement of competitively winning desired
merchandise. Accordingly, the Company intends to continue offering customers a
wide array of opportunities to buy desired merchandise at bargain prices by
increasing the frequency of the Company's auctions (currently three cycles per
week) and continuing to rotate the selection of merchandise.

Expand and Strengthen Long-Term Vendor Relationships

The Company's ability to attract, secure and obtain large quantities of
branded merchandise for its Internet auctions is key to its success. The
Company is aggressively building its merchandise buying staff to facilitate
securing long-term relationships with a variety of merchandise vendors. The
Company seeks to be its vendors' preferred choice for liquidating refurbished
and close-out merchandise. The Company intends to strengthen its vendor
relationships by offering better purchasing terms and more convenient service
through more automated order processing and superior logistical arrangements.
In addition, the Company believes its rapid auction process makes it a
convenient sales channel for vendors to liquidate large volumes of
merchandise.

Emphasize Principal Sales Model

When the Company commenced operations, it performed most of its business on
an agency basis by conducting auctions on behalf of its vendors, which
fulfilled orders and collected payment. The Company is increasing the number
of vendor relationships where it acts as a principal and performs or arranges
most of the order fulfillment, payment and shipping functions, as well as
provides limited customer support. By purchasing merchandise and undertaking
these additional functions, the Company believes that it will be able to
expand its gross margins, improve its customer service and control its costs
more efficiently.

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Develop Incremental Revenue Opportunities

The Company believes that a significant opportunity exists to develop
incremental revenue opportunities, including expanding its product mix with
other products that are well suited for the Internet's electronic format. The
Company also believes that the high level of traffic on its Web site provides
an attractive alternative for advertising on its Web site. In addition, the
Company is considering expanding its sales to customers outside its current
markets of the United States and Canada.

Build on Leading Technology

The Company believes that one of its competitive advantages is its
internally developed proprietary software that is specifically designed for
Internet auctions. This software conducts automated auctions with thousands of
customers, processes those customers' orders and payments, coordinates and
performs order fulfillment and provides certain customer support functions.
The Company intends to enhance its software to provide an even more compelling
shopping experience, as well as to streamline its order processing,
warehousing and distribution, and customer support functions.

THE ONSALE PROCESS

The entire ONSALE auction process is fully automated. The Company posts
descriptions and images of the merchandise being offered for auction on its
Web site. The Company generally offers customers the opportunity to bid for
merchandise through the "Yankee auction" format. In this format, a number of
identical items of merchandise are offered for sale at the same time. When the
auction closes, the highest bidders win the available inventory at their
actual bid prices. Thus, each winning bidder may pay a price that is different
from the prices paid by other winning bidders. When bidders' prices are equal,
bids for larger quantities and with earlier initial bid times prevail. This
allows customers to employ a variety of strategies that make bidding
interesting.

To bid, a customer completes and submits a simple electronic registration
form found on the Company's Web site. Once registered, the customer can bid
and buy at will. As bids are received, ONSALE's Web pages are instantly
updated to display the current high bidders' initials, city and state, and an
optional comment to personalize the bidding. Customers are notified by email
when they are outbid and can then respond by return email or via the Company's
Web site to increase the bid. In addition, customers can monitor their bid
status on ONSALE's Web site. Once an auction has closed, the Company's auction
software informs the winning bidders by email and creates an order. The
customer's credit card is then charged and the merchandise is shipped either
by the Company or its vendor.

The Company from time to time uses other auction formats, including the
following: (i) the "Dutch auction," in which the Company offers a number of
identical items for sale at the same time and the highest bidders win the
available inventory at the lowest successful bidder's price; (ii) the
"Standard" auction for the auction of a single item of merchandise, in which
the auctioned item goes to the highest bidder; (iii) the "Buy or Bid" auction,
in which the Company permits customers to bid on an item either at the posted
asking price, or below the asking price in the hope of receiving the item at
the lower price; and (iv) the "Straight Sale," in which the Company posts each
item at a listed price and customers' orders immediately are accepted at the
listed price.

MERCHANDISE

The Company offers more than 500 different merchandise items for auction
three times per week. This merchandise consists primarily of refurbished and
close-out computers, peripherals and consumer electronics. The Company
believes that rotating its merchandise mix keeps its Web site fresh and
appealing and encourages customers to revisit the site frequently. The Company
believes a well-coordinated merchandise assortment is key to its success, and
employs a staff of seasoned buyers from the computer and consumer electronics
industries to achieve this goal.

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The Company primarily offers merchandise in the following categories:

Personal Computers. The Company offers PCs, including IBM- and
Macintosh-compatible desktops and notebooks.

Printers, Monitors and Scanners. The Company offers laser, laser jet
and color jet printers, color and black and white monitors, related
accessories and toner cartridges, and flatbed scanners.

Computer Peripherals. The Company sells memory chips, disc drives, CPU
chips, controllers, CD-ROMs, multimedia accessories, modems,
motherboards, video cards, mice and keyboards.

Network Equipment. The Company sells a variety of network equipment,
including servers, repeaters, hubs and routers, and Ethernet and token
ring cards and accessories.

Consumer Electronics. The Company sells home theater items (such as
VCRs, receivers, speakers and CD players), photography equipment (such
as camcorders and cameras), portable televisions, portable audio and
car stereo equipment (such as AM/FM cassette and CD players, speakers
and tuners) and home office items (such as facsimile machines,
answering machines and telephones). The Company is continuing to expand
its offerings of consumer electronics.

Software. The Company sells home gameplayer, PC, educational, and home
and office software.

The Company's merchandise has included brands such as AST, AT&T, Aiwa,
Apple, Canon, Compaq, Dell, Hewlett-Packard, Intel, JVC, Kenwood, NEC, Packard
Bell, Sanyo, Seagate, Toshiba and Uniden. Regardless of the source of the
merchandise, most merchandise sold by the Company carries a warranty provided
by the vendor, which greatly reduces the Company's customer service expenses.
The Company is entirely dependent upon vendors to supply it with merchandise
for sale through the Company's Internet auctions and the availability of
merchandise is unpredictable. In 1996, approximately 30% of the Company's
gross merchandise sales was derived from merchandise acquired from five
vendors, although no vendor accounted for more than 10% of gross merchandise
sales. The Company has no long-term contracts or arrangements with its vendors
that guarantee the availability of merchandise for its auctions. There can be
no assurance that the Company's current vendors will continue to sell
merchandise to the Company or otherwise provide merchandise for sale in the
Company's auctions or that the Company will be able to establish new vendor
relationships that ensure merchandise will be available for auction on the
Company's Web site. The Company also relies on many of its vendors to process
and ship merchandise to customers. The Company has limited control over the
shipping procedures of its vendors, and shipments by these vendors have often
been subject to delays. Although most merchandise sold by the Company carries
a warranty supplied either by the manufacturer or the vendor and the Company
is not obligated to accept merchandise returns, the Company in fact has
accepted returns from customers for which the Company did not receive
reimbursements from its vendors or manufacturers. If the Company is unable to
develop and maintain satisfactory relationships with vendors on acceptable
commercial terms, if the Company is unable to obtain sufficient quantities of
merchandise, if the quality of service provided by such vendors falls below a
satisfactory standard or if the Company's level of returns exceeds its
expectations, the Company's business, results of operations and financial
condition will be materially adversely affected.

VENDOR RELATIONSHIPS

The Company obtains merchandise directly from computer and electronics
manufacturers, such as Apple Computer, Hewlett-Packard, Lexmark, NEC, Packard
Bell and Toshiba, and indirectly through other vendors, such as Vircom. No
vendor accounted for more than 10% of the Company's gross merchandise sales,
although five of the Company's vendors collectively accounted for over 30% of
its gross merchandise sales in 1996. Since merchandise availability is
unpredictable, strong vendor relationships are critical to the Company's
success. See "Risk Factors--Reliance on Merchandise Vendors." As a result, the
Company's buying staff maintains ongoing contact, frequently on a daily basis,
with its vendors to learn when new merchandise becomes available. The Company
obtains merchandise from vendors through one of two primary arrangements,
either the Principal Sales model or the Agent Sales model.

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. Principal Sales Model. The Company acts as a direct purchaser of
merchandise or a consignment seller for vendors. By purchasing
merchandise, the Company assumes the full inventory and price risk
involved in selling such merchandise. The Company believes its ability to
liquidate its inventory quickly through its Internet auctions somewhat
mitigates the cost of carrying inventory and the price erosion risk. The
Company intends to increase its purchasing of merchandise from vendors,
particularly from manufacturers, because the Company believes it will
achieve higher gross margins by purchasing merchandise. The Company's
ability to achieve higher gross margins, however, depends on the ability
of its buying staff to purchase inventory at attractive prices relative
to the resale value of the inventory at auction, and there can be no
assurance that the Company's buying staff will continue to purchase items
at attractive prices relative to their resale value at auction. Sales of
purchased inventory accounted for 16% of the Company's gross merchandise
sales in the fourth quarter of 1996.

For sales on consignment, the Company upon completion of an auction
takes title to the merchandise, charges a customer's credit card and
either ships the merchandise directly or arranges for a third party to
complete delivery to the customers. Subsequently, the Company pays the
vendor any amounts due for the purchase of the related inventory. The
Company usually returns merchandise to the vendor for credit in the event
of a customer return. By selling merchandise on consignment, the Company
avoids the risk that it will not be able to liquidate its inventory in a
timely manner. Consignment sales represented 37% of the Company's gross
merchandise sales in the fourth quarter of 1996. See "Risk Factors--Risks
of a Principal Sales Model."

. Agent Sales Model. The Company also sells merchandise by acting as a
sales agent for vendors. Under this arrangement, at the conclusion of an
auction the Company forwards the order information to the vendor, which
then charges the customer's credit card and ships the merchandise. The
Company receives a commission based upon a percentage of the price. In an
agency relationship, the Company does not take title to the merchandise,
and the vendor bears the risk of credit card charge backs. The Company,
however, must rely on the vendor to charge customers and ship merchandise
on a timely basis. In the fourth quarter of 1996, Agent Sales accounted
for 47% of the Company's gross merchandise sales. See "Risk Factors--
Reliance on Merchandise Vendors."

SALES AND MARKETING

The Company sells to end users, small and home office purchasers, and
others. During the quarter ended December 31, 1996, the Company believes that,
on average, more than 8,000 unique customers submitted more than 23,000 bids
each week, that approximately 10% of new visitors became bidders, and that the
average winning bid was approximately $195. See "Risk Factors--Developing
Market; Uncertain Acceptance of the Internet as a Medium for Commerce" and
"Risk Factors--Uncertain Acceptance of the ONSALE Brand."

To achieve its objective of becoming one of the dominant retailers on the
Internet, the Company has developed a marketing strategy based on
strengthening its brand name and increasing customer traffic to its Web site.
The Company employs a mix of media and promotional activities to achieve these
goals.

Internet Advertising. The Company places advertisements on various high-
profile and high-traffic conduit Web sites, including c|net, Lycos, Excite and
Infoseek. These advertisements usually take the form of banners that encourage
readers to click through directly to the Company's Web site.

Print Media Advertising. The Company advertises in general circulation
newspapers and magazines, such as The Wall Street Journal and USA Today, and
in trade publications, such as Computer Shopper.

Public Relations Campaign. The Company's marketing team launched an ongoing
public relations campaign in July 1996. This campaign has resulted in the
Company's being featured on television shows such as

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"CNN Financial News," MSNBC's "The Site" and PBS's "Computer Chronicles" and
in the publication of articles in The Wall Street Journal, Business Week, Web
Week, Computer Reseller News, PC Week Executive and the Los Angeles Times. The
Company was awarded the 1996 Lighthouse Award for Excellence by the
Channelmarker Letter.

Links from Other Web Sites. Approximately 1,000 Web sites have links to
ONSALE's Web site, including links from prominent "What's Cool" pages. The
Company believes such links are a significant factor in increasing brand
awareness and generating customer traffic to the Company's Web site.

Customer Electronic Mail Broadcasts. The Company actively markets to its own
base of customers through email broadcasts. All bidders in the Company's
auctions are automatically added to the Company's electronic mailing list,
which presently numbers over 128,500 registrants. The Company currently sends
more than 385,000 email messages each week announcing new items available at
auction.

Promotional Contests. The Company runs contests and give-away programs from
its Web site to promote bidding by regular customers and new visitors to the
site. The contests usually ask the participant to guess the answer to a
question by placing a zero cost bid in exchange for the chance to win a free
prize, such as a cordless phone. Such contests and give-away programs
acclimate substantial numbers of new customers to the bidding process by
allowing them to bid in a risk-free environment.

MERCHANDISE DISTRIBUTION

The Company does not currently own or lease warehouse space and relies
instead on contract warehouses for the bulk of its fulfillment and logistics
requirements. Due to difficulties with its previous contract warehouse, the
Company entered into its relationship with Gage in December 1996. The Company
is evaluating whether to alter its distribution strategy for purchased
inventory by establishing or acquiring its own warehouse and distribution
facilities, although it has no present intention to do so. The Company also
relies on many of its vendors to process and ship merchandise to customers.
The Company has limited control over the shipping procedures of these vendors,
and shipments by certain of these vendors have been subject to delays. See
"Risk Factors--Reliance on Merchandise Vendors" and "Risk Factors--Reliance on
Other Third Parties."

CUSTOMER SUPPORT AND SERVICE

The Company believes that its ability to establish and maintain long-term
relationships with its customers and encourage repeat visits and purchases is
dependent, in part, on the strength of its customer support and service
operations and staff. The Company currently employs a staff of 11 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 customers and the Company's vendors. In addition, the Company
has automated certain of its customer support and service functions. The
Company is actively working to enhance its customer support and service
operations, through a variety of measures including improved customer
reporting systems. The Company plans to introduce a software system that will
allow customers to track the shipment of their purchases through the Company's
Web site. See "Risk Factors--Reliance on Merchandise Vendors" and "Risk
Factors--Management of Growth; Limited Senior Management Resources."

TECHNOLOGY AND OPERATIONS

The Company uses a combination of its own proprietary technology and
licensed commercially available technology to conduct its Internet auctions.

Proprietary Technology

The Company has devoted significant resources to developing its proprietary
software technology. The Company believes that its success depends, in part,
on the Company's internally developed proprietary auction management software,
which implements a variety of customized auction, markdown and sales formats.
See

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"Risk Factors--Risks Associated with Technological Change; Dependence on the
Internet." The Company's proprietary software components are organized into
the following groups:

Auction Management Applications. The Company uses a set of continuously
running application programs that manage the auctions and sales, update
merchandise Web pages to show the currently winning bidders, send a variety
of email messages to customers informing them that they have been outbid or
have won merchandise, and process incoming bid increases via email.

Transaction Processing Applications. The Company uses a set of
applications for receiving and validating bids, entering registrations to
place the customer on the Company's mailing list, listing currently active
and recent winning and losing bids, and reviewing and submitting customer
service requests.

Order Processing Applications. The Company uses a set of applications for
processing successful bids as they are converted into customer orders.
These applications charge customer credit cards, print order information,
transmit order information electronically to the Company's contract
warehouses and vendors, and deposit transaction information into the
Company's accounting system.

Marketing Applications. The Company has developed a set of email
applications for sending broadcast emails to customers on a frequent basis.
This software extracts email addresses from the Company's mailing list,
sends emails to the designated recipients and automatically services
requests from customers to remove them from the mailing list.

Commercially Available Licensed Technology

The Company's strategy has been to license commercially available technology
whenever possible rather than seek a custom-made or internally-developed
solution. The Company believes that this strategy enables it to lower its
operating costs and to respond to changing demands due to growth and
technological shifts. This strategy also allows the Company to focus its
development efforts on creating and enhancing the specialized, proprietary
software that is unique to the Company's business. The Company currently uses
the following commercially available software: Microsoft Windows NT as its
operating environment; Netscape FastTrack Internet server as its front-end for
presenting its merchandise pages and related Web pages to customers who can
use any Web browser; Microsoft Exchange Server to complement its automated
email bidding and broadcast email marketing systems for sending and receiving
email messages to customers; and an Oracle relational database for storing its
customer, bid and merchandise records.

Engineering

The Company's engineering staff consisted of 15 software development
engineers as of December 31, 1996. The Company historically has developed and
expects to continue to develop its proprietary auction management and
marketing software. The Company's engineering strategy includes the
enhancement of features and functionality of its existing software components,
the development of additional new software components, and the integration of
off-the-shelf components into its environment. The Company currently is
investing significant resources in software development and expects to
continue to do so in the future. The Company believes its future success
depends on its ability to continue developing and enhancing its proprietary
software.

Operations

The Company's Web site operations staff consists of four systems
administrators who manage, monitor and operate the Company's Web site. The
continued uninterrupted operation of the Company's Web site is essential to
its business, and it is the job of the site operations staff to ensure, to the
greatest extent possible, the reliability of the Company's Web site. The
Company uses the services of UUNet, an Internet service provider, to provide
connectivity to the Internet over a dedicated T-1 line provided by Pacific
Telesis. UUNet provides Internet traffic and data routing services to the
Company as well as email services. The Company believes that these
telecommunication and Internet service facilities are essential to the
Company's operation and anticipates upgrading these facilities to faster,
though more costly, telecommunication services in the future. See "Risk
Factors--Management of Growth; Limited Senior Management Resources" and "Risk
Factors--Risk of System Failure; Single Site."

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COMPETITION

The electronic commerce market, particularly over the Internet, is new,
rapidly evolving and intensely competitive, and the Company expects
competition to intensify in the future. The Company currently or potentially
competes with a variety of other companies depending on the type of
merchandise and sales format offered to customers. These competitors include
(i) various small Internet auction houses, (ii) a number of indirect
competitors that specialize in electronic commerce or derive a substantial
portion of their revenue from electronic commerce, including Internet Shopping
Network, a wholly-owned subsidiary of Home Shopping Network Inc, New England
Circuit Exchange, America Online, Inc. and CUC International Inc., (iii) a
variety of other companies that offer merchandise similar to that of the
Company but through physical auctions and with which the Company competes for
sources of supply, and (iv) companies with substantial customer bases in the
computer and peripherals catalog business, including Micro Warehouse, Inc. and
CDW Computer Centers, Inc., which may devote more resources to Internet
commerce in the future. In particular, America Online has taken a minority
equity interest in Internet Liquidators International, Inc. ("ILI") and
announced that the two companies have formed a strategic partnership under
which revenue from ILI's auction platforms will be shared with America Online
and America Online will provide a direct link for ILI's members to reach ILI's
electronic commerce site on the Web. Also, the Company believes Micro
Warehouse, Inc. is contemplating the introduction of an online auction site in
the next several months, that Ziff-Davis has reserved a Web domain name
including the word "auction" and that CompUSA is considering opening an
auction site on the Web for its refurbished products.

The Company believes that the principal competitive factors affecting its
market include its ability to secure merchandise for sale, attract new
customers to its site at favorable customer acquisition costs, operate its Web
site in an uninterrupted manner, and develop and enhance its proprietary
auction management software. Although the Company believes that it currently
competes favorably with respect to such factors, there can be no assurance
that the Company can maintain its competitive position against current and
potential competitors, especially those with greater financial, marketing,
service, support, technical and other resources than the Company.

Current and potential competitors have established or may establish
cooperative relationships among themselves or directly 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 liquidate their products directly. Increased competition is likely to
result in reduced operating margins, loss of market share and a diminished
brand franchise, any one of which could materially adversely affect the
Company's business, results of operations and financial condition. Many of the
Company's current and potential competitors have significantly greater
financial, technical, marketing and other resources than the Company. As a
result, they may be able to secure merchandise from vendors on more favorable
terms than the Company, and they may be able to respond more quickly to
changes in customer preferences or to devote greater resources to the
development, promotion and sale of their merchandise than can the Company.

INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS

34
<PAGE>

Company or others will adopt product or service names similar to "ONSALE" and
the Company's other trademarks, thereby impeding the Company's ability to
build brand identity and possibly leading to customer confusion. The inability
of the Company to protect the name "ONSALE" adequately would have a material
adverse effect on the Company's business, results of operations and financial
condition. The Company's proprietary software is protected by copyright laws.
The source code for the Company's proprietary software and also is protected
under applicable trade secret law. As part of its confidentiality procedures,
the Company generally enters into agreements with its employees and
consultants and limits access to and distribution of its software,
documentation and other proprietary information. There can be no assurance
that the steps taken by the Company will prevent misappropriation of its
technology or that agreements entered into for that purpose will be
enforceable. Notwithstanding the precautions taken by the Company, it might be
possible for a third party to copy or otherwise obtain and use the Company's
software or other proprietary information without authorization or to develop
similar software independently. Policing unauthorized use of the Company's
technology is difficult, particularly because the global nature of the
Internet makes it difficult to control the ultimate destination or security of
software or other data transmitted. The laws of other countries may afford the
Company little or no effective protection of its intellectual property.

The Company may in the future receive notices from third parties claiming
infringement by the Company's software or other aspects of the Company's
business. While the Company is not currently subject to any such claim, any
future claim, with or without merit, could result in significant litigation
costs and diversion of resources including the attention of management, and
require the Company to enter into royalty and licensing agreements, which
could have a material adverse effect on the Company's business, results of
operations and financial condition. Such royalty and licensing agreements, if
required, may not be available on terms acceptable to the Company or at all.
In the future, the Company may also need to file lawsuits to enforce the
Company's intellectual property rights, to protect the Company's trade secrets
or to determine the validity and scope of the proprietary rights of others.
Such litigation, whether successful or unsuccessful, could result in
substantial costs and diversion of resources, which could have a material
adverse effect on the Company's business, results of operations and financial
condition.

The Company also relies on a variety of technology that it licenses from
third parties, including its database and Internet server software, which is
used in the Company's Web site to perform key functions. There can be no
assurance that these third party technology licenses will continue to be
available to the Company on commercially reasonable terms. The loss of or
inability of the Company to maintain or obtain upgrades to any of these
technology licenses could result in delays in completing its proprietary
software enhancements and new development until equivalent technology could be
identified, licensed or developed, and integrated. Any such delays would
materially adversely affect the Company's business, results of operations and
financial condition.

LEGAL PROCEEDINGS

On October 17, 1996, Tredex California, Inc. ("Tredex") filed a complaint in
the Superior Court of the State of California in and for the County of Los
Angeles against a former Tredex employee for misappropriation of trade
secrets, intentional interference with contractual relations, fraud and
deceit, breach of fiduciary duty, unfair competition, conspiracy, unjust
enrichment and conversion. Tredex subsequently amended its complaint to name
ONSALE, among others, as a defendant and served ONSALE with a summons and
complaint on January 6, 1997. Tredex alleges that ONSALE wrongfully obtained
customer and vendor lists and other proprietary information of Tredex from
such former employee. Tredex is seeking damages in excess of $1,750,000 from
all the defendants collectively. Tredex is also seeking injunctive relief to
stop the defendants from using the customer and vendor lists and other
proprietary information of Tredex. ONSALE has filed a general denial and is
currently investigating Tredex's allegations. Although there can be no
assurance, the Company does not expect the outcome of this litigation to have
a material adverse effect on its results of operations or financial condition,
but the Company could incur significant expenses in defending this action.

35
<PAGE>

On March 6, 1997, the Company filed a complaint in the Superior Court of the
State of California in and for the County of Santa Clara against a Tredex
employee and Tredex, for, among other claims, misappropriation of trade
secrets, fraud and deceit, breach of contract (only against the Tredex
employee), intentional interference with contractual relations, intentional
interference with prospective business relations, unfair competition, unjust
enrichment, conspiracy and conversion. The Company alleges that the Tredex
employee obtained marketing information, financial and technical data, and
other proprietary and confidential information of the Company while
interviewing for a sales position at the Company. The Company believes that
the Tredex employee disclosed some or all of the confidential information that
he obtained from the Company to Tredex, and that Tredex, knowing that the
information was wrongfully obtained, used the information to establish a
competing on-line auction site. The Company is seeking unspecified
compensatory damages as well as injunctive relief against both the Tredex
employee and Tredex. Although there can be no assurance, the Company does not
expect the outcome of this litigation to have a material adverse effect on its
results of operations or its financial condition, but the Company could incur
significant expenses in pursuing this action.

EMPLOYEES

As of December 31, 1996, the Company employed 54 people, including 19 in
engineering, support and operations, quality assurance, and technical
documentation, 11 in merchandise acquisition and marketing, 10 in customer
support and service, 7 in order processing and logistics, and 7 in finance and
administrative functions. The Company also employs independent contractors for
software development, technical documentation, artistic design and product
fulfillment. None of the Company's employees is represented by a labor union,
and the Company considers its employee relations to be good. Competition for
qualified personnel in the Company's industry is intense, particularly for
software development and other technical staff. The Company believes that its
future success will depend in part on its continued ability to attract, hire
and retain qualified personnel. See "Risk Factors--Management of Growth;
Limited Senior Management Resources" and "Risk Factors--Dependence on Key
Personnel; Need For Additional Personnel."

FACILITIES

The Company's principal administrative, engineering, merchandising and
marketing facilities total approximately 10,392 square feet, and are located
in three separate buildings within an office complex in Mountain View,
California under leases that expire in October 1997, May 1998 and July 1999.
The Company believes that it has adequate space for its current needs. As the
Company expands, it expects that suitable additional space will be available
on commercially reasonable terms, although no assurance can be made in this
regard. The Company does not own any real estate.

The Company does not currently own or lease warehouse space and relies
instead on contract warehouses for the bulk of its fulfillment and logistics
requirements. The Company may, at some point in the future, acquire or lease
its own warehouse space rather than rely on contract warehouse services.

36
<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS

The following table sets forth certain information regarding the executive
officers, key employees and directors of the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
S. Jerrold Kaplan............... 45 President, Chief Executive Officer and
Director
Alan S. Fisher.................. 36 Vice President of Development and
Operations, Chief Technical Officer and
Director
Merle W. McIntosh............... 41 Senior Vice President of Merchandise
Acquisition
Martha D. Greer................. 43 Vice President of Merchandise Management
John F. Sauerland............... 46 Chief Financial Officer and Secretary
Michael T. Weller............... 29 Vice President of Vendor Relations
Peter L. Harris(1).............. 53 Director
Peter H. Jackson(2)............. 38 Director
Kenneth J. Orton(1)(2).......... 45 Director
</TABLE>
--------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.

Each director will hold office until the next Annual Meeting of Stockholders
and until his successor is elected and qualified or until his earlier
resignation or removal. Each officer serves at the discretion of the Board of
Directors (the "Board").

S. Jerrold Kaplan has been President, Chief Executive Officer and a director
of the Company since co-founding the Company in July 1994. Mr. Kaplan was
Secretary of the Company from July 1995 to December 1996. From September 1989
to October 1993, Mr. Kaplan served as Chairman for GO Corporation, a developer
of pen-based computers. From September 1987 to September 1989, he served as
Chief Executive Officer of GO Corporation. Mr. Kaplan received his B.A. in
History and Philosophy of Science from the University of Chicago and received
his M.S.E. and Ph.D. in Computer and Information Science from the University
of Pennsylvania.

Alan S. Fisher has been Vice President of Development and Operations, Chief
Technical Officer and a director of the Company since co-founding the Company
in July 1994. He also served as Chief Financial Officer of the Company from
July 1994 to July 1996. Mr. Fisher is also President and Chairman of Software
Partners, Inc., a developer and publisher of software products, which he co-
founded in August 1988, although he devotes minimal time to this enterprise.
From April 1984 to August 1988, Mr. Fisher served as Technical Marketing
Manager and Product Development Manager for Teknowledge, Inc., a developer of
artificial intelligence software products. From June 1981 to April 1984, he
served as a member of the technical staff for AT&T Bell Laboratories, a
research and development division for American Telephone & Telegraph Company.
Mr. Fisher received his B.S. in Electrical Engineering from the University of
Missouri and received his M.S. in Electrical Engineering from Stanford
University.

Merle W. McIntosh has been Senior Vice President of Merchandise Acquisition
of the Company since March 1997. From October 1994 to March 1997, Mr. McIntosh
served as Vice President of Purchasing for Micro Warehouse, Inc., a direct
marketer of microcomputer software and peripheral products. From September
1992 to October 1994, Mr. McIntosh served as Director of Product Management
for Entex Information Services, Inc., a computer reseller. From September 1987
to September 1992, Mr. McIntosh was a senior purchasing manager for Wang
Laboratories, a computer manufacturer. From July 1984 to September 1987, he
served as production controller for Sensormatic Electronics Corporation, a
manufacturer of security devices. Mr. McIntosh studied business management at
New Hampshire College.

37
<PAGE>

Martha D. Greer has been Vice President of Merchandise Management of the
Company since December 1996. From March 1996 to December 1996, Ms. Greer
served as a management consultant. From December 1992 to February 1996, she
served as Vice President, Product Management for PC Connection, Inc., a mail-
order reseller of personal computers. From March 1992 to December 1992, she
served as a senior manager for Dataquest, a computer industry market research
firm. Prior to that, she served as a management consultant from January 1990
to March 1992. Ms. Greer received her B.A. in Linguistics from Macalester
College and received her Ph.D. in Experimental Psychology from Harvard
University.

John F. Sauerland joined the Company in July 1996 as its Chief Financial
Officer. He was appointed Secretary of the Company in December 1996. From
March 1995 to July 1996, Mr. Sauerland served as Chief Financial Officer with
ICVerify, Inc., a developer of software. From May 1992 to March 1995, Mr.
Sauerland served as Senior Vice President of Finance, Chief Financial Officer
and Secretary for Natural Wonders, Inc., a specialty retailer. From March 1989
to May 1992, Mr. Sauerland served as Vice President of Finance and Chief
Financial Officer for Natural Wonders, Inc. From January 1989 to March 1989,
he served as controller for Natural Wonders, Inc. Mr. Sauerland received his
B.S. in Business Administration from St. Mary's College and received his
M.B.A. in Finance and Accounting from the University of Santa Clara.

Michael T. Weller has been Vice President of Vendor Relations of the Company
since January 1997. From April 1992 to December 1996, Mr. Weller served as
Senior Director of Marketing at Micro Warehouse, Inc. From March 1990 to March
1992, Mr. Weller served as a channels marketing manager for Farallon
Communications, Inc., a networking hardware developer and manufacturer. From
August 1989 to March 1990, he served as a direct mail specialist for SuperMac
Technologies, a manufacturer of Apple MacIntosh computer clones. Mr. Weller
received his B.A. in Communication Studies from the University of California,
Santa Barbara.

Peter L. Harris has been a director of the Company since December 1996. He
has served as Chairman, Chief Executive Officer and President of Expressly
Portraits, a family portrait studio chain, since August 1995. Previously, Mr.
Harris was Chairman of Accolade, Inc., a publisher of interactive
entertainment software, from May 1994 to January 1996, and Chief Executive
officer of Accolade, Inc. from May 1994 to June 1995. From July 1992 to May
1994, he served as a management consultant. Prior to that, Mr. Harris was
President and Chief Executive Officer of F.A.O. Schwarz from 1985 to July
1992. Mr. Harris serves as a director of Boomtown, Inc., Natural Wonders, Inc.
and Pacific Sunwear of California, Inc. Mr. Harris received his B.A. in
Business Administration from Whittier College.

Peter H. Jackson has been a director of the Company since December 1996. He
has served as President and Chief Executive Officer of Intraware, Inc., a
developer and distributor of intranet software tools and applications, since
co-founding it in August 1996. From April 1994 to May 1996, Mr. Jackson was
President and Chief Operating Officer of Dataflex Corporation, a computer
hardware reseller and services provider. Previously, Mr. Jackson served as
President and Chief Executive Officer of Granite Computer Products, Inc., a
supplier of computer hardware and software for large corporations, which he
founded in March 1985. Granite Computer Products, Inc. was acquired by
Dataflex Corporation in April 1994. Mr. Jackson received his B.A. in History
from the University of California, Berkeley.

Kenneth J. Orton has been a director of the Company since October 1996. Mr.
Orton has been President and Chief Operating Officer for Preview Travel, Inc.,
an online travel service, since April 1994. From September 1989 to March 1994,
he served as Vice President and General Manager for Epsilon, Inc., a wholly-
owned subsidiary of American Express TRS, a database marketing company. Mr.
Orton received his B.A. in Business Administration and Marketing from
California State University, Fullerton.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee of the Board consists of Messrs. Orton and
Harris. In October 1996, the Company granted Mr. Orton options to purchase
19,800 shares of Common Stock, with an exercise price of $1.50 per share. In
December 1996, the Company granted Mr. Harris an option to purchase 18,000
shares of

38
<PAGE>

Common Stock with an exercise price of $5.00 per share, and Mr. Harris
purchased 20,000 shares of the Company's Common Stock for an aggregate
purchase price of $100,000 paid with a full recourse promissory note secured
by the shares. Mr. Harris repaid his note in March 1997. Also, in December
1996, the Company granted Mr. Jackson an option to purchase 18,000 shares of
Common Stock with an exercise price of $7.00 per share. Each director's option
vests over four years. Mr. Orton's option provides that, if his services as a
director are involuntarily terminated following a "change of control"
transaction, 50% of the unvested portion of his option will vest immediately.

DIRECTOR COMPENSATION

Directors of the Company do not receive cash compensation for their services
as directors but are reimbursed for their reasonable expenses in attending
meetings of the Board.

In December 1996, the Board adopted the 1996 Directors Stock Option Plan
(the "Directors Plan") and reserved a total of 100,000 shares of the Company's
Common Stock for issuance thereunder. The Company's stockholders approved the
Directors Plan in January 1997. Members of the Board who are not employees of
the Company, or any parent, subsidiary or affiliate of the Company, are
eligible to participate in the Directors Plan. Each eligible director who
first becomes a member of the Board on or after the date on which this
offering is declared effective by the Securities and Exchange Commission
("Effective Date") will initially be granted an option for 15,000 shares
("Initial Grant") on the later of the Effective Date or the date such director
first becomes a director. On each anniversary of a director's Initial Grant
(or previous grant if such director was ineligible to receive an Initial
Grant), each eligible director will automatically be granted an additional
option to purchase 5,000 shares if such director has served continuously as a
member of the Board since the date of such director's Initial Grant (or
previous grant if such director did not receive an Initial Grant). All options
issued under the Directors Plan will vest as to 12.5% of the shares six months
from the date of grant and as to 2.083% of the shares on the last date of each
month thereafter, provided the optionee continues as a member of the Board or
as a consultant to the Company. Additionally, immediately prior to a "change
in control" transaction, all options granted pursuant to the Directors Plan
will accelerate and will terminate if not exercised prior to the consummation
of the transaction. The exercise price of all options granted under the
Directors Plan must be the fair market value of the Common Stock on the date
of grant.

EXECUTIVE COMPENSATION

The following table sets forth all compensation awarded to, earned by or
paid for services rendered to the Company in all capacities during 1996 by the
Company's Chief Executive Officer. No other executive officer who held office
at December 31, 1996 met the definition of "most highly compensated executive
officer" within the SEC's executive compensation disclosure rules for this
period.

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------------
AWARDS
------------------
1996 ANNUAL COMPENSATION
---------------------------------
OTHER ANNUAL SECURITIES
NAME AND PRINCIPAL POSITIONS SALARY(1) BONUS COMPENSATION(2) UNDERLYING OPTIONS
- ---------------------------- --------- ------- --------------- ------------------
<S> <C> <C> <C> <C>
S. Jerrold Kaplan......... $ -- $ -- $56 --
President and Chief
Executive Officer
</TABLE>
- --------

(1) The Company's other executive officers are Messrs. Sauerland, McIntosh and
Fisher and Ms. Greer. John F. Sauerland, who was appointed the Company's
Chief Financial Officer in July 1996, is currently being compensated at
the rate of $100,000 per year. Martha D. Greer, who was appointed the
Company's Vice President of Merchandise Management in December 1996, is
currently being compensated at the rate of $125,000 per year. Merle W.
McIntosh, who was appointed the Company's Senior Vice President of
Merchandise Acquisition in March 1997, is currently being compensated at
the rate of $175,000 per year. As of January 1, 1997, the Company began
compensating both Mr. Kaplan and Alan S. Fisher, the Company's Vice
President of Development and Operations and Chief Technical Officer, at
the annual salary rate of $100,000. Neither Mr. Kaplan nor Mr. Fisher
received any salary or bonus during 1996.
(2) Represents the portion of Mr. Kaplan's health and life insurance premium
paid by the Company.

39
<PAGE>

Neither Mr. Kaplan nor Mr. Fisher has been granted options by the Company.
For information on options granted to Messrs. Sauerland and McIntosh and Ms.
Greer, see "Employment Agreements" below.

EMPLOYMENT AGREEMENTS

Mr. Sauerland's offer letter of June 1996 provides for an initial annual
salary of $100,000 and a review to bring his salary in line with industry
standard practice immediately following this offering. It also provides that,
should Mr. Sauerland be terminated without formal "cause" following the first
six months of his employment, he would receive severance pay in the amount of
six months' salary. In addition, it provides that Mr. Sauerland will
participate in any appropriate executive incentive plans. At the commencement
of Mr. Sauerland's employment in July 1996, Mr. Sauerland also received an
option to purchase 225,000 shares of Common Stock with an exercise price of
$0.67 per share. The option will vest as to 28,125 shares on February 1, 1997
and as to 4,687.5 shares on the first day of each month thereafter. Further,
if an initial public offering occurs prior to the time that the option is
fully vested, 15,000 shares become vested upon the closing of the offering and
the remaining unvested shares vest monthly pro rata over the remainder of the
four-year vesting period. Additionally, 25% of the unvested options would vest
immediately upon Mr. Sauerland's termination without formal "cause" following
a "change of control" transaction.

Ms. Greer's offer letter of December 1996 provides for an initial annual
salary of $125,000. The letter also provides for a one-time payment of $40,000
to reimburse her for her relocation and interim living costs. At the
commencement of her employment in December 1996, Ms. Greer also received an
option to purchase 150,000 shares of Common Stock with an exercise price of
$7.00 per share. The option will vest as to 18,750 shares on June 1, 1997 and
as to 3,125 shares each month thereafter. In addition, the letter provides
Ms. Greer with the right to request a $125,000 loan from the Company before
December 19, 1997 to assist with the purchase of a new home. The loan will
have a term of two years and will have an interest rate of 7%. The interest
will accrue and become payable 18 months from the date of the loan, with
interest payable quarterly thereafter, and with all interest and principal
payable at the earliest of the end of the two-year loan term, the sale of the
property purchased with the loan or the termination of Ms. Greer's employment.
The loan will be secured by a second interest in Ms. Greer's home in New
Hampshire, her current option and any future options to purchase shares of the
Company's Common Stock.

Mr. McIntosh's offer letter of February 1997 provides for an initial annual
salary of $175,000 commencing on March 12, 1997. The letter also provides for
reimbursement of up to $25,000 of costs associated with his relocation to
California. At the commencement of his employment, Mr. McIntosh also received
an option to purchase 150,000 shares of Common Stock with an exercise price of
$7.00 per share. The option will vest as to 18,750 shares on September 12,
1997 and as to 3,125 shares on the first day of each month thereafter. In the
event that Mr. McIntosh is terminated without formal "cause" following a
"change of control" transaction after the first six months of his employment,
25% of the unvested portion of his option will vest immediately upon his
termination and he will receive three months' severance pay. In addition, the
letter provides Mr. McIntosh with the right to request a $25,000 loan from the
Company before March 12, 1998. The loan will have a term of two years and will
have an interest rate of 7%. The interest will accrue and become payable two
years from the date of the loan, with all interest and principal payable at
the earlier of the end of the two-year loan term or three months after the
termination of Mr. McIntosh's employment. The loan will be secured by Mr.
McIntosh's current option and any future such options to purchase shares of
the Company's Common Stock.

EMPLOYEE BENEFIT PLANS

1995 Equity Incentive Plan. In November 1995, the Board adopted and the
Company's stockholders approved the Company's 1995 Equity Incentive Plan (the
"1995 Equity Incentive Plan") and reserved 1,500,000 shares of Common Stock
for issuance thereunder. The 1995 Equity Incentive Plan was amended in August
1996 to increase the number of shares reserved for issuance thereunder from
1,500,000 to 3,032,250. As of December 31, 1996, options to purchase an
aggregate of 1,612,910 shares of Common Stock were outstanding under the 1995
Equity Incentive Plan with exercise prices ranging from $0.033 to $7.00 per
share, and options

40
<PAGE>

to purchase 1,872,090 shares were available for grant. In December 1996, the
1995 Equity Incentive Plan was amended to allow the issuance of options
thereunder to qualify under the exemption contained in Section 25102(o) of the
California Corporate Securities Law of 1968. The Company's stockholders
approved the amendment in December 1996. In December 1996, the Board further
amended and restated the 1995 Equity Incentive Plan to become effective upon
the Effective Date. The Company's stockholders approved the amendment and
restatement of the 1995 Equity Incentive Plan in January 1997. The amendment
and restatement of the 1995 Equity Incentive Plan increased the shares
reserved for issuance from 3,032,250 to 3,500,000.

The 1995 Equity Incentive Plan provides for the grant of stock options and
the issuance of restricted stock and stock bonuses by the Company to its
employees, officers, directors, consultants, independent contractors and
advisers. No person will be eligible to receive more than 250,000 shares in
any calendar year pursuant to grants under the 1995 Equity Incentive Plan,
other than new employees of the Company who will be eligible to receive up to
a maximum of 750,000 shares in the calendar year in which they commence
employment with the Company. The 1995 Equity Incentive Plan is administered by
the Compensation Committee of the Board, consisting of Messrs. Orton and
Harris, both of whom are "outside directors" as that term is defined in
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
The 1995 Equity Incentive Plan permits the Compensation Committee to grant
options that are either incentive stock options (as defined in Section 422 of
the Code) or nonqualified stock options, on terms (including the vesting
schedule and the exercise price, which may not be less than 85% of the fair
market value of the Company's Common Stock in the case of nonqualified stock
options and 100% in the case of incentive stock options) determined by the
Compensation Committee, subject to certain statutory and other limitations in
the 1995 Equity Incentive Plan. In addition to, or in tandem with, awards of
stock options, the Compensation Committee may grant participants restricted
stock awards to purchase the Company's Common Stock for not less than 85% of
its fair market value at the time of grant or stock bonuses for services
rendered. The other terms of such restricted stock awards may be determined by
the Compensation Committee. No person may receive (i) restricted stock awards,
(ii) stock bonus awards or (iii) options with an exercise price below fair
market value for more than 100,000 shares over the term of the 1995 Equity
Incentive Plan, and the sum of such awards may not exceed 200,000 shares over
the term of the 1995 Equity Incentive Plan. The 1995 Equity Incentive Plan
will terminate in November 2005 unless terminated earlier in accordance with
the provisions of the 1995 Equity Incentive Plan. Under the 1995 Equity
Incentive Plan, shares that (i) are subject to issuance upon exercise of an
option but cease to be subject to such option for any reason other than
exercise of such option, (ii) are subject to an award granted under the 1995
Equity Incentive Plan but are forfeited or are repurchased by the Company at
the original issue price or (iii) are subject to an award that otherwise
terminates without shares being issued will again be available for grant and
issuance in connection with future awards under the 1995 Equity Incentive
Plan.

1996 Employee Stock Purchase Plan. In December 1996, the Board adopted the
1996 Employee Stock Purchase Plan (the "Purchase Plan") and reserved a total
of 150,000 shares of the Company's Common Stock for issuance thereunder. The
Company's stockholders approved the Purchase Plan in January 1997. The
Purchase Plan will become effective on the first business day on which price
quotations for the Company's Common Stock are available on The Nasdaq National
Market. The Purchase Plan permits eligible employees to acquire shares of the
Company's Common Stock through payroll deductions. The Purchase Plan is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Code. Except for the initial offering, each offering under the Purchase
Plan will be for a period of twenty-four months (the "Offering Period")
commencing on February 1 and August 1 of each year and ending on January 31
and July 31 of each year. The first Offering Period will begin on the date on
which price quotations for the Company's Common Stock are first available on
the Nasdaq National Market and will end on January 31, 1999, unless otherwise
determined by the Board prior to the beginning of such Offering Period. Except
for the first Offering Period, each Offering Period will consist of four
purchase periods, each six months in length ("Purchase Period"). The Board has
the power to change the duration of Offering Periods or Purchase Periods
without stockholder approval, provided that the change is announced at least
15 days prior to the scheduled beginning of the first Offering Period or
Purchasing Period to be affected. Eligible employees may select a rate of
payroll deduction between 2% and 15% of their compensation, up to an aggregate
total payroll deduction for each employee not to exceed $21,250 in any

41
<PAGE>

Purchase Period. Eligible employees may purchase up to 1,500 shares in any
Purchase Period. The purchase price for the Company's Common Stock 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.

401(k) Plan. The Board maintains the ONSALE, Inc. 401(k) Plan (the "401(k)
Plan"), a defined contribution profit-sharing plan intended to qualify under
Section 401 of the Code. All employees who are at least 21 years old are
eligible to participate in the 401(k) plan. An eligible employee of the
Company may begin to participate in the 401(k) Plan on the earlier of the
first day of January or the first day of July coincident with or immediately
following the later of (i) the date such employee attains age 21 and (ii) the
employee's date of hire. A participating employee may make pre-tax
contributions, subject to limitations under the Code, of a percentage (not to
exceed 15%) of his or her eligible compensation. Employee contributions and
the investment earnings thereon are fully vested at all times. The Company, at
its discretion, may make matching contributions for the benefit of eligible
employees in an amount not to exceed $250 per year. One quarter of the
Company's contributions and the investment earnings thereon become vested upon
the employee's completion of one year of service with the Company and an
additional quarter for each year of service thereafter. The Company made a
minimal contribution to the 401(k) Plan in the fourth quarter of 1996.

INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF
LIABILITY

As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach of fiduciary duty
as a director. At this time, Delaware General Corporation Law does not permit
indemnification for liability (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or that involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law or (iv)
for any transaction from which the director derived an improper personal
benefit.

As permitted by Section 145 of the Delaware General Corporation Law, the
Bylaws of the Company provide that (i) the Company is required to indemnify
its directors and executive officers to the fullest extent permitted by the
Delaware General Corporation Law, (ii) the Company is required, with certain
exceptions, to advance expenses, as incurred, to its directors and executive
officers in connection with a legal proceeding to the fullest extent permitted
by the Delaware General Corporation Law, (iii) the rights conferred in the
Bylaws are not exclusive and (iv) the Company is authorized to enter into
indemnity agreements with its directors, officers, employees and agents.

The Company plans to enter into Indemnity Agreements with each of its
directors and executive officers to give such directors and executive officers
additional contractual assurances regarding the scope of the indemnification
set forth in the Company's Bylaws and to provide additional procedural
protections. At present, there is no pending litigation or proceeding
involving a director, officer or employee of the Company regarding which
indemnification is sought, nor is the Company aware of any threatened
litigation that may result in claims for indemnification.

42
<PAGE>

CERTAIN TRANSACTIONS

Since the Company's inception (July 1994), there has not been, nor is there
currently proposed, any transaction or series of similar transactions to which
the Company was or is to be a party in which the amount involved exceeds
$60,000 and in which any director, executive officer or holder of more than 5%
of the Common Stock of the Company had or will have a direct or indirect
material interest other than (i) compensation arrangements that are described
where required under "Management," (ii) the transactions described under
"Compensation Committee Interlocks and Insider Participation" and (iii) the
transactions described below.

PROMOTERS' TRANSACTIONS

Each of S. Jerrold Kaplan, Alan S. Fisher, Razi Mohiuddin and Software
Partners, Inc., a Delaware corporation (collectively the "Founders"), were
involved in the founding and organization of the Company and may be considered
a promoter of the Company. Described below are items of value received by each
of the Founders in connection with services provided to the Company.

At its inception in July 1994, the Company issued 6,000,000 shares to Mr.
Kaplan and 6,000,000 shares to Software Partners, Inc. ("SPI"). Mr. Kaplan
purchased his shares by contributing a business plan that he had prepared for
the Company and SPI purchased its shares by contributing certain software that
it had developed for the Company. The Board valued each person's contribution
at $10,000. In July 1994, SPI distributed its 6,000,000 shares of the
Company's Common Stock to its shareholders, Mr. Fisher and Mr. Mohiuddin, with
Mr. Fisher receiving 3,793,185 shares of the Company's Common Stock and Mr.
Mohiuddin receiving 2,206,815 shares of the Company's Common Stock (the "SPI
Distribution"). At the time of the SPI Distribution, Mr. Fisher and Mr.
Mohiuddin also entered into a voting trust agreement pursuant to which SPI
would act as voting trustee for the shares of the Company's Common Stock held
of record by Mr. Fisher and Mr. Mohiuddin. The Company has the right to
repurchase at their original cost the shares owned by Messrs. Kaplan, Fisher
and Mohiuddin, which right commenced lapsing monthly as to 1/48th of each of
their shares on July 21, 1994 and continues to lapse so long as, in the case
of Mr. Kaplan, Mr. Kaplan and, in the case of Messrs. Fisher and Mohiuddin,
Mr. Fisher is rendering substantial services to the Company.

From inception (July 1994) through mid-1996, Mr. Kaplan and SPI provided
certain advances to the Company for working capital and property and equipment
purchases. At December 31, 1995, the Company owed $56,000 and $214,000 to Mr.
Kaplan and SPI, respectively. During 1996, the Company borrowed an additional
$6,000 and $220,000 from Mr. Kaplan and SPI, respectively. These advances do
not bear interest. The Company repaid a portion of these advances in October
1996 and the balance in December 1996.

Since July 1994, the Company has leased certain of its facilities from SPI.
From inception (July 1994) to December 31, 1995 and for 1996, the Company paid
rent of $18,000 and $28,000, respectively for use of these facilities. The
lease costs for these facilities approximate the actual cost incurred by SPI.

In March 1996, Mr. Kaplan, Mr. Fisher and Mr. Mohiuddin agreed to act as
guarantors of the Company's obligations under the Company's agreement with
Wells Fargo Bank ("Wells Fargo") to have Wells Fargo process credit card
transactions for the Company. Mr. Kaplan, Mr. Fisher and Mr. Mohiuddin are
each liable for any indebtedness the Company owes Wells Fargo.

In June 1996, Mr. Kaplan and SPI agreed to act as guarantors of the
Company's obligations under the Company's agreement with First USA Merchant
Services, Inc. ("First USA") to have First USA process credit card
transactions for the Company. Mr. Kaplan and SPI each are liable to First USA
for any liability or indebtedness the Company owes to First USA.

SECURITIES ISSUANCES

In September 1996, the Company sold an aggregate of 365,191 shares of its
Series A Preferred Stock at a purchase price of $6.39 per share and warrants
to purchase an aggregate of 202,910 shares of Series B Preferred Stock at an
exercise price of $9.59 to the following funds affiliated with Kleiner Perkins
Caufield & Byers

43
<PAGE>

("KPCB"), a beneficial owner of more than 5% of the Company's Common Stock in
the amounts indicated: KPCB VIII (356,061 shares of Series A Preferred Stock
and a warrant to purchase 197,837 shares of Series B Preferred Stock) and KPCB
Information Sciences Zaibatsu Fund II (9,130 shares of Series A Preferred
Stock and a warrant to purchase 5,073 shares of Series B Preferred Stock).
Each share of Preferred Stock will be converted automatically into three
shares of Common Stock upon the closing of this offering. Both entities
exercised their warrants in total for cash in March 1997.

44
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information known to the Company with
respect to beneficial ownership of the Company's Common Stock as of December
31, 1996 by (i) each stockholder known by the Company to be the beneficial
owner of more than 5% of the Company's Common Stock, (ii) each director and
(iii) all executive officers and directors as a group. This table assumes the
cash exercise of all outstanding warrants and the conversion of all
outstanding Preferred Stock as of that date.

<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
NUMBER OF SHARES ---------------------------------
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) BEFORE OFFERING AFTER OFFERING(2)
- ------------------------ --------------------- --------------- -----------------
<S> <C> <C> <C>
S. Jerrold Kaplan(3)(4). 6,000,000 43.2% 36.0%
Alan S. Fisher(4)(5).... 6,000,000 43.2 36.0
Software Partners, Inc.
Razi Mohiuddin(4)(5)(6). 2,206,815 15.9 13.2
Kleiner Perkins Caufield
& Byers(7)............. 1,704,303 12.3 10.2
Peter L. Harris(8)...... 20,000 * *
Peter H. Jackson(9)..... -- -- --
Kenneth J. Orton(10).... -- -- --
All executive officers
and directors as
a group (6
persons)(11)........... 12,052,812 86.6 72.1
</TABLE>
- --------

* Less than 1%.

(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all
shares beneficially owned, subject to community property laws where
applicable. Shares of Common Stock subject to options or warrants that
are currently exercisable or exercisable within 60 days of December 31,
1996 are deemed to be outstanding and to be beneficially owned by the
person holding such options for the purpose of computing the percentage
ownership of such person but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person.

(2) Assumes that the Underwriters' over-allotment option to purchase up to
420,000 shares from the Company is not exercised.

(3) Represents 5,685,000 shares held of record by Mr. Kaplan, 300,000 shares
held of record by Layne Kaplan (Mr. Kaplan's former spouse) and 15,000
shares held of record by Amy Kaplan Eckman, trustee of the Lily Layne
Kaplan Irrevocable Trust. On April 30, 1996, the Company, Mr. Kaplan and
Layne Kaplan entered into a voting trust agreement pursuant to which Mr.
Kaplan was authorized to act as voting trustee for the 300,000 shares
held of record by Layne Kaplan. This voting trust agreement will
terminate upon the closing of this offering. Mr. Kaplan is President,
Chief Executive Officer and a director of the Company. The address of Mr.
Kaplan is c/o ONSALE, Inc., 1861 Landings Drive, Mountain View,
California 94043.

(4) The Company has the right to repurchase at their original cost the shares
owned by Messrs. Kaplan, Fisher and Mohiuddin, which right commenced
lapsing monthly as to 1/48th of each of their shares on July 21, 1994 and
continues to lapse so long as, in Mr. Fisher's and Mr. Mohiuddin's case,
Mr. Fisher is rendering substantial services to the Company and, in Mr.
Kaplan's case, Mr. Kaplan is rendering substantial services to the
Company. At December 31, 1996, Messrs. Kaplan, Fisher and Mohiuddin
beneficially owned 3,625,000 shares, 2,291,716 shares and 1,333,284
shares, respectively, that were no longer subject to the Company's
repurchase rights.

(5) Represents 3,718,185 shares held of record by Mr. Fisher, 75,000 shares
held of record by the Kelly Elizabeth Fisher Irrevocable Trust and
2,206,815 shares held of record by Mr. Mohiuddin and the Mohiuddin
Children's Trust (as described in note (6) below), all of which are
subject to a voting trust

45
<PAGE>

agreement under which Software Partners, Inc. has the right to vote the
shares. Software Partners, Inc. is owned by Messrs. Fisher and Mohiuddin.
Mr. Fisher is a director, President and more than 50% shareholder of
Software Partners, Inc. The address of Software Partners, Inc. and Mr.
Fisher is 1953 Landings Drive, Mountain View, California 94043. Mr. Fisher
is Vice President of Development and Operations, Chief Technical Officer
and a director of the Company.

(6) Represents 2,056,815 shares held of record by Mr. Mohiuddin and 150,000
shares held of record by the Mohiuddin Children's Trust. The address of
Mr. Mohiuddin is c/o Software Partners, Inc., 1953 Landings Drive,
Mountain View, California 94043.

(7) Represents shares issuable upon the conversion of Series A Preferred
Stock and Series B Preferred Stock. Of the 1,704,303 shares beneficially
owned by KPCB, 1,661,694 shares are held of record by KPCB VIII and
42,609 shares are held of record by KPCB Information Sciences Zaibatsu
Fund II. The address of KPCB VIII and KPCB Information Sciences Zaibatsu
Fund II is 2750 Sand Hill Road, Menlo Park, California 94025.

(8) Mr. Harris is a director of the Company.

(9) Mr. Jackson is a director of the Company.

(10) Mr. Orton is a director of the Company.

(11) Represents the shares described in notes (3), (5) and (8) and 32,812
shares subject to an option held by Mr. Sauerland exercisable within 60
days of December 31, 1996.

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 30,000,000 shares of
Common Stock, $0.001 par value per share, and 2,000,000 shares of Preferred
Stock, $0.001 par value per share. As of December 31, 1996, and assuming the
exercise of all outstanding warrants and the conversion of all outstanding
Preferred Stock into Common Stock immediately prior to the closing of this
offering, there were outstanding 13,883,060 shares of Common Stock held of
record by 14 stockholders and options to purchase 1,612,910 shares of Common
Stock.

COMMON STOCK

Subject to preferences that may apply to any Preferred Stock outstanding at
the time, the holders of outstanding shares of Common Stock are entitled to
receive dividends out of assets legally available therefor at such times and
in such amounts as the Board of Directors may from time to time determine.
Each stockholder is entitled to one vote for each share of Common Stock held
on all matters submitted to a vote of stockholders. Stockholders are required
to act only at annual or special meetings and not by written consent.
Cumulative voting for the election of directors is not provided for in the
Company's Certificate of Incorporation, which means that the holders of a
majority of the shares voted can elect all of the directors then standing for
election. The Common Stock is not entitled to preemptive rights and is not
subject to conversion or redemption. Upon liquidation, dissolution or winding-
up of the Company, the assets legally available for distribution to
stockholders are distributable ratably among the holders of the Common Stock
and any participating Preferred Stock outstanding at that time after payment
of liquidation preferences, if any, on any outstanding Preferred Stock and
payment of other claims of creditors. Each outstanding share of Common Stock
is, and all shares of Common Stock to be outstanding upon completion of this
offering will be, fully paid and nonassessable.

PREFERRED STOCK

Upon the closing of this offering, all outstanding shares of Preferred Stock
(the "Convertible Preferred") will be converted into shares of Common Stock.
See Note 4 of Notes to Financial Statements for a description of the
Convertible Preferred. The Board of Directors is authorized, subject to any
limitations prescribed by Delaware law, to provide for the issuance of
additional shares of Preferred Stock in one or more series, to establish from
time to time the number of shares to be included in each such series, to fix
the powers,

46
<PAGE>

designations, preferences and rights of the shares of each wholly unissued
series and any qualifications, limitations or restrictions thereon and to
increase or decrease the number of shares of any such series (but not below
the number of shares of such series then outstanding) without any further vote
or action by the stockholders. The Board of Directors may authorize the
issuance of 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. The Company has no
current plan to issue any shares of Preferred Stock.

DELAWARE'S ANTI-TAKEOVER LAW

The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "Anti-Takeover Law") regulating corporate
takeovers. The Anti-Takeover Law prevents certain Delaware corporations,
including those whose securities are listed on The Nasdaq National Market,
from engaging, under certain circumstances, in a "business combination" (which
includes a merger or sale of more than 10% of the corporation's assets) with
any "interested stockholder" (a stockholder who owns 15% or more of the
corporation's outstanding voting stock) for three years following the date
that such stockholder became an "interested stockholder." The effect of the
Anti-Takeover Law may be to discourage takeover attempts, including attempts
that might result in a premium over the market price of the Common Stock. A
Delaware corporation may "opt out" of the Anti-Takeover Law with an express
provision in its original certificate of incorporation or an express provision
in its certificate of incorporation or bylaws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares.
The Company has not "opted out" of the provisions of the Anti-Takeover Law.

REGISTRATION RIGHTS

Beginning six months after the date of this offering, the holders of
1,704,303 shares of Common Stock (the "Registrable Securities") will have
certain rights with respect to the registration of those shares under the
Securities Act. If requested by holders of at least 50% of the Registrable
Securities, the Company must file a registration statement under the
Securities Act covering all Registrable Securities requested to be included by
all holders of such Registrable Securities. The Company may be required to
effect up to two such registrations. The Company has the right to delay any
such registration for up to 90 days under certain circumstances. All expenses
incurred in connection with such registrations (other than underwriters'
discounts and commissions) will be borne by the Company. These demand
registration rights expire six years after the closing of this offering.

Further, holders of Registrable Securities may require the Company to
register all or any portion of their Registrable Securities on Form S-3 when
such form becomes available to the Company, subject to certain conditions and
limitations. The Company may be required to effect up to two such
registrations per year. All expenses incurred in connection with such
registrations (other than underwriters' or brokers' discounts and commissions)
will be borne by the Company. These Form S-3 registration rights expire six
years after the closing of this offering.

In addition, if the Company proposes to register any of its shares of Common
Stock under the Securities Act other than in connection with a Company
employee benefit plan or a corporate reorganization, the holders of the
Registrable Securities and Messrs. Kaplan, Fisher and Mohiuddin, who together
hold 13,704,303 shares of Common Stock, may require the Company to include all
or a portion of their shares in such registration, although the managing
underwriter of any such offering has certain rights to limit the number of
shares in such registration. All expenses incurred in connection with such
registrations (other than underwriters' or brokers' discounts and commissions)
will be borne by the Company. These "piggy-back" registration rights expire
six years after the closing of this offering.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Company's Common Stock is The First
National Bank of Boston.

47
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for the Common Stock of the
Company and there can be no assurance that a significant public market for the
Common Stock will develop or be sustained after this offering. Future sales of
substantial amounts of Common Stock in the public market could adversely
affect market prices prevailing from time to time and could impair the
Company's ability to raise capital through sale of its equity securities. As
described below, no shares outstanding prior to this offering will be
available for sale immediately after this offering due to certain contractual
restrictions on resale. Sales of substantial amounts of Common Stock of the
Company in the public market after the restrictions lapse could adversely
affect the prevailing market price and the ability of the Company to raise
equity capital in the future.

Upon completion of this offering, the Company will have outstanding
16,683,060 shares of Common Stock, assuming no exercise of outstanding
employee options. Of these shares, the 2,800,000 shares sold in this offering
will be freely tradable without restriction under the Securities Act unless
purchased by "affiliates" of the Company as that term is defined in Rule 144
under the Securities Act. The remaining shares held by existing stockholders
are subject to lock-up agreements providing that, with certain limited
exceptions, the stockholder will not offer, sell, contract to sell, grant an
option to purchase, make a short sale or otherwise dispose of or engage in any
hedging or other transaction that is designed or reasonably expected to lead
to a disposition of any shares of Common Stock or any option or warrant to
purchase shares of Common Stock or any securities exchangeable for or
convertible into shares of Common Stock for a period of 180 days after the
date of this Prospectus without the prior written consent of Montgomery
Securities. As a result of these lock-up agreements, notwithstanding possible
earlier eligibility for sale under the provisions of Rules 144, 144(k) and
701, none of these shares will be salable until 180 days after the date of
this Prospectus. Beginning 180 days after the date of this Prospectus,
10,774,330 of these shares will be eligible for sale in the public market
although all but 151,257 shares will be subject to certain volume limitations.
Of the remaining Restricted Shares, an aggregate of 250,000 shares held by
Messrs. Kaplan, Fisher and Mohiuddin will become eligible each month
thereafter until July 21, 1998 as certain repurchase rights of the Company
with respect to those shares lapse and 608,730 shares will be eligible for
sale upon the achievement of a one-year holding period.

In general, under Rule 144 as in effect after April 29, 1997, beginning 90
days after the date of this Prospectus, a person (or persons whose shares are
aggregated) who has beneficially owned Restricted Shares for at least one year
(including the holding period of any prior owner except an affiliate) would be
entitled to sell within any three-month period a number of shares that does
not exceed the greater of: (i) 1% of the number of shares of Common Stock then
outstanding (which will equal approximately 167,000 shares immediately after
this offering); or (ii) the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the filing of a Form 144 with respect
to such sale. Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about the Company. Under Rule 144(k), a person who is not deemed
to have been an affiliate of the Company at any time during the 90 days
preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least two years (including the holding period of any prior owner
except an affiliate), is entitled to sell such shares without complying with
the manner of sale, public information, volume limitation or notice provisions
of Rule 144.

Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with certain restrictions, including the holding period
requirement, of Rule 144. Any employee, officer or director of or consultant
to the Company who purchased his or her shares pursuant to a written
compensatory plan or contract may be entitled to rely on the resale provisions
of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of Rule 144.
Rule 701 further provides that non-affiliates may sell such shares in reliance
on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. All holders
of Rule 701 shares are required to wait until 90 days after the date of this
Prospectus before selling such shares. However, all shares issued pursuant to
Rule 701 are subject to lock-up agreements and will only become eligible for
sale at

48
<PAGE>

the earlier of the expiration of the 180-day lock-up agreements or no sooner
than 90 days after the offering upon obtaining the prior written consent of
the representatives of the Underwriters.

Immediately after this offering, the Company intends to file a registration
statement under the Securities Act covering shares of Common Stock subject to
outstanding options under the Company's 1995 Equity Incentive Plan or reserved
for issuance under the Company's stock option and stock purchase plans. Based
on the number of shares subject to outstanding options at December 31, 1996
and currently reserved for issuance under all such plans, such registration
statement would cover approximately 3,735,000 shares. Such registration
statement will automatically become effective upon filing. Accordingly, shares
registered under such registration statement will, subject to Rule 144 volume
limitations applicable to affiliates of the Company, be available for sale in
the open market immediately after the 180-day lock-up agreements expire. Also
beginning six months after the date of this offering, certain holders of
shares of Common Stock will be entitled to certain rights with respect to
registration of such shares of Common Stock for offer and sale to the public.
See "Description of Capital Stock--Registration Rights."

49
<PAGE>

UNDERWRITING

The Underwriters named below, represented by Montgomery Securities and Alex.
Brown & Sons Incorporated (the "Representatives"), have severally agreed,
subject to the terms and conditions set forth in the Underwriting Agreement,
to purchase from the Company the number of shares of Common Stock indicated
below opposite their respective names at the initial public offering price
less the underwriting discount set forth on the cover page of this Prospectus.
The Underwriting Agreement provides that the obligations of the Underwriters
to pay for and accept delivery of the shares of Common Stock are subject to
certain conditions precedent, and that the Underwriters are committed to
purchase all of such shares, if any are purchased.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Montgomery Securities..............................................
Alex. Brown & Sons Incorporated....................................
---------
Total............................................................ 2,800,000
=========
</TABLE>

The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public on the terms set
forth on the cover page of this Prospectus. The Underwriters may allow to
selected dealers a concession of not more than $ per share, and the
Underwriters may allow, and such dealers may reallow, a concession of not more
than $ per share to certain other dealers. After this offering, the price
and concessions and reallowances to dealers may be changed by the
Representatives. The Common Stock is offered subject to receipt and acceptance
by the Underwriters and to certain other conditions, including the right to
reject orders in whole or in part.

The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a
maximum of 420,000 additional shares of Common Stock to cover over-allotments,
if any, at the same price per share as the initial 2,800,000 shares to be
purchased by the Underwriters. To the extent the Underwriters exercise this
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with this offering.

All of the Company's stockholders and optionees have agreed that, for a
period of 180 days after the date of this Prospectus, they will not, without
the prior written consent of Montgomery Securities, directly or indirectly
sell, offer to sell or otherwise dispose of any such shares of Common Stock or
any right to acquire such shares. In addition, the Company has agreed that,
for a period of 180 days after the date of this Prospectus, it will not,
without the prior written consent of Montgomery Securities, issue, offer,
sell, grant options to purchase or otherwise dispose of any of the Company's
equity securities or any other securities convertible into or exchangeable for
the Common Stock or other equity security, other than the grant of options to
purchase Common Stock or the issuance of shares of Common Stock under the
Company's stock option and stock purchase plans and the issuance of shares of
Common Stock pursuant to the exercise of outstanding options and warrants.

The Representatives have informed the Company that the Underwriters do not
expect to make sales to accounts over which they exercise discretionary
authority in excess of 5% of the number of shares of Common Stock offered
hereby.

The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including civil liabilities
under the Securities Act, or will contribute to payments the Underwriters may
be required to make in respect thereof.

50
<PAGE>

Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined by
negotiations between the Company and the Representatives. Among the factors to
be considered in such negotiations will be the history of, and the prospects
for, the Company and the industry in which it competes, an assessment of the
Company's management, the Company's past and present operations, its past and
present financial performance, the prospects for future earnings of the
Company, the present state of the Company's development, the general condition
of the securities markets at the time of the offering and the market prices of
and demand for publicly traded common stock of comparable companies in recent
periods.

Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and purchase the Common Stock. As
an exception to these rules, the Representatives are permitted to engage in
certain transactions that stabilize the price of the Common Stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Common Stock. If the Underwriters create a
short position in the Common Stock in connection with the offering, i.e., if
they sell more shares of Common Stock than are set forth on the cover page of
this Prospectus, the Representatives may reduce that short position by
purchasing Common Stock in the open market. The Representatives may also elect
to reduce any short position by exercising all or part of the over-allotment
option described above. The Representatives may also impose a penalty bid on
certain Underwriters and selling group members. This means that, if the
Representatives purchase shares of Common Stock in the open market to reduce
the Underwriters' short position or to stabilize the price of the Common
Stock, they may reclaim the amount of the selling concession from the
Underwriters and selling group members that sold those shares as part of the
offering. In general, purchases of a security for the purpose of stabilization
or to reduce a short position could cause the price of the security to be
higher than it might be in the absence of such purchases. The imposition of a
penalty bid might also have an effect on the price of a security to the extent
that it were to discourage resales of the security. Neither the Company nor
any of the Underwriters makes any representation or predictions as to the
direction or magnitude of any effect that the transactions described above may
have on the price of the Common Stock. In addition, neither the Company nor
any of the Underwriters makes any representation that the Representatives will
engage in such transactions or that such transactions, once commenced, will
not be discontinued without notice.

LEGAL MATTERS

The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Fenwick & West LLP, Palo Alto,
California. Certain legal matters in connection with this offering will be
passed upon for the Underwriters by Brobeck, Phleger & Harrison LLP, Palo
Alto, California. Fenwick & West LLP owns an aggregate of 100,359 shares of
Common Stock of the Company.

EXPERTS

The financial statements of the Company as of December 31, 1995 and 1996,
for the period from inception (July 1994) to December 31, 1995, and for the
year ended December 31, 1996 included in this Prospectus have been so included
in reliance on the report of Price Waterhouse LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.

51
<PAGE>

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act
with respect to the shares of Common Stock offered hereby. This Prospectus
does not contain all of the information set forth in the Registration
Statement and the exhibits and schedule thereto. For further information with
respect to the Company and the Common Stock offered hereby, reference is made
to the Registration Statement and the exhibits and schedule filed therewith.
Statements contained in this Prospectus regarding the contents of any contract
or any other document to which reference is made are not necessarily complete,
and, in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. A copy of the
Registration Statement and the exhibits and schedule thereto may be inspected
without charge at the offices of the Commission at Judiciary Plaza, 450 Fifth
Street, Washington, D.C. 20549, and copies of all or any part of the
Registration Statement may be obtained from the Public Reference Section of
the Commission, Washington, D.C. 20549 upon the payment of the fees prescribed
by the Commission. The Commission maintains a Web site (http://www.sec.gov)
that contains reports, proxy and information statements and other information
regarding registrants, such as the Company, that file electronically with the
Commission. Information concerning the Company is also available for
inspection at the offices of the Nasdaq National Market, Reports Section, 1735
K Street, N.W., Washington, D.C. 20006.

52
<PAGE>

ONSALE, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants......................................... F-2
Balance Sheet as of December 31, 1995 and December 31, 1996............... F-3
Statement of Operations for the Period from Inception (July 1994) to
December 31, 1995 and the Year Ended December 31, 1996................... F-4
Statement of Cash Flows for the Period from Inception (July 1994) to
December 31, 1995 and the Year Ended December 31, 1996................... F-5
Statement of Stockholders' Equity (Deficit) for the Period from Inception
(July 1994) to December 31, 1995 and the Year Ended December 31, 1996.... F-6
Notes to Financial Statements............................................. F-7
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of ONSALE, Inc.

In our opinion, the accompanying balance sheet and the related statements of
operations, of cash flows and of stockholders' equity (deficit) present
fairly, in all material respects, the financial position of ONSALE, Inc. at
December 31, 1995 and 1996, and the results of its operations and its cash
flows for the period from inception (July 1994) to December 31, 1995, and for
the year ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards 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 provide a
reasonable basis for the opinion expressed above.

Price Waterhouse LLP

San Jose, California

March 13, 1997

F-2
<PAGE>

ONSALE, INC.

BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 20,000 $2,649,000
Restricted cash..................................... -- 80,000
Accounts receivable, net of allowances of $16,000
and $66,000........................................ 22,000 395,000
Merchandise inventory............................... 1,000 1,520,000
Prepaid expenses and other current assets........... -- 439,000
-------- ----------
Total current assets........................... 43,000 5,083,000
-------- ----------
Property and equipment, net.......................... 30,000 578,000
Other assets......................................... -- 19,000
-------- ----------
Total assets................................... $ 73,000 $5,680,000
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................... $103,000 $2,268,000
Accrued expenses.................................... 117,000 480,000
Deferred revenue.................................... 2,000 604,000
Advances due related parties........................ 270,000 --
-------- ----------
Total current liabilities...................... 492,000 3,352,000
-------- ----------
Commitments and contingencies (Notes 8, 9 and 10)
Stockholders' equity (deficit):
Convertible preferred stock, $0.001 par value;
2,000,000 shares authorized:
Series A; 600,000 shares designated; no and 365,191
shares issued and outstanding..................... -- 1,000
Series B; 204,521 shares designated; no shares
issued and outstanding............................ -- --
Common stock, $0.001 par value; 30,000,000 shares
authorized; 12,043,398 and 12,178,757 shares issued
and outstanding.................................... 12,000 12,000
Additional paid-in capital.......................... 9,000 2,494,000
Accumulated deficit................................. (440,000) (79,000)
Less: note receivable from stockholder.............. -- (100,000)
-------- ----------
Total stockholders' equity (deficit)........... (419,000) 2,328,000
-------- ----------
Total liabilities and stockholders' equity
(deficit)..................................... $ 73,000 $5,680,000
======== ==========
</TABLE>

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

F-3
<PAGE>

ONSALE, INC.

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
PERIOD FROM YEAR
INCEPTION ENDED
(JULY 1994) TO DECEMBER
DECEMBER 31, 31,
1995 1996
-------------- -----------
<S> <C> <C>
Revenue:
Merchandise............... $ 30,000 $12,573,000
Commission................ 110,000 1,696,000
----------- -----------
Total revenue........... 140,000 14,269,000
Cost of revenue............ 27,000 11,539,000
----------- -----------
Gross profit............... 113,000 2,730,000
----------- -----------
Operating expenses:
Sales and marketing....... 144,000 891,000
General and
administrative........... 227,000 758,000
Engineering............... 182,000 714,000
----------- -----------
Total operating
expenses............... 553,000 2,363,000
----------- -----------
Income (loss) from
operations................ (440,000) 367,000
Interest and other income.. -- 37,000
----------- -----------
Income (loss) before income
taxes..................... (440,000) 404,000
Provision for income taxes. -- (43,000)
----------- -----------
Net income (loss).......... $ (440,000) $ 361,000
=========== ===========
Net income (loss) per
share..................... $ (0.03) $ 0.02
=========== ===========
Shares used to compute net
income (loss) per share... 15,326,000 15,326,000
=========== ===========
<CAPTION>
PERIOD FROM YEAR
INCEPTION ENDED
(JULY 1994) TO DECEMBER
DECEMBER 31, 31,
1995 1996
-------------- -----------
<S> <C> <C>
SUPPLEMENTAL FINANCIAL
DATA:
Gross merchandise sales
(see Note 1).............. $ 1,252,000 $30,727,000
=========== ===========
</TABLE>

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

F-4
<PAGE>

ONSALE, INC.

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION YEAR
(JULY 1994) TO ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
-------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).................................. $(440,000) $ 361,000
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation...................................... 10,000 58,000
Issuance of common stock.......................... 21,000 --
Changes in assets and liabilities:
Restricted cash.................................. -- (80,000)
Accounts receivable, net......................... (22,000) (373,000)
Merchandise inventory............................ (1,000) (1,519,000)
Prepaid expenses and other current assets........ -- (439,000)
Other assets..................................... -- (19,000)
Accounts payable................................. 103,000 2,165,000
Accrued expenses................................. 117,000 363,000
Deferred revenue................................. 2,000 602,000
--------- -----------
Net cash provided by (used in) operating
activities..................................... (210,000) 1,119,000
--------- -----------
Cash flows from investing activities:
Purchase of property and equipment................. (40,000) (606,000)
--------- -----------
Cash flows from financing activities:
Proceeds from issuance of preferred stock and
warrants.......................................... -- 2,345,000
Common stock issued for cash....................... -- 41,000
Advances due related parties, net.................. 270,000 (270,000)
--------- -----------
Net cash provided by financing activities........ 270,000 2,116,000
--------- -----------
Net increase in cash................................ 20,000 2,629,000
Cash and cash equivalents at beginning of period.... -- 20,000
--------- -----------
Cash and cash equivalents at end of period.......... $ 20,000 $ 2,649,000
========= ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING
ACTIVITIES:
Common stock issued for promissory note............. $ -- $ 100,000
========= ===========
</TABLE>

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

F-5
<PAGE>

ONSALE, INC.

STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
SERIES A
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------- ------------------ NOTE PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT RECEIVABLE CAPITAL DEFICIT TOTAL
-------- ------- ---------- ------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock
to founders............ -- $ -- 12,000,000 $12,000 $ -- $ 8,000 $ -- $ 20,000
Issuance of common
stock.................. -- -- 43,398 -- -- 1,000 -- 1,000
Net loss................ -- -- -- -- -- -- (440,000) (440,000)
-------- ------- ---------- ------- --------- ---------- --------- ----------
Balance at December 31,
1995................... -- -- 12,043,398 12,000 -- 9,000 (440,000) (419,000)
Issuance of common
stock.................. -- -- 20,000 -- (100,000) 100,000 -- --
Issuance of common stock
pursuant to exercise of
options................ -- -- 15,000 -- -- 16,000 -- 16,000
Issuance of common stock
upon the exercise of
warrants............... -- -- 100,359 -- -- 25,000 -- 25,000
Issuance of Series A
convertible preferred
stock at $6.39 per
share and warrants for
cash................... 365,191 1,000 -- -- -- 2,344,000 -- 2,345,000
Net income.............. -- -- -- -- -- -- 361,000 361,000
-------- ------- ---------- ------- --------- ---------- --------- ----------
Balance at December 31,
1996................... 365,191 $ 1,000 12,178,757 $12,000 $(100,000) $2,494,000 $ (79,000) $2,328,000
======== ======= ========== ======= ========= ========== ========= ==========
</TABLE>

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

F-6
<PAGE>

ONSALE, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1--THE COMPANY AND A SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES:

The Company

ONSALE, Inc. (the "Company" or "ONSALE") is a leading electronic retailer
pioneering a new sales format, the interactive 24-hour online auction,
designed to serve as an efficient and entertaining marketing channel for
refurbished and close-out merchandise. The Company conducts its business
within one industry segment.

The Company was incorporated in California in July 1994 and commenced
operations in May 1995. In December 1996, the Company's Board of Directors
authorized the reincorporation of the Company in Delaware and the associated
exchange of each share of each series of stock of the predecessor company into
one share of each corresponding series of stock of the Delaware successor. The
reincorporation occurred in March 1997. These financial statements have been
prepared giving effect to the reincorporation in all periods presented.

The Company's results of operations from inception (July 1994) to December
31, 1994 have been combined with the results of operations for the year ended
December 31, 1995 due to the Company's limited activity during such period.
During 1994, the Company incurred expenses and reported a net loss of $41,000.

SIGNIFICANT ACCOUNTING POLICIES

Revenue recognition

The Company obtains merchandise from vendors in one of two primary
arrangements. For certain of its vendors, the Company purchases or takes on
consignment merchandise for resale in its auctions ("Principal Sales"). In
Principal Sales transactions, the Company is responsible for the billing and
shipping of the merchandise and recognizes the full sales amount as revenue
upon verification of the credit card transaction authorization and shipment of
the merchandise. In 1997, the Company expects to begin offering credit to
certain of its customers that have been prequalified as having appropriate
credit ratings and, accordingly, will be required to manage the associated
risks of accounts receivable expansion and collection. In Principal Sales
transactions, the Company bears both inventory risk and credit risk with
respect to sales of its inventory. In instances where credit card
authorization has been received but the merchandise has not been shipped, the
Company defers revenue recognition until the merchandise is shipped. With
other vendors, the Company acts as an agent, conducts electronic auctions and
processes orders in exchange for a commission on the sale of the vendors'
merchandise ("Agent Sales"). In Agent Sales transactions, the Company
recognizes the commissions as revenue upon completion of the auction process
and forwarding the auction sales information to the vendor. In certain
circumstances, the Company will allow customers to return products and,
accordingly, provides for allowances for estimated future returns at the time
of shipment based on historical data.

Supplemental financial data

The Company's relationships with its vendors have evolved from a purely
Agent Sales business at the Company's inception to a business that now
includes a significant percentage of Principal Sales transactions. Gross
merchandise sales amounts shown on the Company's Statement of Operations
represent what the Company's total revenue would have been if all Agent Sales
had been made as Principal Sales. Due to the ongoing evolution in the
Company's operations toward the Principal Sales model, management believes
that the information on gross merchandise sales is relevant to a reader of the
Company's financial statements since it provides a more consistent comparison
between historical periods and a more accurate comparison to future periods
than does total revenue. Gross merchandise sales should not be considered in
isolation or as a substitute for other information prepared in accordance with
generally accepted accounting principles.

F-7
<PAGE>

ONSALE, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Cash, cash equivalents and restricted cash

All highly liquid investments with a maturity of three months or less from
the date of purchase are considered cash equivalents. Restricted cash of
$80,000 at December 31, 1996 relates to a deposit with a bank to establish
electronic credit card services for processing of transactions with customers.

The Company has adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" and,
accordingly, classifies investment securities as either held-to-maturity,
trading or available-for-sale. At December 31, 1995 and 1996 the Company did
not hold any investment securities.

Merchandise inventory

Inventory is stated at the lower of cost or market, cost being determined on
a first-in, first-out basis.

Property and equipment

Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the respective
assets, generally 3 to 5 years.

Engineering expenses

Engineering expenses include expenses incurred by the Company to develop,
enhance, manage, monitor and operate the Company's Website. Engineering costs
are expensed as incurred.

Income taxes

The Company provides for income taxes using an asset and liability approach
that recognizes deferred tax assets and liabilities for expected future tax
consequences of temporary differences between the book and tax bases of assets
and liabilities.

Dependence on merchandise vendors

The Company does not manufacture any of the merchandise that it auctions.
The Company's strategy has been to develop and maintain relationships with
brokers and original equipment manufacturers to secure a continuing supply of
merchandise to be auctioned.

Concentration of credit risk

The Company's accounts receivable are derived from Agent Sales earned from
merchants located in the United States and Canada. Principal Sales made
through credit cards are preapproved. The Company maintains reserves for
potential credit losses, which historically have been immaterial.

Stock split

On November 1, 1996, the Board of Directors declared a three-for-one split
of the outstanding shares of the Company's common stock. All common share and
per share data have been retroactively adjusted to reflect the stock split.

F-8
<PAGE>

ONSALE, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Net income (loss) per share

Net income (loss) per share is computed using the weighted average number of
common and common equivalent shares outstanding during the period. Common
equivalent shares consist of convertible preferred stock and warrants (using
the "if converted" method) and stock options (using the "treasury stock"
method). Common equivalent shares are excluded from the computation if their
effect is antidilutive, except that, pursuant to a Securities and Exchange
Commission Staff Accounting Bulletin, convertible preferred stock and warrants
(using the "if converted" method) and common equivalent shares (using the
"treasury stock" method and the assumed initial public offering price) issued
subsequent to December 1995 have been included in the computation as if they
were outstanding for all periods presented.

Stock-based compensation

The Company applies Accounting Principles Board Opinion 25 "Accounting for
Stock Issued to Employees" and related interpretations in accounting for its
stock-based compensation plans, as permitted by the Financial Accounting
Standards Board's Statement No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation." SFAS 123 defines a "fair value" based method of accounting for
an employee stock option or similar equity instrument and encourages, but does
not require, entities to adopt that method of accounting for their employee
stock compensation plans. The pro forma disclosures of the difference between
compensation cost included in net income (loss) and the related cost measured
by the fair value method are presented in Note 6.

Management estimates and assumptions

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.

Proposed public offering of common stock (unaudited)

If the offering contemplated by this Prospectus (the "Offering") is
consummated, all of the convertible preferred stock outstanding as of the
closing date will automatically be converted on a three-for-one basis into an
aggregate of 1,095,573 shares of common stock (based on the shares of
convertible preferred stock outstanding as of December 31, 1996) and 608,730
shares of common stock will be issued upon the exercise of the warrants that
were issued in connection with the sale of the Series A convertible preferred
stock (see Notes 4 and 10). Unaudited pro forma stockholders' equity at
December 31, 1996, adjusted for the conversion of the preferred stock and the
anticipated exercise of the outstanding warrants, is as follows:

<TABLE>
<S> <C>
Convertible preferred stock, $0.001 par value; 2,000,000 shares
authorized:
Series A; 600,000 shares designated; no shares outstanding..... $ --
Series B; 204,521 shares designated; no shares outstanding..... --
Common stock, $0.001 par value; 30,000,000 shares authorized;
13,883,060 shares issued and outstanding....................... 14,000
Additional paid-in capital...................................... 4,439,000
Accumulated deficit............................................. (79,000)
Less: note receivable from stockholder.......................... (100,000)
----------
$4,274,000
==========
</TABLE>

F-9
<PAGE>

ONSALE, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 2--DETAILS OF BALANCE SHEET COMPONENTS:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Property and equipment:
Computer equipment................................ $ 40,000 $523,000
Furniture and fixtures............................ -- 123,000
-------- --------
40,000 646,000
Less: accumulated depreciation..................... (10,000) (68,000)
-------- --------
$ 30,000 578,000
======== ========
Accrued expenses:
Accrued sales taxes............................... $ 22,000 $133,000
Other accrued expenses............................ 95,000 347,000
-------- --------
$117,000 $480,000
======== ========
</TABLE>

NOTE 3--RELATED PARTY TRANSACTIONS:

From inception (July 1994) through mid-1996, two of the Company's
significant stockholders provided certain advances to the Company for working
capital and property and equipment purchases. At December 31, 1995, the
Company owed $270,000 to such stockholders. During 1996, such stockholders
advanced an additional $226,000. The advances did not bear interest. The
Company repaid these advances in December 1996.

Since July 1994, the Company has leased certain of its facilities from a
significant stockholder. From inception (July 1994) to December 31, 1995 and
for the year ended December 31, 1996, the Company paid rent of $18,000 and
$28,000, respectively, for use of these facilities. The lease costs for these
facilities approximates the actual cost incurred by the significant
stockholder.

In June 1996, two of the Company's significant stockholders agreed to act as
guarantors of the Company's obligations under the Company's agreement with
First USA Merchant Services, Inc. ("First USA") to have First USA process
credit card transactions for the Company. The two stockholders are each liable
to First USA for any liability or indebtedness the Company owes to First USA.

NOTE 4--CONVERTIBLE PREFERRED STOCK AND WARRANTS:

The certificate of incorporation of the Company, as amended, authorize
2,000,000 shares of convertible preferred stock, of which 600,000 and 204,521
shares have been designated as Series A and Series B, respectively. In
September 1996, the Company issued 365,191 shares of its Series A convertible
preferred stock (Series A shares) at a purchase price of $6.39 per share for
aggregate proceeds of $2,353,000. In connection with the issuance of the
Series A shares, the Company issued warrants to two investors to purchase an
aggregate of up to 202,910 shares of the Company's Series B convertible
preferred stock at $9.59 per share. The warrants expire on the earlier of
September 1998 or the consummation of an initial public offering of at least
$7,500,000 and a per share price equal to at least $5.32 per share, after
giving effect to the three-for-one split of the Company's common stock (see
Note 1). The Company has reserved 202,910 shares of Series B convertible

F-10
<PAGE>

ONSALE, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

preferred stock common stock for issuance upon the exercise of the warrants
(see Note 10). The shares of convertible preferred stock and the related
purchase price per share have not been adjusted to reflect the three-for-one
split (see Note 1). On an as if converted basis the Series A shares would be
convertible into 1,095,573 shares of common stock and the initial purchase
price would have been $2.13.

The Series A and Series B shares have certain rights with respect to voting,
dividends, liquidation and conversion, as follows:

Voting

Series A and Series B shares have voting rights equal to the shares of
common stock into which they may be converted.

Dividends

Holders of Series A and Series B shares are entitled to receive
noncumulative dividends at the rate of $0.5112 and $0.7672 per share,
respectively, per annum, when and if declared by the Company's Board of
Directors, prior to and in preference to any declaration or payment of any
dividend on the Company's common stock.

Liquidation

In the event of liquidation and to the extent assets are available, the
holders of Series A and Series B shares are entitled to receive, prior to and
in preference to any distribution to the holders of common stock, the amount
of $6.39 and $9.59 per share, respectively, plus any accrued but unpaid
dividends.

Conversion

Each Series A and Series B share is convertible into three shares of common
stock as a result of the common stock split (see Note 1), and the conversion
ratio is subject to further adjustments in the case of certain dilutive
events. Each Series A share will automatically convert into common stock upon
(i) the affirmative vote of a majority of the holders of Series A shares
outstanding at the time of such vote or (ii) the closing of an underwritten
public offering in which the aggregate offering price is not less than
$7,500,000 and the per share price is not less than $5.32 per share, after
giving effect to the three-for-one split of the Company's common stock (see
Note 1), subject to further adjustment for dilution.

At December 31, 1996, 1,704,303 shares of common stock were reserved for
issuance upon conversion of the convertible preferred stock and warrants.

NOTE 5--COMMON STOCK:

The Company has the right to repurchase, at the original issue price, a
declining percentage of certain of the shares of common stock issued to the
founders under written agreements with such individuals. The Company's right
to repurchase such stock lapses in 48 equal monthly increments commencing in
July 1994 as long as the employee is continuously employed by the Company. At
December 31, 1996, 4,750,000 shares of common stock were subject to repurchase
by the Company.

In July 1994, the Company issued a warrant to purchase 100,359 shares of
common stock at $0.25 per share in exchange for legal services. No value was
ascribed to the warrant as its fair value at the time of issuance was
considered nominal. The warrant was exercised in July 1996, resulting in
aggregate proceeds to the Company of $25,000.

F-11
<PAGE>

ONSALE, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 6--EMPLOYEE BENEFIT PLANS:

Under the Company's 1995 Equity Incentive Plan (the "1995 Plan"), 3,032,250
shares of common stock have been reserved for issuance pursuant to stock
options, restricted stock and stock bonuses that may be granted to employees,
directors and consultants. This reserve was increased to 3,500,000 shares in
December 1996. Incentive 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 (at least 110% of the fair market value of the Company's common stock in
the case of holders of more than 10% of the Company's voting stock), and
nonqualified stock options must be granted at not less than 85% of fair market
value of the Company's common stock on the date of grant. Options generally
vest over a 48-month period and expire over terms not exceeding ten years from
the date of grant.

A summary of stock option activity is as follows:

<TABLE>
<CAPTION>
NUMBER OF EXERCISE
OPTIONS PRICE
--------- -----------
<S> <C> <C>
Balance at December 31, 1994......................... -- --
Granted............................................. 776,250 $ 0.033
Exercised........................................... -- --
Canceled............................................ -- --
--------- -----------
Balance at December 31, 1995......................... 776,250 $ 0.033
Granted............................................. 927,410 $0.067-7.00
Exercised........................................... (15,000) $0.067-2.00
Canceled............................................ (75,750) $0.033-1.50
--------- -----------
Balance at December 31, 1996......................... 1,612,910 $0.033-7.00
========= ===========
</TABLE>

At December 31, 1996, 260,341 options were fully vested and exercisable at
prices ranging from $0.033 to $2.00, and 1,872,090 options were reserved for
future grant, which includes the increase in shares reserved to 3,500,000.

Subsequent to December 31, 1996, the Company granted options to purchase an
aggregate of 269,500 shares of common stock at an exercise price of $7.00 per
share.

The following table summarizes information about employee stock options
outstanding at December 31, 1996:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OUTSTANDING REMAINING WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES AT DECEMBER 31, 1996 CONTRACTUAL LIFE EXERCISE PRICE
------------------------ -------------------- ---------------- ----------------
<S> <C> <C> <C>
$0.033.................. 772,500 8.9 $0.033
0.067.................. 42,000 9.3 0.067
0.667.................. 260,250 9.5 0.667
1.50 - 2.00............ 347,160 9.8 1.619
3.50 - 5.00............ 22,000 9.9 4.932
7.00 .................. 169,000 10.0 7.000
---------
1,612,910
=========
</TABLE>

F-12
<PAGE>

ONSALE, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Fair Value Disclosures

Had compensation cost for the 1995 Plan been determined based on the fair
value of each stock option grant on its grant date, as prescribed in SFAS 123,
the Company's net income (loss) and net income (loss) per share would have
been as follows:

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(JULY 1994) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
-------------- ------------
<S> <C> <C>
Net income (loss):
As reported..................................... $(440,000) $361,000
Pro forma....................................... $(448,000) $349,000
Net income (loss) per share:
As reported..................................... $ (0.03) $ 0.02
Pro forma....................................... $ (0.03) $ 0.02
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following assumptions used for grants during
the applicable period: dividend yield of 0% for both periods; risk-free
interest rate of 5.51% for options granted during the period from inception
(July 1994) through December 31, 1995 and 6.00% to 6.64% for options granted
during the year ended December 31, 1996; and a weighted average expected
option term of five years for both periods.

Because the determination of the fair value of all options granted after the
Company becomes a public entity will include an expected volatility factor in
addition to the factors described in the preceding paragraph and, because
additional option grants are expected to be made each year, the above pro
forma disclosures are not representative of the pro forma effects of option
grants on reported net income for future years.

Employee stock purchase plan

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. 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 in any calendar year. 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 will have a maximum duration of 24
months and shares of common stock will be purchased for each participant at
semi-annual intervals during each offering period. The initial offering period
will commence on the effectiveness of the Offering and will end on July 31,
1997.

Directors stock option plan

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. Only outside directors may be granted
options under the Directors Plan. The Directors Plan provides for an initial
grant to outside directors of 15,000 shares. In addition, the Directors Plan
provides for automatic annual grants of 5,000 shares thereafter. The exercise
price must be 100% of the fair market value of the Company's common stock on
the date of grant.

F-13
<PAGE>

ONSALE, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

401(k) plan

Effective November 1996, the Company adopted the ONSALE 401(k) Plan (the
"401(k) Plan") that 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.

NOTE 7--INCOME TAXES:

No provision for income taxes was recorded from inception (July 1994)
through December 31, 1995 as the Company incurred net operating losses during
the period. The provision for income taxes for the year ended December 31,
1996 consists of the following:

<TABLE>
<CAPTION>
YEAR
ENDED
DECEMBER 31,
1996
------------
<S> <C>
Current
Federal........................................................ $ 117,000
State.......................................................... 32,000
---------
149,000
---------
Deferred
Federal........................................................ (95,000)
State.......................................................... (11,000)
---------
(106,000)
---------
$ 43,000
=========
</TABLE>

The provision 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.

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION YEAR
(JULY 1994) TO ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
-------------- ------------
<S> <C> <C>
Tax provision at statutory rate.................. $(150,000) $ 137,000
State income taxes, net of federal benefit....... (26,000) 25,000
Nonrecognition (recognition) of tax benefits..... 176,000 (120,000)
Other............................................ -- 1,000
--------- ---------
$ -- $ 43,000
========= =========
</TABLE>

F-14
<PAGE>

ONSALE, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Deferred income taxes reflect the tax effects of temporary differences
between carrying amounts of assets and liabilities for financial reporting and
income tax purposes. The Company provides a valuation allowance for deferred
tax assets when it is more likely than not, based on currently available
evidence, that some portion of all of the deferred tax assets will not be
realized. The Company has reversed a portion of the previously established
valuation allowance during the year ended December 31, 1996.

Significant components of the Company's deferred tax assets are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Net operating loss carryforwards................... $ 90,000 $ --
Reserves and accruals.............................. 82,000 162,000
Other.............................................. 4,000 --
--------- --------
176,000 162,000
Valuation allowance................................ (176,000) (56,000)
--------- --------
Net deferred tax asset............................. $ -- $106,000
========= ========
</TABLE>

The amounts of and benefits from net operating losses may be impaired in the
event of a cumulative ownership change of more than 50%. Such a change would
not have a material financial impact on the Company.

NOTE 8--COMMITMENTS:

The Company leases office space for its corporate headquarters.

Future annual minimum lease payments under all noncancellable operating
leases as of December 31, 1996 were as follows:

<TABLE>
<S> <C>
Year Ending December 31,
------------------------
1997.............................................................. $277,000
1998.............................................................. 97,000
1999.............................................................. 43,000
--------
$417,000
========
</TABLE>

Total rent expense for the period from inception (July 1994) to December 31,
1995 and the year ended December 31, 1996 was approximately $18,000 and
$86,000, respectively.

F-15
<PAGE>

ONSALE, INC.

NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)

NOTE 9--LITIGATION:

NOTE 10--SUBSEQUENT EVENTS:

Exercise of Warrants

On March 12, 1997, two investors exercised their warrants to purchase
202,910 shares of the Company's Series B convertible preferred stock at $9.59
per share. The aggregate proceeds to the Company was approximately $1,946,000.

Bank line of credit

On March 12, 1997, the Company entered into a loan and security agreement
(the "Agreement") with a bank that provides for borrowings up to $2,000,000.
Borrowings under the Agreement are subject to certain conditions, compliance
with certain covenants and are collateralized by substantially all of the
Company's assets. Borrowings bear interest at an annual rate of 1.5% over the
banks prime rate. The Agreement expires on September 30, 1997, unless the
Company completes a public offering of $10,000,000 or more on or before April
30, 1997 which then extends the maturity date to one year beyond the public
offering. In connection with the Agreement, the Company issued a five-year
warrant to purchase 8,571 shares of its common stock with an exercise price of
$7.00.

F-16
<PAGE>

Caption
ONSALE'S ROTATING MERCHANDISE MIX GIVES CUSTOMERS THE OPPORTUNITY TO
BID AND BUY OFTEN

Pictures

A series of pictures showing some of the various types of computers,
peripherals and consumer electronics that the Company auctions online.

<PAGE>

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

No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or any of the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities
other than the shares of Common Stock to which it relates or an offer to, or a
solicitation of, any person in any jurisdiction where such an offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication that
there has been no change in the affairs of the Company since the date hereof or
that the information contained herein is correct as of any time subsequent to
the date hereof.

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

TABLE OF CONTENTS

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

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 5
The Company............................................................... 15
Use of Proceeds........................................................... 15
Dividend Policy........................................................... 15
Capitalization............................................................ 16
Dilution.................................................................. 17
Selected Financial Data................................................... 18
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 19
Business.................................................................. 25
Management................................................................ 37
Certain Transactions...................................................... 43
Principal Stockholders.................................................... 45
Description of Capital Stock.............................................. 46
Shares Eligible for Future Sale........................................... 48
Underwriting.............................................................. 50
Legal Matters............................................................. 51
Experts................................................................... 51
Additional Information.................................................... 52
Index to Financial Statements............................................. F-1
</TABLE>

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

Until , 1997 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Common Stock, whether or not participating in
this distribution, may be required to deliver a Prospectus. This is in addition
to the obligation of dealers to deliver a Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.

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

2,800,000 SHARES

[LOGO OF ONSALE(TM)]

ONSALE, INC.

COMMON STOCK

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

PROSPECTUS

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

MONTGOMERY SECURITIES

ALEX. BROWN & SONS
INCORPORATED

, 1997

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

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The estimated expenses to be paid by the Registrant in connection with this
offering are as follows:

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $ 9,758
NASD filing fee.................................................... 3,720
Nasdaq National Market filing fee.................................. 50,000
Accounting fees and expenses....................................... 275,000
Legal fees and expenses............................................ 380,000
Road show expenses................................................. 25,000
Printing and engraving expenses.................................... 100,000
Blue sky fees and expenses......................................... 2,000
Transfer agent and registrar fees and expenses..................... 4,000
Miscellaneous...................................................... 522
--------
Total............................................................ $850,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

As permitted by Section 145 of the Delaware General Corporation Law, the
Registrant's Certificate of Incorporation includes a provision that eliminates
the personal liability of its directors to the Registrant or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law or (iv) for any
transaction from which the director derived an improper personal benefit. In
addition, as permitted by Section 145 of the Delaware General Corporation Law,
the Bylaws of the Registrant provide that: (i) the Registrant is required to
indemnify its directors and officers to the fullest extent permitted by the
Delaware General Corporation Law; (ii) the Registrant may, in its discretion,
indemnify other officers, employees and agents as set forth in the Delaware
General Corporation Law; (iii) upon receipt of an undertaking by an officer or
director to repay advances if indemnification is determined to be unavailable,
the Registrant is required to advance expenses, as incurred, to its directors
and officers to the fullest extent permitted by the Delaware General
Corporation Law in connection with a proceeding (except if the Registrant
directly brings a claim that such director or officer has breached his or her
duty of loyalty, committed an act or omission not in good faith or that
involves intentional misconduct or a knowing violation of law, or derived
improper personal benefit from a transaction); (iv) the rights conferred in
the Bylaws are not exclusive and the Registrant is authorized to enter into
indemnification agreements with its directors, officers and employees and
agents; and (v) the Registrant may not retroactively amend the Bylaw
provisions relating to indemnity.

The Registrant intends to enter into indemnity agreements with each of its
directors and executive officers. The indemnity agreements provide that to the
extent not covered by directors and officers liability insurance, each
director and executive officer will be indemnified and held harmless to the
fullest possible extent permitted by law including against all expenses
(including attorneys' fees), judgments, fines and settlement amounts paid or
reasonably incurred by him in any action, suit or proceeding, on account of
his services as a director, officer, employee or agent of the Registrant or as
a director, officer, employee or agent of any other company or enterprise when
he is serving in such capacity at the request of the Registrant. The indemnity
agreements further provide that to the extent not covered by directors and
officers liabiality insurance directors and officers will be indemnified and
held harmless to the fullest extent permitted by law against all expenses
(including attorneys' fees but excluding judgments, fines and settlement
amounts paid in a settlement of a proceeding) incurred by him in any
derivative action by or in the right of the Registrant on account of his
services as a director, officer, employee or agent of the Registrant or as a
director, officer, employee or agent of the Registrant or as a director,

II-1
<PAGE>

officer, employee or agent of any other company or enterprise when he is
serving in such capacity at the request of the Registrant. The Registrant will
not be obligated pursuant to the agreements to indemnify or advance expenses
to an indemnified party with respect to proceedings or claims (i) initiated by
the indemnified party and not by way of defense, except with respect to a
proceeding authorized by the Board of Directors and successful proceedings
brought to enforce a right to indemnification under the Indemnity Agreement,
(ii) for any amounts paid in settlement of a proceeding unless the Registrant
consents to such settlement, (iii) on account of any suit in which judgment is
rendered against the indemnified party for an accounting of profits made from
the purchase or sale by the indemnified party of securities of the Registrant
pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934 and related laws, (iv) on account of conduct by a director or officer
which is finally adjudged to have been in bad faith or conduct that the
director did not reasonably believe to be in, or not opposed to, the best
interests of the Registrant, (v) on account of any criminal action or
proceeding arising out of conduct that the director or officer had reasonable
cause to believe was unlawful or (vi) if a final decision by a court having
jurisdiction in the matter shall determine that such indemnification is not
lawful.

The indemnity agreement also provides for contribution in certain situations
in which the Registrant and a director or officer are jointly liable but
indemnification is unavailable, such contribution to be based on the relative
benefits received and the relative fault of the Registrant and the director or
officer. Contribution is not allowed in connection with a Section 16(b)
judgment, an adjudication of bad faith or conduct that a director or executive
officer did not reasonably believe to be in, or not opposed to, the best
interests of the Registrant or a proceeding arising out of conduct a director
or officer had reasonable cause to believe was unlawful.

The Registrant is required to advance expenses, provided that the director
or officer reimburses the Registrant for all expenses advanced only to the
extent it is ultimately determined that the director or officer is not
entitled, under Delaware law, the Bylaws, the indemnity agreement or
otherwise, to be indemnified for such expenses. The indemnity agreement
provides that it is not exclusive of any rights a director or officer may have
under the Certificate of Incorporation, Bylaws, other agreements, any
majority-in-interest vote of the stockholders or vote of disinterested
directors, the Delaware law or otherwise.

The indemnification provision in the Bylaws, and the indemnity agreements
entered into between the Registrant and its directors and officers, may be
sufficiently broad to permit indemnification of the Registrant's executive
officers and directors for liabilities arising under the Securities Act of
1933, as amended (the "Securities Act").

The Registrant, with approval by the Board, expects to purchase director and
officer liability insurance.

See also the undertakings set out in response to Item 17.

Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:

<TABLE>
<CAPTION>
DOCUMENT EXHIBIT NUMBER
-------- --------------
<S> <C>
Form of Underwriting Agreement................................ 1.01
Registrant's Certificate of Incorporation..................... 3.01
Registrant's Bylaws........................................... 3.02
Form of Indemnity Agreement................................... 10.04
</TABLE>

II-2
<PAGE>

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The Common Stock, Preferred Stock, options and warrants of the Registrant
issued to stockholders and option holders of ONSALE, a California corporation,
in connection with the reincorporation into Delaware were not deemed "sold" as
a result of Rule 145(a)(2) promulgated under the Securities Act. The following
table sets forth information regarding all securities sold by the Registrant's
California predecessor since its inception (July 1994).

<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PURCHASE PRICE
CLASS OF PURCHASERS DATE OF SALE TITLE OF SECURITIES SECURITIES AND FORM OF CONSIDERATION
------------------- ------------ ------------------- ---------- -------------------------
<S> <C> <C> <C> <C>
Two founders 7/21/94 Common Stock 12,000,000 Software and a
business plan, each
valued at $10,000
The Company's law firm 7/22/94 Warrant to purchase -- --
100,359 shares of
Common Stock at
$0.25 per share
11/21/95 Common Stock 43,398 Services valued at
A consultant $1,446
The Company's law firm 8/22/96 Common Stock 100,359 $25,000 cash
Two affiliated venture 9/12/96 Series A Preferred 365,191(1) $2,333,570 cash
capital funds Stock
Two affiliated venture 9/12/96 Warrants to purchase -- $19,459 cash
capital funds 202,910 shares(1) of
Series B Preferred
Stock at $9.59 per
share
An employee optionee 10/26/96 Common Stock 7,500 $500 cash
A consultant 11/17/96 Common Stock 7,500 $15,000 cash
12/6/96 Common Stock 20,000 $100,000 promissory
A director note
Officers, directors and 12/11/95 Options (net of -- --
employees through cancellations) to
3/31/97 purchase 1,996,410
shares of Common
Stock under the 1995
Equity Incentive
Plan(2)
A bank 3/12/97 Warrant to purchase -- --
8,571 shares of
Common Stock at
$7.00 per share
Two affiliated venture 3/13/97 Series B Preferred 202,910 $1,945,907
capital funds Stock
</TABLE>
- --------

(1) Each share of Series A Preferred Stock and Series B Preferred Stock is
currently convertible into three shares of Common Stock.

(2) With respect to the grant of the stock options and the warrant issued to
the Company's law firm, exemption from registration under the Securities
Act was unnecessary in that none of such transactions involved a "sale" of
securities as such term is used in Section 2(3) of the Securities Act.

The securities acquired by the two founders, the consultant, the Company's
law firm and the Company's officers, directors and employees were made in
reliance on Rule 701 under the Securities Act. All sales were made in reliance
on Section 4(2) of the Securities Act and/or Regulation D promulgated under
the Securities Act. The securities were sold to a limited number of people
with no general solicitation or advertising. The purchasers were sophisticated
investors with access to all relevant information necessary to evaluate the
investment who represented to the Registrant that the shares were being
acquired for investment.

II-3
<PAGE>

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.

(a) The following exhibits are filed herewith:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
1.01 Form of Underwriting Agreement.*
Form of Agreement and Plan of Reorganization between the Registrant
2.01 and ONSALE.*
3.01 Registrant's Certificate of Incorporation.*
3.02 Registrant's Bylaws.
4.01 Investors Rights Agreement, dated as of September 12, 1996.*
4.02 Registrant's Certificate of Incorporation (see Exhibit 3.01).*
4.03 Registrant's Bylaws (See Exhibit 3.02).
Opinion of Fenwick & West LLP regarding legality of the securities
5.01 being registered.
9.01 Voting Trust Agreement, dated as of July 21, 1994, by and among
Software Partners, Inc.,
Alan Fisher and Razi Mohiuddin.*
10.01 Registrant's 1995 Equity Incentive Plan and related documents.*
10.02 Registrant's 1996 Directors Stock Option Plan and related documents.*
10.03 Registrant's 1996 Employee Stock Purchase Plan and related documents.*
10.04 Form of Indemnity Agreement entered into by Registrant with each of
its directors and executive
officers.*
10.05 Offer letter to John F. Sauerland, dated as of June 28, 1996.
10.06 Offer letter to Martha Greer, dated December 18, 1996.
Lease Agreement between The Landmark and Registrant, dated as of May
10.07 20, 1996.*
Sublease Agreement between RogueWave, Inc. and Registrant, dated as of
10.08 October 19, 1996.*
10.09 Sublease Agreement between Software Partners, Inc. and the Registrant,
dated as of November 18, 1996.*
10.10 Service Agreement between Gage Marketing Group and the Registrant,
dated as of December 4, 1996.*/**
10.11 Hewlett-Packard and ONSALE Agreement between Hewlett-Packard Company
and the Registrant, dated as of July 31, 1996.*/**
10.12 Credit Card Processing Services Agreement between First USA Merchant
Services, Inc. and the Registrant, dated as of June 16, 1996.*
10.13 Merchant Card Services Agreement between Wells Fargo Bank and the
Registrant, dated as of March 6, 1996.*
10.14 Founder's Restricted Stock Purchase Agreement between S. Jerrold
Kaplan and the Registrant, dated as of July 21, 1994.*
10.15 Founder's Restricted Stock Purchase Agreement between Software
Partners, Inc. and the Registrant, dated as of July 21, 1994.*
10.16 Assignment Agreement between Software Partners, Inc. and the
Registrant, dated as of July 21, 1994.*
10.17 Offer letter to Merle McIntosh, dated February 25, 1997.
</TABLE>

II-4
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
10.18 Restricted Stock Purchase Agreement between the Company and Peter
Harris, dated as of December 6, 1996 and related documents.
10.19 Loan and Security Agreement between the Registrant and Silicon Valley
Bank and related warrant to purchase Common Stock dated March 12,
1997.
11.01 Statement regarding computation of net income (loss) per share.
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 Consent of Price Waterhouse LLP, independent accountants.
24.01 Power of Attorney (see Page II-6 of this Registration Statement).*
27.01 Financial Data Schedule.
</TABLE>
- --------

* Previously filed.

** Confidential treatment is being sought with respect to certain portions of
this agreement. Such portions have been omitted from this filing and have
been filed separately with the Securities and Exchange Commission.

(b) The following financial statement schedule is filed herewith:

Schedule II--Valuation and Qualifying Accounts and Reserves.

Other financial statement schedules are omitted because the information
called for is not required or is shown either in the financial statements or
the notes thereto.

ITEM 17. UNDERTAKINGS.

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

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

The undersigned Registrant hereby undertakes that:

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

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

II-5
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT TO REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF MOUNTAIN VIEW,
STATE OF CALIFORNIA, ON THE 14TH DAY OF MARCH, 1997.

ONSALE, INC.

/s/ John F. Sauerland
By: _________________________________

John F. Sauerland Chief Financial
Officer

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS AMENDMENT TO
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.

<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:

S. Jerrold Kaplan* President, Chief March 14, 1997
Executive Officer, and
Director

PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:

/s/ John F. Sauerland Chief Financial Officer March 14, 1997
- --------------------------------- and Secretary

John F. Sauerland

ADDITIONAL DIRECTORS:

Vice President of
Alan S. Fisher* Development and March 14, 1997
Operations, Chief
Technical Officer and
Director

Peter L. Harris* Director March 14, 1997

/s/ Peter H. Jackson Director March 14, 1997
- ---------------------------------

Peter H. Jackson

Kenneth J. Orton* Director March 14, 1997

* /s/ John F. Sauerland
- ---------------------------------

John F. Sauerland
Attorney-in-fact
</TABLE>
II-6
<PAGE>

SCHEDULE II
ONSALE, INC.

VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONS
----------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END
OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Period from Inception (July 1994)
to December 31, 1995
Allowance for doubtful accounts. $-- $ 16 $ -- $16
=== ==== ==== ===
Year Ended December 31, 1996
Allowance for doubtful accounts. $16 $130 $(80) $66
=== ==== ==== ===
</TABLE>

S-1
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT EXHIBIT TITLE NUMBERED PAGE
------- ------------- -------------
<C> <S> <C>
1.01 Form of Underwriting Agreement.*
2.01 Form of Agreement and Plan of Reorganization between
the Registrant and ONSALE.*
3.01 Registrant's Certificate of Incorporation.*
3.02 Registrant's Bylaws.
Investors Rights Agreement, dated as of September 12,
4.01 1996.*
Registrant's Certificate of Incorporation (see Exhibit
4.02 3.01).*
4.03 Registrant's Bylaws (See Exhibit 3.02).
5.01 Opinion of Fenwick & West LLP regarding legality of
the securities being registered.
9.01 Voting Trust Agreement, dated as of July 21, 1994, by
and among Software Partners, Inc., Alan Fisher and
Razi Mohiuddin.*
Registrant's 1995 Equity Incentive Plan and related
10.01 documents.*
Registrant's 1996 Directors Stock Option Plan and
10.02 related documents.*
Registrant's 1996 Employee Stock Purchase Plan and
10.03 related documents.*
10.04 Form of Indemnity Agreement entered into by Registrant
with each of its directors and executive officers.*
Offer letter to John F. Sauerland, dated as of June
10.05 28, 1996.
10.06 Offer letter to Martha Greer, dated December 18, 1996.
10.07 Lease Agreement between The Landmark and Registrant,
dated as of
May 20, 1996.*
10.08 Sublease Agreement between RogueWave, Inc. and
Registrant, dated as of October 19, 1996.*
10.09 Sublease Agreement between Software Partners, Inc. and
the Registrant, dated as of November 18, 1996.*
10.10 Service Agreement between Gage Marketing Group and the
Registrant, dated as of December 4, 1996.*/**
10.11 Hewlett-Packard and ONSALE Agreement between Hewlett-
Packard Company and the Registrant, dated as of July
31, 1996.*/**
10.12 Credit Card Processing Services Agreement between
First USA Merchant Services, Inc. and the Registrant,
dated as of June 16, 1996.*
10.13 Merchant Card Services Agreement between Wells Fargo
Bank and the Registrant, dated as of March 6, 1996.*
10.14 Founder's Restricted Stock Purchase Agreement between
S. Jerrold Kaplan and the Registrant, dated as of
July 21, 1994.*
10.15 Founder's Restricted Stock Purchase Agreement between
Software Partners, Inc. and the Registrant, dated as
of July 21, 1994.*
10.16 Assignment Agreement between Software Partners, Inc.
and the Registrant, dated as of July 21, 1994.*
</TABLE>

<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT EXHIBIT TITLE NUMBERED PAGE
-------- ------------- -------------
<C> <S> <C>
10.17 Offer letter to Merle McIntosh, dated February 25,
1997.
10.18 Restricted Stock Purchase Agreement between the
Company and Peter Harris, dated as of December 6,
1996 and related documents.
10.19 Loan and Security Agreement between the Registrant
and Silicon Valley Bank and related warrant to
purchase Common Stock, dated March 12, 1997.
Statement regarding computation of net income (loss)
11.01 per share.
Consent of Fenwick & West LLP (included in Exhibit
23.01 5.01).
Consent of Price Waterhouse LLP, independent
23.02 accountants.
Power of Attorney (see Page II-6 of this Registration
24.01 Statement).*
27.01 Financial Data Schedule.
</TABLE>
- --------

* Previously filed.

<PAGE>

EXHIBIT 3.02

BYLAWS

ONSALE, INC.

(a Delaware corporation)

As Adopted December 16, 1996
<PAGE>

BYLAWS
OF
ONSALE, INC.

A Delaware Corporation

TABLE OF CONTENTS

PAGE
----
ARTICLE I - STOCKHOLDERS............................................. 1
Section 1.1: Annual Meetings.............................. 1
Section 1.2: Special Meetings............................. 1
Section 1.3: Notice of Meetings........................... 1
Section 1.4: Adjournments................................. 1
Section 1.5: Quorum....................................... 2
Section 1.6: Organization................................. 2
Section 1.7: Voting; Proxies.............................. 2
Section 1.8: Fixing Date for Determination of Stockholders
of Record.................................... 3
Section 1.9: List of Stockholders Entitled to Vote........ 3
Section 1.10: Action by Written Consent of Stockholders.... 4
Section 1.11: Inspectors of Elections...................... 4
Section 1.12: Notice of Stockholder Business; Nominations.. 6

ARTICLE II - BOARD OF DIRECTORS...................................... 8
Section 2.1: Number; Qualifications....................... 8
Section 2.2: Election; Resignation; Removal; Vacancies.... 8
Section 2.3: Regular Meetings............................. 8

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<PAGE>

BYLAWS
OF
ONSALE, INC.

A Delaware Corporation

TABLE OF CONTENTS (CONT'D)

PAGE
----
Section 2.4: Special Meetings.............................. 8
Section 2.5: Telephonic Meetings Permitted................. 9
Section 2.6: Quorum; Vote Required for Action.............. 9
Section 2.7: Organization.................................. 9
Section 2.8: Written Action by Directors................... 9
Section 2.9: Powers........................................ 9
Section 2.10: Compensation of Directors..................... 9

ARTICLE III - COMMITTEES.............................................. 9
Section 3.1: Committees.................................... 9
Section 3.2: Committee Rules............................... 10

ARTICLE IV - OFFICERS................................................. 10
Section 4.1: Generally..................................... 10
Section 4.2: Chief Executive Officer....................... 11
Section 4.3: Chairman of the Board......................... 11
Section 4.4: President..................................... 11
Section 4.5: Vice President................................ 11
Section 4.6: Chief Financial Officer....................... 12
Section 4.7: Treasurer..................................... 12
Section 4.8: Secretary..................................... 12

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<PAGE>

BYLAWS
OF
ONSALE, INC.

A Delaware Corporation

TABLE OF CONTENTS (CONT'D)

PAGE
----
Section 4.9: Delegation of Authority...................... 12
Section 4.10: Removal...................................... 12

ARTICLE V - STOCK.................................................... 12
Section 5.l: Certificates................................. 12
Section 5.2: Lost, Stolen or Destroyed Stock Certificates;
Issuance of New Certificates................. 12
Section 5.3: Other Regulations............................ 13

ARTICLE VI - INDEMNIFICATION......................................... 13
Section 6.1: Indemnification of Officers and Directors.... 13
Section 6.2: Advance of Expenses.......................... 13
Section 6.3: Non-Exclusivity of Rights.................... 14
Section 6.4: Indemnification Contracts.................... 14
Section 6.5: Effect of Amendment.......................... 14

ARTICLE VII - NOTICES................................................ 14
Section 7.l: Notice....................................... 14
Section 7.2: Waiver of Notice............................. 14

ARTICLE VIII - INTERESTED DIRECTORS.................................. 15
Section 8.1: Interested Directors; Quorum................. 15

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<PAGE>

BYLAWS
OF
ONSALE, INC.

A Delaware Corporation

TABLE OF CONTENTS (CONT'D)

PAGE
----
ARTICLE IX - MISCELLANEOUS............................................ 15
Section 9.1: Fiscal Year................................... 15
Section 9.2: Seal.......................................... 15
Section 9.3: Form of Records............................... 15
Section 9.4: Reliance Upon Books and Records............... 16
Section 9.5: Certificate of Incorporation Governs.......... 16
Section 9.6: Severability.................................. 16

ARTICLE X - AMENDMENT................................................. 16
Section 10.1: Amendments.................................... 16

-iv-
<PAGE>

BYLAWS

ONSALE, INC.

(a Delaware corporation)

As Adopted December , 1996

ARTICLE I

STOCKHOLDERS

Section 1.1: Annual Meetings. An annual meeting of stockholders shall be
----------- ---------------
held for the election of directors at such date, time and place, either within
or without the State of Delaware, as the Board of Directors shall each year fix.
Any other proper business may be transacted at the annual meeting.

Section 1.2: Special Meetings. Special meetings of stockholders for any
----------- ----------------
purpose or purposes may be called at any time by the Chairman of the Board, the
Chief Executive Officer, the President, the holders of shares of the Corporation
that are entitled to cast not less than ten percent (10%) of the total number of
votes entitled to be cast by all shareholders at such meeting, or by a majority
of the members of the Board of Directors. Special meetings may not be called by
any other person or persons. If a special meeting of stockholders is called by
any person or persons other than by a majority of the members of the Board of
Directors, then such person or persons shall call such meeting by delivering a
written request to call such meeting to each member of the Board of Directors,
and the Board of Directors shall then determine the time, date and place of such
special meeting, which shall be held not more than one hundred twenty (120) nor
less than thirty-five (35) days after the written request to call such special
meeting was delivered to each member of the Board of Directors.

Section 1.3: Notice of Meetings. Written notice of all meetings of
----------- ------------------
stockholders shall be given stating the place, date and time of the meeting and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise required by applicable law or the Certificate of
Incorporation of the Corporation, such notice shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting to each
stockholder entitled to vote at such meeting.

Section 1.4: Adjournments. Any meeting of stockholders may adjourn from
----------- ------------
time to time to reconvene at the same or another place, and notice need not be
given of any such adjourned meeting if the time, date and place thereof are
announced at the meeting at which the adjournment is taken; provided, however,
-------- -------
that if the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, then a

-1-
<PAGE>

notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. At the adjourned meeting the Corporation may
transact any business that might have been transacted at the original meeting.

Section 1.5: Quorum. At each meeting of stockholders the holders of a
----------- ------
majority of the shares of stock entitled to vote at the meeting, present in
person or represented by proxy, shall constitute a quorum for the transaction of
business, except if otherwise required by applicable law. If a quorum shall
fail to attend any meeting, the chairman of the meeting or the holders of a
majority of the shares entitled to vote who are present, in person or by proxy,
at the meeting may adjourn the meeting. Shares of the Corporation's stock
belonging to the Corporation (or to another corporation, if a majority of the
shares entitled to vote in the election of directors of such other corporation
are held, directly or indirectly, by the Corporation), shall neither be entitled
to vote nor be counted for quorum purposes; provided, however, that the
foregoing shall not limit the right of the Corporation or any other corporation
to vote any shares of the Corporation's stock held by it in a fiduciary
capacity.

Section 1.6: Organization. Meetings of stockholders shall be presided
----------- ------------
over by such person as the Board of Directors may designate, or, in the absence
of such a person, the Chairman of the Board, or, in the absence of such person,
the President of the Corporation, or, in the absence of such person, such person
as may be chosen by the holders of a majority of the shares entitled to vote who
are present, in person or by proxy, at the meeting. Such person shall be
chairman of the meeting and, subject to Section 1.11 hereof, shall determine the
order of business and the procedure at the meeting, including such regulation of
the manner of voting and the conduct of discussion as seems to him or her to be
in order. The Secretary of the Corporation shall act as secretary of the
meeting, but in his or her absence the chairman of the meeting may appoint any
person to act as secretary of the meeting.

Section 1.7: Voting; Proxies. Unless otherwise provided by law or the
----------- ---------------
Certificate of Incorporation, and subject to the provisions of Section 1.8 of
these Bylaws, each stockholder shall be entitled to one (1) vote for each share
of stock held by such stockholder. Each stockholder entitled to vote at a
meeting of stockholders, or to express consent or dissent to corporate action in
writing without a meeting, may authorize another person or persons to act for
such stockholder by proxy. Such a proxy may be prepared, transmitted and
delivered in any manner permitted by applicable law. Voting at meetings of
stockholders need not be by written ballot unless such is demanded at the
meeting before voting begins by a stockholder or stockholders holding shares
representing at least one percent (1%) of the votes entitled to vote at such
meeting, or by such stockholder's or stockholders' proxy; provided, however,
that an election of directors shall be by written ballot if demand is so made by
any stockholder at the meeting before voting begins. If a vote is to be taken
by written ballot, then each such ballot shall state the name of the stockholder
or proxy voting and such other information as the chairman of the meeting deems
appropriate. Directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Unless otherwise provided by applicable law,
the Certificate of Incorporation or these Bylaws, every matter other than the
election of directors shall be decided by the affirmative vote of the holders of
a majority of the shares of stock entitled to vote thereon

-2-
<PAGE>

that are present in person or represented by proxy at the meeting and are voted
for or against the matter.

Section 1.8: Fixing Date for Determination of Stockholders of Record.
----------- -------------------------------- ----------------------

(a) Generally. In order that the Corporation may determine the
---------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not precede the date upon which the resolution fixing the record
date is adopted by the Board of Directors and which shall not be more than sixty
(60) nor less than ten (10) days before the date of such meeting, nor more than
sixty (60) days prior to any other action. If no record date is fixed by the
Board of Directors, then the record date shall be as provided by applicable law.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.

(b) Stockholder Request for Action by Written Consent. Any stockholder of
-------------------------------------------------
record seeking to have the stockholders authorize or take corporate action by
written consent without a meeting shall, by written notice to the Secretary of
the Corporation, request the Board of Directors to fix a record date for such
consent. Such request shall include a brief description of the action proposed
to be taken. The Board of Directors shall, within ten (10) days after the date
on which such a request is received, adopt a resolution fixing the record date.
Such record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and shall not be more than ten
(10) days after the date upon which the resolution fixing the record date is
adopted by the Board of Directors. If no record date has been fixed by the
Board of Directors within ten (10) days after the date on which such a request
is received, then the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is required by applicable law, shall be the first date
on which a signed written consent setting forth the action taken or proposed to
be taken is delivered to the Corporation by delivery to its registered office in
the State of Delaware, to its principal place of business, or to any officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. If no record date has been fixed by the Board of Directors
and prior action by the Board of Directors is required by applicable law, then
the record date for determining stockholders entitled to consent to corporate
action in writing without a meeting shall be at the close of business on the
date on which the Board of Directors adopts the resolution taking such prior
action.

Section 1.9: List of Stockholders Entitled to Vote. A complete list of
----------- -------------------------------------
stockholders entitled to vote at any meeting of stockholders, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder,

-3-
<PAGE>

shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least ten (10)
days prior to the meeting, either at a place within the city where the meeting
is to be held, which place shall be specified in the notice of the meeting, or,
if not so specified, at the place where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting during the
whole time thereof and may be inspected by any stockholder who is present at the
meeting.

Section 1.10: Action by Written Consent of Stockholders.
------------ -----------------------------------------

(a) Procedure. Unless otherwise provided by the Certificate of
---------
Incorporation, and except as set forth in Section 1.8(b) above, any action
required or permitted to be taken at any annual or special meeting of the
stockholders may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Written stockholder consents shall bear the date of signature of each
stockholder who signs the consent and shall be delivered to the Corporation by
delivery to its registered office in the State of Delaware, to its principal
place of business or to any officer or agent of the Corporation having custody
of the book in which proceedings of meetings of stockholders are recorded.
Delivery made to the Corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. No written consent
shall be effective to take the action set forth therein unless, within sixty
(60) days of the earliest dated consent delivered to the Corporation in the
manner provided above, written consents signed by a sufficient number of
stockholders to take the action set forth therein are delivered to the
Corporation in the manner provided above.

(b) Notice of Consent. Prompt notice of the taking of corporate action by
-----------------
stockholders without a meeting by less than unanimous written consent of the
stockholders shall be given to those stockholders who have not consented thereto
in writing and, in the case of a Certificate Action (as defined below), if the
Delaware General Corporation Law so requires, such notice shall be given prior
to filing of the certificate in question. If the action which is consented to
requires the filing of a certificate under the Delaware General Corporation Law
(a "Certificate Action"), then if the Delaware General Corporation Law so
------------------
requires, the certificate so filed shall state that written stockholder consent
has been given in accordance with Section 228 of the Delaware General
Corporation Law and that written notice of the taking of corporate action by
stockholders without a meeting as described herein has been given as provided in
such section.

Section 1.11: Inspectors of Elections.
------------ -----------------------

(a) Applicability. Unless otherwise provided in the Corporation's
-------------
Certificate of Incorporation or required by the Delaware General Corporation
Law, the following provisions of this Section 1.11 shall apply only if and when
the Corporation has a class of voting stock that is: (i) listed on a national
securities exchange; (ii) authorized for quotation on an interdealer quotation
system of a registered national securities association; or (iii) held of record
by more

-4-
<PAGE>

than 2,000 stockholders; in all other cases, observance of the provisions of
this Section 1.11 shall be optional, and at the discretion of the Corporation.

(b) Appointment. The Corporation shall, in advance of any meeting of
-----------
stockholders, appoint one or more inspectors of election to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If
no inspector or alternate is able to act at a meeting of stockholders, the
person presiding at the meeting shall appoint one or more inspectors to act at
the meeting.

(c) Inspector's Oath. Each inspector of election, before entering upon the
----------------
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his
ability.

(d) Duties of Inspectors. At a meeting of stockholders, the inspectors of
--------------------
election shall (i) ascertain the number of shares outstanding and the voting
power of each share, (ii) determine the shares represented at a meeting and the
validity of proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period of time a record of the disposition
of any challenges made to any determination by the inspectors, and (v) certify
their determination of the number of shares represented at the meeting, and
their count of all votes and ballots. The inspectors may appoint or retain
other persons or entities to assist the inspectors in the performance of the
duties of the inspectors.

(e) Opening and Closing of Polls. The date and time of the opening and the
----------------------------
closing of the polls for each matter upon which the stockholders will vote at a
meeting shall be announced by the inspectors at the meeting. No ballot, proxies
or votes, nor any revocations thereof or changes thereto, shall be accepted by
the inspectors after the closing of the polls unless the Court of Chancery upon
application by a stockholder shall determine otherwise.

(f) Determinations. In determining the validity and counting of proxies
--------------
and ballots, the inspectors shall be limited to an examination of the proxies,
any envelopes submitted with those proxies, any information provided in
connection with proxies in accordance with Section 212(c)(2) of the Delaware
General Corporation Law, ballots and the regular books and records of the
Corporation, except that the inspectors may consider other reliable information
for the limited purpose of reconciling proxies and ballots submitted by or on
behalf of banks, brokers, their nominees or similar persons which represent more
votes than the holder of a proxy is authorized by the record owner to cast or
more votes than the stockholder holds of record. If the inspectors consider
other reliable information for the limited purpose permitted herein, the
inspectors at the time they make their certification of their determinations
pursuant to this Section 1.11 shall specify the precise information considered
by them, including the person or persons from whom they obtained the
information, when the information was obtained, the means by which the
information was obtained and the basis for the inspectors' belief that such
information is accurate and reliable.

-5-
<PAGE>

Section 1.12: Notice of Stockholder Business; Nominations.
------------ -------------------------------------------

(a) Annual Meeting of Stockholders.
------------------------------

(i) Nominations of persons for election to the Board of Directors and
the proposal of business to be considered by the stockholders shall be made at
an annual meeting of stockholders (A) pursuant to the Corporation's notice of
such meeting, (B) by or at the direction of the Board of Directors or (C) by any
stockholder of the Corporation who was a stockholder of record at the time of
giving of the notice provided for in this Section 1.12, who is entitled to vote
at such meeting and who complies with the notice procedures set forth in this
Section 1.12.

(ii) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (C) of subparagraph (a)(i)
of this Section 1.12, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice must be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
sixtieth (60th) day nor earlier than the close of business on the ninetieth
(90th) day prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
-------- -------
meeting is more than thirty (30) days before or more than sixty (60) days after
such anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such annual meeting or the close of
business on the tenth (10th) day following the day on which public announcement
of the date of such meeting is first made by the Corporation. Such
stockholder's notice shall set forth: (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), including such person's written consent to being named in
------------
the proxy statement as a nominee and to serving as a director if elected; (b) as
to any other business that the stockholder proposes to bring before the meeting,
a brief description of the business desired to be brought before the meeting,
the reasons for conducting such business at the meeting and any material
interest in such business of such stockholder and the beneficial owner, if any,
on whose behalf the proposal is made; and (c) as to the stockholder giving the
notice and the beneficial owner, if any, on whose behalf the nomination or
proposal is made (1) the name and address of such stockholder, as they appear on
the Corporation's books, and of such beneficial owner, and (2) the class and
number of shares of the Corporation that are owned beneficially and held of
record by such stockholder and such beneficial owner.

(iii) Notwithstanding anything in the second sentence of subparagraph
(a)(ii) of this Section 1.12 to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement by the

-6-
<PAGE>

Corporation naming all of the nominees for director or specifying the size of
the increased board of directors at least seventy (70) days prior to the first
anniversary of the preceding year's annual meeting (or, if the annual meeting is
held more than thirty (30) days before or sixty (60) days after such anniversary
date, at least seventy (70) days prior to such annual meeting), a stockholder's
notice required by this Section 1.12 shall also be considered timely, but only
with respect to nominees for any new positions created by such increase, if it
shall be delivered to the Secretary of the Corporation at the principal
executive office of the Corporation not later than the close of business on the
tenth (10th) day following the day on which such public announcement is first
made by the Corporation.

(b) Special Meetings of Stockholders. Only such business shall be
--------------------------------
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of such meeting. Nominations
of persons for election to the Board of Directors may be made at a special
meeting of stockholders at which directors are to be elected pursuant to the
Corporation's notice of such meeting (i) by or at the direction of the Board of
Directors or (ii) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice of
the special meeting, who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 1.12. In the
event the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by subparagraph (a)(ii) of this Section 1.12 shall
be delivered to the Secretary of the Corporation at the principal executive
offices of the Corporation not earlier than the ninetieth (90th) day prior to
such special meeting and not later than the close of business on the later of
the sixtieth (60th) day prior to such special meeting or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.

(i) Only such persons who are nominated in accordance with the
procedures set forth in this Section 1.12 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 1.12. Except as otherwise provided by law or these
bylaws, the chairman of the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the meeting
was made or proposed, as the case may be, in accordance with the procedures set
forth in this Section 1.12 and, if any proposed nomination or business is not in
compliance herewith, to declare that such defective proposal or nomination shall
be disregarded.

(ii) For purposes of this Section 1.12, the term "public announcement"
-------------------
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
section 13, 14 or 15(d) of the Exchange Act.

-7-
<PAGE>

(iii) Notwithstanding the foregoing provisions of this Section 1.12,
a stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth herein. Nothing in this Section 1.12 shall be deemed to affect any rights
of stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.

ARTICLE II

BOARD OF DIRECTORS

Section 2.1: Number; Qualifications. The Board of Directors shall consist
----------- ----------------------
of one or more members. The initial number of directors shall be five (5), and
thereafter shall be fixed from time to time by resolution of the Board of
Directors. No decrease in the authorized number of directors constituting the
Board of Directors shall shorten the term of any incumbent director. Directors
need not be stockholders of the Corporation.

Section 2.2: Election; Resignation; Removal; Vacancies. The Board of
----------- -----------------------------------------
Directors shall initially consist of the person or persons elected by the
incorporator or named in the Corporation's initial Certificate of Incorporation.
Each director shall hold office until the next annual meeting of stockholders
and until his or her successor is elected and qualified, or until his or her
earlier death, resignation or removal. Any director may resign at any time upon
written notice to the Corporation. Subject to the rights of any holders of
Preferred Stock then outstanding: (i) any director or the entire Board of
Directors may be removed, with or without cause, by the holders of a majority of
the shares then entitled to vote at an election of directors and (ii) any
vacancy occurring in the Board of Directors for any cause, and any newly created
directorship resulting from any increase in the authorized number of directors
to be elected by all stockholders having the right to vote as a single class,
may be filled by the stockholders, by a majority of the directors then in
office, although less than a quorum, or by a sole remaining director.

Section 2.3: Regular Meetings. Regular meetings of the Board of Directors
----------- ----------------
may be held at such places, within or without the State of Delaware, and at such
times as the Board of Directors may from time to time determine. Notice of
regular meetings need not be given if the date, times and places thereof are
fixed by resolution of the Board of Directors.

Section 2.4: Special Meetings. Special meetings of the Board of Directors
----------- ----------------
may be called by the Chairman of the Board, the President or a majority of the
members of the Board of Directors then in office and may be held at any time,
date or place, within or without the State of Delaware, as the person or persons
calling the meeting shall fix. Notice of the time, date and place of such
meeting shall be given, orally or in writing, by the person or persons calling
the meeting to all directors at least four (4) days before the meeting if the
notice is mailed, or at least twenty-four (24) hours before the meeting if such
notice is given by telephone, hand delivery, telegram, telex, mailgram,
facsimile or similar communication method. Unless otherwise indicated in the
notice, any and all business may be transacted at a special meeting.

-8-
<PAGE>

Section 2.5: Telephonic Meetings Permitted. Members of the Board of
----------- -----------------------------
Directors, or any committee of the Board, may participate in a meeting of the
Board or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to
conference telephone or similar communications equipment shall constitute
presence in person at such meeting.

Section 2.6: Quorum; Vote Required for Action. At all meetings of the
----------- --------------------------------
Board of Directors a majority of the total number of authorized directors shall
constitute a quorum for the transaction of business. Except as otherwise
provided herein or in the Certificate of Incorporation, or required by law, the
vote of a majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.

Section 2.7: Organization. Meetings of the Board of Directors shall be
----------- ------------
presided over by the Chairman of the Board, or in his or her absence by the
President, or in his or her absence by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in his or her absence the
chairman of the meeting may appoint any person to act as secretary of the
meeting.

Section 2.8: Written Action by Directors. Any action required or
----------- ---------------------------
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board or
such committee, as the case may be, consent thereto in writing, and the writing
or writings are filed with the minutes of proceedings of the Board or committee,
respectively.

Section 2.9: Powers. The Board of Directors may, except as otherwise
------------ ------
required by law or the Certificate of Incorporation, exercise all such powers
and do all such acts and things as may be exercised or done by the Corporation.

Section 2.10: Compensation of Directors. Directors, as such, may receive,
------------ -------------------------
pursuant to a resolution of the Board of Directors, fees and other compensation
for their services as directors, including without limitation their services as
members of committees of the Board of Directors.

ARTICLE III

COMMITTEES

Section 3.1: Committees. The Board of Directors may, by resolution passed
----------- ----------
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of the committee, the
member or members thereof present at any meeting of such committee who are not
disqualified from voting, whether or not he, she or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such

-9-
<PAGE>

absent or disqualified member. Any such committee, to the extent provided in a
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation and may authorize the seal of the Corporation to be
affixed to all papers that may require it; but no such committee shall have the
power or authority in reference to amending the Certificate of Incorporation
(except that a committee may, to the extent authorized in the resolution or
------
resolutions providing for the issuance of shares of stock adopted by the Board
of Directors as provided in subsection (a) of Section 151 of the Delaware
General Corporation Law, fix the designations and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the Corporation, or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the Corporation, or
fix the number of shares of any series of stock or authorize the increase or
decrease of the shares of any series), adopting an agreement of merger or
consolidation under Sections 251 or 252 of the Delaware General Corporation Law,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the Bylaws of the Corporation; and unless the resolution of the
Board of Directors expressly so provides, no such committee shall have the power
or authority to declare a dividend, authorize the issuance of stock or adopt a
certificate of ownership and merger pursuant to section 253 of the Delaware
General Corporation Law.

Section 3.2: Committee Rules. Unless the Board of Directors otherwise
----------- ---------------
provides, each committee designated by the Board may make, alter and repeal
rules for the conduct of its business. In the absence of such rules each
committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these Bylaws.

ARTICLE IV

OFFICERS

Section 4.1: Generally. The officers of the Corporation shall consist of
----------- ---------
a Chief Executive Officer and/or a President, one or more Vice Presidents, a
Secretary, a Treasurer and such other officers, including a Chairman of the
Board of Directors and/or Chief Financial Officer, as may from time to time be
appointed by the Board of Directors. All officers shall be elected by the Board
of Directors; provided, however, that the Board of Directors may empower the
Chief Executive Officer of the Corporation to appoint officers other than the
Chairman of the Board, the Chief Executive Officer, the President, the Chief
Financial Officer or the Treasurer. Each officer shall hold office until his or
her successor is elected and qualified or until his or her earlier resignation
or removal. Any number of offices may be held by the same person. Any officer
may resign at any time upon written notice to the Corporation. Any vacancy
occurring in any office of the Corporation by death, resignation, removal or
otherwise may be filled by the Board of Directors.

-10-
<PAGE>

Section 4.2: Chief Executive Officer. Subject to the control of the Board
----------- -----------------------
of Directors and such supervisory powers, if any, as may be given by the Board
of Directors, the powers and duties of the Chief Executive Officer of the
Corporation are:

(a) To act as the general manager and, subject to the control of the Board
of Directors, to have general supervision, direction and control of the business
and affairs of the Corporation;

(b) To preside at all meetings of the stockholders;

(c) To call meetings of the stockholders to be held at such times and,
subject to the limitations prescribed by law or by these Bylaws, at such places
as he or she shall deem proper; and

(d) To affix the signature of the Corporation to all deeds, conveyances,
mortgages, guarantees, leases, obligations, bonds, certificates and other papers
and instruments in writing which have been authorized by the Board of Directors
or which, in the judgment of the Chief Executive Officer, should be executed on
behalf of the Corporation; to sign certificates for shares of stock of the
Corporation; and, subject to the direction of the Board of Directors, to have
general charge of the property of the Corporation and to supervise and control
all officers, agents and employees of the Corporation.

The President shall be the Chief Executive Officer of the Corporation unless the
Board of Directors shall designate another officer to be the Chief Executive
Officer. If there is no President, and the Board of Directors has not
designated any other officer to be the Chief Executive Officer, then the
Chairman of the Board shall be the Chief Executive Officer.

Section 4.3: Chairman of the Board. The Chairman of the Board shall have
----------- ---------------------
the power to preside at all meetings of the Board of Directors and shall have
such other powers and duties as provided in these bylaws and as the Board of
Directors may from time to time prescribe.

Section 4.4: President. The President shall be the Chief Executive
----------- ---------
Officer of the Corporation unless the Board of Directors shall have designated
another officer as the Chief Executive Officer of the Corporation. Subject to
the provisions of these Bylaws and to the direction of the Board of Directors,
and subject to the supervisory powers of the Chief Executive Officer (if the
Chief Executive Officer is an officer other than the President), and subject to
such supervisory powers and authority as may be given by the Board of Directors
to the Chairman of the Board and/or to any other officer, the President shall
have the responsibility for the general management the control of the business
and affairs of the Corporation and the general supervision and direction of all
of the officers, employees and agents of the Corporation (other than the Chief
Executive Officer, if the Chief Executive Officer is an officer other than the
President) and shall perform all duties and have all powers that are commonly
incident to the office of President or that are delegated to the President by
the Board of Directors.

Section 4.5: Vice President. Each Vice President shall have all such
----------- --------------
powers and duties as are commonly incident to the office of Vice President, or
that are delegated to him or her by

-11-
<PAGE>

the Board of Directors or the Chief Executive Officer. A Vice President may be
designated by the Board to perform the duties and exercise the powers of the
Chief Executive Officer in the event of the Chief Executive Officer's absence or
disability.

Section 4.6: Chief Financial Officer. Subject to the direction of the
----------- -----------------------
Board of Directors and the President, the Chief Financial Officer shall perform
all duties and have all powers that are commonly incident to the office of chief
financial officer.

Section 4.7: Treasurer. The Treasurer shall have custody of all monies
----------- ---------
and securities of the Corporation. The Treasurer shall make such disbursements
of the funds of the Corporation as are authorized and shall render from time to
time an account of all such transactions. The Treasurer shall also perform such
other duties and have such other powers as are commonly incident to the office
of Treasurer, or as the Board of Directors or the President may from time to
time prescribe.

Section 4.8: Secretary. The Secretary shall issue or cause to be issued
----------- ---------
all authorized notices for, and shall keep, or cause to be kept, minutes of all
meetings of the stockholders and the Board of Directors. The Secretary shall
have charge of the corporate minute books and similar records and shall perform
such other duties and have such other powers as are commonly incident to the
office of Secretary, or as the Board of Directors or the President may from time
to time prescribe.

Section 4.9: Delegation of Authority. The Board of Directors may from
----------- -----------------------
time to time delegate the powers or duties of any officer to any other officers
or agents, notwithstanding any provision hereof.

Section 4.10: Removal. Any officer of the Corporation shall serve at the
------------ -------
pleasure of the Board of Directors and may be removed at any time, with or
without cause, by the Board of Directors. Such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
Corporation.

ARTICLE V

STOCK

Section 5.1: Certificates. Every holder of stock shall be entitled to
----------- ------------
have a certificate signed by or in the name of the Corporation by the Chairman
or Vice-Chairman of the Board of Directors, or the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, of the Corporation, certifying the number of shares
owned by such stockholder in the Corporation. Any or all of the signatures on
the certificate may be a facsimile.

Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance of New
----------- -------------------------------------------------------------
Certificates. The Corporation may issue a new certificate of stock in the place
- ------------
of any certificate previously issued by it, alleged to have been lost, stolen or
destroyed, and the Corporation may require the

-12-
<PAGE>

owner of the lost, stolen or destroyed certificate, or such owner's legal
representative, to agree to indemnify the Corporation and/or to give the
Corporation a bond sufficient to indemnify it, against any claim that may be
made against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.

Section 5.3: Other Regulations. The issue, transfer, conversion and
----------- -----------------
registration of stock certificates shall be governed by such other regulations
as the Board of Directors may establish.

ARTICLE VI

INDEMNIFICATION

Section 6.1 Indemnification of Officers and Directors. Each person who
----------- -----------------------------------------
was or is made a party to, or is threatened to be made a party to, or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding"), by reason of the fact that he
----------
or she (or a person of whom he or she is the legal representative), is or was a
director or officer of the Corporation or a Reincorporated Predecessor (as
defined below) or is or was serving at the request of the Corporation or a
Reincorporated Predecessor (as defined below) as a director or officer of
another corporation, or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, shall be
indemnified and held harmless by the Corporation to the fullest extent permitted
by the Delaware General Corporation Law, against all expenses, liability and
loss (including attorneys' fees, judgments, fines, ERISA excise taxes and
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith, and such indemnification shall
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of his or her heirs, executors and administrators;

provided, however, that the Corporation shall indemnify any such person seeking
- -------- -------
indemnity in connection with a proceeding (or part thereof) initiated by such
person only if such proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation. As used herein, the term "Reincorporated
--------------
Predecessor" means a corporation that is merged with and into the Corporation in
- -----------
a statutory merger where (a) the Corporation is the surviving corporation of
such merger; (b) the primary purpose of such merger is to change the corporate
domicile of the Reincorporated Predecessor to Delaware.

Section 6.2: Advance of Expenses. The Corporation shall pay all expenses
----------- -------------------
(including attorneys' fees) incurred by such a director or officer in defending
any such proceeding as they are incurred in advance of its final disposition;
provided, however, that if the Delaware General Corporation Law then so
requires, the payment of such expenses incurred by such a director or officer in
advance of the final disposition of such proceeding shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it should be determined
ultimately that such director or officer is not entitled to be indemnified under
this Article VI or otherwise; and provided, further, that the Corporation shall
-------- -------
not be required to advance any expenses to a person against whom the Corporation
directly brings a claim, in a proceeding, alleging that such person has breached
his or her duty of loyalty to the Corporation, committed an act or omission not
in good faith or that

-13-
<PAGE>

involves intentional misconduct or a knowing violation of law, or derived an
improper personal benefit from a transaction.

Section 6.3: Non-Exclusivity of Rights. The rights conferred on any
------------ -------------------------
person in this Article VI shall not be exclusive of any other right that such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, Bylaw, agreement, vote or consent of stockholders
or disinterested directors, or otherwise. Additionally, nothing in this Article
VI shall limit the ability of the Corporation, in its discretion, to indemnify
or advance expenses to persons whom the Corporation is not obligated to
indemnify or advance expenses pursuant to this Article VI.

Section 6.4: Indemnification Contracts. The Board of Directors is
----------- -------------------------
authorized to cause the Corporation to enter into indemnification contracts with
any director, officer, employee or agent of the Corporation, or any person
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, including employee benefit plans, providing indemnification rights
to such person. Such rights may be greater than those provided in this Article
VI.

Section 6.5: Effect of Amendment. Any amendment, repeal or modification
----------- -------------------
of any provision of this Article VI shall be prospective only, and shall not
adversely affect any right or protection conferred on a person pursuant to this
Article VI and existing at the time of such amendment, repeal or modification.

ARTICLE VII

NOTICES

Section 7.1: Notice. Except as otherwise specifically provided herein or
----------- ------
required by law, all notices required to be given pursuant to these Bylaws shall
be in writing and may in every instance be effectively given by hand delivery
(including use of a delivery service), by depositing such notice in the mail,
postage prepaid, or by sending such notice by prepaid telegram, telex, overnight
express courier, mailgram or facsimile. Any such notice shall be addressed to
the person to whom notice is to be given at such person's address as it appears
on the records of the Corporation. The notice shall be deemed given (i) in the
case of hand delivery, when received by the person to whom notice is to be given
or by any person accepting such notice on behalf of such person, (ii) in the
case of delivery by mail, upon deposit in the mail, (iii) in the case of
delivery by overnight express courier, on the first business day after such
notice is dispatched, and (iv) in the case of delivery via telegram, telex,
mailgram, or facsimile, when dispatched.

Section 7.2: Waiver of Notice. Whenever notice is required to be given
----------- ----------------
under any provision of these bylaws, a written waiver of notice, signed by the
person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting at the beginning of the meeting to

-14-
<PAGE>

the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice.

ARTICLE VIII

INTERESTED DIRECTORS

Section 8.1: Interested Directors; Quorum. No contract or transaction
----------- ----------------------------
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board or committee thereof that authorizes
the contract or transaction, or solely because his, her or their votes are
counted for such purpose, if: (i) the material facts as to his, her or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board or committee
in good faith authorizes the contract or transaction by the affirmative votes of
a majority of the disinterested directors, even though the disinterested
directors be less than a quorum; (ii) the material facts as to his, her or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders;
or (iii) the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified by the Board of Directors, a
committee thereof, or the stockholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or transaction.

ARTICLE IX

MISCELLANEOUS

Section 9.1: Fiscal Year. The fiscal year of the Corporation shall be
----------- -----------
determined by resolution of the Board of Directors.

Section 9.2: Seal. The Board of Directors may provide for a corporate
----------- ----
seal, which shall have the name of the Corporation inscribed thereon and shall
otherwise be in such form as may be approved from time to time by the Board of
Directors.

Section 9.3: Form of Records. Any records maintained by the Corporation
----------- ---------------
in the regular course of its business, including its stock ledger, books of
account and minute books, may be kept on, or be in the form of, magnetic tape,
diskettes, photographs, microphotographs or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.

-15-
<PAGE>

Section 9.4: Reliance Upon Books and Records. A member of the Board of
----------- -------------------------------
Directors, or a member of any committee designated by the Board of Directors
shall, in the performance of his or her duties, be fully protected in relying in
good faith upon records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of the Corporation's
officers or employees, or committees of the Board of Directors, or by any other
person as to matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.

Section 9.5: Certificate of Incorporation Governs. In the event of any
----------- ------------------------------------
conflict between the provisions of the Corporation's Certificate of
Incorporation and Bylaws, the provisions of the Certificate of Incorporation
shall govern.

Section 9.6: Severability. If any provision of these Bylaws shall be held
----------- ------------
to be invalid, illegal, unenforceable or in conflict with the provisions of the
Corporation's Certificate of Incorporation, then such provision shall
nonetheless be enforced to the maximum extent possible consistent with such
holding and the remaining provisions of these Bylaws (including without
limitation, all portions of any section of these Bylaws containing any such
provision held to be invalid, illegal, unenforceable or in conflict with the
Certificate of Incorporation, that are not themselves invalid, illegal,
unenforceable or in conflict with the Certificate of Incorporation) shall remain
in full force and effect.

ARTICLE X

AMENDMENT

Section 10.1: Amendments. Stockholders of the Corporation holding a
------------ ----------
majority of the Corporation's outstanding voting stock shall have the power to
adopt, amend or repeal Bylaws. To the extent provided in the Corporation's
Certificate of Incorporation, the Board of Directors of the Corporation shall
also have the power to adopt, amend or repeal Bylaws of the Corporation, except
insofar as Bylaws adopted by the stockholders shall otherwise provide.

-16-
<PAGE>

CERTIFICATION OF BYLAWS
OF
ONSALE, INC.
(A DELAWARE CORPORATION)

KNOW ALL BY THESE PRESENTS:

I, John Sauerland, certify that I am Secretary of ONSALE, Inc. a Delaware
corporation (the "Company"), that I am duly authorized to make and deliver this
-------
certification, that the attached Bylaws are a true and correct copy of the
Bylaws of the Company in effect as of the date of this certificate.

Dated: December 16, 1996

/s/ John Sauerland
------------------------------
John Sauerland, Secretary

<PAGE>

EXHIBIT 5.01
------------

March 14, 1997
ONSALE, Inc.
1861 Landings Drive
Mountain View, CA 94043

Gentlemen/Ladies:

At your request, we have examined the Registration Statement on Form S-1
filed by you with the Securities and Exchange Commission (the "Commission") on
December 20, 1996 and Amendment No. 1 to such Registration Statement filed by
you with the Commission on or about March 13, 1997 (collectively, the
"Registration Statement") in connection with the registration under the
Securities Act of 1933, as amended, of an aggregate of 3,220,000 shares of your
Common Stock (the "Stock"), none of which is presently issued and outstanding.

In rendering this opinion, we have examined the following:

(1) the Registration Statement, together with the exhibits filed as a part
thereof;

(2) your registration statement on Form 8-A (File Number 0-21945) filed
with the Commission on March 11, 1997;

(3) the prospectuses prepared in connection with the Registration
Statement;

(4) the minutes of meetings and actions by written consent of the
stockholders and Board of Directors that are contained in your minute
books and the minute books of your predecessor, ONSALE, a California
corporation ("ONSALE California"), that are in our possession; and

(5) a Management Certificate addressed to us and dated of even date
herewith executed by the Company containing certain factual
representations.

In our examination of documents for purposes of this opinion, we have
assumed, and express no opinion as to, the genuineness of all signatures on
original documents, the authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies, the lack of any undisclosed terminations, modifications, waivers or
amendments to any documents reviewed by us and the due execution and delivery of
all documents where due execution and delivery are prerequisites to the
effectiveness thereof.

As to matters of fact relevant to this opinion, we have relied solely upon
our examination of the documents referred to above and have assumed the current
accuracy and completeness of the information obtained from public officials and
records included in the documents referred to above. We have made no
independent investigations or other attempts to verify the accuracy of
<PAGE>

ONSALE, Inc.
March 14, 1997
PAGE 2

any of such information or to determine the existence or non-existence of any
other factual matters; however, we are not aware of any facts that would lead us
-------
to believe that the opinion expressed herein is not accurate.

Based upon the foregoing, it is our opinion that the up to 3,220,000 shares
of Stock to be issued and sold by you, when issued and sold in the manner
referred to in the prospectus that constitutes a part of the Registration
Statement, will be legally issued, fully paid and nonassessable.

We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us, if any, in the
Registration Statement, the prospectus constituting a part thereof and any
amendments thereto.

This opinion speaks only as of its date and is intended solely for your use
as an exhibit to the Registration Statement for the purpose of the above sale of
the Stock and is not to be relied upon for any other purpose.

Very truly yours,

FENWICK & WEST LLP

By: /s/ Fenwick & West LLP
-----------------------
General Partner

<PAGE>

Exhibit 10.05

June 28, 1996

Mr. John Sauerland
1038 Robin Way
Sunnyvale, CA 94087

Dear John,

This is to confirm ONSALE's offer of employment to you as Chief Financial
Officer at an initial salary of $8333.33 per month starting Monday, July 1,
1996.

Your benefits will include two weeks of paid vacation per year, and medical
coverage for you. You may, at your expense, purchase coverage for additional
family members under this plan. Medical coverage begins the first of the month
following your start date.

You will also receive a stock option for 75,000 shares of ONSALE common stock,
subject to board approval, which will vest monthly over a four-year period
beginning July 1, 1996, with a six-month "cliff," and monthly thereafter, at an
exercise price of $2 per share. In the event that you are terminated without
formal "cause" following a "change of control" transaction, 25% of your unvested
portion of this grant as of your termination will immediately vest.

In addition, if ONSALE completes an initial public offering raising proceeds of
at least $5 million ("IPO") prior to your stock option becoming fully vested,
15,000 of the unvested shares, or all of the unvested shares if there are fewer
than 15,000, will become vested upon the closing of the IPO, provided that you
are still employed by ONSALE at the time. Any remaining unvested shares will
continue to vest monthly pro rata over the remainder of the four-year vesting
period. Following an IPO, we will review your compensation to bring it in line
with industry standard practice, to begin retroactively effective five days
following the closing of the IPO. Our present research indicates that typical
total compensation for Chief Financial Officers of comparable companies is in
the range of $140,000-$175,000. In addition, we anticipate that you will
participate in any appropriate executive incentive plans that are put into
place.

Should you be terminated without formal "cause" following the first six months
of your employment, you will receive six months of salary severance pay.

You will also be required to sign a standard Employee Inventions and Assignment
Agreement. Your employment is "at will", which means that you or ONSALE can
terminate your employment at any time with or without formal "cause".

Please sign and return a copy of this letter to indicate your acceptance of
these terms. I look forward to working with you to make ONSALE a success.

This offer expires June 30, 1996.

Sincerely,

/s/ Jerry Kaplan /s/ John Sauerland 6/30/96
- ---------------- -------------------------------------
Jerry Kaplan John Sauerland Date
President and CEO

<PAGE>

Exhibit 10.06

December 18, 1996

Ms. Martha Greer
184 Daniels Hills Road
Keene, New Hampshire 03431

Dear Martha:

This is to confirm ONSALE's offer of employment to you as VP, Merchandise
Management at a salary of $10,416.67 per month starting December 19, 1996. Since
you will be moving from New Hampshire during the next four weeks, you will begin
work from your home during this time.

You will participate in ONSALE's standard benefits as they are established and
amended from time to time.

You will also receive stock options for 150,000 shares of ONSALE common stock
(these are post-November 1st, 1996 stock split), subject to board approval,
which will vest monthly over a four-year period after a six-month "cliff".
Enclosed is a legal agreement covering this grant for your review. Please review
it carefully as it describes a number of standard restrictions on your rights.

In addition, you will be paid a $40,000 one-time flat fee upon commencement of
your employment to cover your relocation and all interim living costs.

ONSALE will provide to you upon request a loan of $125,000 to aid in your
purchasing a new home on the following terms:

. Loan must commence within 1 year of your employment start date.
. Loan period is for 2 calendar years from commencement.
. Loan is at a simple interest rate of 7%.
. Loan is payable as follows:
. Simple interest accrued and payable 18 months from inception
. Interest payable quarterly thereafter (1 payment).
. Final interest and 100% of principal payable at loan completion (2
years), sale of new property, or termination of employment
. Loan will be funded as follows:
. "Earnest money" of up to $50,000 at time of accepted purchase contract
on new home.
. Balance at close of escrow.

. Loan is secured by 2nd interest in existing property at 184 Daniels Hills
Road Keene, New Hampshire; 2nd interest in new property; and ONSALE stock
options (whether issued now or in the future)
<PAGE>

. When New Hampshire property is sold, loan will be paid down by net amount
payable to you at close of escrow

You will also be required to sign a standard Employee Inventions and Assignment
Agreement.

Your employment is "at will", which means that you or ONSALE can terminate your
employment at any time with or without formal "cause".

Please sign and return a copy of this letter to indicate your acceptance of
these terms. I look forward to working with you to make ONSALE a success.

This offer expires December 20, 1996.

Sincerely,

/s/ S. Jerrold Kaplan
- ------------------------ /s/ Martha Greer 18 December 1996
S. Jerrold Kaplan ------------------- -------------------
CEO Martha Greer Date

<PAGE>

Page 1

Exhibit 10.17

February 25, 1997

Merle McIntosh

Dear Merle:

This is to confirm ONSALE's offer of employment to you as SVP, Merchandise
Acquisition at a salary of $14,583.33 per month starting March 12, 1997.

You will participate in ONSALE's standard benefits package as amended from time
to time. This includes a 401K plan and health insurance for yourself. You may,
at your expense, purchase coverage for additional family members under this
plan. In addition, you will be eligible to participate in any company executive
bonus program as it may be established in the future.

You will also receive stock options for 150,000 shares of ONSALE common stock
(post-November 1st, 1996 stock split), subject to board approval, which will
vest monthly over a four-year period after a six-month "cliff". Enclosed is a
copy of the agreement for your review. Please review it carefully as it
describes a number of standard restrictions on your rights.

In the event that you are terminated without formal 'cause' following a 'change
of control' transaction after your first six months of employment, 25% of the
unvested portion of this 150,000 share grant as of your termination will
immediately vest, and you will receive three months severance pay.

ONSALE will reimburse you for up to $25,000 in relocation expenses, including
travel expenses for you and your family prior to your final relocation to the
San Francisco area.

ONSALE will provide to you upon request a loan of $25,000 on the following
terms:

Loan must commence within 1 year of your employment start date
Loan period is for 2 calendar years from commencement
Loan is at a simple interest rate of 7%
Simple interest (accrued) and principal is payable in full 2 years from
inception, or within 3 months of termination of employment, whichever is
earlier
Loan is secured by ONSALE stock options (whether issued now or in the future)

You will also be required to sign a standard Employee Inventions and Assignment
Agreement. Your employment is 'at will', which means that you or ONSALE can
terminate your employment at any time with or without formal 'cause'.

Please sign and return a copy of this letter to indicate your acceptance of
these terms. I look forward to working with you to make ONSALE a success.
<PAGE>

Page 2

This offer expires February 26, 1997.

Sincerely,

/s/ Jerry Kaplan
/s/ Merle McIntosh 2/25/97
Jerry Kaplan -------------------------
CEO Merle McIntosh Date

<PAGE>

Exhibit 10.18

ONSALE

1995 EQUITY INCENTIVE PLAN

RESTRICTED STOCK PURCHASE AGREEMENT

This Agreement is made and entered into as of December 6, 1996 (the
"Effective Date") by and between Onsale, a California corporation (the
- ---------------
"Company"), and the purchaser named below (the "Purchaser"). Capitalized terms
------- ---------
not defined herein shall have the meaning ascribed to them in the Company's 1995
Equity Incentive Plan (the "Plan").
----

Purchaser: Peter Harris
---------------------------------------------

Total Number of Shares: 20,000
---------------------------------------------

Purchase Price Per Share: $5.00
---------------------------------------------

Total Purchase Price: $100,000
---------------------------------------------

1. Purchase of Shares.
------------------

1.1 Purchase of Shares. On the Effective Date and subject to
------------------
the terms and conditions of this Agreement and the Plan, Purchaser hereby
purchases from the Company, and the Company hereby sells to Purchaser, the total
number of shares set forth above (the "Shares") of the Company's Common Stock at
------
the purchase price per share as set forth above (the "Purchase Price Per Share")
------------------------
for a total purchase price as set forth above (the "Purchase Price"). As used in
--------------
this Agreement, the term "Shares" refers to the Shares purchased under this
Agreement and includes all securities received (a) in replacement of the Shares,
(b) as a result of stock dividends or stock splits in respect of the Shares, and
(c) in replacement of the Shares in a merger, recapitalization, reorganization
or similar corporate transaction.

1.2 Title to Shares. The exact spelling of the name(s) under
---------------
which Purchaser will take title to the Shares is:

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

Purchaser desires to take title to the Shares as follows:

[_] Individual, as separate property
[_] Husband and wife, as community property
[_] Joint Tenants
<PAGE>

[_] Alone or with spouse as trustee(s) of the
following trust (including date):

-------------------------------------------------
-------------------------------------------------
[_] Other; please specify:
-----------------------------
-------------------------------------------------

1.3 Payment. Purchaser hereby delivers payment of the
-------
Purchase Price as follows (check and complete as appropriate):

[_] in cash in the amount of $_____________, receipt of which is
acknowledged by the Company;

[_] by cancellation of indebtedness of the Company to Purchaser
in the amount of $____________;

[X] by tender of a Full Recourse Promissory Note in the principal
amount of $100,000, secured by a Pledge Agreement of even
date herewith;

[_] by the waiver hereby of compensation due or accrued for
services rendered in the amount of $________.

2. Delivery.
--------

2.1 Deliveries by Purchaser. Purchaser hereby delivers to
-----------------------
the Company (i) this Agreement, (ii) two (2) copies of a blank Stock Power and
Assignment Separate from Stock Certificate in the form of Exhibit 1 attached
---------
hereto (the "Stock Powers"), both executed by Purchaser (and Purchaser's spouse,
------------
if any), (iii) if Purchaser is married, a Consent of Spouse in the form of
Exhibit 2 attached hereto (the "Spouse Consent") executed by Purchaser's spouse,
- --------- --------------
and (iv) the Purchase Price by delivery of a Secured Full Recourse Promissory
Note in the form of Exhibit 5 and (v) a Stock Pledge Agreement in the form of
---------
Exhibit 6, executed by Purchaser (the "Pledge Agreement").
- --------- ----------------

2.2 Deliveries by the Company. Upon its receipt of the
-------------------------
Purchase Price and all the documents to be executed and delivered by Purchaser
to the Company under Section 2.1, the Company will issue a duly executed stock
certificate evidencing the Shares in the name of Purchaser, to be placed in
escrow as provided in Section 11 until expiration or termination of both the
Company's Repurchase Option and Right of First Refusal described in Sections 8
and 9 and payment in full to the Company of all sums due under the Note.

3. Representations and Warranties of Purchaser. Purchaser
-------------------------------------------
represents and warrants to the Company that:

3.1 Agrees to Terms of the Plan and this Agreement.
----------------------------------------------
Purchaser has received a copy of the Plan and this Agreement, has read and
understands the terms of the Plan and this Agreement, and agrees to be bound by
their terms and conditions. Purchaser

-2-
<PAGE>

acknowledges that there may be adverse tax consequences upon purchase and
disposition of the Shares, and that Purchaser should consult a tax adviser prior
to such purchase or disposition.

3.2 Purchase for Own Account for Investment. Purchaser is
---------------------------------------
purchasing the Shares for Purchaser's own account for investment purposes only
and not with a view to, or for sale in connection with, a distribution of the
Shares within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"). Purchaser has no present intention of selling or otherwise
- ---------------
disposing of all or any portion of the Shares and no one other than Purchaser
has any beneficial ownership of any of the Shares.

3.3 Access to Information. Purchaser has had access to all
---------------------
information regarding the Company and its present and prospective business,
assets, liabilities and financial condition that Purchaser reasonably considers
important in making the decision to purchase the Shares, and Purchaser has had
ample opportunity to ask questions of the Company's representatives concerning
such matters and this investment.

3.4 Understanding of Risks. Purchaser is fully aware of:
----------------------
(i) the highly speculative nature of the investment in the Shares; (ii) the
financial hazards involved; (iii) the lack of liquidity of the Shares and the
restrictions on transferability of the Shares (e.g., that Purchaser may not be
----
able to sell or dispose of the Shares or use them as collateral for loans); (iv)
the qualifications and backgrounds of the management of the Company; and (v) the
tax consequences of investment in the Shares. Purchaser is capable of
evaluating the merits and risks of this investment, has the ability to protect
Purchaser's own interests in this transaction and is financially capable of
bearing a total loss of this investment.

3.5 No General Solicitation. At no time was Purchaser
-----------------------
presented with or solicited by any publicly issued or circulated newspaper,
mail, radio, television or other form of general advertising or solicitation in
connection with the offer, sale and purchase of the Shares.

4. Compliance with Securities Laws.
-------------------------------

4.1 Compliance with Federal Securities Laws. Purchaser
---------------------------------------
understands and acknowledges that the Shares have not been registered with the
Securities and Exchange Commission ("SEC") under the Securities Act and that,
---
notwithstanding any other provision of the Stock Option Agreement to the
contrary, the exercise of any rights to purchase any Shares is expressly
conditioned upon compliance with the Securities Act and all applicable state
securities laws. Purchaser agrees to cooperate with the Company to ensure
compliance with such laws. The Shares are being issued under the Securities Act
pursuant to (the Company will check the applicable box):

[X] the exemption provided by SEC Rule 701;
[_] the exemption provided by SEC Rule 504;
[_] Section 4(2) of the Securities Act;
[_] other: ___________________________.

-3-
<PAGE>

4.2 Compliance with California Securities Laws. THE SALE OF
------------------------------------------
THE SECURITIES THAT ARE THE SUBJECT OF THIS AGREEMENT, IF NOT YET QUALIFIED WITH
THE CALIFORNIA COMMISSIONER OF CORPORATIONS AND NOT EXEMPT FROM SUCH
QUALIFICATION, IS SUBJECT TO SUCH QUALIFICATION, AND THE ISSUANCE OF SUCH
SECURITIES, AND THE RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE IS EXEMPT. THE RIGHTS OF THE
PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION
BEING OBTAINED OR AN EXEMPTION BEING AVAILABLE.

5. Restricted Securities.
---------------------

5.1 No Transfers Unless Registered or Exempt. Purchaser
----------------------------------------
understands that Purchaser may not transfer any Shares unless such Shares are
registered under the Securities Act and qualified under applicable state
securities laws or unless, in the opinion of counsel to the Company, exemptions
from such registration and qualification requirements are available. Purchaser
understands that only the Company may file a registration statement with the SEC
and that the Company is under no obligation to do so with respect to the Shares.
Purchaser has also been advised that exemptions from registration and
qualification may not be available or may not permit Purchaser to transfer all
or any of the Shares in the amounts or at the times proposed by Purchaser.

5.2 SEC Rule 144. In addition, Purchaser has been advised
------------
that SEC Rule 144 promulgated under the Securities Act, which permits certain
limited sales of unregistered securities, is not presently available with
respect to the Shares and, in any event, requires that the Shares be held for a
minimum of two years, and in certain cases three years, after they have been
purchased and paid for (within the meaning of Rule 144), before they may be
------------
resold under Rule 144. Purchaser understands that Shares paid for with a Note
may not be deemed to be fully "paid for" within the meaning of Rule 144 unless
certain conditions are met and that, accordingly, the Rule 144 holding period of
such Shares may not begin to run until such Shares are fully paid for within the
meaning of Rule 144. Purchaser understands that Rule 144 may indefinitely
restrict transfer of the Shares so long as Purchaser remains an "affiliate" of
the Company or if "current public information" about the Company (as defined in
Rule 144) is not publicly available.

5.3 SEC Rule 701. The Shares may become freely tradable by
------------
non-affiliates if issued pursuant to SEC Rule 701 promulgated under the
Securities Act (under limited conditions regarding the method of sale) 90 days
after the first sale of Common Stock of the Company to the general public
pursuant to a registration statement filed with and declared effective by the
SEC, subject to the lengthier market standoff agreement contained in Section 7
of this Agreement or any other agreement entered into by Purchaser. Affiliates
must comply with the provisions (other than the holding period requirements) of
Rule 144.

5.4 State Law Restrictions on Transfer. Purchaser
----------------------------------
understands that transfer of the Shares may be restricted by Section 260.141.11
of the Rules of the California

-4-
<PAGE>

Commissioner of Corporations, a copy of which is attached hereto as Exhibit 3,
---------
and that the certificate(s) representing the Shares may bear a legend to that
effect.

6. Restrictions on Transfers.
-------------------------

6.1 Disposition of Shares. Purchaser hereby agrees that
---------------------
Purchaser shall make no disposition of the Shares (other than a permitted
transfer under Section 9.6) unless and until:

(a) Purchaser shall have notified the Company of the
proposed disposition and provided a written summary of the terms and conditions
of the proposed disposition;

(b) Purchaser shall have complied with all
requirements of this Agreement applicable to the disposition of the Shares;

(c) Purchaser shall have provided the Company with
written assurances, in form and substance satisfactory to counsel for the
Company, that (i) the proposed disposition does not require registration of the
Shares under the Securities Act, or (ii) all appropriate action necessary for
compliance with the registration requirements of the Securities Act or of any
exemption from registration available under the Securities Act (including Rule
144) has been taken; and

(d) Purchaser shall have provided the Company with
written assurances, in form and substance satisfactory to the Company, that the
proposed disposition will not result in the contravention of any transfer
restrictions applicable to the Shares pursuant to the provisions of the
Commissioner Rules identified in Section 4.2.

6.2 Restriction on Transfer. Purchaser shall not transfer,
-----------------------
assign, grant a lien or security interest in, pledge, hypothecate, encumber or
otherwise dispose of any of the Shares which are subject to the Company's
Repurchase Option under Section 8 or the Company's Right of First Refusal under
Section 9, except as permitted under Section 9.6.

6.3 Transferee Obligations. Each person (other than the
----------------------
Company) to whom the Shares are transferred by means of one of the permitted
transfers specified in Section 9.6 must, as a condition precedent to the
validity of such transfer, acknowledge in writing to the Company that such
person is bound by the provisions of this Exercise Agreement and that the
transferred shares are subject to (i) both the Company's Repurchase Option and
the Company's Right of First Refusal granted hereunder and (ii) the market
stand-off provisions of Section 7, to the same extent such shares would be so
subject if retained by the Purchaser.

7. Market Standoff Agreement. Purchaser agrees in connection
-------------------------
with any registration of the Company's securities that, upon the request of the
Company or the underwriters managing any registered public offering of the
Company's securities, Purchaser will not sell or otherwise dispose of any Shares
without the prior written consent of the Company or such managing underwriters,
as the case may be, for a period of time (not to exceed 180 days)

-5-
<PAGE>

after the effective date of such registration requested by such managing
underwriters and subject to all restrictions as the Company or the managing
underwriters may specify for employee-shareholders generally.

8. Company's Repurchase Option. The Company, or its assignee, shall
---------------------------
have the option to repurchase all or a portion of the Unvested Shares (as
defined below) on the terms and conditions set forth in this Section (the

"Repurchase Option") if Purchaser is Terminated (as defined in the Plan) for any
- ------------------
reason, or no reason, including without limitation Purchaser's death, Disability
(as defined in the Plan), voluntary resignation or termination by the Company
with or without cause.

8.1 Termination and Termination Date. In case of any dispute as
--------------------------------
to whether Purchaser is Terminated, the Committee shall have sole discretion to
determine whether Purchaser has been Terminated and the effective date of such
Termination (the "Termination Date").
----------------

8.2 Vested Shares. "Vested Shares" are Shares which are not
------------- -------------
subject to the Company's Repurchase Option. On the Effective Date all of the
Shares will be Vested Shares. The number of Shares that are Vested Shares will
be proportionally adjusted to reflect any stock dividend, stock split, reverse
stock split or recapitalization of the Common Stock of the Company occurring
after the Effective Date.

8.3 RESERVED
--------

8.4 RESERVED
--------

8.5 RESERVED
--------

8.6 Right of Termination Unaffected. Nothing in this Agreement
-------------------------------
shall be construed to limit or otherwise affect in any manner whatsoever the
right or power of the Company (or any Parent, Subsidiary or Affiliate of the
Company) to terminate Purchaser's employment or other relationship with the
Company (or any Parent, Subsidiary or Affiliate of the Company) at any time for
any reason or no reason, with or without cause.

9. Company's Right of First Refusal. Before any Vested Shares held
--------------------------------
by Purchaser or any transferee of such Shares (either being sometimes referred
to herein as the "Holder") may be sold or otherwise transferred (including
------
without limitation a transfer by gift or operation of law), the Company and/or
its assignee(s) shall have an assignable right of first refusal to purchase the
Vested Shares to be sold or transferred (the "Offered Shares") on the terms and
--------------
conditions set forth in this Section (the "Right of First Refusal").
----------------------

9.1 Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
------
Holder's bona fide intention to sell or otherwise transfer the Offered Shares;
(ii) the name of each proposed bona fide purchaser or other transferee

("Proposed Transferee"); (iii) the number of Offered Shares to be transferred to
- ---------------------
each Proposed Transferee; (iv) the bona fide cash price or other consideration

6
<PAGE>

for which the Holder proposes to transfer the Offered Shares (the "Offered
-------
Price"); and (v) that the Holder will offer to sell the Offered Shares to the
Company and/or its assignee(s) at the Offered Price as provided in this Section.

9.2 Exercise of Right of First Refusal. At any time within
----------------------------------
thirty (30) days after the date of the Notice, the Company and/or its
assignee(s) may, by giving written notice to the Holder, elect to purchase all
of the Offered Shares proposed to be transferred to any one or more of the
Proposed Transferees named in the Notice, at the purchase price determined in
accordance with Section 9.3 below.

9.3 Purchase Price. The purchase price for the Offered Shares
--------------
purchased under this Section will be the Offered Price. If the Offered Price
includes consideration other than cash, then the cash equivalent value of the
non-cash consideration shall conclusively be deemed to be the value of such non-
cash consideration as determined in good faith by the Company's Board of
Directors.

9.4 Payment. Payment of the purchase price for Offered Shares
-------
will be payable, at the option of the Company and/or its assignee(s) (as
applicable), by check or by cancellation of all or a portion of any outstanding
indebtedness of the Holder to the Company (or to such assignee, in the case of a
purchase of Offered Shares by such assignee) or by any combination thereof. The
purchase price will be paid without interest within sixty (60) days after the
Company's receipt of the Notice, or, at the option of the Company and/or its
assignee(s), in the manner and at the time(s) set forth in the Notice.

9.5 Holder's Right to Transfer. If all of the Offered Shares
--------------------------
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section,
then the Holder may sell or otherwise transfer such Offered Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
--------
such sale or other transfer is consummated within 120 days after the date of the
Notice, and provided further, that (i) any such sale or other transfer is
-------- -------
effected in compliance with all applicable securities laws and (ii) the Proposed
Transferee agrees in writing that the provisions of this Section will continue
to apply to the Offered Shares in the hands of such Proposed Transferee. If the
Offered Shares described in the Notice are not transferred to the Proposed
Transferee within such 120 day period, then a new Notice must be given to the
Company, and the Company will again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.

9.6 Exempt Transfers. Notwithstanding anything to the contrary
----------------
in this Section, the following transfers of Shares will be exempt from the Right
of First Refusal: (i) the transfer of any or all of the Shares during
Purchaser's lifetime by gift or on Purchaser's death by will or intestacy to
Purchaser's "immediate family" (as defined below) or to a trust for the benefit
of Purchaser or Purchaser's immediate family, provided that each transferee or
other recipient agrees in a writing satisfactory to the Company that the
provisions of this Section will continue to apply to the transferred Shares in
the hands of such transferee or other recipient; (ii) any transfer of Shares
made pursuant to a statutory merger or statutory consolidation of the Company
with or into another corporation or corporations (except that the Right of First
Refusal

7
<PAGE>

will continue to apply thereafter to such Shares, in which case the surviving
corporation of such merger or consolidation shall succeed to the rights of the
Company under this Section unless the agreement of merger or consolidation
expressly otherwise provides); or (iii) any transfer of Shares pursuant to the
winding up and dissolution of the Company. As used herein, the term "immediate
---------
family" will mean Purchaser's spouse, the lineal descendant or antecedent,
- ------
father, mother, brother or sister, adopted child or grandchild of Purchaser or
Purchaser's spouse, or the spouse of any child, adopted child, grandchild or
adopted grandchild of Purchaser or Purchaser's spouse.

9.7 Termination of Right of First Refusal. The Right of First
-------------------------------------
Refusal will terminate as to all Shares on the effective date of the first sale
of Common Stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the SEC under the Securities Act
(other than a registration statement relating solely to the issuance of Common
Stock pursuant to a business combination or an employee incentive or benefit
plan).

10. Rights as Shareholder. Subject to the terms and conditions of
---------------------
this Agreement, Purchaser will have all of the rights of a shareholder of the
Company with respect to the Shares from and after the date that Purchaser
delivers payment of the Purchase Price until such time as Purchaser disposes of
the Shares or the Company and/or its assignee(s) exercise(s) the Repurchase
Option or Right of First Refusal. Upon an exercise of the Right of First
Refusal, Purchaser will have no further rights as a holder of the Shares so
purchased upon such exercise, except the right to receive payment for the Shares
so purchased in accordance with the provisions of this Agreement, and Purchaser
will promptly surrender the stock certificate(s) evidencing the Shares so
purchased to the Company for transfer or cancellation.

11. Escrow. As security for Purchaser's faithful performance of this
------
Agreement, Purchaser agrees, immediately upon receipt of the stock
certificate(s) evidencing the Shares, to deliver such certificate(s), together
with the Stock Powers executed by Purchaser and by Purchaser's spouse, if any
(with the date and number of Shares left blank), to the Secretary of the Company
or other designee of the Company ("Escrow Holder"), who is hereby appointed to
-------------
hold such certificate(s) and Stock Powers in escrow and to take all such actions
and to effectuate all such transfers and/or releases of such Shares as are in
accordance with the terms of this Agreement. Purchaser and the Company agree
that Escrow Holder will not be liable to any party to this Agreement (or to any
other party) for any actions or omissions unless Escrow Holder is grossly
negligent or intentionally fraudulent in carrying out the duties of Escrow
Holder under this Agreement. Escrow Holder may rely upon any letter, notice or
other document executed by any signature purported to be genuine and may rely on
the advice of counsel and obey any order of any court with respect to the
transactions contemplated by this Agreement. The Shares will be released from
escrow upon termination of the Right of First Refusal provided, however, that
-------- -------
the Shares will be retained in escrow so long as they are subject to the Pledge
Agreement.

12. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------

12.1 Legends. Purchaser understands and agrees that the Company
-------
will place the legends set forth below or similar legends on any stock
certificate(s) evidencing the

8
<PAGE>

Shares, together with any other legends that may be required by state or federal
securities laws, the Company's Articles of Incorporation or Bylaws, any other
agreement between Purchaser and the Company or any agreement between Purchaser
and any third party:

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE
SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY
PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT
AND ANY APPLICABLE STATE SECURITIES LAWS.

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON PUBLIC RESALE, TRANSFER, AND RIGHT OF FIRST REFUSAL
OPTIONS HELD BY THE ISSUER AND/OR ITS ASSIGNEE(S) AS SET FORTH IN A
RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL
HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE
PRINCIPAL OFFICE OF THE ISSUER. SUCH PUBLIC SALE AND TRANSFER
RESTRICTIONS AND THE RIGHT OF REPURCHASE AND RIGHT OF FIRST REFUSAL ARE
BINDING ON TRANSFEREES OF THESE SHARES.

The California Commissioner of Corporations may require that the
following legend also be placed upon the share certificate(s) evidencing
ownership of the Shares:

IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT
THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE
STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.

12.2 Stop-Transfer Instructions. Purchaser agrees that, to
--------------------------
ensure compliance with the restrictions imposed by this Agreement, the Company
may issue appropriate "stop-transfer" instructions to its transfer agent, if
any, and if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.

9
<PAGE>

12.3 Refusal to Transfer. The Company will not be required (i)
-------------------
to transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of this Agreement or (ii) to treat as
owner of such Shares, or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares have been so transferred.

13. Tax Consequences. PURCHASER UNDERSTANDS THAT PURCHASER MAY SUFFER
----------------
ADVERSE TAX CONSEQUENCES AS A RESULT OF PURCHASER'S PURCHASE OR DISPOSITION OF
THE SHARES. PURCHASER REPRESENTS THAT PURCHASER HAS CONSULTED WITH ANY TAX
ADVISER PURCHASER DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION
OF THE SHARES AND THAT PURCHASER IS NOT RELYING ON THE COMPANY FOR ANY TAX
ADVICE.

14. Compliance with Laws and Regulations. The issuance and transfer
------------------------------------
of the Shares will be subject to and conditioned upon compliance by the Company
and Purchaser with all applicable state and federal laws and regulations and
with all applicable requirements of any stock exchange or automated quotation
system on which the Company's Common Stock may be listed or quoted at the time
of such issuance or transfer.

15. Successors and Assigns. The Company may assign any of its rights
----------------------
under this Agreement, including its rights to repurchase Shares under the Right
of First Refusal. This Agreement shall be binding upon and inure to the benefit
of the successors and assigns of the Company. Subject to the restrictions on
transfer herein set forth, this Agreement will be binding upon Purchaser and
Purchaser's heirs, executors, administrators, legal representatives, successors
and assigns.

16. Governing Law; Severability. This Agreement shall be governed by
---------------------------
and construed in accordance with the internal laws of the State of California as
such laws are applied to agreements between California residents entered into
and to be performed entirely within California, excluding that body of laws
pertaining to conflict of laws. If any provision of this Agreement is
determined by a court of law to be illegal or unenforceable, then such provision
will be enforced to the maximum extent possible and the other provisions will
remain fully effective and enforceable.

17. Notices. Any notice required to be given or delivered to the
-------
Company shall be in writing and addressed to the Corporate Secretary of the
Company at its principal corporate offices. Any notice required to be given or
delivered to Purchaser shall be in writing and addressed to Purchaser at the
address indicated above or to such other address as Purchaser may designate in
writing from time to time to the Company. All notices shall be deemed
effectively given upon personal delivery, three (3) days after deposit in the
United States mail by certified or registered mail (return receipt requested),
one (1) business day after its deposit with any return receipt express courier
(prepaid), or one (1) business day after transmission by rapifax or telecopier.

10
<PAGE>

18. Further Instruments. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.

19. Headings. The captions and headings of this Agreement are
--------
included for ease of reference only and will be disregarded in interpreting or
construing this Agreement. All references herein to Sections will refer to
Sections of this Agreement.

20. Entire Agreement. The Plan and this Agreement, together with all
----------------
its Exhibits, constitute the entire agreement and understanding of the parties
with respect to the subject matter of this Agreement, and supersede all prior
understandings and agreements, whether oral or written, between the parties
hereto with respect to the specific subject matter hereof.

IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in duplicate by its duly authorized representative and Purchaser has
executed this Agreement in duplicate as of the Effective Date.

ONSALE PURCHASER

By: /s/ S. Jerrold Kaplan /s/ Peter Harris
--------------------------- -----------------------------
Peter Harris

S. Jerrold Kaplan
- ------------------------------
(Please print name)

President and CEO
- ------------------------------
(Please print title)

[Signature page to Onsale Restricted
Stock Purchase Agreement]
<PAGE>

LIST OF EXHIBITS
----------------

Exhibit 1: Stock Power and Assignment Separate from Stock Certificate

Exhibit 2: Spouse Consent

Exhibit 3: California Commissioner Rule 260.141.11

Exhibit 4: RESERVED

Exhibit 5: Secured Full Recourse Promissory Note

Exhibit 6: Stock Pledge Agreement
<PAGE>

EXHIBIT 1
---------

STOCK POWER AND ASSIGNMENT
--------------------------
SEPARATE FROM STOCK CERTIFICATE
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<PAGE>

Stock Power and Assignment
--------------------------
Separate from Stock Certificate
-------------------------------

FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Purchase
Agreement No. ___ dated as of __________________, 19___, (the "Agreement"), the
---------
undersigned hereby sells, assigns and transfers unto ________________________,
shares of the Common Stock of ONSALE, a California corporation (the "Company"),
-------
standing in the undersigned's name on the books of the Company represented by
Certificate No(s). ______ delivered herewith, and does hereby irrevocably
constitute and appoint the Secretary of the Company as the undersigned's
attorney-in-fact, with full power of substitution, to transfer said stock on the
books of the Company. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE
AGREEMENT AND ANY EXHIBITS THERETO.

Dated: _________________, 19___

PURCHASER

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(Signature)

-------------------------------
(Please Print Name)

-------------------------------
(Spouse's Signature, if any)

-------------------------------
(Please Print Spouse's Name)

Instructions: Please do not fill in any blanks other than the signature line.
- ------------
The purpose of this Stock Power and Assignment is to enable the Company to
acquire the shares upon a default under Purchaser's Note and to exercise of its
"Repurchase Option" and/or "Right of First Refusal" set forth in the Agreement
without requiring additional signatures on the part of the Purchaser or
Purchaser's Spouse.
<PAGE>

EXHIBIT 2
---------

SPOUSE CONSENT
--------------
<PAGE>

Spouse Consent
--------------

The undersigned spouse of Purchaser has read, understands, and hereby
approves the Restricted Stock Purchase Agreement between Purchaser and the
Company (the "Agreement"). In consideration of the Company's granting my spouse
---------
the right to purchase the Shares as set forth in the Agreement, the undersigned
hereby agrees to be irrevocably bound by the Agreement and further agrees that
any community property interest shall similarly be bound by the Agreement. The
undersigned hereby appoints Purchaser as my attorney-in-fact with respect to any
amendment or exercise of any rights under the Agreement.

-------------------------------
Purchaser's Spouse

Address:
-------------------------------

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

EXHIBIT 3
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California Commissioner Rule 260.141.11
---------------------------------------

(a) The issuer of any security upon which a restriction on transfer has been
imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall cause a
copy of this section to be delivered to each issuee or transferee of such
security at the time the certificate evidencing the security is delivered
to the issuee or transferee.

(b) It is unlawful for the holder of any such security to consummate a sale or
transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed
pursuant to Section 260.141.12 of these rules), except:

(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of the Code or
Section 260.105.14 of these rules:
(4) to the transferor's ancestors, descendants or spouse, or any custodian or
trustee for the account of the transferor or the transferor's ancestors,
descendants, or spouse; or to a transferee by a trustee or custodian for
the account of the transferee or the transferee's ancestors, descendants or
spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation intervivos or on death;
(7) by or through a broker-dealer licensed under the Code (either acting as
such or as a finder) to a resident of a foreign state, territory or country
who is neither domiciled in this state to the knowledge of the broker-
dealer, nor actually present in this state if the sale of such securities
is not in violation of any securities law of the foreign state, territory
or country concerned;
(8) to a broker-dealer licensed under the Code in a principal transaction, or
as an underwriter or member of an underwriting syndicate or selling group;
(9) if the interest sold or transferred is a pledge or other lien given by the
purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Section 25111, 25112, 25113, or 25121 of
the Code, of the securities to be transferred, provided that no order under
Section 25140 or subdivision (a) of Section 25143 is in effect with respect
to such qualification;
(11) by a corporation to a wholly owned subsidiary of such corporation, or by a
wholly owned subsidiary of a corporation to such corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or 25113 of the
Code, provided that no order under Section 25140 or subdivision (a) of
Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries who are
neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law or the
administrator of the unclaimed property law of another state; or
<PAGE>

(15) by the State Controller pursuant to the Unclaimed Property Law or by the
administrator of the unclaimed property law of another state if, in either
such case, such person (i) discloses to potential purchasers at the sale
that transfer of the securities is restricted under this rule, (ii)
delivers to each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not involve a
change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an issuer
transaction that is subject to the qualification requirements of Section
25110 of the Code but exempt from that qualification requirement by
subdivision (f) of Section 25102;

provided that any such transfer is on the condition that any certificate
evidencing the security issued to such transferee shall contain the legend
required by this section.

(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as
follows:

IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFORE, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.

-2-
<PAGE>

EXHIBIT 4
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RESERVED
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<PAGE>

EXHIBIT 5
---------

SECURED FULL RECOURSE PROMISSORY NOTE
-------------------------------------
<PAGE>

Secured Full Recourse Promissory Note
-------------------------------------

Mountain View, California

$100,000 December 6, 1996

1. Obligation. In exchange for the issuance to the undersigned
----------
("Purchaser") of 20,000 shares (the "Shares") of the Common Stock of ONSALE, a
--------- ------
California corporation (the "Company"), receipt of which is hereby acknowledged,
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Purchaser hereby promises to pay to the order of the Company on or before
January 15, 1996, at the Company's principal place of business at 1861 Landings
Drive, Mountain View, California 94043, or at such other place as the Company
may direct, the principal sum of One Hundred Thousand Dollars ($100,000.00)
together with interest compounded semi-annually on the unpaid principal at the
rate of eight percent (8%), which rate is not less than the minimum rate
established pursuant to Section 1274(d) of the Internal Revenue Code of 1986, as
amended, on the earliest date on which there was a binding contract in writing
for the purchase of the Shares; provided, however, that the rate at which
-------- -------
interest will accrue on unpaid principal under this Note will not exceed the
highest rate permitted by applicable law.

2. Security. Payment of this Note is secured by a security interest
--------
in the Shares granted to the Company by Purchaser under a Stock Pledge Agreement
dated of even date herewith between the Company and Purchaser (the "Pledge
------
Agreement"). This Note is being tendered by Purchaser to the Company as part of
- ---------
the purchase price of the Shares pursuant to that certain Restricted Stock
Purchase Agreement between Purchaser and the Company dated of even date with
this Note (the "Purchase Agreement").
------------------

3. Default; Acceleration of Obligation. Purchaser will be deemed to
-----------------------------------
be in default under this Note and the principal sum of this Note, together with
all interest accrued thereon, will immediately become due and payable in full:
(a) upon Purchaser's failure to make any payment when due under this Note; (b)
upon the filing by or against Purchaser of any voluntary or involuntary petition
in bankruptcy or any petition for relief under the federal bankruptcy code or
any other state or federal law for the relief of debtors; or (c) upon the
execution by Purchaser of an assignment for the benefit of creditors or the
appointment of a receiver, custodian, trustee or similar party to take
possession of Purchaser's assets or property.

4. Remedies On Default. Upon any default of Purchaser under this
-------------------
Note, the Company will have, in addition to its rights and remedies under this
Note and the Pledge Agreement, full recourse against any real, personal,
tangible or intangible assets of Purchaser, and may pursue any legal or
equitable remedies that are available to it.
<PAGE>

5. Rule 144 Holding Period. PURCHASER UNDERSTANDS THAT THE HOLDING
-----------------------
PERIOD SPECIFIED UNDER RULE 144(d) OF THE SECURITIES AND EXCHANGE COMMISSION
WILL NOT BEGIN TO RUN WITH RESPECT TO SHARES PURCHASED WITH THIS NOTE UNTIL
EITHER (A) THE PURCHASE PRICE OF SUCH SHARES IS PAID IN FULL IN CASH OR BY OTHER
PROPERTY ACCEPTED BY THE COMPANY, OR (B) THIS NOTE IS SECURED BY COLLATERAL,
OTHER THAN THE SHARES THAT HAVE NOT BEEN FULLY PAID FOR IN CASH, HAVING A FAIR
MARKET VALUE AT LEAST EQUAL TO THE AMOUNT OF PURCHASER'S THEN OUTSTANDING
OBLIGATION UNDER THIS NOTE (INCLUDING ACCRUED INTEREST).

6. Prepayment. Prepayment of principal and/or interest due under
----------
this Note may be made at any time without penalty. Unless otherwise agreed in
writing by the Company, all payments will be made in lawful tender of the United
States and will be applied first to the payment of accrued interest, and the
remaining balance of such payment, if any, will then be applied to the payment
of principal. If Purchaser prepays all or a portion of the principal amount of
this Note, the Shares paid for by the portion of principal so paid will continue
to be held in pledge under the Pledge Agreement to serve as independent
collateral for the outstanding portion of this Note for the purpose of
commencing the holding period under Rule 144(d) of the Securities and Exchange
Commission with respect to other Shares purchased with this Note, unless
Purchaser notifies the Company in writing otherwise and the Company consents to
release of the Shares from the Pledge Agreement.

7. Governing Law; Waiver. 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. Purchaser hereby
waives presentment, notice of non-payment, notice of dishonor, protest, demand
and diligence.

8. Attorneys' Fees. If suit is brought for collection of this Note,
---------------
Purchaser 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.

IN WITNESS WHEREOF, Purchaser has executed this Note as of the date and
year first above written.

/s/ Peter Harris
----------------------------
Peter Harris

[Signature page to Onsale Secured Full Recourse Promissory Note]

-2-
<PAGE>

EXHIBIT 6
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STOCK PLEDGE AGREEMENT
----------------------
<PAGE>

Stock Pledge Agreement
----------------------

This Agreement is made and entered into as of December 6, 1996 between
ONSALE, a California corporation (the "Company"), and Peter Harris ("Pledgor").
------- -------

R E C I T A L S
- - - - - - - -

A. In exchange for Pledgor's Secured Full Recourse Promissory Note to
the Company of even date herewith (the "Note"), the Company has issued and sold
----
to Pledgor 20,000 shares of its Common Stock (the "Shares") pursuant to the
------
terms and conditions of that Restricted Stock Purchase Agreement between the
Company and Pledgor of even date herewith (the "Purchase Agreement").
------------------

B. Pledgor has agreed that repayment of the Note will be secured by
the pledge of the Shares pursuant to this Agreement.

NOW, THEREFORE, the parties agree as follows:

1. Creation of Security Interest. Pursuant to the provisions of the
-----------------------------
California Commercial Code, Pledgor hereby grants to the Company, and the
Company hereby accepts, a first and present security interest in the Shares as
collateral to secure the payment of Pledgor's obligation to the Company under
the Note. Pledgor herewith delivers to the Company his Common Stock
certificate(s) No.(s) ___________, representing all the Shares, together with
one stock power for each certificate in the form attached as an Exhibit to the
Purchase Agreement, duly executed (with the date and number of shares left
blank) by Pledgor and Pledgor's spouse, if any. For purposes of this Agreement,
the Shares pledged to the Company hereby, together with any additional
collateral pledged pursuant to Section 5 hereof, will hereinafter be
collectively referred to as the "Collateral." Pledgor agrees that the
----------
Collateral pledged to the Company will be deposited with and held by the Escrow
Holder (as defined in the Purchase Agreement) and that, notwithstanding anything
to the contrary in the Purchase Agreement, for purposes of carrying out the
provisions of this Agreement, Escrow Holder will act solely for the Company as
its agent.

2. Representations and Warranties. Pledgor hereby represents and
------------------------------
warrants to the Company that Pledgor has good title (both record and beneficial)
to the Collateral, free and clear of all claims, pledges, security interests,
liens or encumbrances of every nature whatsoever, and that Pledgor has the right
to pledge and grant the Company the security interest in the Collateral granted
under this Agreement. Pledgor further agrees that, until the entire principal
sum and all accrued interest due under the Note has been paid in full, Purchaser
will not, without the Company's prior written consent, (i) sell, assign or
transfer, or attempt to sell, assign or transfer, any of the Collateral, or (ii)
grant or create, or attempt to grant or create, any security interest, lien,
pledge, claim or other encumbrance with respect to any of the Collateral.
<PAGE>

3. Rights on Default. In the event of default (as defined in the
-----------------
Note) by Pledgor under the Note, the Company will have full power to sell,
assign and deliver the whole or any part of the Collateral at any broker's
exchange or elsewhere, at public or private sale, at the option of the Company,
in order to satisfy any part of the obligations of Pledgor now existing or
hereinafter arising under the Note. On any such sale, the Company or its
assigns may purchase all or any part of the Collateral. In addition, at its
sole option, the Company may elect to retain all the Collateral in full
satisfaction of Pledgor's obligation under the Note, in accordance with the
provisions and procedures set forth in the California Commercial Code.

4. Additional Remedies. The rights and remedies granted to the
-------------------
Company herein upon default under the Note will be in addition to all the
rights, powers and remedies of the Company under the California Commercial Code
and applicable law and such rights, powers and remedies will be exercisable by
the Company with respect to all of the Collateral. Pledgor agrees that the
Company's reasonable expenses of holding the Collateral, preparing it for resale
or other disposition, and selling or otherwise disposing of the Collateral,
including attorneys' fees and other legal expenses, will be deducted from the
proceeds of any sale or other disposition and will be included in the amounts
Pledgor must tender to redeem the Collateral. All rights, powers and remedies
of the Company will be cumulative and not alternative. Any forbearance or
failure or delay by the Company in exercising any right, power or remedy
hereunder will not be deemed to be a waiver of any such right, power or remedy
and any single or partial exercise of any such right, power or remedy hereunder
will not preclude the further exercise thereof.

5. Dividends; Voting. All dividends hereinafter declared on or
-----------------
payable with respect to the Collateral during the term of this pledge (excluding
only ordinary cash dividends, which will be payable to Pledgor so long as
Pledgor is not in default under the Note) will be immediately delivered to the
Company to be held in pledge under this Agreement. Notwithstanding this
Agreement, so long as Pledgor owns the Shares and is not in default under the
Note, Pledgor will be entitled to vote any shares comprising the Collateral,
subject to any proxies granted by Pledgor.

6. Adjustments. In the event that during the term of this pledge,
-----------
any stock dividend, reclassification, readjustment, stock split or other change
is declared or made with respect to the Collateral, or if warrants or any other
rights, options or securities are issued in respect of the Collateral, then all
new, substituted and/or additional shares or other securities issued by reason
of such change or by reason of the exercise of such warrants, rights, options or
securities, will be immediately pledged to the Company to be held under the
terms of this Agreement in the same manner as the Collateral is held hereunder.

7. Rights Under Purchase Agreement. Pledgor understands and agrees
-------------------------------
that the Company's rights to repurchase the Collateral under the Purchase
Agreement, if any, will continue for the periods and on the terms and conditions
specified in the Purchase Agreement, whether or not the Note has been paid
during such period of time, and that to the extent that the Note is not paid
during such period of time, the repurchase by the Company of the Collateral may
be made by way of cancellation of all or any part of Pledgor's indebtedness
under the Note.

-2-
<PAGE>

8. Redelivery of Collateral. Upon payment in full of the entire
------------------------
principal sum and all accrued interest due under the Note, and subject to the
terms and conditions of the Purchase Agreement, the Company will immediately
redeliver the Collateral to Pledgor and this Agreement will terminate; provided,
--------
however, that all rights of the Company to retain possession of the Shares
- -------
pursuant to the Purchase Agreement will survive termination of this Agreement.

9. Successors and Assigns. This Agreement will inure to the benefit
----------------------
of the respective heirs, personal representatives, successors and assigns of the
parties hereto.

10. Governing Law; Severability. This Agreement will be governed by
---------------------------
and construed in accordance with the internal laws of the State of California,
excluding that body of law relating to conflicts of law. Should one or more of
the provisions of this Agreement be determined by a court of law to be illegal
or unenforceable, the other provisions nevertheless will remain effective and
will be enforceable.

11. Modification; Entire Agreement. This Agreement will not be
------------------------------
amended without the written consent of both parties hereto. This Agreement
constitutes the entire agreement of the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
related to such subject matter.

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

ONSALE PLEDGOR

By: /s/ S. Jerrold Kaplan /s/ Peter Harris
-------------------------------- -------------------------
Peter Harris

S. Jerrold Kaplan
- -------------------------------------
(Please print name)

President and Chief Executive Officer
- -------------------------------------
(Please print title)

[Signature page to Onsale Stock Pledge Agreement]

-3-

<PAGE>

Exhibit 10.19

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

ONSALE, INC.

LOAN AND SECURITY AGREEMENT

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

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
1. DEFINITIONS AND CONSTRUCTION........................................... 1
1.1 Definitions..................................................... 1
1.2 Accounting Terms................................................ 6

2. LOAN AND TERMS OF PAYMENT.............................................. 6
2.1 Advances........................................................ 6
2.2 Overadvances.................................................... 7
2.3 Interest Rates, Payments, and Calculations...................... 7
2.4 Crediting Payments.............................................. 7
2.5 Fees............................................................ 7
2.6 Additional Costs................................................ 8
2.7 Term............................................................ 8

3. CONDITIONS OF LOANS.................................................... 8
3.1 Conditions Precedent to Initial Advance......................... 8
3.2 Conditions Precedent to all Advances............................ 9

4. CREATION OF SECURITY INTEREST.......................................... 9
4.1 Grant of Security Interest...................................... 9
4.2 Delivery of Additional Documentation Required................... 9
4.3 Right to Inspect................................................ 9

5. REPRESENTATIONS AND WARRANTIES......................................... 10
5.1 Due Organization and Qualification.............................. 10
5.2 Due Authorization; No Conflict.................................. 10
5.3 No Prior Encumbrances........................................... 10
5.4 Bona Fide Eligible Accounts..................................... 10
5.5 Merchantable Inventory.......................................... 10
5.6 Intellectual Property........................................... 10
5.7 Name; Location of Chief Executive Office........................ 10
5.8 Litigation...................................................... 10
5.9 No Material Adverse Change in Financial Statements.............. 10
5.10 Solvency........................................................ 10
5.11 Regulatory Compliance........................................... 11
5.12 Environmental Condition......................................... 11
5.13 Taxes........................................................... 11
5.14 Subsidiaries.................................................... 11
5.15 Government Consents............................................. 11
5.16 Full Disclosure................................................. 11

6. AFFIRMATIVE COVENANTS.................................................. 11
6.1 Good Standing................................................... 12
6.2 Government Compliance........................................... 12
6.3 Financial Statements, Reports, Certificates..................... 12
6.4 Inventory; Returns.............................................. 12
6.5 Taxes........................................................... 12
6.6 Insurance....................................................... 13
6.7 Principal Depository............................................ 13
6.8 Quick Ratio..................................................... 13
</TABLE>

<PAGE>

6.9 Debt-Net Worth Ratio................................. 13
6.10 Profitability........................................ 13
6.11 Debt Free Period..................................... 13
6.13 Collections.......................................... 14

7. NEGATIVE COVENANTS........................................... 14
7.1 Dispositions......................................... 14
7.2 Change in Business................................... 14
7.3 Mergers or Acquisitions.............................. 14
7.4 Indebtedness......................................... 14
7.5 Encumbrances......................................... 14
7.6 Distributions........................................ 14
7.7 Investments.......................................... 14
7.8 Transactions with Affiliates......................... 14
7.9 Intellectual Property Agreements..................... 14
7.10 Subordinated Debt.................................... 15
7.11 Inventory............................................ 15
7.12 Compliance........................................... 15

8. EVENTS OF DEFAULT............................................ 15
8.1 Payment Default...................................... 15
8.2 Covenant Default..................................... 15
8.3 Material Adverse Change.............................. 15
8.4 Attachment........................................... 15
8.5 Insolvency........................................... 16
8.6 Other Ageements...................................... 16
8.7 Subordinated Debt.................................... 16
8.8 Judgments............................................ 16
8.9 Misrepresentations................................... 16

9. BANK'S RIGHTS AND REMEDIES................................... 16
9.1 Rights and Remedies.................................. 16
9.2 Power of Attorney.................................... 17
9.3 Accounts Collection.................................. 17
9.4 Bank Expenses........................................ 18
9.5 Bank's Liability for Collateral...................... 18
9.6 Remedies Cumulative.................................. 18
9.7 Demand; Protest...................................... 18

10. NOTICES...................................................... 18

11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER................... 19

12. GENERAL PROVISIONS........................................... 19
12.1 Successors and Assigns............................... 19
12.2 Indemnification...................................... 19
12.3 Time of Essence...................................... 19
12.4 Severbility of Provisions............................ 19
12.5 Amendments in Writing, Integration................... 19
12.6 Counterparts......................................... 20
12.7 Survival............................................. 20
12.8 Confidentiality...................................... 20

<PAGE>

This LOAN AND SECURITY AGREEMENT is entered into as of March 12, 1997, by
and between SILICON VALLEY BANK ("Bank") and ONSALE, INC. ("Borrower").

RECITALS
--------

Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.

AGREEMENT
---------

The parties agree as follows:

1. DEFINITIONS AND CONSTRUCTION
----------------------------

1.1 Definitions. As used in this Agreement, the following terms
-----------
shall have the following definitions:

"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.

"Advance" or "Advances" means a cash advance under the
Revolving Facility.

"Affiliate" means, with respect to any Person, any Person
that owns or controls directly or indirectly such Person, any Person that
controls or is controlled by or is under common control with such Person, and
each of such Person's senior executive officers, directors, and partners.

"Bank Expenses" means all: reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection with
the preparation, negotiation, administration, and enforcement of the Loan
Documents; and Bank's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents (including fees and expenses
or appeal), whether or not suit is brought.

"Borrower's Books" means all of Borrower's books and records
including: ledgers; records concerning Borrower's assets or liabilities, the
Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information.

"Business Day" means any day that is not a Saturday, Sunday,
or other day on which banks in the State of California are authorized or
required to close.

"Closing Date" means the date of this Agreement.

"Code" means the California Uniform Commmercial Code.

"Collateral" means the property described on Exhibit A
---------
attached hereto.

1
<PAGE>

"Committed Line" means Two Million Dollars ($2,000,000)
prior to the Equity Event, and Four Million Dollars ($4,000,000) after the
Equity Event.

"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided, however,
that the term "Contingent Obligation" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.

"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.

"Current Liabilities" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current liabilities
on the consolidated balance sheet of Borrower and its Subsidiaries, as at such
date, plus, to the extent not already included therein, all outstanding Advances
made under this Agreement, including all Indebtedness that is payable upon
demand or within one year from the date of determination thereof unless such
Indebtedness is renewable or extendable at the option of Borrower or any
Subsidiary to a date more than one year from the date of determination, but
excluding Subordinated Debt.

"Daily Balance" means the amount of the Obligations owed at
the end of a given day.

"Equity Event" means the receipt by Borrower of not less
than Ten Million Dollars ($10,000,000) of proceeds from the sale of its equity
securities under a registration statement filed pursuant to the Securities Act
of 1933, as amended.

"Extension Period" means the period beginning May 1, 1997
(if the Equity Event has not occurred by such date) and ending on the earlier of
(i) the Equity Event or (ii) September 30, 1997.

"ERISA" means the Employment Retirement Income Security Act
of 1974, as amended, and the regulations thereunder.

"GAAP" means generally accepted accounting principles as in
effect from time to time.

"Indebtedness" means (a) all indebtedness for borrowed money
or the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes,

<PAGE>

bonds, debentures or similar instruments, (c) all capital lease obligations and
(d) all Contingent Obligations.

"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.

"Intellectual Property Collateral" means

(a) Copyrights, Trademarks and Patents;

(b) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products now or
hereafter existing, acquired or held;

(d) Any and all claims for damages by way of past, present and
future infringement of any of the rights included above, with the right, but not
the obligation, to sue for and collect such damages for said use or infringement
of the intellectual property rights identified above;

(e) All licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties arising from such use
to the extent permitted by such license or rights;

(f) All amendments, renewals and extensions of any of the
Copyrights, Trademarks or Patents; and

(g) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.

"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody of possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above, and Borrower's Books relating
to any of the foregoing.

"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.

"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.

"Lien" means any mortgage, lien, deed or trust, charge, pledge,
security interest or other encumbrance.

3
<PAGE>

"Loan Documents" means, collectively, this Agreement, any note or notes
executed by Borrower, and any other agreement entered into between Borrower and
Bank in connection with this Agreement, all as amended or extended from time to
time.

"Material Adverse Effect" means a material adverse effect on (i) the
business operations or condition (financial or otherwise) of Borrower and its
Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.

"Maturity Date" means the earlier of April 30, 1997 or the date of the
Equity Event provided that if the Equity Event occurs on or before April 30,
1997, the Maturity Date shall be the day before the first anniversary of the
Equity Event, and if the Equity Event does not occur by April 30, 1997, the
Maturity Date shall be September 30, 1997.

"Negotiable Collateral" means all of Borrower's present and future
letters of credit of which it is a beneficiary, notes, drafts, instruments,
securities, documents of title, and chattel paper, and Borrower's Books relating
to any of the foregoing.

"Obligations" means all debt, principal, interest, Bank Expenses and
other amounts owed to Bank by Borrower pursuant to this Agreement or any other
agreement, whether absolute or contingent, due or to become due, now existing or
hereafter arising, including any interest that accrues after the commencement of
an Insolvency Proceeding and including any debt, liability, or obligation owing
from Borrower to others that Bank may have obtained by assignment or otherwise.

"Patents means all patents, patent applications and like protections
including without limitation improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same.

"Periodic Payments" means all installments or similar recurring payments
that Borrower may now or hereafter become obligated to pay to Bank pursuant to
the terms and provisions of any instrument, or agreement now or hereafter in
existence between Borrower and Bank.

"Permitted Indebtedness" means:

(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;

(b) Indebtedness existing on the Closing Date and disclosed in the
Schedule;

(c) Indebtedness secured by Liens described in clause (c) of
"Permitted Liens", provided the amount of such Indebtedness does not exceed the
lesser of the cost or fair market value of the Equipment acquired with the
proceeds of such Indebtedness;

(d) Subordinated Debt; and

(e) Indebtedness to trade creditors incurred in the ordinary course
of business.

"Permitted Investment" means:

(a) Investments existing on the Closing Date disclosed in the
Schedule; and

<PAGE>

(b) (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency or any
State thereof maturing within one (1) year from the date of acquisition thereof,
(ii) commercial paper maturing no more than one (1) year from the date of
creation thereof and currently having the highest rating obtainable from either
Standard & Poor's Corporation or Moody's Investors Service, Inc., and (iii)
certificates of deposit maturing no more than one (1) year from the date of
investment therein issued by Bank.

"Permitted Liens" means the following:

(a) Any Liens existing on the Closing Date and disclosed in
the Schedule or arising under this Agreement or the other Loan Documents;

(b) Liens for taxes, fees, assessments or other
governmental charges or levies, either not delinquent or being contested in good
faith by appropriate proceedings, provided the same have no priority over any of
--------
Bank's security interests;

(c) Liens (i) upon or in any equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the time of
its acquisition, provided that the Lien is confined solely to the property so
--------
acquired and improvements thereon, and the proceeds of such equipment;

(d) Leases or subleases and licenses or sublicenses granted
to others in the ordinary course of Borrower's business not interfering in any
material respect with the business of Borrower and its Subsidiaries taken as a
whole, and any interest or title of a lessor, licensor or under any lease or
license provided that such leases, subleases, licenses and sublicenses do not
prohibit the grant of the security interest granted hereunder; and

(e) Liens incurred in connection with the extension,
renewal or refinancing of the indebtedness secured by Liens of the type
described in clauses (a) through (c) above, provided that any extension, renewal
--------
or replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase.

"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or governmental agency.

"Prime Rate" means the variable rate of interest, per annum,
most recently announced by Bank, as its "prime rate," whether or not such
announced rate is the lowest rate available from Bank.

"Quick Assets" means, at any date as of which the amount
thereof shall be determined, the consolidated cash, cash-equivalents, accounts
receivable and investments, with maturities not to exceed 90 days, of Borrower
determined in accordance with GAAP.

"Responsible Officer" means each of the Chief Executive
Officer, the Chief Financial Officer and the Controller of Borrower.

"Revolving Facility" means the facility under which Borrower
may request Bank to issue cash advances, as specified in Section 2.1 hereof.

<PAGE>

"Schedule" means the schedule of exceptions attached hereto,
if any.

"Subordinated Debt" means any debt incurred by Borrower that
is subordinated to the debt owing by Borrower to Bank on terms acceptable to
Bank (and identified as being such by Borrower and Bank).

"Subsidiary" means any corporation or partnership in which
(i) any general partnership interest or (ii) more than 50% of the stock of which
by the terms thereof ordinary voting power to elect the Board of Directors,
managers or trustees of the entity shall, at the time as of which any
determination is being made, be owned by Borrower, either directly or through an
Affiliate.

"Tangible Net Worth" means at any date as of which the
amount thereof shall be determined, the consolidated total assets of Borrower
and its Subsidiaries minus, without duplication, (i) the sum of any amounts
-----
attributable to (a) goodwill, (b) intangible items such as unamortized debt
discount and expense, patents, trade and service marks and names, copyrights
and research and development expenses except prepaid expenses, and (c) all
reserves not already deducted from assets, and (ii) Total Liabilities.
---

"Total Liabilities" means at any date as of which the amount
thereof shall be determined, all obligations that should, in accordance with
GAAP be classified as liabilities on the consolidated balance sheet of Borrower,
including in any event all indebtedness, but specifically excluding Subordinated
Debt.

"Trademarks" means any trademark and servicemark rights,
whether registered or not, applications to register and registrations of the
same and like protections, and the entire goodwill of the business of Assignor
connected with and symbolized by such trademarks.

1.2 Accounting Terms. All accounting terms not specifically
----------------
defined herein shall be construed in accordance with GAAP and all calculations
made hereunder shall be made in accordance with GAAP. When used herein, the
terms "financial statements" shall include the notes and schedules thereto.

2. LOAN AND TERMS OF PAYMENT
-------------------------

2.1 Advances.
--------

(a) Subject to and upon the terms and conditions of this
Agreement, Bank will make Advances to Borrower in an aggregate amount not to
exceed the lesser of (i) the Committed Line, or (ii) Borrower's monthly
earnings before interest, taxes, depreciation and amortization, annualized.
Subject to the terms and conditions of this Agreement, amounts borrowed pursuant
to this Section 2.1 may be repaid and reborrowed at any time prior to the
Maturity Date.

(b) Whenever Borrower desires an Advance, Borrower will
notify Bank by facsimile transmission or telephone no later than 3:00 p.m.
California time, on the Business Day that the Advance is to be made. Each such
notification shall be promptly confirmed by a Payment/Advance Form in
substantially the form of Exhibit B hereto. Bank is authorized to make Advances
---------
under this Agreement, based upon instructions received from a Responsible
Officer, or without instructions if in Bank's discretion such Advances are
necessary to meet Obligations which have become due and remain unpaid. Bank
shall be entitled to rely on any telephonic notice given by a person who Bank
reasonably believes to be a Responsible Officer, and Borrower shall indemnify
and hold Bank harmless for any damages or loss suffered by Bank as a result of
such reliance. Bank will credit the amount of Advances made under this Section
2.1 to Borrower's deposit account.

<PAGE>

(c) The Revolving Facility shall terminate on the Maturity
Date, at which time all Advances under this Section 2.1 and other amounts
outstanding under this Agreement shall be immediately due and payable.

2.2 Overadvances. If, at any time or for any reason, the amount of
------------
Obligations owed by Borrower to Bank pursuant to Section 2.1 of this Agreement
is greater than the lesser of the Committed Line or Borrower's monthly earnings
before interest, taxes, depreciation and amortization, annualized. Borrower
shall pay to Bank, in cash, the amount of such excess within five (5) days of
the date of such overadvance. Failure to pay such amount within five (5) days
will constitute an Event of Default.

2.3 Interest Rates, Payments, and Calculations.
------------------------------------------

(a) Interest Rate. Except as set forth in Section 2.3(b),
-------------
any Advances shall bear interest, on the average Daily Balance, at a rate equal
to one and one half (1.5) percentage points above the Prime Rate; provided that
after the Equity Event, the interest rate shall be three quarters of one
percentage point (0.75) above the Prime Rate.

(b) Default Rate. All Obligations shall bear interest, from
------------
and after the occurrence of an Event of Default, at a rate equal to five (5)
percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default.

(c) Payments. Interest hereunder shall be due and payable on
--------
the fifth calendar day of each month during the term hereof. Bank shall, at its
option, charge such interest, all Bank Expenses, and all Periodic Payments
against any of Borrower's deposit accounts or against the Committed Line, in
which case those amounts shall thereafter accrue interest at the rate then
applicable hereunder. Any interest not paid when due shall be compounded by
becoming a part of the Obligations, and such interest shall thereafter accrue
interest at the rate then applicable hereunder.

(d) Computation. In the event the Prime Rate is changed from
-----------
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.

2.4 Crediting Payments. Prior to the occurrence of an Event of
------------------
Default, Bank shall credit a wire transfer of funds, check or other item of
payment to such deposit account or Obligation as Borrower specifies. After the
occurrence of an Event of Default, the receipt by Bank of any wire transfer of
funds, check, or other item of payment shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment on
account unless such payment is of immediately available federal funds or unless
and until such check or other item of payment is honored when presented for
payment. Notwithstanding anything to the contrary contained herein, any wire
transfer or payment received by Bank after 12:00 noon California time shall be
deemed to have been received by Bank as of the opening of business on the
immediately following Business Day. Whenever any payment to Bank under the Loan
Documents would otherwise be due (except by reason of acceleration) on a date
that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.

2.5 Fees. Borrower shall pay to Bank the following:
----

(a) Facility Fee. A Facility Fee equal to Two Thousand Five
------------
Hundred Dollars ($2,500), which fee shall be due on the Closing Date and shall
be fully earned and

7
<PAGE>

nonrefundable; and an additional Facility Fee equal to Twenty Thousand Dollars
($20,000), which fee shall be due on the date of the Equity Event.

(b) Financial Examination and Appraisal Fees. Bank's
----------------------------------------
customary fees and out-of-pocket expenses for Bank's audits of Borrower's
Accounts, and for each appraisal of Collateral and financial analysis and
examination of Borrower performed from time to time by Bank or its agents;

(c) Bank Expenses. Upon the date hereof, all Bank Expenses
-------------
incurred through the Closing Date, including reasonable attorneys' fees and
expenses, and, after the date hereof, all Bank Expenses, including reasonable
attorneys' fees and expenses, as and when they become due.

2.6 Additional Costs. In case any change in any law,
----------------
regulation, treaty or official directive or the interpretation or application
thereof by any court or any governmental authority charged with the
administration thereof or the compliance with any guideline or request of any
central bank or other governmental authority (whether or not having the force of
law), in each case after the date of this Agreement;

(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof);

(b) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against assets held
by, or deposits in or for the account of, or loans by, Bank; or

(c) imposes upon Bank any other condition with respect to
its performance under this Agreement, and the result of any of the foregoing is
to increase the cost to Bank, reduce the income receivable by Bank or impose any
expense upon Bank with respect to any loans, Bank shall notify Borrower thereof.
Borrower agrees to pay to Bank the amount of such increase in cost, reduction in
income or additional expense as and when such cost, reduction or expense is
incurred or determined, upon presentation by Bank of a statement of the amount
and setting forth Bank's calculation thereof, all in reasonable detail, which
statement shall be deemed true and correct absent manifest error.

2.7 Term. This Agreement shall become effective on the Closing
----
Date, and subject to Section 12.7, shall continue in full force and effect for a
term ending on the Maturity Date. Notwithstanding the foregoing, Bank shall have
the right to terminate its obligation to make Advances under this Agreement
continuance of an Event of Default. Notwithstanding termination, Bank's Lien on
the Collateral shall remain in effect for so long as any Obligations are
outstanding.

3. CONDITIONS OF LOANS
-------------------

3.1 Conditions Precedent to Initial Advance. The obligation of
---------------------------------------
Bank to make the initial Advance is subject to the condition precedent that Bank
shall have received, in form and substance satisfactory to Bank, the following:

(a) this Agreement;

(b) a certificate of the Secretary of Borrower with respect
to incumbency and resolutions authorizing the execution and delivery of this
Agreement;

8
<PAGE>

(d) financing statement (Form UCC-1);

(e) insurance certificate;

(f) payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof; and

(g) such other documents, and completion of such other matters,
as Bank may reasonably deem necessary or appropriate.

3.2 Conditions Precedent to all Advances. The obligation of Bank to
------------------------------------
make each Advance, including the initial Advance, is further subject to the
following conditions:

(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1; and

(b) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of
such Payment/Advance Form and on the effective date of each Advance as though
made at and as of each such date, and no Event of Default shall have occurred
and be continuing, or would result from such Advance. The making of each Advance
shall be deemed to be a presentation and warranty by Borrower on the date of
such Advance as to the accuracy of the facts referred to in this Section 3.2(b).

4. CREATION OF SECURITY INTEREST
-----------------------------

4.1 Grant of Security Interest. Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents. Except as set forth in the
Schedule such security interest constitutes a valid, first priority security
interest in the presently existing Collateral, and will constitute a valid,
first priority security interest in Collateral acquired after the date hereof.

4.2 Delivery of Additional Documentation Required. Borrower shall from
---------------------------------------------
time to time execute and deliver to Bank, at the request of Bank, all
Negotiable, Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.

4.3 Right to Inspect. Bank (through any of its officers, employees, or
----------------
agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.

<PAGE>

5. REPRESENTATIONS AND WARRANTIES
------------------------------

Borrower represents and warrants as follows:

5.1 Due Organization and Qualification. Borrower and each
----------------------------------
Subsidiary is a corporation duly existing and in good standing under the laws of
its state of incorporation and qualified and licensed to do business in, and is
in good standing in, any state in which the conduct of its business or its
ownership of property requires that it be so qualified.

5.2 Due Authorization; No Conflict. The execution, delivery, and
------------------------------
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles of Incorporation or Bylaws, nor will
they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound.

5.3 No Prior Encumbrances. Borrower has good and indefeasible
---------------------
title to the Collateral, free and clear of Liens, except for Permitted Liens.

5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona
---------------------------
fide existing obligations. The property giving rise to such Eligible Accounts
has been delivered to the account debtor or to the account debtor's agent for
immediate shipment to and unconditional acceptance by the account debtor.
Borrower has not received notice of actual or imminent Insolvency Proceeding of
any account debtor that is included in any Borrowing Base Certificate as an
Eligible Account.

5.5 Merchantable Inventory. All Inventory is in all material
----------------------
respects of good and marketable quality, free from all material defects.

5.6 Intellectual Property. Borrower is the sole owner of the
---------------------
Intellectual Property Collateral, except for non-exclusive licenses granted by
Borrower to its customers in the ordinary course of business. Each of the
Patents is valid and enforceable, and no part of the Intellectual Property
Collateral has been judged invalid or unenforceable, in whole or in part, and no
claim has been made that any part of the Intellectual Property Collateral
violates the rights of any third party.

5.7 Name; Location of Chief Executive Office. Except as disclosed
----------------------------------------
in the Schedule, Borrower has not done business under any name other than that
specified on the signature page hereof. The chief executive office Borrower is
located at the address indicated in Section 10 hereof.

5.8 Litigation. Except as set forth in the Schedule, there are no
----------
actions or proceedings pending by or against Borrower or any Subsidiary before
any court or administrative agency in which an adverse decision could have a
Material Adverse Effect or a material adverse effect on Borrower's interest or
Bank's security interest in the Collateral. Borrower does not have knowledge of
any such pending or threatened actions or proceedings.

5.9 No Material Adverse Change in Financial Statements. All
---------------------------------------------------
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Bank fairly present in all material respects
Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Bank.

5.10 Solvency. The fair saleable value of Borrower's assets
--------
(including goodwill minus disposition costs) exceeds the fair value of its
liabilities; the Borrower is not left with

10
<PAGE>

unreasonably small capital after the transactions contemplated by this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.

5.11 Regulatory Compliance. Borrower and each Subsidiary has met
---------------------
the minimum funding requirements of ERISA with respect to any employee benefit
plans subject to ERISA. No event has occurred resulting from Borrower's failure
to comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could have a Material Adverse Effect. Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940. Borrower is not engaged
principally, or as one of the important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations G, T and U of the Board of Governors of the Federal
Reserve System). Borrower has complied with all the provisions of the Federal
Fair Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a Material
Adverse Effect.

5.12 Environmental Condition. None of Borrower's or any Subsidiary's
-----------------------
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous waste or hazardous substance other than in accordance with
applicable law; to the best of Borrower's knowledge, none Borrower's properties
or assets has ever been designated or identified in any manner pursuant to any
environmental protection statute as a hazardous waste or hazardous substance
disposal site, or a candidate for closure pursuant to any environmental
protection statute; no lien arising under any environmental protection statute
has attached to any revenues or to any real or personal property owned by
Borrower nor any Subsidiary has received a summons, citation, notice, or
directive from the Environmental Protection Agency or any other federal, state
or other governmental agency concerning any action or omission by Borrower or
any Subsidiary resulting in the releasing, or otherwise disposing of hazardous
waste or hazardous substances into the environment.

5.13 Taxes. Borrower and each Subsidiary has filed or cause to be
-----
filed all tax returns to be filed, and has paid, or has made adequate
provision for the payment of, all taxes reflected therein.

5.14 Subsidiaries. Borrower does not own any stock, partnership
------------
interest or other equity securities of any Person, except for Permitted
Investments.

5.15 Government Consents. Borrower and each Subsidiary has obtained
-------------------
all consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted.

5.16 Full Disclosure. No representation, warranty or other statement
---------------
made by Borrower in any certificate or written statement furnished to Bank
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates or
statements not misleading.

6. AFFIRMATIVE COVENANTS
---------------------

Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
an Advance hereunder, Borrower shall do all of the following:

11
<PAGE>

6.1 Good Standing. Borrower shall maintain its and each of its
-------------
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.

6.2 Government Compliance. Borrower shall meet, and shall
---------------------
cause each Subsidiary to meet, the minimum funding requirements of ERISA with
respect to any employee benefit plans subject to ERISA. Borrower shall comply,
and shall cause each Subsidiary to comply, with all statutes, laws, ordinances
and government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.

6.3 Financial Statements, Reports, Certificates. Borrower shall
-------------------------------------------
deliver to Bank: (a) prior to the Equity Event (and after the Equity Event, at
any time the outstanding Advances exceed Two Million Dollars ($2,000,000)) as
soon as available, but in any event within twenty (20) days after the last day
of each month, a company prepared consolidated balance sheet and income
statement covering Borrower's consolidated operations during such period,
certified by a Responsible Officer; (b) after the Equity Event, within five (5)
days upon becoming available, copies of all statements, reports and notices sent
or made available generally by Borrower to its security holders or to any
holders of Subordinated Debt and all reports on Form 10-K and 10-Q filed with
the Securities and Exchange Commission; (c) promptly upon receipt of notice
thereof, a report of any legal actions pending or threatened against Borrower of
any Subsidiary that could result in damages or costs to Borrower of any
Subsidiary of One Hundred Thousand Dollars ($100,000) or more; (d) prompt notice
of any material change in the composition of the Intellectual Property
Collateral, including, but not limited to, any subsequent ownership right of the
Borrower in or to any material Copyright, Patent or Trademark or knowledge of an
event that materially adversely effects the value of the Intellectual Property
Collateral; and (e) such budgets, sales projections, operating plans or other
financial information as Bank may reasonably request from time to time.

Borrower shall deliver to Bank with the monthly financial statements (or
with the Form 10-Q at any time monthly financial statements are not required) a
Compliance Certificate signed by a Responsible Officer in substantially the form
of Exhibit C hereto.
---------

6.4 Inventory; Returns. Borrower shall keep all Inventory in
------------------
good and marketable condition, free from all material defects. Returns and
allowance, if any, as between Borrower and its account debtors shall be on the
same basis and in accordance with the usual customary practices of Borrower, as
they exist at the time of the execution and delivery of this Agreement. Borrower
shall promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand Dollars ($50,000).

6.5 Taxes. Borrower shall make, and shall cause each Subsidiary
-----
to make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such
payments or deposits; provided that Borrower or a Subsidiary need not make any
payment if the amount or validity of such payment is contested in good faith by
appropriate proceedings and is reserved against (to the extent required by GAAP)
by Borrower.

12
<PAGE>

6.6 Insurance.
---------

(a) Borrower, at its expense, shall keep the Collateral
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as ordinarily insured against by
other owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain
insurance relating to Borrower's ownership and use of the Collateral in amounts
and of a type that are customary to businesses similar to Borrower's.

(b) All such policies of insurance shall be in such form,
with such companies, and in such amounts as reasonably satisfactory to Bank.
All such policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. Upon
Bank's request, Borrower shall deliver to Bank certified copies of such policies
of insurance and evidence of the payments of all premiums therefor. All
proceeds payable under any such policy shall, at the option of Bank, be payable
to Bank to be applied on account of the Obligations.

6.7 Principal Depository. Borrower shall maintain its principal
--------------------
depository and operating accounts with Bank.

6.8 Quick Ratio. During the Extension Period, Borrower shall
-----------
maintain, as of the last day of each calendar month, a ratio of Quick Assets to
Current Liabilities, less deferred revenue, of at least 0.7 to 1.0. After the
Equity Event, Borrower shall maintain, as of the last day of each fiscal
quarter, a ratio of Quick Assets to Current Liabilities, less deferred revenue,
of at least 2.5 to 1.0; provided that at any time after the Equity Event that
the aggregate outstanding Advances exceed Two Million Dollars ($2,000,000),
Borrower shall comply with such covenant as of the last day of each calendar
month.

6.9 Debt-Net Worth Ratio. During the Extension Period, Borrower
--------------------
shall maintain, as of the last day of each calendar month, a ratio of Total
Liabilities to Tangible Net Worth of not more than 1.75 to 1.0. After the
Equity Event, Borrower shall maintain, as of the last day of each fiscal
quarter, a ratio of Total Liabilities to Tangible Net Worth of not more than 0.5
to 1.0; provided that at any time after the Equity Event that the aggregate
outstanding Advances exceed Two Million Dollars ($2,000,000), Borrower shall
comply with such covenant as of the last day of each calendar month.

6.10 Profitability. After the Equity Event, Borrower shall not
-------------
suffer a loss in any month in excess of Two Hundred Fifty Thousand Dollars
($250,000), or loss in two (2) consecutive months.

6.11 Debt Free Period. After an Advance has been made following
----------------
the date of the Equity Event (and for thirty days thereafter) Borrower shall
cause the outstanding balance owing to Bank under this Agreement to be zero.

6.12 Maximum Inventory Days Sales. During the Extension Period,
----------------------------
Borrower shall maintain, as of the last day of each calendar month, Inventory
Days Sales Outstanding of not more than nine (9.0) days. Inventory Days Sales
Outstanding means (a) 365 days divided by (b) the quotient of Borrower's cost of
goods sold for such month, annualized, divided by the value of Borrower's
Inventory on such measurement date, as specified on Borrower's financial
statements.

<PAGE>

6.13 Collections. Borrower shall transfer on a weekly basis
-----------
all amounts that Borrower receives from any source into one or more accounts
held by Bank. Borrower shall enter into such agreements from time to time as
Bank requests for the collection of amounts owing to Borrower.

7. NEGATIVE COVENANTS
------------------

Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Advances,
Borrower will not do any of the following:

7.1 Dispositions. Convey, sell, lease, transfer or otherwise
------------
dispose of (collectively, a "Transfer"), or permit any of its Subsidiaries to
Transfer, all or any part of its business or property, other than: (i) Transfers
of Inventory in the ordinary course of business; (ii) Transfer of non-exclusive
licenses and similar arrangements for the use of the property of Borrower or its
Subsidiaries; or (iii) Transfers of worn-out or obsolete Equipment.

7.2 Change in Business. Engage in any business, or permit
------------------
any of its Subsidiaries to engage in any business, other than the businesses
currently engaged in by Borrower and any business substantially similar or
related thereto (or incidental thereto), or suffer a material change in
Borrower's ownership. Borrower will not, without thirty (30) days prior written
notification to Bank, relocate its chief executive office.

7.3 Mergers or Acquisitions. Merge or consolidate, or permit
-----------------------
any of its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person.

7.4 Indebtedness. Create, incur, assume or be or remain
------------
liable with respect to any indebtedness, or permit any Subsidiary so to do,
other than Permitted Indebtedness.

7.5 Encumbrances. Create, incur, assume or suffer to exist
------------
any Lien with respect to any of its property, or assign or otherwise convey any
right to receive income, including the sale of any Accounts, or permit any of
its Subsidiaries so to do, except for Permitted Liens.

7.6 Distributions. Pay any dividends or make any other
-------------
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock.

7.7 Investments. Directly or indirectly acquire or own, or
-----------
make any Investment in or to any Person, or permit any of its Subsidiaries so to
do, other than Permitted Investments.

7.8 Transactions with Affiliates. Directly or indirectly
----------------------------
enter into or permit to exist any material transaction with any Affiliate of
Borrower except for transactions that are in the ordinary course of Borrower's
business, upon fair and reasonable terms that are no less favorable to Borrower
than would be obtained in an arm's length transaction with a nonaffiliated
Person.

7.9 Intellectual Property Agreements. Borrower shall not
--------------------------------
permit the inclusion in any material contract to which it becomes a party of any
provisions that could or might in any way prevent the creation of a security
interest in Borrower's rights and interests in any property included within the
definition of the Intellectual Property. Collateral acquired under such
contracts, [except to the extent that such provisions are necessary in
Borrower's exercise of its reasonable business judgement.

<PAGE>

7.10 Subordinated Debt. Make any payment in respect of any
-----------------
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.

7.11 Inventory. Store the Inventory with a bailee, warehouseman,
---------
or similar party unless Bank has received a pledge of the warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Inventory only at the location set forth in Section 10
hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files a financing statement where
needed to perfect Bank's security interest.

7.12 Compliance. Become an "investment company" controlled by an
----------
"investment company," within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose. Fail
to meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the
Federal Fair Labor Standards Act or violate any law or regulation, which
violation could have a Material Adverse Effect or a material adverse effect on
the Collateral or the priority of Bank's Lien on the Collateral, or permit any
of its Subsidiaries to do any of the foregoing.

8. EVENTS OF DEFAULT
-----------------

Any one or more of the following events shall constitute an Event
of Default by Borrower under this Agreement:

8.1 Payment Default. If Borrower fails to pay the principal of,
---------------
or any interest on, any Advances when due and payable; or fails to pay any
portion of any other Obligations not constituting such principal or interest,
including without limitation Bank Expenses, within thirty (30) days of receipt
by Borrower of an invoice for such other Obligations;

8.2 Covenant Default. If Borrower fails to perform any
----------------
obligation under Article 6 or violates any of the covenants contained in Article
7 of this Agreement, or fails or neglects to perform, keep, or observe any other
material term, provision, condition, covenant, or agreement contained in this
Agreement, in any of the Loan Documents, or in any other present or future
agreement between Borrower and Bank and as to any default under such other term,
provision, condition, covenant or agreement that can be cured, has failed to
cure such default within ten (10) days after Borrower receives notice thereof or
any officer of Borrower becomes aware thereof; provided, however, that if the
default cannot by its nature be cured within the ten (10) day period or cannot
after diligent attempts by Borrower be cured within such ten (10) day period,
and such default is likely to be cured within a reasonable time, then Borrower
shall have an additional reasonable period (which shall not in any case exceed
thirty (30) days) to attempt to cure such default, and within such reasonable
time period the failure to have cured such default shall not be deemed an Event
of Default (provided that no Advances will be required to be made during such
cure period);

8.3 Material Adverse Change. If there occurs a material adverse
-----------------------
change in Borrower's business or financial condition, or if there is a material
impairment of the prospect of repayment of any portion of the Obligations or a
material impairment of the value or priority of Bank's security interests in the
Collateral;

8.4 Attachment. If any material portion of Borrower's assets is
----------
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee,

15
<PAGE>

receiver or person acting in a similar capacity and such attachment, seizure,
writ or distress warrant or levy has not been removed, discharged or rescinded
within ten (10) days, or if Borrower is enjoined, restrained, or in any way
prevented by court order from continuing to conduct all or any material part of
its business affairs, or if a judgment or other claim becomes a lien or
encumbrance upon any material portion of Borrower's assets, or if a notice of
lien, levy, or assessment is filed of record with respect to any of Borrower's
assets by the United States Government, or any department, agency, or
instrumentality thereof, or by any state, country, municipal, or governmental
agency, and the same is not paid within ten (10) days after Borrower receives
notice thereof, provided that none of the foregoing shall constitute an Event of
Default where such action or event is stayed or an adequate bond has been posted
pending a good faith contest by Borrower (provided that no Advances will be
required to be made during such cure period);

8.5 Insolvency. If Borrower becomes insolvent, or if an
----------
Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding
is commenced against Borrower and is not dismissed or stayed within ten (10)
days (provided that no Advances will be made prior to the dismissal of such
Insolvency Proceeding);

8.6 Other Agreements. If there is a default in any agreement to
----------------
which Borrower is a party with a third party or parties resulting in a right by
such third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness in an amount in excess of One Hundred Thousand
Dollars ($100,000) or that could have a Material Adverse Effect;

8.7 Subordinated Debt. If Borrower makes any payment on account
-----------------
of Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;

8.8 Judgments. If a judgment or judgments for the payment of
---------
money in an amount, individually or in the aggregate, of at least Fifty Thousand
Dollars ($50,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of ten (10) days (provided that no
Advances will be made prior to the satisfaction or stay of such judgment); or

8.9 Misrepresentations. If any material misrepresentation or
------------------
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate delivered to Bank by any Responsible
Officer pursuant to this Agreement or to induce Bank to enter into this
Agreement or any other Loan Document.

9. BANK'S RIGHTS AND REMEDIES
--------------------------

9.1 Rights And Remedies. Upon the occurrence and during the
-------------------
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:

(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable (provided that upon the occurrence of an Event of Default described in
Section 8.5 all Obligations shall become immediately due and payable without any
action by Bank);

(b) Cease advancing money or extending credit to or for
the benefit of Borrower under this Agreement or under any other agreement
between Borrower and Bank;

(c) Settle or adjust disputes and claims directly with
account debtors for amounts, upon terms and in whatever order that Bank
reasonably considers advisable;

16
<PAGE>

(d) Without notice to or demand upon Borrower, make such
payments and do such acts as Bank considers necessary or reasonable to protect
its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to Bank as
Bank may designate. Borrower authorizes Bank to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or any
part of it, and to pay,purchase, contest, or compromise and encumbrance, charge,
or lien which in Bank's determination appears to be prior or superior to its
security interest and to pay all expenses incurred in connection therewith.
With respect to any of Borrower's owned premises, Borrower hereby grants Bank a
license to enter into possession of such premises and to occupy the same,
without charge, in order to exercise any of Bank's rights or remedies provided
herein, at law, in equity, or otherwise;

(e) Without notice to Borrower set of and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank, or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;

(f) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Collateral. Bank is hereby granted a license or other right,
solely pursuant to the provisions of this Section 9.1, to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name, trade,
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section 9.1, Borrower's
rights under all licenses and all franchise agreements shall inure to Bank's
benefit;

(g) Sell the Collateral at either a public or private sale,
or both, by way of one or more contracts or transactions, for cash or on terms,
in such manner and at such places (including Borrower's premises) as Bank
determines in commercially reasonable, and apply any proceeds to the Obligations
in whatever manner or order Bank deems appropriate;

(h) Bank may credit bid and purchase at any public sale;
and

(i) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.

9.2 Power of Attorney. Effective only upon the occurrence and
-----------------
during the continuance of an Event of Default, Borrower hereby irrevocably
appoints Bank (and any of Bank's designated officers, or employees) as
Borrower's true and lawful attorney to: (a) send requests for verification of
Accounts or notify account debtors of Bank's security interest in the
Accounts; (b) endorse Borrower's name on any checks or other forms of payments
or security that may come into Bank's possession; (c) sign Borrower's name on
any invoice or bill of lading relating to any Account, drafts against account
debtors, schedules and assignments of Accounts, verifications of Accounts, and
notices to account debtors; (d) make, settle, and adjust all claims under and
decisions with respect to Borrower's policies of insurance; (e) settle and
adjust disputes and claims respecting the accounts directly with account
debtors, for amounts and upon terms which Bank determines to be reasonable;
provided Bank may exercise such power of attorney to sign the name of Borrower
on any of the documents described in Section 4.2 regardless of whether an Event
of Default has occurred. The appointment of Bank as Borrower's attorney in
fact, and each and every one of Bank's rights and powers, being coupled with an
interest, is irrevocable until all of the Obligations have been fully repaid and
performed and Bank's obligation to provide advances hereunder is terminated.

9.3 Accounts Collection. At any time from the date of this
-------------------
Agreement, Bank may notify any Person owing funds to Borrower of Bank's
security interest in such funds and verify the amount of such Account.
Borrower shall collect all amounts owing to Borrower for Bank, receive in

<PAGE>

trust all payments as Bank's trustee, and immediately deliver such payments to
Bank in their original form as received from the account debtor, with proper
endorsements for deposit.

9.4 Bank Expenses. If Borrower fails to pay any amounts or
-------------
furnish any required proof of payment due to third persons or entities, as
required under the terms of this Agreement, then Bank may do any or all of the
following: (a) make payment of the same or any part thereof; (b) set up such
reserves under the Revolving Facility as Bank deems necessary to protect Bank
from the exposure created by such failure; or (c) obtain and maintain insurance
policies of the type discussed in Section 6.6 of this Agreement, and take any
action with respect to such policies as Bank deems prudent. Any amounts so paid
or deposited by Bank shall constitute Bank Expenses, shall be immediately due
and payable, and shall bear interest at the then applicable rate hereinabove
provided, and shall be secured by the Collateral. Any payments made by Bank
shall not constitute an agreement by Bank to make similar payments in the future
or a waiver by Bank of any Event of Default under this Agreement. Bank shall
have a non-exclusive, royalty-free license to use the Intellectual Property
Collateral to the extent reasonably necessary to permit Bank to exercise its
rights and remedies upon the occurrence of an Event of Default.

9.5 Bank's Liability for Collateral. So long as Bank complies
-------------------------------
with reasonable banking practices, Bank shall not in any way or manner be liable
or responsible for: (a) the safekeeping of the Collateral; (b) any loss or
damage thereto occurring or arising in any manner or fashion from any cause; (c)
any diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of
loss, damage or destruction of the Collateral shall be borne by Borrower.

9.6 Remedies Cumulative. Bank's rights and remedies under this
-------------------
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election, or acquiescence by it. No waiver by Bank
shall be effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the specific
purpose for which it was given.

9.7 Demand; Protest. Borrower waives demand, protest, notice of
---------------
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.

10. NOTICES
-------

Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement entered
into in connection herewith shall be in writing and (except for financial
statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by a recognized
overnight delivery service, certified mail, postage prepaid, return receipt
requested, or by telefacsimile to Borrower or to Bank, as the case may be, at
its addresses set forth below:

If to Borrower: ONSALE, INC.
1861 Landings Dr.
Mountain View, CA 94043
Attn: John Sauerland
FAX: (415)428-0725

18
<PAGE>

If to Bank: Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
Attn: Jeff Huhn
FAX: (408) 748-9478

The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.

11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
------------------------------------------

The Loan Documents shall be governed by, and construed in
accordance with, the internal laws of the State of California, without regard to
principles of conflicts of law. Each of Borrower and Bank hereby submits to the
exclusive jurisdiction of the state and Federal courts located in the County of
Santa Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.

12. GENERAL PROVISIONS
------------------

12.1 Successors and Assigns. This Agreement shall bind and
----------------------
inure to the benefit of the respective successors and permitted assigns of each
of the parties; provided, however, that neither this Agreement nor any rights
-------- -------
hereunder may be assigned by Borrower without Bank's prior written consent,
which consent may be granted or withheld in Bank's sole discretion. Bank shall
have the right without the consent of or notice to Borrower to sell, transfer,
negotiate, or grant participation in all or any part of, or any interest in,
Bank's obligations, rights and benefits hereunder.

12.2 Indemnification. Borrower shall defend, indemnify and hold
---------------
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.

12.3 Time of Essence. Time is of the essence for the
---------------
performance of all obligations set forth in this Agreement.

12.4 Severability of Provisions. Each provision of this
--------------------------
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.

12.5 Amendments in Writing, Integration. This Agreement cannot
----------------------------------
be amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations

19
<PAGE>

between the parties hereto with respect to the subject matter of this Agreement,
if any, are merged into this Agreement and the Loan Documents.

12.6 Counterparts. This Agreement may be executed in any number
------------
of counterparts and by different parties on separate counterparts, each of
which, when executed and delivered, shall be deemed to be an original, and all
of which, when taken together, shall constitute but one and the same Agreement.

12.7 Survival. All covenants, representations and warranties
--------
made in this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run.

12.8 Confidentiality. In handling any confidential information
---------------
Bank shall exercise the same degree of care that it exercises with respect to
its own proprietary information of the same types to maintain the
confidentiality of any non-public information thereby received or received
pursuant to this Agreement except that disclosure of such information may be
made (i) to the subsidiaries or affiliates of Bank in connection with their
present or prospective business relations with Borrower, (ii) to prospective
transferees or purchasers of any interest in the Advances, provided that they
have entered into a comparable confidentiality agreement in favor of Borrower
and have delivered a copy to Borrower, (iii) as required by law, regulations,
rule or order, subpoena, judicial order or similar order, (iv) as may be
required in connection with the examination, audit or similar investigation of
Bank and (v) as Bank may determine in connection with the enforcement of any
remedies hereunder. Confidential information hereunder shall not include
information that either: (a) is in the public domain or in the knowledge or
possession of Bank when disclosed to Bank, or becomes part of the public domain
after disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank
by a third party, provided Bank does not have actual knowledge that such third
party is prohibited from disclosing such information.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.

ONSALE, INC.

By: /s/ John Sauerland
--------------------------------

Title: CFO
-----------------------------

SILICON VALLEY BANK

By: /s/ Peter A. Kidder
--------------------------------

Title: Vice President
-----------------------------

20
<PAGE>

EXHIBIT A
---------

The Collateral shall consist of all right, title and interest of
Borrower in and to the following:

(a) All goods and equipment now owned or hereafter acquired,
including, without limitation, all machinery, fixtures, vehicles (including
motor vehicles and trailers), and any interest in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located;

(b) All inventory, now owned or hereafter acquired, including,
without limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing;

(c) All contract rights and general intangibles now owned or
hereafter acquired, including, without limitation, goodwill, trademarks,
servicemarks, trade styles, trade names, patents, patent applications, leases,
license agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;

(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower and Borrower's Books
relating to any of the foregoing;

(e) All documents, cash, deposit accounts, securities, letters of
credit, certificates of deposit, instruments and chattel paper now owned or
hereafter acquired and Borrower's Books relating to the foregoing;

(f) All copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished, now owned or hereafter acquired;
all trade secret rights, including all rights to unpatented inventions,
know-how, operating manuals, license rights and agreements and confidential
information, now owned or hereafter acquired; all mask work or similar rights
available for the protection of semiconductor chips, now owned or hereafter
acquired; all claims for damages by way of any past, present and future
infringement of any of the foregoing; and

(g) Any and all claims, rights and interests in any of the above and
all substitutions for, additions and accessions to and proceeds thereof.

21
<PAGE>

EXHIBIT B
---------

LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM

DEADLINE FOR SAME DAY PROCESSING IS 3:00P.M., P.S.T

TO: CENTRAL CLIENT SERVICE DIVISION DATE:
----------------

FAX#: (408) 496-2426 TIME:
----------------

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

FROM:
------------------------------------------------------------------------
CLIENT NAME (BORROWER)

REQUESTED BY:
---------------------------------------------------------------
AUTHORIZED SIGNER'S NAME

AUTHORIZED SIGNATURE:
-------------------------------------------------------

PHONE NUMBER:
---------------------------------------------------------------

FROM ACCOUNT # TO ACCOUNT #
------------------- -------------------------

REQUESTED TRANSACTION TYPE REQUESTED DOLLAR AMOUNT
-------------------------- -----------------------

PRINCIPAL INCREASE (ADVANCE) $
-------------------------------------
PRINCIPAL PAYMENT (ONLY) $
-------------------------------------
INTEREST PAYMENT (ONLY) $
-------------------------------------
PRINCIPAL AND INTEREST (PAYMENT) $
-------------------------------------

OTHER INSTRUCTIONS:
---------------------------------------------------------

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

All representations and warranties of Borrower stated in the Loan and
Security Agreement are true, correct and complete in all material respects as
of the date of the telephone request for and Advance confirmed by this
Borrowing Certificate; provided, however, that those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of such.
- --------------------------------------------------------------------------------

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

BANK USE ONLY

TELEPHONE REQUEST:
------------------

The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.

---------------------------------- --------------------------------------
Authorized Requester Phone #

---------------------------------- --------------------------------------
Received By (Bank) Phone #

-------------------------------------
Authorized Signature (Bank)
- --------------------------------------------------------------------------------

22
<PAGE>

EXHIBIT C
COMPLIANCE CERTIFICATE
(Extension Period)

TO: SILICON VALLEY BANK

FROM: ONSALE, INC.

The undersigned authorized officer of ONSALE, INC. hereby certifies that
in accordance with the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the "Agreement"), (i) Borrower is in complete
compliance for the period ending _______ with all required covenants except as
noted below and (ii) all representations and warranties of Borrower stated in
the Agreement are true and correct in all material respects as of the date
hereof. Attached herewith are the required documents supporting the above
certification. The Officer further certifies that these are prepared in
accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.

Please indicate compliance status by circling Yes/No under "Complies" column.

Reporting Covenant Required Complies
------------------ -------- --------

Monthly financial statements Monthly within 20 days Yes No

Financial Covenant Required Actual Complies
------------------ -------- ------ --------

Maintain on a Monthly Basis:
Minimum Quick Ratio 0.7:1.0 ___:1.0 Yes No
Maximum Debt/Tangible Net Worth 1.75:1.0 ___:1.0 Yes No
Maximum Inventory Days Sales 9.0 ___ Yes No

----------------------------------
Comments Regarding Exceptions: See Attached BANK USE ONLY

Received by:
------------------
Sincerely, AUTHORIZED
SIGNER

- -------------------------------------------
SIGNATURE Date:
-------------------------

- ------------------------------------------- Verified:
TITLE ---------------------
AUTHORIZED
SIGNER

- -------------------------------------------
DATE Date:
-------------------------

Compliance Status: Yes No
----------------------------------

23
<PAGE>

EXHIBIT C
COMPLIANCE CERTIFICATE
(Post Equity Event)

TO: SILICON VALLEY BANK

FROM: ONSALE, INC.

The undersigned authorized officer of ONSALE, INC. hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is
in complete compliance for the period ending ________ with all required
covenants except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof. Attached herewith are the required documents supporting
the above certification. The Officer further certifies that these are prepared
in accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.

Please indicate compliance status by circling Yes/No under "Complies" column.

<TABLE>
<CAPTION>
Reporting Covenant Required Complies
------------------ -------- --------
<S> <C> <C> <C>
10-Q and 10-K Within 5 days of filing Yes No
Monthly financial statements Monthly within 20 days/1/ Yes No
<CAPTION>
Financial Covenant Required Actual Complies
---------------- -------- ------ --------
<S> <C> <C> <C> <C>
Maintain on a Quarterly/2/ Basis:
Minimum Quick Ratio 2.5:1.0 ___:1.0 Yes No
Maximum Debt/Tangible Net Worth 0.5:1.0 ___:1.0 Yes No

Profitability: Monthly $/3/ $_______ Yes No
</TABLE>
/1/ Only if Advances greater than $2,000,000
/2/ Monthly if Advances greater than $2,000,000
/3/ No loss greater than $250,000; no 2 consecutive
losses

Comments Regarding Exceptions: See Attached.

Sincerely,

- -----------------------------------------
SIGNATURE

- -----------------------------------------
TITLE

- -----------------------------------------
DATE

- -------------------------------------
BANK USE ONLY

Received by:
-----------------------
AUTHORIZED SIGNER

Date:
------------------------------

Verified:
--------------------------
AUTHORIZED SIGNER

Date:
------------------------------

Compliance Status: Yes No

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

24
<PAGE>

DISBURSEMENT REQUEST AND AUTHORIZATION

Borrower: ONSALE, INC. Bank: Silicon Valley Bank

================================================================================

LOAN TYPE. This is a Variable Rate, Revolving Line of Credit of a principal
amount up to $2,000,000.

PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for business.

SPECIFIC PURPOSE. The specific purpose of this loan is: Short Term Working
Capital.

DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Bank's conditions for making the loan have been
satisfied. Please disburse the loan proceeds as follows:

Revolving Line
--------------

Amount paid to Borrower directly: $_______
Undisbursed Funds $_______

Principal $_______

CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the
following charges:

Charges Paid in Cash:
$2,500 Loan Fee
$_____ Attorneys Fees and Expenses (Est.)

Total Charges Paid in Cash $_______

AUTOMATIC PAYMENTS. Borrower hereby authorizes Bank automatically to deduct
from Borrower's account numbered _____ the amount of any loan payment. If the
funds in the account are insufficient to cover any payment, Bank shall not be
obligated to advance funds to cover the payment.

FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO BANK THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION AS
DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO BANK. THIS
AUTHORIZATION IS DATED AS OF _______, 19__.

BORROWER:

ONSALE, INC.
/s/John Sauerland
- ----------------------
Authorized Officer

================================================================================
<PAGE>

AGREEMENT TO PROVIDE INSURANCE

Grantor: ONSALE, INC. BANK: Silicon Valley Bank

================================================================================

INSURANCE REQUIREMENTS. ONSALE, INC. ("Grantor") understands that
insurance coverage is required in connection with the extending of a loan or the
providing of other financial accommodations to Grantor by Bank. These
requirements are set forth in the Loan Documents. The following minimum
insurance coverages must be provided on the following described collateral (the
"Collateral"):

Collateral: All Inventory, Equipment and Fixtures.
Type: All risks, including fire, theft and liability.
Amount: Full insurable value.
Basis: Replacement value.
Endorsements: Loss payable clause to Bank with stipulation that
coverage will not be cancelled or diminished
without a minimum of twenty (20) days' prior
written notice to Bank.

INSURANCE COMPANY. Grantor may obtain insurance from any insurance company
Grantor may choose that is reasonably acceptable to Bank. Grantor understands
that credit may not be denied solely because insurance was not purchased
through Bank.

FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Bank, on or
before closing, evidence of the required insurance as provided above, with an
effective date of March 5, 1997, or earlier. Grantor acknowledges and agrees
that if Grantor fails to provide any required insurance or fails to continue
such insurance in force, Bank may do so at Grantor's expense as provided in the
Loan and Security Agreement. The cost of such insurance, at the option of Bank,
shall be payable on demand or shall be added to the indebtedness as provided in
the security document. GRANTOR ACKNOWLEDGES THAT IF BANK SO PURCHASES ANY SUCH
INSURANCE, THE INSURANCE WILL PROVIDE LIMITED PROTECTION AGAINST PHYSICAL DAMAGE
TO THE COLLATERAL, UP TO THE BALANCE OF THE LOAN; HOWEVER, GRANTOR'S EQUITY IN
THE COLLATERAL MAY NOT BE INSURED. IN ADDITION, THE INSURANCE MAY NOT PROVIDE
ANY PUBLIC LIABILITY OR PROPERTY DAMAGE INDEMNIFICATION AND MAY NOT MEET THE
REQUIREMENTS OF ANY FINANCIAL RESPONSIBILITY LAWS.

AUTHORIZATION. For purposes of insurance coverage on the Collateral,
Grantor authorizes Bank to provide to any person (including any insurance agent
or company) all information Bank deems appropriate, whether regarding the
Collateral, the loan or other financial accommodations, or both.

GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO
PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED MARCH 6,
1997.

GRANTOR;

ONSALE, INC.

x /s/ John Sauerland
---------------------------------
Authorized Officer

================================================================================
FOR BANK USE ONLY
INSURANCE VERIFICATION

DATE: _______________ PHONE: _______________
AGENT'S NAME: __________________________________________________________________
INSURANCE COMPANY: _____________________________________________________________
POLICY NUMBER: _________________________________________________________________
EFFECTIVE DATES: _______________________________________________________________
COMMENTS: ______________________________________________________________________
================================================================================
<PAGE>

CORPORATE RESOLUTIONS TO BORROW

- --------------------------------------------------------------------------------
Borrower: ONSALE, INC.

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

I, the undersigned Secretary or Assistant Secretary of ONSALE, INC. (the
"Corporation"), HEREBY CERTIFY that the Corporation is organized and existing
under and by virtue of the laws of the State of California.

I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are true
and complete copies of the Certificate of Incorporation and Bylaws of the
Corporation, each of which is in full force and effect on the date hereof.

I FURTHER CERTIFY that at a meeting of the Directors of the
Corporation, duly called and held, at which a quorum was present and voting (or
by other duly authorized corporate action in lieu of a meeting), the following
resolutions were adopted.

BE IT RESOLVED, that any one (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:

NAMES POSITIONS ACTUAL SIGNATURES
------------------------------------------------------------------------
John Sauderland Chief Financial Officer /s/ John Sauderland
- ---------------------- ------------------------- -----------------------

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

acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:

Borrow Money. To borrow from time to time from Silicon Valley Bank
("Bank"), on such terms as may be agreed upon between the officers, employees,
or agents and Bank, such sum or sums of money as in their judgment should be
borrowed, without limitation, including such sums as are specified in that
certain Loan and Security Agreement dated as of March 6, 1997 (the "Loan
Agreement").

Execute Notes. To execute and deliver to Bank the promissory note or
notes of the Corporation, on Lender's forms, at such rates of interest and on
such terms as may be agreed upon, evidencing the sums of money so borrowed or
any indebtedness of the Corporation to Bank, and also to execute and deliver to
Lender one or more renewals, extensions, modifications, refinancings,
consolidations, or substitutions for one or more of the notes, or any portion of
the notes.

Grant Security. To grant a security interest to Bank in the Collateral
described in the Loan Agreement, which security interest shall secure all of the
Corporation's Obligations, as described in the Loan Agreement.

Negotiate Items. To draw, endorse, and discount with Bank all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness payable
to or belonging to the Corporation or in which the Corporation may have an
interest, and either to receive cash for the same or to cause such proceeds to
be credited to the account of the

1
<PAGE>

Corporation with Bank, or to cause such other disposition of the proceeds
derived therefrom as they may deem advisable

Letters of Credit; Foreign Exchange. To execute letters of credit
applications, foreign exchange agreements and other related documents pertaining
to Bank's issuance of letters of credit and foreign exchange contracts.

Issue Warrants. To issue warrants to purchase the Corporation's capital
stock, for such series and number, and on such terms, as an officer of the
Corporation shall deem appropriate.

Further Acts. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder, and in
all cases, to do and perform such other acts and things, to pay any and all fees
and costs, and to execute and deliver such other documents and agreements as
they may in their discretion deem reasonably necessary or proper in order to
carry into effect the provisions of these Resolutions.

BE IT FURTHER RESOLVED, than any and all acts authorized pursuant to
these resolutions and performed prior to the passage of these resolutions are
hereby ratified and approved, that these Resolutions shall remain in full force
and effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.

I FURTHER CERTIFY that the officers, employees, and agents named above
are duly elected, appointed, or employed by or for the Corporation, as the case
may be, and occupy the positions set forth opposite their respective names;
that the foregoing Resolutions now stand of record on the books of the
Corporation; and that the Resolutions are in full force and effect and have not
been modified or revoked in any manner whatsoever.

IN WITNESS WHEREOF, I have hereunto set my hand on March 13, 1997 and
attest that the signatures set opposite the names listed above are their genuine
signatures.

CERTIFIED TO AND ATTESTED BY:

X /s/ John Sauerland
----------------------------------------

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

2
<PAGE>

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL. REASONABLY SATISFACTORY TO
THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.

WARRANT TO PURCHASE STOCK

Corporation: ONSALE, INC., a California corporation
Number of Shares: 8,571
Class of Stock: Common
Initial Exercise Price: $7.00 per share
Issue Date: March 12, 1997
Expiration Date: March 11, 2002

THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, SILICON VALLEY BANK ("Holder") is
entitled to purchase the number of fully paid and nonassessable shares of the
class of securities (the "Shares") of all as set forth above and as adjusted
pursuant to Article 2 of this Warrant, subject to the provisions and upon the
terms and conditions set forth of this Warrant.

ARTICLE 1. EXERCISE.
---------

1.1 Method of Exercise. Holder may exercise this Warrant by
------------------
delivering duly executed Notice of Exercise in substantially the form attached
as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.

1.2 Conversion Right. In lieu of exercising this Warrant as
----------------
specified in Section 1.1, Holder may from time to time convert this Warrant, in
whole or in part, into a number of Shares determined by dividing (a) the
aggregate fair market value of the Shares or other securities otherwise issuable
upon exercise of this Warrant minus the aggregate Warrant Price of such Shares
by (b) the fair market value of one Share. The fair market value of the Shares
shall be determined pursuant Section 1.4.

1.3 [Intentionally deleted]

1.4 Fair Market Value. If the Shares are traded in a public
-----------------
market, the fair market value of the Shares shall be the closing price of the
Shares (or the closing price of the Company's stock into which the Shares are
convertible) reported for the business day immediately before Holder delivers
its Notice of Exercise to the Company. If the Shares are not traded in a public
market, the Board of Directors of the Company shall determine fair market value
in its reasonable good faith judgment. The foregoing notwithstanding, if Holder
advises the Board of Directors in writing that Holder disagrees with such

1
<PAGE>

determination, then the Company and Holder shall promptly agree upon a reputable
investment banking firm to undertake such valuation. If the valuation of such
investment banking firm is greater than that determined by the Board of
Directors, then all fees and expenses of such investment banking firm shall be
paid by the Company. In all other circumstances, such fees and expenses shall
be paid by Holder.

1.5 Delivery of Certificate and New Warrant. Promptly after Holder
---------------------------------------
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.

1.6 Replacement of Warrants. On receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.

1.7 Repurchase on Sale, Merger, or Consolidation of the Company.
-----------------------------------------------------------

1.7.1. "Acquisition." For the purpose of this Warrant,
--------------
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.

1.7.2. Assumption of Warrant. Upon the closing of any Acquisition
---------------------
the successor entity shall assume the obligations of this Warrant, and this
Warrant shall be exercisable for the same securities, cash, and property as
would be payable for the Shares issuable upon exercise of the unexercised
portion of this Warrant as if such Shares were outstanding on the record date
for the Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly.

1.7.3. Purchasing Right. Notwithstanding the foregoing, at the
----------------
election of Holder, the Company shall purchase the unexercised portion of this
Warrant for cash upon the closing of any Acquisition for an amount equal to (a)
the fair market value of any consideration that would have been received by
Holder in consideration of the Shares had Holder exercised the unexercised
portion of this Warrant immediately before the record date for determining the
shareholders entitled to participate in the proceeds of the Acquisition, less
(b) the aggregate Warrant Price of the Shares, but in no event less than zero.

ARTICLE 2. ADJUSTMENTS TO THE SHARES.
--------------------------

2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
----------------------------
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each

2
<PAGE>

Share, acquired, Holder shall receive, without cost to Holder, the total number
and kind of securities to which Holder would have been entitled had Holder owned
the Shares of record as of the date the dividend or subdivision occurred.

2.2 Reclassification, Exchange or Substitution. Upon any
------------------------------------------
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares is this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to common stock pursuant to the terms of the Company's Articles of
Incorporation upon the closing of a registered public offering of the Company's
common stock. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article 2 including, without
limitation, adjustments to the Warrant Price and to the number of securities or
property issuable upon exercise of the new Warrant. The provisions of this
Section 2.2 shall similarly apply to successive reclassifications, exchanges,
substitutions, or other events.

2.3 Adjustments for Combinations, Etc. If the outstanding
---------------------------------
Shares are combined or consolidated, by reclassification or otherwise, into a
lesser number of shares, the Warrant Price shall be proportionately increased.

2.4 [Intentionally deleted]

2.5 No Impairment. The Company shall not, by amendment of its
-------------
Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Article 2 and in taking all such action as may be necessary or appropriate
to protect Holder's rights under this Article against impairment. If the Company
takes any action affecting the Shares or its common stock other than as
described above that adversely affects Holder's rights under this Warrant, the
Warrant Price shall be adjusted downward and the number of Shares issuable upon
exercise of this Warrant shall be adjusted upward in such a manner that the
aggregate Warrant Price of the Warrant is unchanged.

2.6 Fractional Shares. No fractional Shares shall be issuable
-----------------
upon exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder amount computed by
multiplying the fractional interest by the fair market value of a full Share.

3
<PAGE>

2.7 Certificate as to Adjustments. Upon each adjustment of the
-----------------------------
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish Holder with a certificate of its Chief Financial Officer
setting forth such adjustment and the facts upon which such adjustment is based.
The Company shall, upon written request, furnish Holder a certificate setting
forth the Warrant Price in effect upon the date thereof and the series of
adjustments leading to such Warrant Price.

ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
--------------------------------------------

3.1 Representations and Warranties. The Company hereby represents
------------------------------
and warrants to the Holder as follows:

(a) The initial Warrant Price referenced on the first page of
this Warrant is not greater than the fair market value of the Shares as of the
date of this Warrant.

(b) All Shares which may be issued upon the exercise of the
purchase right represented by this Warrant, and all securities, if any, issuable
upon conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.

3.2 Notice and Certain Events. If the Company proposes at any time
-------------------------
(a) to declare any dividend or distribution upon its common stock, whether in
cash, property, stock, or other securities and whether or not a regular cash
dividend; (b) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (c) to effect any reclassification or recapitalization of common
stock; or (d) to merge or consolidate with or into any other corporation, or
sell, lease, license, or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up; then, in connection with each such event, the
Company shall give Holder the same notice given with respect thereto to the
holders of the Comapny's common stock.

3.3 Information Rights. So long as the Holder holds this Warrant
------------------
and/or any of the Shares, the Company shall deliver to the Holder (a) promptly
after mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual audited financial statements of the
Company certified by independent public accountants of recognized standing and
(c) within forty-five (45) days after the end of each of the first three
quarters of each fiscal year, the Company's quarterly, unaudited financial
statements.

4
<PAGE>

3.4 [Intentionally deleted]

ARTICLE 4. MISCELLANEOUS.
-------------

4.1 Term; Notice of Expiration. This Warrant is exercisable,
--------------------------
in whole of in part, at any time and from time to time on or before the
Expiration Date set forth above. The Company shall give Holder written notice of
Holder's right to exercise this Warrant in the form attached as Appendix 2 not
more than 90 days and not less than 30 days before the Expiration Date. If the
notice is not so given, the expiration date shall automatically be extended
until 30 days after the date the Company delivers the notice to Holder.

4.2 Legends. This Warrant and the Shares (and the securities
-------
issuable, directly or indirectly, upon conversion of the Shares, if any) shall
be imprinted with a legend in substantially the following form.

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT
AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144
OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND
ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.

4.3 Compliance with Securities Laws on Transfer. This Warrant
-------------------------------------------
and the shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
rule 144(f), and the Company is provided with a copy of Holder's notice of
proposed sale.

4.4 Transfer Procedure. Subject to the provisions of
------------------
Section 4.2, Holder may transfer all or part of this Warrant or the Shares
issuable upon exercise of this Warrant (or the securities issuable, directly or
indirectly, upon conversion of the Shares, if any) by giving the Company notice
of the portion of the Warrant being transferred setting forth the name, address
and taxpayer identification number of the transferee and surrendering this
Warrant to the Company for reissuance to the transferee(s) (and Holder if
applicable). Unless the Company is filing financial information with the SEC
pursuant to the Securities Exchange Act of 1934, the Company shall have the
right to refuse to transfer any portion of this Warrant to any person who
directly competes with the Company.

<PAGE>

4.5 Notices. All notices and other communications from the
-------
Company to the Holder, or vice versa, shall be deemed delivered and effective
when given personally or mailed by first-class registered or certified mail,
postage prepaid, at such address as may have been furnished to the Company or
the Holder, as the case may be, in writing by the Company or such holder from
time to time.

4.6 Waiver. This Warrant and any term hereof may be changed,
------
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such charge, waiver, discharge or termination
is sought.

4.7 Attorneys Fees. In the event of any dispute between the
--------------
parties concerning the terms and provisions of this Warrant, the party
prevailing in such dispute shall be entitled to collect from the other party all
costs incurred in such dispute, including reasonable attorneys' fees.

4.8 Governing Law. This Warrant shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware, without
giving effect to its principles regarding conflicts of law.

"COMPANY"

ONSALE, INC.

By /s/ S. Jerrold Kaplan
---------------------------------------

Name S. Jerrold Kaplan
-------------------------------------
(Print)

Title: Chairman of the Board, President,
or Vice President

By /s/ John Sauerland
---------------------------------------

Name John Sauerland
-------------------------------------
(Print)

Title: Chief Financial Officer, Secretary
Assistant Treasurer, or Assistant
Secretary

<PAGE>

APPENDIX 1

NOTICE OF EXERCISE
------------------

1. The undersigned hereby elects to purchase ________ shares of the
Common/Series _______ Preferred [strike one] Stock of __________________________
pursuant to the terms of the attached Warrant, and tenders herewith payment of
the purchase price of such shares in full.

1. The undersigned hereby elects to convert the attached Warrant
into Shares/cash [strike one] in the manner specified in the Warrant. This
conversion is exercised with respect to ________________ of the Shares covered
by the Warrant.

[Strike paragraph that does not apply.]

2. Please issue a certificate or certificates representing said
shares in the name of the undersigned or in such other name as is specified
below:

------------------------
(Name)

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

------------------------
(Address)

3. The undersigned represents it is acquiring the shares solely for
its own account and not as a nominee for any other party and not with a view
toward the resale or distribution thereof except in compliance with applicable
securities laws .

------------------------------------------
(Signature)

- ---------------------
(Date)

7
<PAGE>

APPENDIX 2

Notice that Warrant Is About to Expire
--------------------------------------

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

(Name of Holder)

(Address of Holder)

Attn: Chief Financial Officer

Dear: _______________________

This is to advise you that the Warrant issued to you described below
will expire on _________________, 19__.

Issuer:

Issue Date:

Class of Security Issuable:

Exercise Price per Share:

Number of Shares Issuable:

Procedure for Exercise:

Please contact [name of contact person at (phone number)] with any
questions you may have concerning exercise of the Warrant. This is your only
notice of pending expiration.

-------------------------------------
(Name of Issuer)

By
-----------------------------------

Its
----------------------------------

<PAGE>

EXHIBIT 11.01

ONSALE, INC.

CALCULATION OF NET INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION YEAR
(JULY 1994) TO ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
-------------- ------------
<S> <C> <C>
Weighted average common shares outstanding......... 12,179 12,179
Weighted average common equivalent shares from
Convertible Preferred Stock and warrants,
calculated using the "if converted" method........ 1,704 1,704
Weighted average common equivalent shares from
stock options calculated using the treasury stock
method (1)........................................ 1,443 1,443
------ ------
Shares used to compute net income (loss) per share. 15,326 15,326
====== ======
Net income (loss).................................. $ (440) $ 361
====== ======
Net income (loss) per share........................ $(0.03) $ 0.02
====== ======
</TABLE>
- --------

(1) Pursuant to a Securities and Exchange Commission Staff Accounting
Bulletin, stock options issued subsequent to December 1995 have been
included in the computation as if they were outstanding for all periods
presented.

<PAGE>

EXHIBIT 23.02

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 13, 1997 relating
to the financial statements of ONSALE, Inc., which appears in such Prospectus.
We also consent to the application of such report to the Financial Statement
Schedule for the period from inception (July 1994) to December 31, 1995 and
for the year ended December 31, 1996 listed under Item 16(b) of this
Registration Statement when such schedule is read in conjunction with the
financial statements referred to in our report. The audits referred to in such
report also included this schedule. We also consent to the references to us
under the headings "Experts" and "Selected Financial Data" in such Prospectus.
However, it should be noted that Price Waterhouse LLP has not prepared or
certified such "Selected Financial Data."

Price Waterhouse LLP

San Jose, California

March 13, 1997

<PAGE>

<ARTICLE> 5

<S> <C> <C>
<PERIOD-TYPE> OTHER 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JUL-01-1994 JAN-01-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996
<CASH> 20,000 2,649,000
<SECURITIES> 0 0
<RECEIVABLES> 22,000 461,000
<ALLOWANCES> 16,000 66,000
<INVENTORY> 1,000 1,520,000
<CURRENT-ASSETS> 43,000 5,083,000
<PP&E> 40,000 646,000
<DEPRECIATION> (10,000) (68,000)
<TOTAL-ASSETS> 73,000 5,680,000
<CURRENT-LIABILITIES> 492,000 3,352,000
<BONDS> 0 0
0 0
0 1,000
<COMMON> 12,000 12,000
<OTHER-SE> 431,000 2,315,000
<TOTAL-LIABILITY-AND-EQUITY> 73,000 5,680,000
<SALES> 0 0
<TOTAL-REVENUES> 140,000 14,269,000
<CGS> 0 0
<TOTAL-COSTS> 27,000 11,679,000
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (440,000) 404,000
<INCOME-TAX> 0 43,000
<INCOME-CONTINUING> (440,000) 361,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (440,000) 361,000
<EPS-PRIMARY> .03 .02
<EPS-DILUTED> 0 0

</TABLE>