APEX PC SOLUTIONS INC, SB-2, 1997-07-21

APEX PC SOLUTIONS INC
SB-2, 1997-07-21
COMPUTER PERIPHERAL EQUIPMENT, NEC

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 21, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

APEX PC SOLUTIONS, INC.
(Name of small business issuer in its charter)

<TABLE>
<S> <C> <C>
WASHINGTON 3577 91-1577634
(State or other jurisdiction (Primary standard industrial (I.R.S. employer
of classification code number) identification number)
incorporation or organization)
</TABLE>

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20031 142ND AVENUE, N.E.
WOODINVILLE, WASHINGTON 98072
(425) 402-9393
(Address and telephone number of principal executive offices and principal place
of business)
------------------------
KEVIN J. HAFER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
20031 142ND AVENUE, N.E.
WOODINVILLE, WASHINGTON 98072
(425) 402-9393
(Name, address, and telephone number of agent for service)
------------------------
COPIES TO:

SAMUEL F. SARACINO, ESQ. PATRICK J. SCHULTHEIS, ESQ.
ERIC A. DEJONG, ESQ. ROBERT G. DAY, ESQ.
DAVIS WRIGHT TREMAINE LLP WILSON SONSINI GOODRICH & ROSATI,
2600 CENTURY SQUARE -- 1501 FOURTH PROFESSIONAL CORPORATION
AVENUE
SEATTLE, WASHINGTON 98101-1688 650 PAGE MILL ROAD
(206) 622-3150 PALO ALTO, CALIFORNIA 94304-1050
(415) 493-9300

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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
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. / /
------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, no par value................. 3,450,000 shares $23.125 $79,781,250 $24,177
</TABLE>

(1) Includes 450,000 shares which may be sold upon exercise of the Underwriters'
over-allotment option.

(2) Estimated solely for the purposes of calculating the registration fee in
accordance with Rule 457(c) promulgated under the Securities Act of 1933.
The proposed maximum offering price per share is based on the average of the
high and low prices for a share reported on the Nasdaq National Market on
July 15, 1997.
------------------------

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.

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<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.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 21, 1997
3,000,000 SHARES

[LOGO]
COMMON STOCK

OF THE 3,000,000 SHARES OF COMMON STOCK OFFERED HEREBY, 1,000,000 SHARES ARE
BEING SOLD BY APEX PC SOLUTIONS, INC. ("APEX" OR THE "COMPANY") AND 2,000,000
SHARES ARE BEING SOLD BY CERTAIN OF THE COMPANY'S SHAREHOLDERS (THE "SELLING
SHAREHOLDERS"). THE COMPANY WILL NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE
OF SHARES BY THE SELLING SHAREHOLDERS. SEE "PRINCIPAL AND SELLING SHAREHOLDERS."
THE COMPANY'S COMMON STOCK IS QUOTED ON THE NASDAQ NATIONAL MARKET UNDER THE
SYMBOL "APEX." ON JULY 17, 1997, THE LAST REPORTED SALE PRICE OF THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET WAS $22 7/8 PER SHARE. SEE "PRICE RANGE OF
COMMON STOCK."
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING
ON PAGE 6 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>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) SHAREHOLDERS
<S> <C> <C> <C> <C>
PER SHARE......................... $ $ $ $
TOTAL (3)......................... $ $ $ $
</TABLE>

(1) SEE "UNDERWRITING" FOR INFORMATION CONCERNING INDEMNIFICATION OF THE
UNDERWRITERS AND OTHER MATTERS.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY, ESTIMATED AT $350,000.
(3) CERTAIN OF THE SELLING SHAREHOLDERS HAVE GRANTED THE UNDERWRITERS A 30-DAY
OPTION TO PURCHASE UP TO 450,000 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 SELLING SHAREHOLDERS 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 AUGUST , 1997.

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

MONTGOMERY SECURITIES
DAIN BOSWORTH
INCORPORATED
COWEN & COMPANY
, 1997
<PAGE>
FOR INSIDE FRONT COVER:

Beginning at the top of this page, the following text cascades from right to
left down the page:

"The proliferation of distributed network computing using a
client/server architecture of interconnected PCs has created significant
network administration and space problems for the organizations that
rely on them. International Data Corporation projects that worldwide
shipments of PC servers will reach approximately 3.1 million units in
the year 2000.

Apex's product family combines sophisticated switching technology and
customized cabinet systems to aid network administrators in managing
their organizations' complex and growing server populations."

The Company's logo ("Company Logo") appears beneath the foregoing text on
the left side of the page.

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. SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON
STOCK TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OF
THE COMPANY ON NASDAQ IN ACCORDANCE WITH RULE 103 UNDER REGULATION M. SEE
"UNDERWRITING."

FOR GATEFOLD:

The following text is centered on the top of the left page of the gatefold.
"Apex products allow corporations adopting client/server architectures to
consolidate servers and improve physical and administrative access, resulting in
savings in terms of space, time and money." Below this statement is a graphic,
the left side of which is an illustration of 24 dispersed servers, each with its
own keyboard, video monitor and mouse console. Above this illustration is the
heading "Before Apex" and below this illustration is the description
"Disorganized collection of servers, each with its own keyboard, video monitor
and mouse (a "console")". The right side of the graphic is an illustration
depicting the same number of servers consolidated into six centralized DensePack
cabinets. By combining one primary OutLook switch with three secondary OutLook
switches, access and control of the same number of servers is consolidated into
one keyboard, video monitor and mouse console. Above this illustration is the
heading "After Apex" and below this illustration is the description "Organized
collection of servers housed in Apex cabinets, controlled from a single console
via Apex switches".

On the left half of the right page of the gatefold are three different
graphical images (the "Problem Graphics") organized top to bottom underneath the
phrase "Client/Server Problems". The top Problem Graphic consists of a depiction
of approximately eight different desktop and tower servers, each with its own
video monitor and keyboard, cabled together, followed by the following text:
"Small Networks--Client/ server networks typically utilize multiple servers
designed to operate as stand-alone systems, each with a console consisting of a
keyboard, video monitor and mouse." The middle Problem Graphic consists of a
depiction of approximately thirty-two servers, each with its own video monitor
and keyboard, cabled together, followed by the following text: "Space and
Equipment Management--Without efficient storage and configuration, network
hardware consumes substantial and often expensive floor space and creates
clutter that hampers network administration." The bottom Problem Graphic
consists of a depiction of numerous servers, each with its own video monitor and
keyboard, cabled together and stored on large tables, followed by the following
text: "Large Networks When a network fails, an administrator's ability to
quickly and efficiently diagnose and correct the problem is often hampered
because the administrator is not able to access the software tools that reside
on the network and that are normally used to manage network failures."
<PAGE>
On the right half of the right page of the gatefold, are three different
graphical images (the "Apex Solution Graphics") organized top to bottom. The top
Apex Solution Graphic (which is paired with the top Problem Graphic Solution
described above) consists of a graphical representation of an Apex switch (over
which the word "OutLook" is superimposed), to the left of which is a column of
eight attached servers and to the right of which is a column of four attached
keyboard, video monitor and mouse consoles (with the top console in full-tone to
depict a configuration using an OutLook switch and the bottom three consoles
shaded to depict a configuration using an OutLook(4) switch) followed by the
following text: "Apex Outlook switching systems consolidate the control and
monitoring of multiple network servers to a centralized command center
consisting of one or more console positions. Apex switching products provide
connectivity to virtually all major server platforms." The middle Apex Solution
Graphic (which is paired with the middle Problem Graphic) is similar to the top
Apex Solution Graphic described above, except that the word "ViewPoint" is
superimposed over the graphical representation of the Apex switch and the words
"Up to 32 Networked Servers" are above the column of attached servers and the
words "Up to 16 Users" are above the column of attached consoles. This Apex
Solution Graphic is followed by the following text: "Apex's ViewPoint provides
direct connections to network servers, enabling network administrators to access
individual servers from up to a thousand feet away as if they were physically
present at that server, even if the network is down." The bottom Apex Solution
Graphic (which is paired with the bottom Problem Graphic) depicts four DensePack
cabinets with the same graphical representation of an Apex switch in front of
the middle two cabinets and the word "DensePack" superimposed over the top of
that representation. The DensePack cabinet depictions in the bottom Apex
Solution Graphic represent different physical configurations of different types
of servers, and over the DensePack cabinet depictions, from left to right, are
the phrases "Rack Mount Systems," "Tower Systems," "Desktop Systems" and
"Combination." This Apex Solution Graphic is followed by the following text:
"Apex integrated cabinet solutions consolidate servers and other hardware in a
single location to facilitate more efficient physical access for hardware
maintenance tasks. Apex provides customized solutions for the storage of
heterogeneous server populations."
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE STATEMENTS CONTAINED IN THIS PROSPECTUS
THAT ARE NOT PURELY HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH FORWARD-LOOKING STATEMENTS
INCLUDE, WITHOUT LIMITATION, STATEMENTS RELATING TO FUTURE OPERATING RESULTS,
OEM CUSTOMERS, COMPETITION, NEW PRODUCT INTRODUCTIONS, COMPONENT SUPPLIERS,
RESELLER CHANNELS, KEY PERSONNEL, MANAGEMENT OF GROWTH, WARRANTY POLICIES,
PROPRIETARY RIGHTS, CUSTOMER SUPPORT, INTERNATIONAL SALES, THE APEX STRATEGY,
FUTURE RESEARCH AND DEVELOPMENT EXPENDITURES, FUTURE NET SALES, FUTURE SALES AND
MARKETING EXPENDITURES, FUTURE GENERAL AND ADMINISTRATIVE EXPENDITURES AND
FUTURE LIQUIDITY AND CAPITAL RESOURCES. ALL SUCH FORWARD-LOOKING STATEMENTS ARE
BASED ON INFORMATION AVAILABLE TO THE COMPANY ON THE DATE HEREOF, AND THE
COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS," AS
WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS.

THE COMPANY

Apex PC Solutions, Inc. (the "Company" or "Apex") designs, manufactures and
markets stand-alone switching systems and integrated server cabinet solutions
for the client/server computing market. The Company's switching systems enable
client/server network administrators to manage multiple servers from a single
keyboard, video monitor and mouse configuration (a "console"). Designed to
address space, cost, administration and maintenance issues that organizations
increasingly face when adopting client/server architecture, the Company's
sophisticated switching and integrated cabinet systems enable network
administrators to manage more efficiently their organizations' complex and
growing server populations.

The desire of many organizations to decentralize computing power while
sharing technology resources and providing broad access to enterprise data has
resulted in the widespread adoption of distributed network computing
environments using a client/server architecture of interconnected PCs. According
to International Data Corporation, a market research firm, worldwide shipments
of PC servers are expected to grow 21.0% on a compounded annual basis from 1997
to 2000, reaching approximately 3.1 million units shipped in the year 2000.

The growing adoption of client/server architecture has created significant
network administration and space problems for organizations. Client/server
networks utilize servers that were designed to operate as stand-alone systems,
each with its own console. Thus, to perform network administration and
management tasks, network administrators must deal with an unwieldy number of
consoles, whether centrally located or dispersed throughout the organization. In
addition, constant availability of the network has become increasingly
important. When a network fails, an administrator's ability to quickly and
efficiently diagnose and correct the problem is often hampered because the
administrator is not able to access the software tools that reside on the
network which would otherwise be relied upon to rectify network failures. As
organizations' network computing needs increase, the number of servers, consoles
and other peripherals proliferates, creating storage and configuration problems.
The increased use of "heterogeneous" server configurations using different
platforms, such as Intel, Macintosh, IBM RS 6000, Hewlett-Packard 9000, DEC
Alpha and Sun Sparc, and different operating systems, such as Windows NT, Unix,
NetWare and OS/2, compounds the administration and storage problems faced by
network administrators.

3
<PAGE>
the Company's switching products utilize the Company's proprietary On Screen
Configuration And Reporting ("OSCAR") interface. OSCAR allows network
administrators to immediately identify and access servers according to the
administrators' own naming conventions. The Company also offers server cabinet
solutions to consolidate and store heterogeneous servers and related hardware in
a single cabinet that facilitates more efficient physical access for hardware
maintenance tasks.

The Company markets and sells its products through a direct sales force and
various distribution channels. Apex supplies stand-alone switching systems on a
private label basis to Compaq Computer Corporation and Hewlett-Packard Company
for integration into their product offerings. Sales to Compaq represented
approximately 52% of the Company's net sales for the six months ended June 27,
1997. Sales to Compaq and Hewlett-Packard represented approximately 30% and 15%,
respectively, of net sales for 1996, and approximately 54% and 6% of net sales,
respectively, for 1995. According to International Data Corporation, Compaq and
Hewlett-Packard shipped 41.7% of all PC servers shipped worldwide in 1996.
Customers of the Company's branded products in 1996 or the first half of 1997
included Advanced Logic Research, Inc., Data General Corporation, Dell Computer
Corporation, McAfee Associates, Inc., Microsoft Corporation, the National
Association of Securities Dealers, Inc., Owens Corning, NEC USA, Inc.,
Peoplesoft, Inc., Unisys Corporation and Wells Fargo Bank, N.A.

The Company's objective is to be the leading provider of hardware solutions
for the administration, management and storage challenges inherent in the
client/server network environment. Key elements of the Company's strategy for
achieving this objective are to (i) continue to develop innovative products and
enhancements to existing products, (ii) leverage its OEM experience to enter
into new relationships with other server manufacturers in the U.S. and Europe,
(iii) increase market penetration for its branded products through direct sales
and reseller channels, and (iv) create an international distribution network for
the Company's branded switching products.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company......................... 1,000,000 shares
Common Stock offered by the Selling Shareholders............ 2,000,000 shares
Common Stock to be outstanding after this offering.......... 13,163,328 shares (1)
Use of proceeds............................................. For general corporate
purposes, including working
capital. See "Use of
Proceeds."
Nasdaq National Market symbol............................... APEX
</TABLE>

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(1) Based on shares outstanding as of June 27, 1997. Excludes (i) 951,564 shares
of Common Stock reserved for issuance upon the exercise of options
outstanding at June 27, 1997, at a weighted average exercise price of
$4.7655 per share, (ii) 550,180 additional shares reserved for future
issuance pursuant to the Company's 1995 Employee Stock Plan and (iii)
246,688 shares reserved for future issuance pursuant to the Company's
Employee Stock Purchase Plan. See "Capitalization," "Management-- Employee
Stock Plan; --Employee Stock Purchase Plan" and "Description of Capital
Stock."

4
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, ------------------------
------------------------------- JUNE 30, JUNE 27,
1994 1995 1996 1996 1997 (1)
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................................... $ 7,310 $ 19,671 $ 33,622 $ 14,002 $ 23,681
Gross profit................................................. 2,817 9,035 14,383 5,659 10,690
Income from operations....................................... 933 3,737 7,328 3,147 6,174
Interest income (expense), net............................... 7 (186) (1,859) (947) (123)
Other income................................................. -- -- -- -- 146
Income from continuing operations before income taxes and
extraordinary item......................................... 940 3,551 5,469 2,200 6,197
Income from continuing operations before extraordinary
item....................................................... 940 3,603 3,608 1,452 4,082
Extraordinary item--loss on early extinguishment of debt, net
of applicable income taxes................................. -- -- -- -- (141)
Income from discontinued service operations.................. 601 -- -- -- --
Net income................................................... $ 1,541 $ 3,603 $ 3,608 $ 1,452 $ 3,941

PRO FORMA DATA (2):
Net income (pro forma through 1995).......................... $ 1,017 $ 2,344 $ 3,608 $ 1,452 $ 3,941
Pro forma income per share................................... $ 0.20 $ 0.40 $ 0.16 $ 0.33
Weighted average shares used in computing pro forma
income per share (3)....................................... 11,492 9,092 9,092 11,839
</TABLE>

<TABLE>
<CAPTION>
JUNE 27, 1997
----------------------------
ACTUAL AS ADJUSTED (4)
----------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................................................... $ 7,956 $ 29,223
Working capital................................................................... 15,212 36,479
Total assets...................................................................... 18,896 40,163
Shareholders' equity.............................................................. 15,852 37,119
</TABLE>

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

(1) The Company's interim periods in years prior to 1997 are reported on a
calendar quarter basis. Commencing in 1997, the Company reports its interim
period results for the first three interim periods ending on the last Friday
of March, June and September, respectively, and for the fourth interim
period ending on December 31. The difference between quarterly results
reported on this basis and quarterly results reported on the basis of
calendar quarters for years prior to 1997 is not material. The Company
formed a foreign sales corporation subsidiary in the first quarter of 1997.
Consequently, the Company's financial statements as of June 27, 1997 and for
the six months then ended are presented on a consolidated basis.

(2) From inception through October 31, 1995, the Company was treated as an S
Corporation for federal income tax purposes. The pro forma data reflects an
estimate of income tax expense as if the Company were taxable as a C
Corporation for the years ended December 31, 1994 and 1995. See Notes 1 and
11 of Notes to Financial Statements.

(3) See Note 1 of Notes to Financial Statements.

(4) Adjusted to reflect the sale and issuance of the 1,000,000 shares of Common
Stock offered by the Company hereby at an assumed public offering price of
$22 7/8 per share, after deduction of the underwriting discount and
estimated offering expenses payable by the Company. See "Use of Proceeds."

The executive office of the Company is located at 20031 142nd Avenue, N.E.,
Woodinville, Washington 98072, and its telephone number is (425) 402-9393.
- ------------------------

APEX PC SOLUTIONS, OSCAR, OUTLOOK, OUTLOOK(4), SUNDIAL, VIEWPOINT,
SWITCHBACK, A-1000 AND S-1000 ARE TRADEMARKS OF THE COMPANY. THIS PROSPECTUS
ALSO INCLUDES TRADEMARKS OF OTHER COMPANIES.

UNLESS OTHERWISE INDICATED, ALL INFORMATION CONTAINED IN THIS PROSPECTUS
ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.

5
<PAGE>
RISK FACTORS

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. IN ADDITION
TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE SHARES
OF COMMON STOCK OFFERED HEREBY.

FLUCTUATIONS IN OPERATING RESULTS

The Company has experienced substantial fluctuations in its operating
results, on a quarterly and an annual basis, and the Company expects such
fluctuations to continue in the future. The Company's operating results are
affected by a number of factors, including: the volume and timing of orders,
particularly from original equipment manufacturers that purchase the Company's
switching systems on a private label basis ("OEMs"); the timing of shipments;
the timing of new product introductions and enhancements by the Company and its
competitors; changes in product or distribution channel mixes; changes in
pricing policies or price reductions by the Company or its competitors; the
availability and cost of supplies and components; sales and marketing expenses
related to entering into new markets, introducing new products and retaining
current OEM and other large customers; seasonal customer demand; and
fluctuations in sales of servers due to changes in economic conditions or
capital spending levels.

In general, the Company's sales cycle varies substantially and may be
lengthy, making net sales difficult to forecast. The Company has experienced
period to period variability in sales to each of its OEM customers and expects
this pattern to continue in the future. Although the Company's OEM customers
typically place orders for products several months prior to scheduled shipment
dates, these orders are subject to cancellation up to eight weeks prior to the
scheduled shipment date. The Company generally must plan production, order
components and undertake its manufacturing activities prior to the time that
these orders become firm. In addition, the Company's OEM customers have in the
past requested, and will likely continue to request from time to time, that the
Company delay shipment dates or cancel orders for products that are subject to
firm orders. Accordingly, sales to OEMs for future quarters are difficult to
predict. Moreover, any cancellation, rescheduling or reduction of orders by OEM
customers in the future could materially adversely affect the Company's
operating results. If the Company succeeds in increasing branded sales (i.e.,
sales to customers other than OEMs) as a percentage of net sales, the Company's
quarterly sales and operating results will become more dependent upon the volume
and timing of branded product orders received during the quarter. Because
customers of the Company's branded products (including resellers) typically
place orders shortly before their requested shipment date, revenues from branded
sales are difficult to forecast. The failure of the Company to accurately
forecast the timing and volume of orders for branded products during any given
quarter could adversely affect the Company's operating results for such quarter
and, potentially, for future periods.

Gross margins may vary significantly from period to period depending on a
number of factors, including: the ratio of OEM sales to branded sales, as OEM
sales typically have lower gross margins than branded sales; product mix,
including the percentage of cabinet system sales, which generally have lower
gross margins than sales of stand-alone switching systems; raw materials and
labor costs; new product introductions by the Company and its competitors; and
the level of outsourcing of manufacturing and assembly services by the Company.
The Company expects that its gross margins will decline in the future primarily
due to increased competition and the introduction of new technologies which may
affect the prices of the Company's products. The Company expects that its
operating results will be affected by seasonal trends and by general conditions
in the server market. The Company believes that it has experienced and will
continue to experience some degree of seasonality due to customer buying cycles.
The Company has historically experienced higher levels of net sales in the
fourth quarter. The Company believes that this seasonality is a result of
customer budgeting and procurement cycles, which correspondingly may depress net
sales in other quarters, and the Company expects this seasonality to continue in
the future. Because the Company's business and operating results depend to a
significant extent on the general conditions in the server market, any adverse
change in the server market due to adverse economic

6
<PAGE>
conditions, declining capital spending levels or other factors could have a
material adverse effect on the Company's business, financial condition and
results of operations.

DEPENDENCE UPON A LIMITED NUMBER OF OEM CUSTOMERS

A substantial portion of the Company's sales is concentrated among a limited
number of OEM customers. For 1994, 1995, 1996 and the six months ended June 27,
1997, sales to OEMs represented approximately 38%, 69%, 71% and 66% of the
Company's net sales, respectively. For 1994, 1995, 1996 and the six months ended
June 27, 1997, sales to Compaq Computer Corporation ("Compaq") represented
approximately 36%, 54%, 30% and 52%, respectively, of the Company's net sales.
Sales to Hewlett-Packard Company ("Hewlett-Packard") represented 15% of the
Company's net sales for 1996. The Company's OEM business is subject to risks
such as contract termination, reduced or delayed orders, adoption of competing
products developed by third parties for the OEM or by the OEM's internal
development team, and change in corporate ownership, financial condition,
business direction or product mix by the OEM, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company has experienced, and may continue to experience,
significant reductions or delays in orders from its OEM customers, which have
had and may in the future have a material adverse effect on the Company's
quarterly sales and operating results. See "--Fluctuations in Operating Results"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations." For example, in late 1995, one of the Company's OEM customers
determined that its orders in the last half of 1995 exceeded its needs.
Accordingly, at such customer's request, the Company delayed its scheduled
deliveries to such OEM for the first half of 1996. The loss of any one of the
Company's OEM customers could have a material adverse effect on the Company's
business, financial condition and results of operations. For example, in October
1995, the Company entered into an OEM arrangement with International Business
Machines Corporation ("IBM") for the production of an integrated server cabinet
system incorporating the Company's switching products. While the products
supplied by the Company met IBM's requirements, IBM concluded that its program
had not achieved IBM's desired results and sought to terminate the program in
mid-1996 after the Company had expended significant financial, product
development and operational resources in connection with this OEM arrangement.
Although the Company negotiated a settlement with IBM that reimbursed the
Company for its product costs and for its direct costs associated with
discontinuing the program, the Company's branded product development efforts
were delayed as a result of the Company's commitment of substantial product
development resources to the IBM program in the third and fourth quarters of
1995 and the first quarter of 1996. For 1996, sales to IBM represented 18% of
the Company's net sales. While the Company has contracts with certain of its
existing OEM customers, none of the Company's OEM customers is obligated to
purchase products from the Company except pursuant to binding purchase orders.
Consequently, any OEM customer could cease doing business with the Company at
any time. The Company's dependence upon its OEMs also results in a significant
concentration of credit risk, as a substantial portion of the Company's trade
receivables outstanding from time to time is concentrated among a limited number
of customers. See Note 1 of Notes to Financial Statements.

INTENSE COMPETITION

The markets for the Company's products are highly fragmented and intensely
competitive. The Company's business is becoming increasingly sensitive to new
product introductions, price changes and marketing efforts by its competitors.
Accordingly, the Company's future success will be highly dependent upon timely
completion and introduction of new products and product features at competitive
price and performance levels which address the evolving needs of the Company's
customers. The Company is currently experiencing increased price competition in
both the market for stand-alone switching systems and the market for integrated
server cabinets and expects that pricing pressures will increase in the future.
Increased competition could result in price reductions and loss of market share,
which would adversely affect the Company's business, financial condition and
results of operations. In the market for integrated switching

7
<PAGE>
systems, the Company competes with independent third parties such as Cybex
Computer Products Corporation, Raritan Computer Inc., Rose Electronics, Elsner
ComputerTechnik GmbH and StarTech Computer Accessories Ltd. In addition, certain
of the Company's OEM customers, such as Hewlett-Packard and Compaq, could choose
to internally manufacture switch products or offer those supplied by the
Company's competitors. In the market for server cabinets, the Company competes
with a significant number of regional manufacturers. Moreover, each of the
Company's current OEM customers sells its own branded integrated server
cabinets. The Company's server cabinets also compete with other types of lower
density, unenclosed technology storage systems. The market for enclosed server
cabinets and other technology storage systems is characterized by intense price
competition and low barriers to entry, and many of the Company's competitors in
this market offer products at significantly lower price points. The Company's
ability to compete successfully in this market will depend in part upon the
Company's ability to continue to differentiate its cabinet systems from
competing products. See "Business--Competition."

The Company's current and potential competitors, many of which have
significantly greater financial, technical, marketing and other resources than
the Company, may be able to respond more quickly to new or emerging technologies
and changes in customer requirements or to devote greater resources to the
development, promotion and sale of their products than the Company. In addition,
current and potential competitors have established or may establish cooperative
relationships among themselves or with third parties that enhance the ability of
their products to address the needs of the Company's prospective customers.
There can be no assurance that the Company will be able to compete successfully
against current and future competitors or that competitive pressure faced by the
Company will not have a material adverse effect on the Company's business,
financial condition and results of operations.

RAPID TECHNOLOGICAL CHANGE; NEED FOR NEW PRODUCT INTRODUCTIONS

The market for the Company's switching products is characterized by rapid
technological advances, frequent new product introductions and enhancements, and
significant price competition. The introduction of products incorporating
superior or alternative technologies, the emergence of new industry standards or
changes in the market's pricing structure could render the Company's existing
products and products under development obsolete or unmarketable. The Company's
switching systems combine components, such as printed circuit boards,
connectors, cable assemblies, power supplies and enclosures, that are
manufactured by other companies and are generally available to the Company's
competitors and potential competitors. The Company's future success will depend
in large part upon its continued innovative application of such commercially
available components to the expansion and enhancement of its existing products
and the development and introduction of new products which address changing
customer needs on a cost-effective and timely basis. The successful introduction
of new products involves a number of risks and uncertainties. There can be no
assurance that the Company will be able to successfully develop planned products
or that there will not be delays in product introductions. In addition, newly
introduced products have in the past experienced, and are likely in the future
to experience, reliability or compatibility problems, which can lead to customer
dissatisfaction, increased customer service and research and development
expenses, and loss of sales. The Company's failure to respond on a timely basis
to technological developments, changes in industry standards or customer
requirements, or any significant delay in product development or introduction
could have a material adverse effect on the Company's business, financial
condition and results of operations. Due to the Company's significant reliance
on OEM relationships, the Company's product development efforts are often
focused on developing new products or enhancements for OEM customers. At times,
these new products or enhancements may not be readily marketable to other
customers without significant modification. The termination or significant
disruption of the Company's relationship with any OEM or other customer for whom
the Company has devoted significant product development resources is likely to
result in lost opportunities with respect to the development of other products
or enhancements. See "--Dependence Upon a Limited Number of OEM Customers."

8
<PAGE>
DEPENDENCE UPON SUPPLIERS AND OUTSOURCED MANUFACTURING

The principal components of the Company's switching products are power
supplies, cable assemblies, line filters, enclosures and printed circuit boards,
all of which are purchased from outside vendors. The Company buys components
under purchase orders and generally does not have long-term agreements with its
suppliers. Any termination of or significant disruption in the Company's
relationship with suppliers of its switching product components may prevent the
Company from filling customer orders in a timely manner, as the Company
generally does not maintain large inventories of its products or components. The
Company purchases a number of the components for its switching products from
sole or a limited number of suppliers. For example, the Company currently
obtains printed circuit boards included in, and the partial assembly of,
concentrator switches from a single source. In addition, the frames for the
Company's server cabinet systems are obtained from a single source and the sheet
metal components are purchased locally from a small number of manufacturers. The
Company has occasionally experienced and may in the future experience delays in
delivery of such components. Although alternate suppliers are available for most
of the components and services needed to produce the Company's products, the
number of suppliers of some components is limited, and qualifying a replacement
supplier and receiving components from alternate suppliers could take several
months. The Company depends upon its suppliers to deliver components that are
free from defects, competitive in functionality and cost and in compliance with
the Company's specifications and delivery schedules. Disruption in supply, a
significant increase in the cost of one or more components, failure of a third
party supplier to remain competitive in functionality or price, or the failure
of a supplier to comply with any of the Company's procurement needs could delay
or interrupt the Company's ability to manufacture and deliver its products to
customers on a timely basis, thereby adversely affecting the Company's business,
financial condition and results of operations.

The Company relies on third party manufacturers for subassembly of the
Company's products. These outsourcing arrangements, and any future outsourcing
arrangements involve numerous risks, including reduced control over product
quality, delivery schedules, manufacturing yields and costs. Moreover, although
arrangements with such manufacturers may contain provisions for warranty
obligations on the part of such manufacturers, the Company remains primarily
responsible to its customers for warranty obligations.

RELIANCE ON CLIENT/SERVER MARKET; IMPROVING NETWORK RELIABILITY AND TOOLS

The Company's business is dependent upon the continued acceptance of the
PC-based client/server model of network computing. Although distributed network
computing utilizing client/server architecture has gained increasing acceptance,
there can be no assurance that use of this networking model will continue to
grow or that it will not be replaced by new technologies for network computing,
thereby rendering the Company's products obsolete. In addition, the market for
the Company's switching products is driven in part by the inherent unreliability
of client/server networks. As client/server networks continue to proliferate,
however, server manufacturers and software providers may develop greater
reliability and better tools for managing networks. To the extent that greater
reliability and better network management tools are successfully developed, the
Company's switching products could be rendered obsolete, which would have a
material adverse effect on the Company's business, financial condition and
results of operations.

RISKS RELATING TO DEVELOPMENT OF EXPANDED RESELLER CHANNEL

The Company expects to rely increasingly on resellers, including value added
resellers and systems integrators, to sell its branded products, and the
Company's strategy contemplates the expansion of its reseller channel both
domestically and internationally. The Company's future success will depend in
part on its ability to attract, train and motivate such resellers. There can be
no assurance that the Company will be successful in expanding its reseller
channel. The Company will be required to invest significant additional resources
in order to expand its reseller channel, and there can be no assurance that the
cost of the Company's investment in further developing this channel will not
exceed the revenues generated from such investment. The Company provides and
expects to continue providing discounts and other special pricing

9
<PAGE>
arrangements to its resellers. As a result of such discounts and other
arrangements, the Company's gross margins on sales through resellers are
expected to be lower than gross margins on direct sales. Although the Company's
existing reseller arrangements generally do not afford material rights of
return, as the Company expands its reseller channel, the Company expects that
certain resellers will have significant rights of return. There can be no
assurance that actual returns in the future will not have a material adverse
effect on the Company's business, financial condition and results of operations.
See "--Product Returns and Warranty Claims." The Company's agreements with its
resellers generally are nonexclusive and may be terminated on short notice by
either party without cause. The Company's resellers are not within the control
of the Company, are not obligated to purchase products from the Company and
frequently offer products of several different manufacturers, including products
competitive with the Company's products. There can be no assurance that these
resellers will not give higher priority to the sale of such other products. A
reduction in sales efforts by the Company's resellers could lead to reduced
sales by the Company and could materially adversely affect the Company's
business, financial condition and results of operations.

DEPENDENCE ON KEY PERSONNEL

The Company is dependent in large part upon its ability to retain its key
management and technical personnel, including Kevin Hafer, President and Chief
Executive Officer, and Chris Sirianni, Vice President, Sales and Marketing. The
future success of the Company will be highly dependent upon the personal efforts
of Mr. Hafer, Mr. Sirianni and other key management and technical personnel, and
the loss of services of any one of them could have a material adverse effect on
the Company's business, financial condition and results of operations. Mr. Hafer
is the only executive officer or employee with whom the Company has entered into
an employment agreement and the only executive officer upon whom the Company
maintains "key-man" life insurance. The Company's success will also be dependent
in part upon its ability to attract, retain and motivate highly skilled
employees. Competition for employees with the skills required by the Company,
particularly engineering and other technical personnel, is intense, and there
can be no assurance that the Company will be able to attract and retain highly
skilled employees in sufficient numbers to sustain its current business or to
support future growth.

MANAGEMENT OF GROWTH

In recent periods, the Company has experienced rapid revenue and customer
growth and expansion in the number of its employees, its product offerings and
the scope and complexity of its financial systems. This growth has placed
significant strain on the Company's management, operational and financial
resources and has resulted in new and increased responsibilities for management
personnel. The Company's officers have had limited or no experience in managing
companies larger than the Company, and, in addition, the Company's Chief
Financial Officer was hired in September 1996. There can be no assurance that
the Company's management, personnel, systems, procedures and controls will be
adequate to support the Company's existing and future operations. The Company's
ability to effectively manage its recent growth and any future growth will
require the Company to continue to implement and improve its operational,
financial and information systems and will likely require additional management
personnel. In addition, the Company believes that it must develop greater
engineering, marketing, sales and customer support capabilities in order to
develop new products and product enhancements, secure new customers at a rate
necessary to achieve desired growth and effectively serve the evolving needs of
present and future customers. There can be no assurance that the Company will be
successful in strengthening these capabilities. Without adequate management,
engineering, product development, marketing and sales and customer support
capabilities, the Company's ability to effectively manage its growth, expand and
enhance its product line, further penetrate its existing markets and develop new
markets will be significantly limited. If the Company's management is unable to
effectively manage the Company's growth, the business, financial condition and
results of operations of the Company will be materially adversely affected.

10
<PAGE>
PRODUCT RETURNS AND WARRANTY CLAIMS

The Company's products carry warranties for parts and service. Although the
Company's historical product return and warranty claims have not been
significant, the Company's business, financial condition and results of
operations could be materially adversely affected should the rate of product
returns or warranty claims increase in the future. In addition, the Company may
change its warranty policies in the future as a result of competitive pressures.

LIMITED PROTECTION OF PROPRIETARY RIGHTS; RISKS OF THIRD PARTY INFRINGEMENTS

The Company's future success will depend in part upon its ability to protect
its proprietary rights in its products. The Company seeks to protect its
intellectual property rights by invoking the benefits of the patent, trademark,
copyright, trade secret and unfair competition laws of the United States, which
afford only limited protection. While the Company has no patents granted, it has
filed a United States patent application and a corresponding application under
the provisions of the Patent Cooperation Treaty (which permits the filing of
corresponding foreign patent applications in numerous foreign countries within a
limited time period) with respect to various aspects of its OUTLOOK and
VIEWPOINT products and its On Screen Configuration And Reporting ("OSCAR")
interface. There can be no assurance that patents will issue from any of the
Company's pending applications or that any claims allowed from pending
applications will be of sufficient scope or strength, or be issued in all
countries where the Company's products can be sold, or provide meaningful
protection or any commercial advantage to the Company. Moreover, competitors of
the Company may be able to design around the Company's patents if any are
issued. The laws of certain foreign countries in which the Company's products
are or may be developed, manufactured or sold, may not protect the Company's
products or intellectual property rights to the same extent as do the laws of
the United States and thus increase the likelihood of piracy of the Company's
technology and products. Although the Company is not aware of any current
infringement of its intellectual property rights, or any violation of its trade
secrets or nondisclosure or licensing arrangements, there can be no assurance
that the steps taken by the Company to protect its intellectual property rights
will be adequate to prevent misappropriation of its technology or that the
Company's competitors will not independently develop technologies that are
substantially equivalent or superior to the Company's technology.

The network server, electronics and related industries are characterized by
vigorous pursuit and protection of intellectual property rights or positions,
which have resulted in significant and often protracted and expensive
litigation. The Company may from time to time be subject to proceedings alleging
infringement by the Company of intellectual property rights owned by third
parties. If necessary or desirable, the Company may seek licenses under such
intellectual property rights. However, there can be no assurance that licenses
will be offered or that the terms of any offered license will be acceptable to
the Company. The failure to obtain a license from a third party for technology
used by the Company could cause the Company to incur substantial liabilities and
to suspend or cease the manufacture of products requiring such technology.

Further, the Company may initiate claims or litigation against third parties
for infringement of the Company's proprietary rights or to establish the
validity of the Company's proprietary rights. Litigation by or against the
Company could result in significant expense to the Company and divert the
efforts of the Company's technical and management personnel, whether or not such
litigation results in a favorable determination for the Company. In the event of
an adverse result in any such litigation, the Company could be required to pay
substantial damages, suspend or cease the manufacture, use and sale of
infringing products, expend significant resources to develop non-infringing
technology, discontinue the use of certain processes or obtain licenses to the
infringing technology. There can be no assurance that the Company would be
successful in such development or that such licenses would be available on
reasonable terms, or at all, and any such development or license could require
expenditures by the Company of substantial time and other resources. In the
event that any third party makes a successful claim against the Company or its
customers and a license is not made available to the Company on commercially
reasonable terms, the

11
<PAGE>
Company's business, financial condition and results of operations would be
adversely affected. See "Business--Proprietary Technology."

INCREASED DEMANDS ON CUSTOMER SUPPORT OPERATIONS

The Company has, in recent periods, experienced increased demands on its
customer support resources. Growth of the Company's branded sales, should it
occur, is likely to be accompanied by further increasing demands on the
Company's customer support operations. As a result of the Company's commitment
to a high level of customer support, the Company is likely to need to invest
significant resources in the maintenance and improvement of its customer support
resources. Any failure to maintain adequate customer support could cause
customer dissatisfaction, result in reduced sales of the Company's products and,
accordingly, materially adversely affect the Company's business, financial
condition and results of operations.

RISKS RELATING TO DEVELOPMENT OF INTERNATIONAL DISTRIBUTION NETWORK AND
INTERNATIONAL SALES

The Company's strategy contemplates the development of an international
distribution network in an effort to increase international sales of its branded
switching products. See "Business--The Apex Strategy; --Sales and Marketing."
There can be no assurance that the Company will be successful in creating an
international distribution network or in marketing and selling its products in
foreign markets. If the revenues generated by international sales are not
adequate to recover the expense of establishing, expanding and maintaining an
international distribution network, the Company's business, financial condition
and results of operations will be materially adversely affected. If
international sales become a more significant component of the Company's net
sales, the Company's business will become more vulnerable to the risks inherent
in doing business on an international level, including difficulties in managing
foreign resellers, longer payment cycles and problems in collecting accounts
receivable, the effects of seasonal customer demand, changes in regulatory
requirements, export restrictions, tariffs and other trade barriers,
fluctuations in currency exchange rates, potentially adverse tax consequences
and political instability. The existence or occurrence of any one of these
factors could have a material adverse effect on the Company's business,
financial condition and results of operations.

LIMITED INDEPENDENT OPERATING HISTORY

The business of the Company was operated as a division of, and was provided
financial and operational support by, Apex Computer Company (the "Predecessor")
through January 1993. In February 1993, the net assets of that division were
spun off as a dividend to the sole shareholder of the Predecessor, who
contributed those assets to the Company as its initial capital. The historical
core business of the Company, computer maintenance services, was discontinued in
mid-1994. As a company with limited independent operating history, the Company
is subject to the risks inherent in a new business enterprise, including limited
predictability of future operating results, competition from more established
businesses, limited financial resources, limited management resources, limited
sales and distribution capabilities, limited technical personnel resources and
vulnerability to adverse economic conditions. Although the Company achieved
profitability for the eleven months ended December 31, 1993 and was profitable
in 1994, 1995, 1996 and the six months ended June 27, 1997, there can be no
assurance that growth in net sales will continue or that the Company will be
able to achieve or sustain profitability on a quarterly or annual basis in the
future.

DISCRETIONARY USE OF PROCEEDS OF OFFERING

The Company has no current specific plans for use of the net proceeds of
this offering. As a consequence, the Company's management will have the ability
to allocate the net proceeds of the offering in its discretion. There can be no
assurance that the net proceeds will be utilized in a manner that the

12
<PAGE>
shareholders deem optimal or that the net proceeds can or will be invested to
yield a significant return following the completion of the offering. See "Use of
Proceeds."

CONTROL BY EXISTING SHAREHOLDERS

Following this offering, the Company's executive officers, directors and
principal shareholders will beneficially own approximately 44.4% of the
Company's outstanding shares of Common Stock (41.0% if the Underwriters'
over-allotment option is exercised in full). As a result of their securities
ownership and positions with the Company, such shareholders, acting in concert,
will be in a position to significantly affect the election of the members of the
Board of Directors and the outcome of the vote on substantially all matters
requiring approval by the shareholders of the Company. This concentration of
ownership under certain circumstances could have the effect of preventing or
delaying a change in control of the Company. See "Principal and Selling
Shareholders."

EFFECT OF ANTI-TAKEOVER PROVISIONS

Pursuant to the Company's Amended and Restated Articles of Incorporation,
the Company's Board of Directors has the authority to issue shares of preferred
stock ("Preferred Stock") and to determine the designations, preferences and
rights and the qualifications and restrictions of those shares without any
further vote or action by the shareholders. The issuance of Preferred Stock, as
well as certain provisions of Washington law and the Company's bylaws, could
have the effect of making it more difficult or expensive for a third party to
acquire, or of discouraging a third party from attempting to acquire, control of
the Company. See "Description of Capital Stock."

SHARES ELIGIBLE FOR FUTURE SALE

Sales, and the potential for sales, of substantial amounts of the Common
Stock in the public market after this offering could adversely affect the market
price of the Common Stock. Upon consummation of this offering, there will be
13,163,328 shares of Common Stock outstanding, based on the number of shares
outstanding as of June 27, 1997. Of that number, 4,200,829 shares are currently
traded or available for sale in the open market, the 3,000,000 shares offered
hereby (3,450,000 shares if the Underwriters' over-allotment option is exercised
in full) will be immediately eligible for sale in the public market without
restriction unless acquired by an "affiliate" of the Company as that term is
defined in Rule 144 ("Rule 144") under the Securities Act of 1933, as amended
(the "Securities Act") and the remaining 5,962,499 shares (5,512,499 shares if
the Underwriters' over-allotment option is exercised in full) are "restricted
securities" (the "Restricted Shares") under the Securities Act. On August 19,
1997, an aggregate of 30,000 of the Restricted Shares will become eligible for
sale to the public market upon the expiration of certain lockup agreements
entered into in connection with the Company's initial public offering. The
holders of an aggregate of 7,931,516 Restricted Shares, including the Selling
Shareholders and the Company's directors, officers and major shareholders, have
agreed pursuant to certain lock-up agreements entered into in connection with
this offering not to sell their shares without the consent of Montgomery
Securities until October 20, 1997. All of the Restricted Shares will be eligible
for sale in the public market after expiration of these lock-up agreements,
subject to the provisions of Rule 144. Moreover, after October 19, 1997, holders
of approximately 2,812,500 Restricted Shares (2,587,500 Restricted Shares if the
Underwriters' over-allotment option is exercised in full) are entitled to
certain rights with respect to registration of such shares for offer or sale to
the public. To the extent that such registration rights are exercised, the
number of shares freely tradeable in the public market will increase which could
adversely affect the market price of the Common Stock. See "Shares Eligible for
Future Sale" and "Description of Capital Stock--Registration Rights."

13
<PAGE>
VOLATILITY OF STOCK PRICE

The stock market has from time to time experienced extreme price and volume
fluctuations, and such fluctuations have been particularly acute with respect to
the securities of companies in the computer and other technology industries,
especially those with small and middle market capitalizations. The market price
for the Common Stock has been subject to significant fluctuation to date and is
expected to be subject to wide fluctuations in the future as a result of a
number of factors, including, but not limited to, fluctuations in operating
results by the Company and its competitors, any failure by the Company or its
competitors to meet analysts' expectations, changes in analysts' estimates, the
state of the national economy, stock market conditions, actions by governmental
agencies, litigation involving the Company, announcements of technological
innovations or product introductions or delays by the Company or its
competitors, and general conditions in the client/server industry. Many of such
factors are beyond the Company's control.

14
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,000,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$21,267,000, assuming a public offering price of $22 7/8 per share, after
deduction of the underwriting discount and estimated offering expenses payable
by the Company. The Company will not receive any proceeds from the sale of
shares of Common Stock by the Selling Shareholders. The net proceeds of the
offering are expected to be used for working capital and other general corporate
purposes. However, the Company has not allocated any specific portion of the net
proceeds to such general corporate purposes, and management will have the
ability to allocate all proceeds in its discretion. See "Risk
Factors--Discretionary Use of Proceeds of Offering." A portion of the net
proceeds may also be used to acquire or invest in complementary businesses or
products or to obtain the right to use complementary technologies; however, the
Company has no present plans, agreements or commitments and is not currently
engaged in any negotiations with respect to any such transactions.

Pending the uses described above, the Company intends to invest the net
proceeds from this offering in short-term, interest bearing, investment-grade
securities.

DIVIDEND POLICY

For the foreseeable future, the Company expects to retain earnings to
finance the expansion and development of its business. The payment of dividends
is within the discretion of the Company's Board of Directors and will depend on
the earnings, capital requirements and operating and financial condition of the
Company, among other factors. In addition, the Company's line of credit facility
prohibits the payment of dividends if any loans are outstanding under such
facility.

From its inception through October 31, 1995, the Company was treated for
federal income tax purposes as an S Corporation under Subchapter S of the
Internal Revenue Code of 1986, as amended. As a result, the Company's earnings
from its inception through October 31, 1995 (the "Termination Date") were for
federal income tax purposes taxed directly to the Company's sole shareholder, at
his individual federal income tax rate, rather than to the Company. Subsequent
to the Termination Date, the Company was no longer treated as an S Corporation
and, accordingly, has been subject to federal income taxes on its earnings after
October 31, 1995. In 1995, prior to the Termination Date, the Company's Board of
Directors declared dividends in the aggregate amount of $4,614,322. See "Certain
Transactions."

PRICE RANGE OF COMMON STOCK

The Company's Common Stock has traded publicly on the Nasdaq National Market
under the symbol "APEX" since February 19, 1997. The Company's initial public
offering price was $9.00 per share. The following table lists the high and low
sales prices for the Company's Common Stock for the periods indicated as
reported by the Nasdaq National Market:

<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal Year Ending December 31, 1997:
Third Quarter (through July 17, 1997)...................................................... $ 24 1/4 $ 19
Second Quarter (ended June 27, 1997)....................................................... 21 1/8 6 5/8
First Quarter (beginning February 19, 1997 and ended March 28, 1997)....................... 10 1/2 8 1/8
</TABLE>

On July 17, 1997, the last reported sales price of the Company's Common
Stock on the Nasdaq National Market was $22 7/8 per share. As of June 27, there
were approximately 37 record holders of the Company's Common Stock.

15
<PAGE>
CAPITALIZATION

The following table sets forth (i) the actual capitalization of the Company
as of June 27, 1997 and (ii) the capitalization of the Company as adjusted to
give effect to the sale and issuance of the 1,000,000 shares of Common Stock
offered by the Company hereby at an assumed public offering price of $22 7/8 per
share, after deduction of the underwriting discount and estimated offering
expenses payable by the Company. The information in the table below is qualified
in its entirety by, and should be read in conjunction with, the financial
statements and the notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
JUNE 27, 1997
------------------------
ACTUAL AS ADJUSTED
----------- -----------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Shareholders' equity:
Preferred Stock, no par value; 1,000,000 shares authorized, no shares outstanding as
adjusted............................................................................ $ -- $ --
Common Stock, no par value; 100,000,000 shares authorized; 12,163,328 shares
outstanding actual; 13,163,328 shares outstanding as adjusted (1)................... 31,527 52,794
Deferred compensation................................................................. (181) (181)
Accumulated deficit................................................................... (15,494) (15,494)
----------- -----------
Total shareholders' equity.......................................................... 15,852 37,119
----------- -----------
Total capitalization.................................................................. $ 15,852 $ 37,119
----------- -----------
----------- -----------
</TABLE>

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

(1) Based on shares outstanding as of June 27, 1997. Excludes (i) 951,564 shares
of Common Stock reserved for issuance upon the exercise of options
outstanding at June 27, 1997, at a weighted average exercise price of
$4.7655 per share, (ii) 550,180 additional shares reserved for future
issuance pursuant to the Company's 1995 Employee Stock Plan and (iii)
246,688 shares reserved for future issuance pursuant to the Company's
Employee Stock Purchase Plan. See "Management--Employee Stock Plan;
--Employee Stock Purchase Plan."

16
<PAGE>
SELECTED FINANCIAL DATA

The statement of operations data for the years ended December 31, 1994, 1995
and 1996 and the balance sheet data as of December 31, 1995 and 1996 are derived
from financial statements of the Company which have been audited by Coopers &
Lybrand L.L.P., independent accountants, and which are contained elsewhere in
this Prospectus. The balance sheet data as of December 31, 1994 are derived from
financial statements of the Company which have been audited by Coopers & Lybrand
L.L.P., independent accountants, and are not included in this Prospectus. The
statement of operations data for the six months ended June 30, 1996 and June 27,
1997 and the consolidated balance sheet data at June 27, 1997 are derived from
unaudited financial statements included elsewhere in this Prospectus. The
unaudited financial statements have been prepared by the Company on a basis
consistent with the Company's audited financial statements and in the opinion of
management include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such information. The results
of operations for the six months ended June 27, 1997 are not necessarily
indicative of the results to be expected for the entire year. The following
selected financial data should be read in conjunction with the Company's
financial statements and the related notes thereto and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED
------------------------------- ----------------------------
1994 1995 1996 JUNE 30, 1996 JUNE 27, 1997
--------- --------- --------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................ $ 7,310 $ 19,671 $ 33,622 $ 14,002 $ 23,681
Cost of sales........................................ 4,493 10,636 19,239 8,343 12,991
--------- --------- --------- ------------- -------------
Gross profit......................................... 2,817 9,035 14,383 5,659 10,690
--------- --------- --------- ------------- -------------
Operating expenses:
Research and development........................... 278 913 965 464 936
Sales and marketing................................ 370 1,631 2,481 1,117 1,877
General and administrative......................... 1,236 2,754 3,609 931 1,703
--------- --------- --------- ------------- -------------
Total operating expenses....................... 1,884 5,298 7,055 2,512 4,516
--------- --------- --------- ------------- -------------
Income from operations............................... 933 3,737 7,328 3,147 6,174
Interest income (expense), net....................... 7 (186) (1,859) (947) (123)
Other income......................................... -- -- -- -- 146
--------- --------- --------- ------------- -------------
Income from continuing operations before income taxes
and extraordinary item.............................. 940 3,551 5,469 2,200 6,197
Benefit (provision) for income taxes................. -- 52 (1,861) (748) (2,115)
--------- --------- --------- ------------- -------------
Income from continuing operations before
extraordinary item.................................. 940 3,603 3,608 1,452 4,082
Extraordinary item--loss on extinguishment of debt,
net of applicable income taxes...................... -- -- -- -- (141)
Income from discontinued service operations.......... 601 -- -- -- --
--------- --------- --------- ------------- -------------
Net income........................................... $ 1,541 $ 3,603 $ 3,608 $ 1,452 $ 3,941
--------- --------- --------- ------------- -------------
--------- --------- --------- ------------- -------------
PRO FORMA DATA (1):
Historical income before provision for income
taxes............................................... $ 1,541 $ 3,551 $ 5,469 $ 2,200 $ 5,983
Provision for income taxes (pro forma through
1995)............................................... (524) (1,207) (1,861) (748) (2,042)
--------- --------- --------- ------------- -------------
Net income (pro forma through 1995).................. $ 1,017 $ 2,344 $ 3,608 $ 1,452 $ 3,941
--------- --------- --------- ------------- -------------
--------- --------- --------- ------------- -------------
Pro forma income per share........................... $ 0.20 $ 0.40 $ 0.16 $ 0.33
--------- --------- ------------- -------------
--------- --------- ------------- -------------
Weighted average shares used in computing pro forma
income per share (2)................................ 11,492 9,092 9,092 11,839
--------- --------- ------------- -------------
--------- --------- ------------- -------------
</TABLE>

17
<PAGE>

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------- JUNE 27,
1994 1995 1996 1997
--------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................... $ 388 $ 2,676 $ 2,119 $ 7,956
Working capital..................................................... 1,603 4,650 8,372 15,212
Total assets........................................................ 2,338 9,048 11,953 18,896
Subordinated debt................................................... 0 20,000 20,000 --
Long-term debt, less current portion................................ 225 5,615 5,111 --
Series A Redeemable and Convertible Preferred Stock................. 0 2,205 2,205 --
Series B Redeemable Preferred Stock................................. 0 1,000 1,000 --
Shareholders' equity (deficit)...................................... 1,462 (23,748) (18,880) 15,852
</TABLE>

- ------------------------
(1) From inception through October 31, 1995, the Company was treated as an S
Corporation for federal income tax purposes. The pro forma data reflect an
estimate of income tax expense as if the Company was taxable as a C
Corporation for each of the years ended December 31, 1995 and 1994. See
Notes 1 and 11 of Notes to Financial Statements.

(2) See Note 1 of Notes to Financial Statements for calculation of weighted
average shares used in computing pro forma income per share.

18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND THE RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE STATEMENTS CONTAINED IN THIS PROSPECTUS THAT ARE NOT PURELY
HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. SUCH FORWARD-LOOKING STATEMENTS INCLUDE,
WITHOUT LIMITATION, STATEMENTS RELATING TO FUTURE OPERATING RESULTS, OEM
CUSTOMERS, COMPETITION, NEW PRODUCT INTRODUCTIONS, COMPONENT SUPPLIERS, RESELLER
CHANNELS, KEY PERSONNEL, MANAGEMENT OF GROWTH, WARRANTY POLICIES, PROPRIETARY
RIGHTS, CUSTOMER SUPPORT, INTERNATIONAL SALES, THE APEX STRATEGY, FUTURE
RESEARCH AND DEVELOPMENT EXPENDITURES, FUTURE NET SALES, FUTURE SALES AND
MARKETING EXPENDITURES, FUTURE GENERAL AND ADMINISTRATIVE EXPENDITURES AND
FUTURE LIQUIDITY AND CAPITAL RESOURCES. ALL FORWARD-LOOKING STATEMENTS INCLUDED
IN THIS PROSPECTUS ARE BASED ON INFORMATION AVAILABLE TO THE COMPANY ON THE DATE
HEREOF, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING
STATEMENTS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW, IN "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.

OVERVIEW

The Company designs, manufactures and markets stand-alone switching systems
and integrated server cabinet solutions for the client/server computing market.
The Company operated as a division of Apex Computer Company (the "Predecessor")
through January 1993, providing computer maintenance services to Microsoft
Corporation ("Microsoft") and selling integrated server cabinets and, to a
limited extent, stand-alone switching systems, primarily to Microsoft. In
February 1993, the assets of that division were spun off as a dividend to the
sole shareholder of the Predecessor, who contributed those assets as the initial
capital of the Company. See "Certain Transactions." Throughout 1993, the Company
derived revenue primarily from the provision of computer maintenance services to
Microsoft. In May 1994, the Company began selling stand-alone switching systems
to Compaq for integration into server cabinets. In June 1994, the Company
discontinued its computer maintenance service business and determined to
concentrate on sales of stand-alone switching products and server cabinets,
including server cabinets with integrated switching systems.

In December 1995, the Company effected a leveraged recapitalization (the
"Leveraged Recapitalization") pursuant to which (i) the Company redeemed from
one of its shareholders Common Stock representing a 50% voting interest in the
Company prior to the Leveraged Recapitalization for approximately $12.5 million
in cash and a Class B Subordinated Promissory Note in the principal amount of
$10.0 million, and (ii) the Company sold to a group of entities affiliated with
TA Associates, Inc. (the "TA Group") Common Stock and Series A Redeemable and
Convertible Preferred Stock representing a 50% voting interest in the Company
after the Leveraged Recapitalization for $2.5 million and sold to the TA Group
Class A Subordinated Promissory Notes in the aggregate principal amount of $10.0
million. The value of the Company prior to the Leveraged Recapitalization, as
determined by an independent appraisal obtained in advance of the transaction,
was approximately $23.7 million. The Company effected the Leveraged
Recapitalization for a number of reasons, including the redemption of shares of
a majority shareholder who desired liquidity and the addition of the expertise
of a venture capital investor to the Company's Board of Directors. Moreover, the
Company believes that the addition of this expertise and the willingness of the
TA Group to invest substantial sums in the Company in the form of equity and
subordinated indebtedness helped the Company obtain long-term bank financing at
that time. The subordinated promissory notes issued in connection with the
Leveraged Recapitalization were repaid in accordance with their terms in
February 1997 using the proceeds of the Company's initial public offering (the
"IPO"). See "Certain Transactions."

From its inception through October 31, 1995 (the "Termination Date"), the
Company was treated for federal income tax purposes as an S Corporation under
Subchapter S of the Internal Revenue Code of 1986, as amended. As a result, the
Company's earnings from its inception through the Termination Date

19
<PAGE>
were for federal income tax purposes taxed directly to the Company's sole
shareholder, at his individual federal income tax rate, rather than to the
Company. The pro forma provision for income taxes reflects an estimate of income
tax expense at federal statutory rates as if the Company were taxable as a C
Corporation for each of the years ended December 31, 1994 and 1995. See Notes 1
and 11 of Notes to Financial Statements.

A substantial portion of the Company's sales are concentrated among a
limited number of OEM customers. For 1994, 1995, 1996, and the six months ended
June 27, 1997, sales to the Company's OEM customers, represented approximately
38%, 69%, 71% and 66% of the Company's net sales, respectively. The Company's
OEM business is subject to risks such as contract termination, reduced or
delayed orders, adoption of competing products developed by third parties for
the OEM or by the OEM's internal development team, and change in corporate
ownership, financial condition, business direction or product mix by the OEM,
any of which could have a material adverse effect on the Company's results of
operations. The Company has experienced, and may continue to experience,
significant reductions or delays in orders from its OEM customers which have had
and may in the future have a material adverse effect on the Company's quarterly
sales and operating results. See "Risk Factors--Fluctuations in Operating
Results." In December 1995, one of the Company's OEM customers determined that
its orders of Company switches in late 1995 exceeded its needs. Accordingly, at
such customer's request, the Company delayed its scheduled deliveries to such
OEM for additional switches in the first half of 1996. While the Company has
contracts with certain of its existing OEM customers, none of the Company's OEM
customers is obligated to purchase products from the Company except pursuant to
binding purchase orders. The failure of any of the Company's OEMs to continue to
place orders at current or anticipated levels would likely have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Risk Factors--Dependence Upon a Limited Number of OEM
Customers."

In 1995, the Company entered into an OEM arrangement with IBM for the
production of an integrated server cabinet system incorporating the Company's
switching products. While the products supplied by the Company met IBM's
requirements, IBM concluded that its program had not achieved desired results
and sought to terminate the program in mid-1996 after the Company had expended
significant product development and operational resources in connection with
this OEM arrangement. Although the Company negotiated a settlement that covered
its product costs and its direct costs associated with discontinuing the
program, the Company's branded product development efforts were delayed as a
result of the Company's commitment of substantial product development resources
to the IBM program in the third and fourth quarters of 1995 and the first
quarter of 1996. IBM accounted for 1% of the Company's net sales in 1995 and 18%
of the Company's net sales in 1996.

The Company is currently experiencing increased price competition in both
the market for stand-alone switching systems and the market for integrated
server cabinet systems and expects that pricing pressures will increase in the
future. Increased competition could result in price reduction and loss of market
share which would adversely affect the Company's business, financial condition
and results of operations. See "Risk Factors--Intense Competition."

20
<PAGE>
RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, selected
statement of operations data expressed as a percentage of net sales:

<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED ENDED
DECEMBER 31, ------------------------
------------------------------------- JUNE 30, JUNE 27,
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................................... 61.5 54.1 57.2 59.6 54.9
----- ----- ----- ----- -----
Gross margin................................................ 38.5 45.9 42.8 40.4 45.1
----- ----- ----- ----- -----
Operating expenses:
Research and development.................................. 3.8 4.6 2.9 3.3 4.0
Sales and marketing....................................... 5.0 8.3 7.4 8.0 7.9
General and administrative................................ 16.9 14.0 10.7 6.6 7.2
----- ----- ----- ----- -----
Total operating expenses................................ 25.7 26.9 21.0 17.9 19.1
----- ----- ----- ----- -----
Income from operations...................................... 12.8 19.0 21.8 22.5 26.0
Interest income (expense), net.............................. 0.1 (0.9) (5.6) (6.8) (0.5)
Other income................................................ -- -- -- -- 0.6
----- ----- ----- ----- -----
Income from continuing operations before income taxes and
extraordinary item........................................ 12.9 18.1 16.2 15.7 26.1
Provision for income taxes (pro forma through December 31,
1995)..................................................... 4.4 6.2 5.5 5.3 8.9
----- ----- ----- ----- -----
Income from continuing operations before extraordinary item
(pro forma through December 31, 1995)..................... 8.5 11.9 10.7 10.4 17.2
Extraordinary item--loss on early extinguishment of debt,
net of applicable income taxes............................ -- -- -- -- 0.6
Income from discontinued service operations (net of pro
forma taxes).............................................. 5.4 -- -- -- --
----- ----- ----- ----- -----
Net income (pro forma through December 31, 1995)............ 13.9% 11.9% 10.7% 10.4% 16.6%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>

SIX MONTHS ENDED JUNE 27, 1997 AND JUNE 30, 1996

NET SALES. The Company's net sales consist of sales of stand-alone
switching systems and integrated server cabinets. Net sales increased 69% to
$23.7 million for the six months ended June 27, 1997 from $14.0 million for the
six months ended June 30, 1996. This increase was due primarily to growth in
sales of stand-alone switching systems to OEM customers and, to a lesser extent,
to increased sales of Apex branded switching systems and cabinets.

GROSS MARGIN. Gross margin is affected by a variety of factors, including:
the ratio of OEM sales to branded sales, as OEM sales typically have lower gross
margins than branded sales; product mix, including the percentage of integrated
cabinet systems sales, which generally have lower gross margins than sales of
stand-alone switching systems; raw materials and labor costs; new product
introductions by the Company and its competitors; and the level of outsourcing
of manufacturing and assembly services by the Company. Gross margin increased to
45.1% for the six months ended June 27, 1997 from 40.4% for the six months ended
June 30, 1996, due primarily to shifts in the Company's product mix to a larger
percentage of branded switching systems and integrated cabinet systems sales.
The Company expects that increased price competition may affect pricing and
therefore erode the Company's gross margins in the future. See "Risk
Factors--Intense Competition."

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
include compensation for engineers and materials costs and are expensed as they
are incurred. Research and development expenses increased to $936,000 for the
six months ended June 27, 1997 from $464,000 for the six months ended June 30,
1996, due primarily to increased compensation expense associated with increased
staffing levels

21
<PAGE>
and, to a lesser extent, to increased project spending. As a percentage of net
sales, research and development expenses were 4.0% for the six months ended June
27, 1997 compared to 3.3% for the six months ended June 30, 1996. The Company
believes that the timely development of innovative products and enhancements to
existing products is essential to maintaining its competitive position and,
therefore, expects research and development expeditures to increase in absolute
dollars.

SALES AND MARKETING EXPENSES. Sales and marketing expenses include
promotional material, trade show expenses and sales and marketing personnel
costs, including sales commissions and travel. Sales and marketing expenses
increased to $1.9 million for the six months ended June 27, 1997 from $1.1
million for the six months ended June 30, 1996. As a percentage of net sales,
sales and marketing expenses decreased to 7.9% for the six months ended June 27,
1997 from 8.0% for the six months ended June 30, 1996. The increase in absolute
dollars was due primarily to increased compensation expense associated with
increased staffing levels and to increased advertising and trade show expenses,
including expenses relating to market entry and advertising strategies for
Europe. The Company expects these expenditures to increase in absolute dollars
as it seeks to increase its branded sales, in general, and its international
sales, in particular.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
include personnel costs for administration, finance, human resources and general
management, as well as rent, utilities and legal and accounting expenses, and
provision for Washington State's gross receipts tax. General and administrative
expenses increased to $1.7 million for the six months ended June 27, 1997 from
$931,000 for the six months ended June 30, 1996. As a percentage of net sales,
general and administrative expenses increased to 7.2% for the six months ended
June 27, 1997 from 6.6% for the six months ended June 30, 1996. The increase was
due primarily to increased personnel costs, including the addition of a Chief
Financial Officer and a Corporate Controller, and, to a lesser extent, to
increased costs relating to the Company's transition to a public company. The
Company expects that general and administrative expenses will increase in
absolute dollars to support the growth of operations and sales functions.

NET INTEREST EXPENSE (INCOME). Net interest expense decreased to $123,000
for the six months ended June 27, 1997 from $947,000 for the six months ended
June 30, 1996. The decrease in net interest expense resulted primarily from the
elimination of all indebtedness incurred in the Leveraged Recapitalization, as
well as the elimination of all long-term bank indebtedness, using the proceeds
of the IPO.

PROVISION FOR INCOME TAXES. The provision for income taxes was $2.1 million
for the six months ended June 27, 1997 compared to $748,000 for the six months
ended June 30, 1996. The effective federal tax rate for each of these periods
was approximately 34%.

NET INCOME. Net income increased 171% to $3.9 million for the six month
period ended June 27, 1997 from net income of $1.45 million for the six months
ended June 30, 1996. This increase was due primarily to increased net sales and
related gross profits and decreased net interest expense resulting from the
elimination of long-term indebtedness using the proceeds of the IPO and, to a
lesser extent, increased gross margin. As a percentage of net sales, net income
increased to 16.6% for the six months ended June 27, 1997 from 10.4% for the six
months ended June 30, 1996.

YEARS ENDED DECEMBER 31, 1996 AND 1995

NET SALES. Net sales increased 71% to $33.6 million for 1996 from $19.7
million for 1995. This increase was due primarily to increased sales of
stand-alone switching systems to OEMs, sales of integrated server cabinet
systems to IBM in the first half of 1996, and, to a lesser extent, sales of
branded switching systems to resellers.

GROSS MARGIN. Gross margin declined to 42.8% for 1996 from 45.9% for 1995,
due to increased OEM sales as a percentage of net sales, including sales of
cabinet systems to IBM in the first half of 1996, as well as increased
outsourcing by the Company of component assembly to meet customer demand. In
addition, the Company accrued $630,000 and $215,000, respectively, in warranty
and inventory reserves in 1996. To date, the Company has not experienced
significant product returns. The increase in warranty reserves in

22
<PAGE>
1996 was the result of the Company's evaluation of the composition of its
current product mix and the Company's increased sales of OEM and branded
switching systems which the Company believes increased its warranty exposure.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $965,000 for 1996 from $913,000 for 1995, but decreased as a
percentage of net sales to 2.9% for 1996 from 4.6% for 1995.

SALES AND MARKETING EXPENSES. Sales and marketing expenses increased to
$2.5 million for 1996 from $1.6 million for 1995, but declined as a percentage
of net sales to 7.4% for 1996 from 8.3% for 1995. The increase in absolute
dollars was primarily due to increased advertising and trade show expenses,
including travel, and to a lesser extent, increased personnel costs.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $3.6 million for 1996 from $2.8 million for 1995. As a percentage
of net sales, general and administrative expenses declined to 10.7% for 1996
from 14.0% for 1995. The increase in absolute dollars was primarily due to the
move to larger facilities by the Company in September 1995 which increased rent,
an increase in the Company's allowance for doubtful accounts, state tax
increases associated with increased net sales and, to a lesser extent, increased
legal and accounting costs and the addition of corporate infrastructure to
support the Company's growth in net sales.

NET INTEREST EXPENSE (INCOME). Net interest expense increased to $1.9
million for 1996 from $186,000 for 1995. The increase in net interest expense
resulted from indebtedness incurred in the Leveraged Recapitalization.

PROVISION FOR INCOME TAXES. The provision for income taxes was $1.9 million
for 1996. The effective federal tax rate for 1996 was approximately 34%.

NET INCOME. Net income increased to $3.6 million for 1996 from pro forma
net income of $2.3 million for 1995 due primarily to increased sales and related
gross profits offset in part by increased interest expense associated with the
Leveraged Recapitalization. As a percentage of net sales, net income declined to
10.7% for 1996 from 11.9% (pro forma) for 1995. The increase in absolute dollars
and the decrease as a percentage of net sales was due to the factors discussed
above.

YEARS ENDED DECEMBER 31, 1995 AND 1994

NET SALES. Net sales increased 169% to $19.7 million for 1995 from $7.3
million for 1994. This increase was primarily due to the initiation and growth
of sales of stand-alone switching systems to OEM customers and, to a lesser
extent, an increase in sales of branded stand-alone switching systems.

GROSS MARGIN. Gross margin increased to 45.9% for 1995 from 38.5% for 1994,
primarily due to greater sales of stand-alone switching systems, which generally
have higher gross margins than server cabinets, and, to a lesser extent,
increases in branded sales with higher gross margins and economies of scale
gained from volume increases.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $913,000 for 1995 from $278,000 for 1994. As a percentage of net
sales, research and development expenses increased to 4.6% in 1995 from 3.8% in
1994. The increases in absolute dollars and as a percentage of net sales were
primarily due to the addition of new engineers and the development of OUTLOOK
and VIEWPOINT prototypes.

SALES AND MARKETING EXPENSES. Sales and marketing expenses increased to
$1.6 million for 1995 from $370,000 for 1994. As a percentage of net sales,
sales and marketing expenses increased to 8.3% in 1995 from 5.0% in 1994. The
increases in absolute dollars and as a percentage of net sales were primarily
due to increased advertising and tradeshow expenses and, to a lesser extent,
sales commissions and personnel costs.

23
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $2.8 million for 1995 from $1.2 million for 1994. As a percentage
of net sales, general and administrative expenses declined to 14.0% in 1995 from
16.9% in 1994. The increase in absolute dollars was primarily due to
approximately $1.4 million incurred in December 1995 for transaction costs and
bonuses associated with the Leveraged Recapitalization.

NET INTEREST EXPENSE (INCOME). Net interest expense was $186,000 in 1995.
The Company earned interest income of $7,000 in 1994. The increase in interest
expense from 1994 to 1995 resulted from certain loans made to the Company by its
founder and former sole shareholder.

NET INCOME. Pro forma net income increased to $2.3 million for 1995 from
$1.0 million for 1994. As a percentage of net sales, pro forma net income
declined to 11.9% in 1995 from 13.9% in 1994. The increase in absolute dollars
and the decline as a percentage of net sales were due to the factors discussed
above.

24
<PAGE>
QUARTERLY INFORMATION

The following tables set forth certain unaudited statement of operations
data for the ten quarters ended June 27, 1997, as well as such data expressed as
a percentage of net sales for the periods indicated. Such data have been derived
from unaudited condensed financial statements that, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such data. Such data should be
read in conjunction with the Company's audited financial statements and the
related notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
QUARTERS ENDED
-----------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1995 1995 1995 1995 1996 1996 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.......................... $ 3,166 $ 4,011 $ 4,606 $ 7,888 $ 7,916 $ 6,086 $ 9,265
Cost of sales...................... 1,681 2,121 2,385 4,449 4,668 3,675 5,173
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit....................... 1,485 1,890 2,221 3,439 3,248 2,411 4,092
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating expenses:
Research and development......... 158 189 298 268 258 206 191
Sales and marketing.............. 295 316 392 628 577 540 641
General and administrative....... 248 242 307 1,957 449 482 773
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses....... 701 747 997 2,853 1,284 1,228 1,605
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income from operations............. 784 1,143 1,224 586 1,964 1,183 2,487
Interest income (expense), net..... 4 (10) (26) (154) (472) (475) (472)
Other income....................... -- -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income from operations before
income taxes and extraordinary
item............................. 788 1,133 1,198 432 1,492 708 2,015
Provision for income taxes (pro
forma through December 1995)..... 268 385 408 146 508 241 686
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before extraordinary item... 520 748 790 286 984 467 1,329
Extraordinary item--loss on early
extinguishment of debt, net of
applicable income taxes.......... -- -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (pro forma through
December 1995)................... $ 520 $ 748 $ 790 $ 286 $ 984 $ 467 $ 1,329
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Pro forma income per share......... $ 0.05 $ 0.07 $ 0.07 $ 0.02 $ 0.11 $ 0.05 $ 0.15
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Pro forma weighted average shares
outstanding...................... 11,492 11,492 11,492 11,492 9,092 9,092 9,092

QUARTERS ENDED
-----------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1995 1995 1995 1995 1996 1996 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales...................... 53.1 52.9 51.8 56.4 59.0 60.4 55.8
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross margin....................... 46.9 47.1 48.2 43.6 41.0 39.6 44.2
Operating expenses:
Research and development......... 5.0 4.7 6.5 3.4 3.3 3.4 2.1
Sales and marketing.............. 9.3 7.9 8.5 8.0 7.3 8.9 6.9
General and administrative....... 7.8 6.0 6.6 24.8 5.6 7.9 8.4
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses....... 22.1 18.6 21.6 36.2 16.2 20.2 17.4
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income from operations............. 24.8 28.5 26.6 7.4 24.8 19.4 26.8
----------- ----------- ----------- ----------- ----------- ----------- -----------
Interest income (expense), net..... 0.1 (0.3) (0.6) (1.9) (6.0) (7.8) (5.1)
Other income....................... -- -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income from operations before
income taxes and extraordinary
item............................. 24.9 28.2 26.0 5.5 18.8 11.6 21.7
Provision for income taxes (pro
forma through December 1995)..... 8.5 9.6 8.8 1.9 6.4 4.0 7.4
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before extraordinary item... 16.4 18.6 17.2 3.6 12.4 7.6 14.3
Extraordinary item--loss on early
extinguishment of debt, net of
applicable income taxes.......... -- -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (pro forma through
December 1995)................... 16.4% 18.6% 17.2% 3.6% 12.4% 7.6% 14.3%
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------

DEC. 31, MAR. 28, JUNE 27,
1996 1997 1997
----------- ----------- -----------

<S> <C> <C> <C>
Net sales.......................... $ 10,355 $ 11,587 $ 12,094
Cost of sales...................... 5,723 6,383 6,609
----------- ----------- -----------
Gross profit....................... 4,632 5,204 5,485
----------- ----------- -----------
Operating expenses:
Research and development......... 310 442 494
Sales and marketing.............. 723 885 991
General and administrative....... 1,905 781 922
----------- ----------- -----------
Total operating expenses....... 2,938 2,108 2,407
----------- ----------- -----------
Income from operations............. 1,694 3,096 3,078
Interest income (expense), net..... (440) (240) 117
Other income....................... -- 146 --
----------- ----------- -----------
Income from operations before
income taxes and extraordinary
item............................. 1,254 3,002 3,195
Provision for income taxes (pro
forma through December 1995)..... 426 1,025 1,090
----------- ----------- -----------
Income before extraordinary item... 828 1,977 2,105
Extraordinary item--loss on early
extinguishment of debt, net of
applicable income taxes.......... -- (141) --
----------- ----------- -----------
Net income (pro forma through
December 1995)................... $ 828 $ 1,836 $ 2,105
----------- ----------- -----------
----------- ----------- -----------
Pro forma income per share......... $ 0.09 $ 0.17 $ 0.16
----------- ----------- -----------
----------- ----------- -----------
Pro forma weighted average shares
outstanding...................... 9,092 10,736 12,861

DEC. 31, MAR. 28, JUNE 27,
1996 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales.......................... 100.0% 100.0% 100.0%
Cost of sales...................... 55.3 55.1 54.6
----------- ----------- -----------
Gross margin....................... 44.7 44.9 45.4
Operating expenses:
Research and development......... 3.0 3.8 4.1
Sales and marketing.............. 7.0 7.6 8.3
General and administrative....... 18.4 6.8 7.6
----------- ----------- -----------
Total operating expenses....... 28.4 18.2 20.0
----------- ----------- -----------
Income from operations............. 16.3 26.7 25.4
----------- ----------- -----------
Interest income (expense), net..... (4.2) (2.1) 1.0
Other income....................... -- 1.3 --
----------- ----------- -----------
Income from operations before
income taxes and extraordinary
item............................. 12.1 25.9 26.4
Provision for income taxes (pro
forma through December 1995)..... 4.1 8.9 9.0
----------- ----------- -----------
Income before extraordinary item... 8.0 17.0 17.4
Extraordinary item--loss on early
extinguishment of debt, net of
applicable income taxes.......... -- 1.2 --
----------- ----------- -----------
Net income (pro forma through
December 1995)................... 8.0% 15.8% 17.4%
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

25
<PAGE>
Net sales for the second quarter of 1996 decreased from the first quarter of
1996 primarily as a result of a reduction in orders of switches by one of the
Company's OEM customers, which had determined that its orders for the Company's
switches in late 1995 had exceeded its needs.

The fluctuations in gross margin from quarter to quarter in 1996 resulted
from shifts in the Company's product mix between stand-alone switching systems
and integrated cabinets. The reductions in research and development expenses as
a percentage of net sales from the last quarter of 1995 to the first and
subsequent quarters of 1996 resulted from a significant increase in the
Company's net sales for 1996 as compared to 1995. The increases in research and
development expenses in the first and second quarters of 1997 in absolute
dollars and as a percentage of net sales over the prior four quarters in 1996
were attributable primarily to increased compensation costs relating to
increased staffing levels. The significant increases in sales and marketing
expenses in the first and second quarters of 1997 in absolute dollars over the
prior four quarters in 1996 were attributable primarily to increased
compensation costs related to increased staffing levels. The significant
increase in general and administrative expenses in absolute dollars and as a
percentage of net sales in the fourth quarter of 1995 over the prior three
quarters was attributable to the transactional expenses of the Leveraged
Recapitalization, and the compensation expenses associated with Mr. Hafer's 1995
bonus. See "Certain Transactions." The significant increase in general and
administrative expenses in absolute dollars and as a percentage of net sales in
the fourth quarter of 1996 over the prior three quarters was attributable to
compensation expense of approximately $875,000 incurred as a result of the
acceleration of the vesting of the Series B Redeemable Preferred Stock issued to
Mr. Hafer in connection with the Leveraged Recapitalization and a $206,000
increase in the Company's allowance for doubtful accounts. The Company concluded
that the increase in allowance for doubtful accounts was appropriate primarily
based upon increased amounts and concentrations of branded sales, including
sales to new resellers. The significant change in net interest income (expense)
in the second quarter of 1997 over the prior six quarters resulted from the
repayment of subordinated indebtedness incurred in the Leveraged
Recapitalization and long-term bank debt using the proceeds of the IPO in
February 1997.

The Company has experienced substantial fluctuations in its operating
results, on a quarterly and an annual basis, and the Company expects such
fluctuations to continue in the future. The Company's operating results are
affected by a number of factors, including: the volume and timing of orders,
particularly from OEM customers; the timing of shipments; the timing of new
product introductions and enhancements by the Company and its competitors;
changes in product or distribution channel mixes; changes in pricing policies or
price reductions by the Company or its competitors; the availability and cost of
supplies and components; sales and marketing expenses related to entering into
new markets, introducing new products and retaining current OEM and other large
customers; seasonal customer demand; and fluctuations in sales of servers due to
changes in economic conditions or capital spending levels.

In general, the Company's sales cycle varies substantially and may be
lengthy, making revenues difficult to forecast. The Company has experienced
period to period variability in sales to each of its OEM customers and expects
this pattern to continue in the future. Although the Company's OEM customers
typically place orders for products several months prior to scheduled shipment
dates, these orders are subject to cancellation up to eight weeks prior to the
scheduled shipment date. The Company generally must plan production, order
components and undertake its manufacturing activities prior to the time that
these orders become firm. In addition, the Company's OEM customers have in the
past requested, and will likely continue to request from time to time, that the
Company delay shipment dates or cancel orders for products that are subject to
firm orders. Accordingly, sales to OEMs for future quarters are difficult to
predict. Moreover, any cancellation, rescheduling or reduction of orders by OEM
customers in the future could materially adversely affect the Company's
operating results. If the Company succeeds in increasing branded sales as a
percentage of net sales, the Company's quarterly sales and operating results
will become more dependent upon the volume and timing of branded product orders
received during the quarter. Because customers of the Company's branded products
(including resellers) typically place orders shortly before their requested
shipment date, revenues from branded sales are difficult to forecast. The
failure of the Company to accurately forecast the timing and volume of orders
for branded products during any given quarter could adversely affect the
Company's operating results for such quarter and, potentially, for future
periods.

26
<PAGE>
The Company has historically experienced higher levels of net sales in the
fourth quarter. The Company believes that this seasonality is a result of
customer budgeting and procurement cycles, which correspondingly may depress net
sales in other quarters, and the Company expects this seasonality to continue in
the future.

LIQUIDITY AND CAPITAL RESOURCES

As of June 27, 1997, the Company's principal sources of liquidity consisted
of approximately $7.9 million in cash and cash equivalents. In addition, since
December 1995, the Company has maintained a combined line of credit and letter
of credit facility with a bank. In early April 1997, this facility was renewed,
providing a final maturity date of April 30, 1998 and increasing the aggregate
borrowing capacity from $3.0 million to $5.0 million. Under the line of credit,
the Company may borrow up to a specified amount based upon its accounts
receivable. Under the letter of credit arrangement, the bank will issue
commercial letters of credit up to $5.0 million (less any amounts outstanding
under the line of credit) at prime. There were no borrowings under the line of
credit and the letter of credit facility through June 1997. Thus, all $3.0
million was available through March 1997, and all $5.0 million thereafter.

The Company's operating activities generated cash of approximately $1.4
million, $2.2 million, $725,000 for 1994, 1995 and 1996, respectively. The
decrease in cash flow from operations in 1996 when compared with 1995 resulted
from increased interest expense and payments of accrued expenses. Cash generated
from operating activities increased to $3.8 million in the six months ended June
27, 1997 from $770,000 in the comparable period of 1996. This increase in cash
flow was primarily due to increased net income, decreased bonus payments and an
increase in accounts payable, partially offset by increases in accounts
receivable and inventories. At June 27, 1997, the Company's OEM customers
accounted for 65% of the Company's accounts receivable. See "Risk
Factors--Dependence Upon a Limited Number of OEM Customers" and Note 1 of Notes
to Financial Statements.

In December 1995, the Company effected the Leveraged Recapitalization
pursuant to which the Company sold 1.6 million shares of Common Stock for a
total price of approximately $294,000, 300,000 shares of Series A Redeemable and
Convertible Preferred Stock for a total price of approximately $2.2 million and
$10.0 million in aggregate principal amount of Class A Subordinated Promissory
Notes. In connection therewith, the Company redeemed from one of its
shareholders 4.0 million shares of Common Stock for an aggregate price of
approximately $22.5 million, consisting of cash of approximately $12.5 million
and the issuance of a Class B Subordinated Promissory Note in the aggregate
principal amount of $10.0 million.

In February 1997, the Company consummated its IPO. The net proceeds to the
Company from the IPO were approximately $28.4 million, after deducting
approximately $190,000 of directors and officers insurance premium. Of that
amount, $20.0 million was used to repay the indebtedness evidenced by the Class
A and Class B Subordinated Promissory Notes issued in the Leveraged
Recapitalization, approximately $5.6 million was used to repay long-term bank
debt incurred by the Company in December 1995, and $600,000 was used to redeem
shares of Series B Redeemable Preferred Stock issued to Kevin J. Hafer, the
Company's President and Chief Executive Officer, in connection with the
Leveraged Recapitalization. See "Certain Transactions." After application of the
net proceeds of the IPO to the foregoing items and payment of IPO expenses,
including $190,000 of directors and officers insurance premium, which is being
expensed in 1997 as a period cost, the remaining proceeds from the IPO were
approximately $2.2 million.

The Company believes that existing cash balances, cash generated from
operations and the funds available to it under credit facilities, together with
the proceeds from this offering, will be sufficient to fund its operations
through 1998.

IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

See Note 1 of Notes to Financial Statements for a discussion of the impact
of new accounting pronouncements.

27
<PAGE>
BUSINESS

OVERVIEW

The Company designs, manufactures and markets stand-alone switching systems
and integrated server cabinet solutions for the client/server computing market.
The Company's switching systems enable client/ server network administrators to
manage multiple servers from a single keyboard, video monitor and mouse
configuration (a "console"). Designed to address space, cost, administration and
maintenance issues that organizations increasingly face when adopting
client/server architecture, the Company's sophisticated switching and integrated
cabinet systems enable network administrators to manage more efficiently their
organizations' complex and growing server populations.

The Company provides "plug and play" switching systems and integrated server
cabinet solutions for many of the network administration, management and storage
problems faced by organizations using client/server architecture. The Company's
switching products, including OUTLOOK, OUTLOOK(4) and VIEWPOINT, enable network
administrators to access multiple servers from one or more centralized consoles,
consolidate hardware requirements, and provide direct hardwired connections
between the switch and the attached server which facilitate access to servers
even when the network is down. In addition, the Company's switching systems are
able to work with heterogeneous server populations. All of the Company's
switching products utilize the Company's proprietary On Screen Configuration And
Reporting ("OSCAR") interface. OSCAR allows network administrators to
immediately identify and access servers according to the administrators' own
naming conventions. The Company also offers server cabinet solutions to
consolidate and store heterogeneous servers and related hardware in a single
cabinet that facilitates more efficient physical access and safer performance of
hardware maintenance tasks.

The Company markets and sells its products through a direct sales force and
various distribution channels. Apex supplies stand-alone switching systems on a
private label basis to Compaq and Hewlett-Packard for integration into their
product offerings. Sales to Compaq represented approximately 52% of the
Company's net sales for the six months ended June 27, 1997. Sales to Compaq and
Hewlett-Packard represented approximately 30% and 15%, respectively, of the
Company's net sales for 1996, and 54% and 6% of net sales, respectively, for
1995. According to International Data Corporation, Compaq and Hewlett-Packard
shipped 41.7% of all PC servers shipped worldwide in 1996. Customers of the
Company's branded products in 1996 or the first half of 1997 included Advanced
Logic Research, Inc., Data General Corporation, Dell Computer Corporation,
McAfee Associates, Inc., Microsoft Corporation, the National Association of
Securities Dealers, Inc., Owens Corning, NEC USA, Inc., Peoplesoft, Inc., Unisys
Corporation and Wells Fargo Bank, N.A.

INDUSTRY BACKGROUND

Information technology has become increasingly critical to the operation of
most businesses as computers are utilized to perform multiple and diverse
functions throughout organizations. The desire of many organizations to
decentralize computing power while sharing technology resources and providing
broad access to enterprise data has resulted in the widespread adoption of
distributed network computing environments using a client/server architecture of
interconnected PCs. The typical client/server installation consists of a local
area network ("LAN") with multiple centralized PCs operating as "servers"
dedicated to performing specific functions for the many "client" PCs connected
to the LAN. According to International Data Corporation, worldwide shipments of
PC servers are expected to grow 21.0% on a compounded annual basis from 1997 to
2000, reaching approximately 3.1 million units shipped in the year 2000.

The proliferation of PC-based LANs and wide-area networks ("WANs") has
created significant network administration and space problems for the
organizations that rely on them. Network administrators, who may supervise up to
a thousand servers, must identify and access relevant servers to add or delete
users, to add, change or upgrade applications, to tune systems for better
optimization, and to diagnose and correct network failures. Client/server
networks utilize servers that were designed to operate as stand-

28
<PAGE>
alone systems, each with its own console consisting of a keyboard, video monitor
and mouse. Thus, to perform network administration and management tasks, network
administrators must deal with an unwieldy number of consoles, whether centrally
located or dispersed throughout the organization. In addition, inadvertent
access to network servers can be difficult to prevent when there are many
consoles, and, therefore, multiple access points, available.

As network resources become more critical to organizations, constant
availability of the network becomes increasingly important. The time that a
network is down or degraded can cause significant inconvenience, loss of
productivity and financial loss. Because diagnosis and correction of anomalous
network behavior often requires the network staff to physically access each
affected server through its own console, quick and efficient "fault" management
can be difficult, especially when there are a large number of dispersed servers
involved. In addition, when a network fails, an administrator's ability to
quickly and efficiently diagnose and correct the problem is often hampered
because the administrator is not able to access the software tools that reside
on the network and that are normally used to manage network failures.

In addition to these network administration and management problems, as
organizations' network computing needs increase, the number of servers, consoles
and other peripherals proliferates. Without efficient storage and configuration,
network hardware consumes substantial and often expensive floor space, creates
clutter that hampers network administration and management, and increases the
risk of physical damage to expensive hardware. The typical individual keyboard,
monitor and mouse console architecture of servers exacerbates this space
problem, as multiple consoles consume valuable and costly space. The increased
use of "heterogeneous" server configurations using different platforms, such as
Intel, Macintosh, IBM RS 6000, Hewlett-Packard 9000, DEC Alpha and Sun Sparc,
and different operating systems, such as Windows NT, Unix, NetWare and O/S 2,
compounds the storage and administration problems faced by network
administrators.

The advent of console switching technology has facilitated more effective
network management by giving administrators the ability to control a larger
number of servers through fewer consoles. To date, however, most console
switching solutions have been difficult to install and configure, and many have
used proprietary cabling that has made network administrators reluctant to
embrace a solution that may restrict them from expanding or using a different
solution in the future. In addition, there have been a limited number of
solutions available for those users who want to control computers from a
distance, such as those who need access to computer resources in, but do not
want to expose those expensive resources to, harsh operating environments. The
space management solutions available to network administrators have generally
consisted of racks or cabinets designed to house only one type of server, and
most have not been technically designed for ease of access. Those with
distributed, heterogeneous client/server networks have often been left with no
customized solution.

THE APEX SOLUTION

The Company provides "plug and play" stand-alone switching systems and
integrated server cabinet solutions for many of the network administration,
management and storage problems faced by organizations with client/server
networks. By providing both console switching and cabinet systems, the Company
offers a comprehensive solution to the space and administrative issues related
to client/server networks. The Company's products allow organizations to:

- ACCESS MULTIPLE SERVERS FROM A CENTRAL LOCATION. Apex products allow
network administrators to manage multiple platforms from a centralized
console, to identify and access servers from a single screen according to
the administrator's own naming conventions, and to solve distance problems
by providing end-to-end connections of up to 1,000 feet.

29
<PAGE>
- CONSOLIDATE HARDWARE REQUIREMENTS. Apex products reduce the need for
multiple keyboards, monitors and mice by allowing direct access to
multiple servers from a single console, thereby facilitating more
efficient network management and administration and reducing hardware
costs.

- PROVIDE "OUT-OF-BAND" ACCESS TO SERVERS. By providing direct hardwired
connections to network servers, Apex products enable network
administrators to access each server as if they were physically present at
that server, even when the network is down. Moreover, unlike the
connectivity approach of many competitive products, which connect numerous
switches to other switches in a continuous chain, the Company's switching
products are designed so that each server has its own connection to the
master switch in a two-tiered system. This direct linkage makes it easier
for network administrators to isolate problems with individual servers.

- PROVIDE CONNECTIVITY TO VIRTUALLY ALL MAJOR PLATFORMS. Apex switching
products work in heterogeneous server environments, providing connectivity
with Intel, Macintosh, IBM RS 6000, Hewlett-Packard 9000, DEC Alpha and
Sun Sparc platforms.

- MAXIMIZE SPACE EFFICIENCY. Apex integrated cabinet solutions consolidate
servers and other hardware in a single location to facilitate more
efficient physical access for hardware maintenance tasks. The Company also
provides customized solutions for the storage of heterogeneous server
populations.

The following diagram illustrates how the Company's switching and cabinet
systems solve many of the network administration, management and storage
problems of client/server environments.

There follows a graphic on the left side of which there is an illustration
of 24 dispersed servers, each with its own keyboard, video monitor and mouse
console. Above this illustration is the heading "Before Apex" and below this
illustration is the description "Disorganized Collection of Servers, each with
its own keyboard, video monitor and mouse (a "console")". The right side of the
graphic is an illustration depicting the same number of servers consolidated
into six centralized DensePack cabinets. By combining one primary OutLook switch
with three secondary OutLook switches, access and control of the same number of
servers is consolidated into one keyboard, video monitor and mouse console.
Above this illustration is the heading "After Apex," and below this illustration
is the description "Organized collection of servers housed in Apex cabinets,
controlled from a single console via Apex switches".

THE APEX STRATEGY

- CONTINUE INNOVATIVE PRODUCT DEVELOPMENT. The Company believes that the
continued, timely development of innovative products and enhancements to
existing products is essential to maintaining its

30
<PAGE>
leadership position. By maintaining close contact with key customers who
are often early-adopters of leading technologies, the Company seeks to
develop new products, as well as modifications and improvements to
existing products. Many of the Company's products are designed to
accommodate future modifications and additional features, which the
Company believes facilitates the development and integration of
modifications and features if a market need is perceived.

- LEVERAGE OEM EXPERIENCE TO INCREASE OEM SALES. The Company intends to
leverage its significant experience in working with OEM customers to enter
into new relationships with other manufacturers of servers in the United
States and in Europe. The Company believes that the architecture, quality
and reliability of its products, together with the Company's commitment to
customer support, are attractive to OEMs.

- INCREASE BRANDED SALES. To increase its market penetration, the Company
intends to aggressively market its branded products to end users through a
direct sales force and through a variety of reseller channels. The Company
believes that its comprehensive and customized solutions appeal to many
organizations that, because of heterogeneous server populations and for
other reasons, have problems that are not effectively solved by competing
switching and cabinet products. For the years ended December 31, 1995 and
1996 and the six months ended June 27, 1997, sales of Apex branded
products represented approximately 32%, 29% and 34%, respectively, of the
Company's net sales.

- CREATE AN INTERNATIONAL DISTRIBUTION NETWORK. The Company intends to
create an international sales distribution network for the Company's
branded switching products, focusing initially on the network computing
market in Europe because of its large installed server base. The Company
is currently shipping its switching systems to OEMs with facilities in
Europe and the Company has begun efforts to build an international
third-party distribution network.

PRODUCTS

The Company provides comprehensive solutions to many of the network
administration, management and storage problems inherent in client/server
network environments by offering a family of stand-alone switching systems
together with integrated cabinet systems designed to store servers efficiently.

SWITCHING SYSTEMS

The Company's console switching systems consolidate the control and
monitoring of multiple network servers to a centralized command center
consisting of one or more console positions. The Company's console switching
products can work with heterogeneous server populations that use different
platforms, such as Intel, Macintosh, IBM RS 6000, Hewlett-Packard 9000, DEC
Alpha and Sun Sparc, and different operating systems, such as Windows NT, Unix,
NetWare and O/S 2. The Company's console switching products utilize the
Company's proprietary On Screen Configuration And Reporting ("OSCAR") interface
that enables network administrators to immediately identify and access servers
according to the administrators' own naming conventions, as opposed to
predesignated numbers. The Company's console switching products operate on an
out-of-band basis, meaning there is a direct hardwired connection between the
console and the attached servers through the switch. This direct connection
enables network administrators to access network servers and locate the problem
server even when the network is down. The Company also recently began
manufacturing two new switching products designed to provide a more efficient,
cost-effective and convenient way to consolidate and manage other peripherals,
such as multimedia input/output devices and modems, printers, touchscreens and
serial mice.

OUTLOOK, introduced in September 1995, enables administrators to control up
to eight servers using a single console and, by integrating additional OUTLOOK
switches, can be expanded to provide centralized control of up to 64 servers.
OUTLOOK offers programmable scanning to allow users to vary the frequency and
duration of monitoring individual servers. OUTLOOK also enables network managers
to reduce

31
<PAGE>
inadvertent access to the system by eliminating additional consoles. OUTLOOK
provides access to a wide range of network elements such as file servers, PBX
monitors and database engines from a single console.

OUTLOOK(4), introduced in March 1996, includes the same features as OUTLOOK,
except that this multi-user system allows network administrators to administer
up to 64 servers from up to four console positions.

VIEWPOINT, introduced in September 1995 to address the needs of very large
server-intensive organizations with large network administrative staffs,
includes all of the attributes of OUTLOOK except that it enables network
administration staff to control up to 32 servers from as many as 16 console
positions. Total capacity can be expanded to as many as 256 servers by
integrating the VIEWPOINT switch with multiple OUTLOOK switches, and VIEWPOINT's
technology allows access to a server up to 1,000 feet away. VIEWPOINT also
supports remote diagnostics via a serial port.

SUNDIAL, introduced in March 1996, enables administrators to control up to
10 Sun Sparc workstations from a single console and, by integrating additional
SUNDIAL switches, can be expanded to provide centralized control of up to 100
workstations. The SUNDIAL switch maintains communications with attached
workstations and, if power is interrupted, the unit's nonvolatile memory helps
restore the system's established settings. The SUNDIAL switch is designed to
work with the OUTLOOK, OUTLOOK(4) and VIEWPOINT switches.

SWITCHBACK, introduced in March 1995, consists of a local unit and a remote
unit that allow users to control the attached server from either a primary
console position or a remote console position linked by a single cable.
SWITCHBACK'S intelligent circuits were recently enhanced to enable 100 mhz
transmission of high resolution video signals up to 600 feet away from the
attached servers using industry-standard Category 5 cabling. The SWITCHBACK
system includes a lock-out feature that prevents system capture. The SWITCHBACK
system can be combined with the OUTLOOK and OUTLOOK(4) switches.

The A-1000, introduced in June 1997, connects to a PC's multimedia ports,
providing switching capabilities for multimedia peripherals such as sound cards,
speakers and microphones. The A-1000 can be used as a companion to OUTLOOK or as
a stand-alone device using a separate keypad.

The S-1000, introduced in June 1997, connects to a server's serial ports,
providing switching capabilities for devices such as modems, printers,
touchscreens and serial mice. Like the A-1000, the S-1000 can be used with
OUTLOOK or as a stand-alone device. To date, neither the A-1000 nor the S-1000
has achieved commercially significant sales.

The U.S. list prices of the Company's switching systems as of July 17, 1997
were as set forth below. The list prices of the Company's products have changed
in the past, and the prices set forth below are likely to change in the future.

<TABLE>
<CAPTION>
PRODUCT U.S. LIST PRICE
- -------------------------------------- ---------------
<S> <C>
OUTLOOK (4 PORT) $839
OUTLOOK (8 PORT) $995
OUTLOOK(4) $3,725
VIEWPOINT (DEPENDING ON CONFIGURATION) $12,000-$44,000
SUNDIAL $1,929
SWITCHBACK $895
A-1000 $748
S-1000 $864
</TABLE>

32
<PAGE>

<TABLE>
<CAPTION>
The Company's current switching products are described in the table below:
<S> <C> <C>
PRODUCT NAME KEY FEATURES BENEFITS
OutLook - ports: 1 X 4 and 1 X 8 - reduces required space and hardware needs by allowing one
- capacity: 64 servers console to control up to four or eight servers per switch
- multi-platform compatibility
- OSCAR interface - multiple switches can be used to support up to 64 servers
- supports major server platforms
- OSCAR interface permits easy on-screen control of switch
OutLook(4) - ports: 4 X 8 - offers the benefits of OUTLOOK as well as permits up to
- capacity: 64 servers four administrator consoles to control up to eight servers
- multi-platform compatibility
- OSCAR interface
ViewPoint - ports: 16 X 32 - in addition to benefits of OUTLOOK and OUTLOOK(4), allows
- capacity: 256 servers up to 16 network administrator consoles to access up to 32
- 1000 ft. extension servers
- multi-platform compatibility - administrator consoles can be up to 1000 ft. away from
- OSCAR interface server
SunDial - ports: 1 X 10 - enables control of large Sun Sparc workstation networks
- capacity: 100 servers using a single console
- OSCAR interface - may be combined with OUTLOOK, OUTLOOK(4) and VIEWPOINT
switches
SwitchBack - 600 ft. extension product - 100 mhz bandwidth transmission over industry-standard
Cat-5 cabling
- allows the addition of a remote console up to 600 feet
away
- remote lock-out feature
- may be combined with OUTLOOK and OUTLOOK(4) switches
A-1000 - multimedia peripherals switch - provides switching capabilities for sound cards, speakers
and microphones
- may be used with OUTLOOK or as a stand-alone device
S-1000 - serial device switch - provides switching capabilities for modems, printers,
touchscreens and serial mice
- may be used with OUTLOOK or as a stand-alone device
</TABLE>

DENSEPACK CABINET SYSTEMS

DENSEPACK cabinets are specifically designed to house network servers and
communication equipment, improve system administration and facilitate CPU
maintenance. DENSEPACK cabinets are typically customized to meet specific
customer needs and are pre-cabled to allow network administrators to quickly
install hardware and connect to their networks. DENSEPACK cabinets incorporate
the Company's OUTLOOK switching technology, as well as built-in ventilator fans,
large rear doors and optional slide-out shelves to

33
<PAGE>
facilitate access to cables, connectors and servers. The DENSEPACK MODEL RS is a
scaled-down version of the Company's DENSEPACK and is designed for small
businesses and stand-alone departments. The DENSEPACK MODEL RS can be used in
combination with full-sized DensePack cabinets.

CUSTOMERS

To date, a substantial portion of the Company's net sales have been
generated from private label sales of switches to OEMs for integration into
their product offerings. For 1994, 1995, 1996 and the six months ended June 27,
1997, sales to the Company's OEM customers represented approximately 38%, 69%,
71% and 66% of the Company's net sales, respectively. The following is a list of
the Company's OEM customers and representative branded product customers.

<TABLE>
<CAPTION>
PRIVATE LABEL OEM CUSTOMERS BRANDED PRODUCT CUSTOMERS
- ---------------------------- ------------------------------------------
<S> <C>
Compaq Advanced Logic Research, Inc.
Hewlett-Packard Countrywide Home Loans
Wright Line, Inc. Data General Corporation
Dell Computer Corporation
IBM
McAfee Associates, Inc.
Microsoft
National Association of Securities
Dealers, Inc.
NEC USA, Inc.
Owens Corning
Peoplesoft, Inc.
Unisys Corporation
Visa International
Wells Fargo Bank, N.A.
</TABLE>

For 1994, 1995, 1996 and the six months ended June 27, 1997, sales to Compaq
represented approximately 36%, 54%, 30% and 52% of the Company's net sales,
respectively. In addition, for 1996, sales to Hewlett-Packard and IBM
represented approximately 15% and 18%, respectively, of the Company's net sales.
In 1995, the Company entered into an OEM arrangement with IBM for the production
of an integrated server cabinet system incorporating the Company's switching
products. While the products supplied by the Company met IBM's requirements, IBM
concluded that its program had not achieved desired results and sought to
terminate the program in mid-1996 after the Company had expended significant
product development and operational resources in connection with this OEM
arrangement. Although the Company negotiated a settlement that covered its
product costs and its direct costs associated with discontinuing the program,
the Company's branded product development efforts were delayed as a result of
the Company's commitment of substantial product development resources to the IBM
program in the third and fourth quarters of 1995 and the first quarter of 1996.
IBM accounted for 1% of the Company's net sales in 1995 and accounted for 18% of
the Company's net sales in 1996. The loss or material decline in orders from any
of the Company's current OEM customers would have a material adverse effect on
the Company's business, financial condition and results of operations. See "Risk
Factors--Fluctuations in Operating Results; --Dependence Upon a Limited Number
of OEM Customers."

BACKLOG

The Company's backlog was $10.9 million at June 27, 1997, $9.2 million at
December 31, 1996 and $4.2 million at June 30, 1996. Backlog consists of
purchase orders with delivery dates scheduled within the next six months. None
of the Company's customers is obligated to purchase products from the Company

34
<PAGE>
except pursuant to binding purchase orders. Because of the timing of orders and
the possibility of customer changes to delivery schedules, the Company's backlog
as of any particular date may not be representative of actual sales for any
succeeding period.

SALES AND MARKETING

The Company markets and sells its products through an internal sales force
and various distribution channels, including OEM and reseller arrangements. To
date, the Company has marketed its products primarily through advertisements in
trade publications, participation in major industry trade shows and the
Company's home page on the World Wide Web. As of June 27, 1997 the Company had a
sales and marketing staff of 13 employees. The Company's sales personnel process
written and telephonic orders, support existing customers and respond to
telephone inquiries.

The Company currently sells various switching products to Compaq,
Hewlett-Packard and Wright Line pursuant to private label arrangements. These
private label OEM customers integrate and sell the Company's switches with their
own networking products, including network servers and integrated server
cabinets. The Company devotes significant sales and customer support resources
to its OEM accounts. The Company also sells its branded switching products to
various manufacturers of servers and other networking products, such as Advanced
Logic Research, Inc., Data General Corporation, Dell Computer Corporation, NEC
USA, Inc. and Unisys Corporation. These customers integrate and sell Apex
branded switches with their own networking products. The Company intends to
leverage its significant experience in working with its OEM customers and other
server manufacturer customers to enter into new relationships with other
manufacturers of servers in the United States and Europe. The Company believes
that the architecture, quality and reliability of its products, together with
the Company's commitment to customer support, are attractive to OEMs. There can,
however, be no assurance that the Company will be successful in its attempts
gain additional OEM customers.

The Company has relationships with a variety of resellers, including
distributors, value-added resellers and systems integrators, for the
distribution and sale of Apex branded switching and cabinet products in the
United States. The Company devotes resources to educating its resellers as to
the benefits of the Company's products and training them in the proper
installation and support of the Company's products. The Company's strategy
contemplates devoting additional resources to increase branded sales, and to
that end the Company intends to pursue additional relationships with resellers
in the United States. The Company has focused and expects to continue to focus
on contracting with local and regional resellers who have the technical
capability and market presence to assist end-user customers in developing
network space management and access and control solutions to meet their
particular needs. There can be no assurance that the Company will be successful
in expanding its reseller channel. See "Risk Factors--Risks Relating to
Development of Expanded Reseller Channel."

Compaq, Hewlett-Packard and, the Company believes, many other manufacturers
of servers market and sell their own branded server cabinets. Accordingly, the
Company believes it has limited opportunities to sell its own server cabinets to
new purchasers of servers. Instead, the Company believes that sales of its
server cabinets have been and will continue to be limited primarily to end-user
customers who have a need to more efficiently configure and manage existing
network systems.

To date, the Company's international sales have not been significant. The
Company's strategy is to create an international sales distribution network for
the Company's branded switching products focusing initially on the network
computing market in Europe because of its large installed server base. The
Company is currently shipping its switching systems to OEMs with facilities in
Europe and has hired a representative located in France in order to begin
efforts to build a third party distribution network. There can be no assurance
that the Company will be successful in creating an international distribution
network or successfully market and sell its products in foreign markets. In
addition, if international sales become a more significant component of the
Company's total sales, the Company's business will become more

35
<PAGE>
vulnerable to the risks inherent in doing business on an international level,
including the effects of seasonality, unexpected changes in regulatory
requirements, export restrictions, tariffs and other trade barriers,
difficulties in managing foreign resellers, longer payment cycles and problems
in collecting accounts receivable, political instability, fluctuations in
currency exchange rates and potentially adverse tax consequences. See "Risk
Factors--Risks Relating to Development of International Distribution Network and
International Sales."

CUSTOMER SUPPORT

The Company emphasizes customer support by developing innovative, high
quality products, encouraging customer feedback through contact with key
customers, and providing a customer hot-line that offers technical support for
the life of the Company's products. The Company's switches have a "plug and
play" design and do not require extensive configuration. The Company seeks to
respond quickly to customers' requests for technical support and service, and
the Company's engineering department often works with individual customers to
troubleshoot problems and develop custom solutions. The Company has, in recent
periods, experienced increased demands on its customer support operations.
Growth of the Company's branded sales, should it occur, is likely to be
accompanied by further increasing demands on the customer support operations.
See "Risk Factors--Increased Demands on Customer Support Operations." The
Company offers warranties for parts and service on all of its products. To date,
the Company has not experienced significant product returns. There can be no
assurance, however, that the Company's rate of product returns will not increase
or that the Company's customer support operations will be sufficient to meet the
needs of the Company's customers. In addition, the Company may, as a result of
competitive pressures, change its warranty policies in the future to provide
warranty coverage that is greater in scope and duration than that currently
offered. To the extent that the Company were to increase its warranty coverage,
its risk of warranty claims and therefore its warranty reserves would likely
increase. See "Risk Factors--Product Returns and Warranty Claims; --Increased
Demands on Customer Support Operations."

PRODUCT DEVELOPMENT

The Company believes that the continued, timely development of new products
and enhancements to its existing products is essential to maintaining its
competitive position. The market for the Company's switching products in
particular is characterized by rapid technological advances, frequent new
product introductions and enhancements, and significant price competition. The
introduction of products incorporating superior or alternative technologies, the
emergence of new industry standards or changes in the market's pricing structure
could render the Company's existing products and products under development
obsolete or unmarketable. The Company's switching systems combine components,
such as printed circuit boards, connectors, cable assemblies, power supplies and
enclosures, that are manufactured by other companies and are generally available
to the Company's competitors and potential competitors. The Company's future
success will depend in large part upon its continued innovative application of
such commercially available components to the expansion and enhancement of its
existing products and the development and introduction of new products which
address changing customer needs on a cost-effective and timely basis. The
successful introduction of new products involves a number of risks and
uncertainties. There can be no assurance that the Company will be able to
successfully develop planned products or that there will not be delays in
product introductions. In addition, newly introduced products have in the past
experienced, and are likely in the future to experience, reliability and
compatibility problems, which can lead to customer dissatisfaction, increased
customer service and research and development expenses, and loss of sales. The
Company's failure to respond on a timely basis to technological developments,
changes in industry standards or customer requirements, or any significant delay
in product development or introduction could have a material adverse effect on
the Company's business, financial condition and results of operations. See "Risk
Factors--Rapid Technological Change; Need for New Product Introductions."

36
<PAGE>
The Company's engineering and product development efforts focus on
responding to the needs of its customers by providing practical, marketable
products that have immediate applications in their markets. By maintaining
contact with customers throughout the installation and technical support
process, the Company is able to identify and test potential design modifications
and improvements as well as new applications and extensions for existing
products. The Company anticipates that this process will enable the development
of new product categories and applications based on existing technology
developed to meet specific customer needs. Many of the Company's products are
designed to accommodate future modifications and additional features, which it
believes facilitates the development and integration of modifications and
features if a market need is perceived.

For 1994, 1995, 1996 and the six months ended June 27, 1997, the Company's
engineering and product development expenditures were $278,000, $913,000,
$965,000 and $936,000, respectively. As of June 27, 1997, the Company's
engineering staff consisted of 11 employees. To meet the challenges of the
rapidly changing technology in the computer industry, the Company expects to
make substantial investments in product development in the future.

MANUFACTURING

The Company performs final assembly, quality assurance and testing of its
products. In order to avoid the capital investment required to establish and
maintain in-house manufacturing capabilities, the Company generally relies on
subcontractors in the United States for the assembly of printed circuit board
assemblies, subassemblies, chassis and equipment enclosures. The Company
believes that such assembly can typically be done by subcontractors at a lower
cost than if the Company assembled such items internally. Outsourcing
manufacturing operations allows the Company to concentrate its resources on
research and development, product design, quality assurance, marketing and
customer support. Prior to shipping, the Company subjects its finished products
to quality and regulatory screenings and functional testing to assure quality
and reliability.

The Company relies on various third party manufacturers, including Technical
Services, Inc., for subassembly of the Company's products. These outsourcing
arrangements and any future outsourcing arrangements involve several risks,
including reduced control over product quality, delivery schedules,
manufacturing yields and costs. Moreover, although arrangements with such
manufacturers may contain provisions for warranty obligations on the part of
such manufacturers, the Company remains primarily responsible to its customers
for warranty obligations. See "Risk Factors--Dependence Upon Suppliers and
Outsourced Manufacturing."

The Company purchases industry-standard parts and components for the
assembly of its products from multiple vendors and suppliers through a worldwide
sourcing program. No custom integrated circuits are currently used in any
product in production, although custom integrated circuits may be used in the
Company's products in the future. Circuit boards are currently obtained from a
number of sources, including Technical Services, Inc. Certain of the components
for the Company's switching products are available from a limited number of
suppliers. For example, Pioneer Standard Electronics, Inc. supplies the Company
with power supply components, Redmond Cable, Inc. supplies the Company with
cable components and Kent Electronics, Inc. supplies the Company with various
electronic components. In addition, the frames for the Company's server cabinet
systems are obtained from a single source, Everest Electronics Equipment (a
division of Wright Line), and the sheet metal components are purchased locally
from a small number of manufacturers, including Northwest Manufacturing. In the
past, the Company has experienced delays in the receipt of certain of its
switching and cabinet components, which have resulted in delays in related
product deliveries. The Company is attempting to manage such risks by qualifying
alternative sources and maintaining quality relationships and close personal
contact with each of its suppliers. Although the Company believes that there are
adequate alternative sources for its components, there can be no assurance that
delays in component and product deliveries will not occur in the future or that
the Company's reliance on sole or limited sources of supply for its components
will not otherwise adversely

37
<PAGE>
affect the Company's business. The inability to obtain sufficient components as
required or to develop alternative sources if and as required in the future
could result in delays or reductions in product shipments, which, in turn, could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Risk Factors--Dependence Upon Suppliers and
Outsourced Manufacturing."

COMPETITION

The market for the Company's products is highly fragmented and competitive,
and the Company expects competition to increase in the future. In the market for
integrated switching systems, the Company competes with independent third
parties such as Cybex Computer Products Corporation, Raritan Computer Inc., Rose
Electronics, Elsner ComputerTechnik GmbH and StarTech Computer Accessories Ltd.,
many of which have substantially greater financial, marketing and technical
resources than the Company. In addition, certain of the Company's OEM customers,
such as Hewlett-Packard and Compaq, could determine to internally manufacture
switch products or offer those supplied by the Company's competitors. In the
market for server cabinets, the Company competes with a significant number of
regional cabinet manufactures including Zero Stantron Cabinets, Ergotron Inc.,
Rittal Corporation, Hergo Corp. and Engineered Data Products Inc., many of which
have substantially greater financial, marketing and technical resources than the
Company. In addition, Compaq, Hewlett-Packard and Wright Line, all of whom are
OEM customers for certain of the Company's switching products, sell their own
branded integrated server cabinets. The Company's cabinet systems also compete
with other types of lower density, unenclosed technology storage systems.

In the market for integrated switches, the Company competes primarily on the
basis of technological advances, performance in relation to price, quality,
reliability, development capabilities and customer support. In the market for
enclosed server cabinets, the Company competes primarily on the basis of
available product features, quality, reliability, development capabilities and
customer support. In addition, the market for enclosed server cabinets and other
technology storage systems is characterized by intense price competition, and
many of the Company's competitors in this market offer products at significantly
lower price points. The Company's ability to compete successfully in this market
will depend in part upon the Company's ability to continue to differentiate its
cabinet systems from competing products.

The Company's future success will be highly dependent upon timely completion
and introduction of new products and product features at competitive price and
performance levels which address the evolving needs of the Company's customers.
The Company is currently experiencing increased price competition in both the
market for stand-alone switching systems and the market for integrated cabinet
systems and expects that pricing pressures will increase in the future.
Increased competition could result in price reduction and loss of market share
which would adversely affect the Company's business, financial condition and
results of operations. See "Risk Factors--Intense Competition."

PROPRIETARY TECHNOLOGY

The Company's future success is dependent in part upon its ability to
protect its proprietary rights in its products. The Company seeks to protect its
intellectual property rights by invoking the benefits of the patent, trademark,
copyright, trade secret and unfair competition laws of the United States, which
afford only limited protection. While the Company has no patents granted, it has
filed a United States patent application and a corresponding application under
the provisions of the Patent Cooperation Treaty (which permits the filing of
corresponding foreign patent applications in numerous foreign countries within a
limited time period) with respect to various aspects of its OUTLOOK and
VIEWPOINT products and its OSCAR interface. There can be no assurance that
patents will issue from any of the Company's pending applications or that any
claims allowed from pending applications will be of sufficient scope or
strength, or be issued in all countries where the Company's products can be
sold, or provide meaningful protection or any commercial advantage to the
Company. Also, competitors of the Company may be able to design

38
<PAGE>
around the Company's patents if any are issued. The laws of certain foreign
countries in which the Company's products are or may be developed, manufactured
or sold, may not protect the Company's products or intellectual property rights
to the same extent as do the laws of the United States and thus increase the
likelihood of piracy of the Company's technology and products. Although the
Company is not aware of any current infringement of its intellectual property
rights, or any violation of its trade secrets, nondisclosure or licensing
arrangements, there can be no assurance that the steps taken by the Company to
protect its intellectual property rights will be adequate to prevent
misappropriation of its technology or that the Company's competitors will not
independently develop technologies that are substantially equivalent or superior
to the Company's technology.

EMPLOYEES

As of June 27, 1997, the Company employed 58 persons, 16 of whom were in
administration and management, 11 of whom were in engineering and product
development, 3 of whom were in service and technical support, 15 of whom were in
manufacturing and 13 of whom were in sales and marketing. The Company's
employees are not covered by any collective bargaining agreements with respect
to their employment by the Company. The Company believes that its employee
relations are good.

FACILITIES

The Company entered into a three-year lease in March 1995 and occupies
approximately 25,000 square feet in an industrial office building in
Woodinville, Washington. In March 1997, the Company's lease was extended to
cover the remaining 11,000 additional square feet in the same industrial office
building. The rent for the Company's facilities is approximately $25,000 per
month plus taxes, insurance and normal maintenance for the entire 36,000 square
feet. The Company believes that its facilities are adequate for its current
needs.

39
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company, and their ages as of
June 27, 1997, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Kevin J. Hafer............................. 40 President, Chief Executive Officer and Director
Douglas A. Bevis........................... 51 Vice President, Chief Financial Officer and Secretary
Christopher L. Sirianni.................... 43 Vice President, Sales and Marketing
Sterling Crum.............................. 42 Director
Jeffrey T. Chambers........................ 42 Director
William McAleer............................ 46 Director
Edwin L. Harper............................ 52 Director
</TABLE>

Kevin J. Hafer has been the President of the Company since June 1995, and
has served as the Chief Executive Officer of the Company since December 1995 and
as a Director of the Company since January 1996. From February 1993 to June
1995, Mr. Hafer served as the General Manager of the Company, and from December
1989 to January 1993 he served as the Manager and Technical Operations Director
of the Predecessor. Prior to joining the Company's predecessor, Mr. Hafer was
employed at Harris Corporation from May 1979 to September 1989, serving in
various management capacities.

Douglas A. Bevis has been the Vice President and Chief Financial Officer of
the Company since September 1996, and Secretary since December 1996. From
September 1990 to February 1996, Mr. Bevis was employed at CH2M HILL, Inc., a
national environmental engineering consulting firm, where he served as Vice
President and Treasurer from September 1990 to April 1993 and as Senior Vice
President and Chief Financial Officer from April 1993 to February 1996.

Christopher L. Sirianni has been the Vice President, Sales and Marketing of
the Company since August 1996. From March 1994 to August 1996, Mr. Sirianni
served as the Company's Director of Sales and Marketing. From August 1992 to
February 1994, Mr. Sirianni served as the Director of Sales of Coastal
Manufacturing, a metal fabrication company. Mr. Sirianni served as a
consultant/sales executive for National Precision Bearing, a distributor, from
November 1991 to June 1992. From September 1982 to October 1991, Mr. Sirianni
served in various capacities, including Vice President of Sales and Marketing
for Augat Communications, a telecommunications company.

Sterling Crum has served as a Director of the Company since its inception.
From the Company's inception until June 1995, Mr. Crum served as the Company's
President. From May 1985 to February 1993 Mr. Crum served in various capacities
for the Predecessor, including as President and as Director. In addition, from
November 1993 until December 1996, Mr. Crum served as President and sole
director of Water Sports, Inc., a water sports recreation company.

Jeffrey T. Chambers has served as a Director of the Company since January
1996. Mr. Chambers has been employed by TA Associates, Inc., a venture capital
firm, or its predecessor, since 1980, has been a partner of affiliated venture
funds since 1984 and is currently a Managing Director of TA Associates, Inc. Mr.
Chambers is also a director of Diamond Multimedia Systems, Inc.

William McAleer has served as a Director of the Company since June 1996. Mr.
McAleer is currently Managing Director of Voyager Capital, which provides
venture financing and advisory services to information technology companies.
From 1988 through 1994, he was Vice President Finance, Chief Financial Officer
and Secretary with Aldus Corporation, a publicly held software company. Prior to
joining Aldus, he was Vice President, Finance and Administration from 1987 to
1988 of Ecova Corporation and also served

40
<PAGE>
as a Vice President with Westin Hotels Company from 1984 through 1987. Mr.
McAleer is also a Director of FourGen Software Technologies, Primus
Communications Corporation and Truevision, Inc.

Edwin L. Harper has served as a Director of the Company since October 1996.
Since June 1996 Mr. Harper has served as President and Chief Executive Officer
of SyQuest Technology, a computer hardware company. From July 1993 to June 1996
Mr. Harper was employed as President and Chief Executive Officer of ComByte,
Inc., and from June 1988 to May 1993 Mr. Harper served in various capacities,
including President and Chief Executive Officer, at Colorado Memory Systems,
Inc. Mr. Harper is also a Director of SyQuest Technology and McAfee Associates,
a network security management company.

All members of the Board of Directors are elected to serve until their
respective successors have been elected and qualified or until their earlier
death, resignation or removal in the manner specified in the Company's Bylaws.
The officers are appointed to hold their respective offices until their
respective successors have been elected, or their earlier death, resignation or
removal in the manner specified by the Company's Bylaws.

OTHER KEY EMPLOYEES

In addition to directors and executive officers, the Company has the
following key employees:

Danny L. Beasley has served as the Company's Director of Engineering since
March 1994. From December 1992 to March 1994, Mr. Beasley served as a Research
and Development Engineer for the Company and the Predecessor. Mr. Beasley served
as the Director of Engineering for Spectralogic, Inc., an engineering design and
product development firm, from April 1989 to October 1992.

Stephen J. McCarthy has served as the Company's Director of Product
Development since July 1995. From February 1994 to July 1995, Mr. McCarthy
served as the Company's Research and Development Manager, and from November 1987
to February 1994 he served as the Account Manager for the Company and for the
Predecessor's on-site service division.

COMMITTEES

The Board of Directors has an Audit Committee, currently comprised of
Messrs. McAleer and Chambers, which meets with the Company's independent
auditors and reviews the Company's annual audit, internal controls and financial
management practices. The Board also has a Compensation Committee, currently
comprised of Messrs. Harper, Chambers and Crum, which meets with the Company's
officers and oversees the Company's compensation and benefits practices and
programs.

41
<PAGE>
EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE. The following table summarizes all compensation
earned by the Company's Chief Executive Officer and by the Company's other most
highly compensated executive officer whose total annual salary and bonus
exceeded $100,000 (collectively, the "Named Executive Officers") for services
rendered in all capacities during the fiscal year ended December 31, 1996.

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION ------------------------
------------------------ STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- --------------------------------------------------- --------- ---------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
Kevin J. Hafer..................................... 1996 $ 157,692 $ 564,707(1) 24,000 $ 9,619(2)
President and Chief Executive Officer

Christopher L. Sirianni............................ 1996 $ 89,123 $ 148,396(3) 132,000 $ 4,456(4)
Vice President, Sales and Marketing
</TABLE>

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

(1) Includes $480,000 bonus earned in 1996 and paid in 1997.

(2) Represents matching contributions in the aggregate amount of $7,500 made by
the Company in 1996 to its 401(k) Profit Sharing Plan and Trust on behalf of
Mr. Hafer and premium payments in the aggregate amount of $2,119 paid by the
Company in 1996 towards Mr. Hafer's life insurance policy. See "--Employment
Agreement" and "Certain Transactions."

(3) Includes $54,894 bonus earned in 1996 and paid in 1997.

(4) Represents matching contributions made by the Company to its 401(k) Profit
Sharing Plan and Trust on behalf of Mr. Sirianni.

OPTION GRANTS IN LAST FISCAL YEAR. The following table sets forth certain
information with respect to grants to the Named Executive Officers of options to
purchase Common Stock of the Company made during the fiscal year ended December
31, 1996.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING OPTIONS EMPLOYEES IN PRICE PER EXPIRATION
NAME GRANTED(#)(1) FISCAL YEAR SHARE DATE
- -------------------------------------------------- ------------------ ----------------- ---------- -----------
<S> <C> <C> <C> <C>
Kevin J. Hafer(2)................................. 24,000 3.8% $ 0.18375 06/10/06
Christopher L. Sirianni(3)........................ 132,000 20.7% $ 0.18375 01/22/06
</TABLE>

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

(1) Stock options have an exercise price equal to the fair market value of the
underlying Common Stock on the date of grant. The Company granted options to
purchase an aggregate of 638,000 shares of Common Stock to employees and
non-employee directors in 1996.

(2) Mr. Hafer was granted options to purchase an additional 705,880 shares of
Common Stock in 1995. As of December 31, 1996, options to purchase 404,844
shares of Common Stock had vested and been exercised by Mr. Hafer. Of the
remaining 325,036 shares subject to options as of December 31, 1996, options
to purchase 666 shares will vest on January 1, 1998, options to purchase
approximately 16,458 shares will vest on the first day of each month from
February 1998 through June 1999, and options to purchase approximately 6,372
shares will vest on the first day of each month from July 1999 through
January 2000.

(3) As of December 31, 1996, options to purchase 66,000 shares of Common Stock
had vested, of which options to purchase 54,424 shares had been exercised by
Mr. Sirianni. Of the remaining 66,000 shares subject to options as of
December 31, 1996, options to purchase approximately 2,750 shares will vest
on the first day of each month from March 1998 through February 2000.

42
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES. The following table sets forth information with respect to option
exercises during the fiscal year ended December 31, 1996 by the Named Executive
Officers and 1996 year-end option values.

<TABLE>
<CAPTION>
VALUE
REALIZED NUMBER OF SECURITIES
(MARKET PRICE UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF AT EXERCISE OPTIONS AT FISCAL YEAR IN-THE-MONEY OPTIONS AT
SHARES ACQUIRED LESS EXERCISE END FISCAL YEAR END
NAME ON EXERCISE PRICE) (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)(1)
- -------------------------------- --------------- ------------- ------------------------- ---------------------------
<S> <C> <C> <C> <C>
Kevin J. Hafer.................. 81,296 --(2) 0/325,036 --/$1,971,750
323,548 $ 102,322(3)
Christopher L. Sirianni......... 54,424 $ 17,212(4) 11,576/66,000 $70,223/$400,373
</TABLE>

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

(1) Based upon the Company's estimate of the fair market value of the Company's
Common Stock at fiscal year end of $6.25 per share less the exercise price
payable for such shares.

(2) Based upon the Company's estimate of the fair market value of the Company's
Common Stock at February 12, 1996, May 15, 1996, June 1, 1996, July 1, 1996
and August 16, 1996 of $0.18375 per share less the exercise price payable
for such shares.

(3) Based upon the Company's estimate of the fair market value of the Company's
Common Stock at September 1, 1996, October 1, 1996 and October 14, 1996 of
$0.50 per share less the exercise price payable for such shares.

(4) Based upon the Company's estimate of the fair market value of the Company's
Common Stock at October 14, 1996 of $0.50 per share less the exercise price
payable for such shares.

DIRECTOR COMPENSATION

Mr. Harper and Mr. McAleer receive annual cash compensation of $6,000 for
their services as directors. In addition, each of the directors was granted
options in 1996 and 1997 to purchase 24,000 shares and 4,000 shares of Common
Stock, respectively. In October 1996, the Company accelerated the vesting of up
to 50% of options previously granted to directors. All directors are reimbursed
for travel and other expenses incurred in attending meetings of the Board of
Directors.

EMPLOYEE STOCK PLAN

The Company's 1995 Employee Stock Plan (the "Employee Stock Plan") was
adopted by the Board of Directors and approved by the shareholders of the
Company in December 1995. The purposes of the Employee Stock Plan are to attract
and retain the best available personnel for positions of substantial
responsibility in the Company, to provide additional incentives to officers,
employees and non-employee directors of the Company, and to promote the success
of the Company's business.

The Employee Stock Plan provides for the granting to officers and employees
of the Company of options that qualify as "incentive stock options" ("ISOs")
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and options that do not so qualify ("NQSOs"). Non-employee
directors of the Company are eligible to receive NQSOs. As of the date of this
Prospectus, all grants of options under the Employee Stock Plan have been NQSOs.

The Employee Stock Plan is currently administered by the Board of Directors,
which has the discretion to determine, among other matters, the persons to whom
options will be granted; the number of shares purchasable upon exercise of each
option; whether options will be ISOs or NQSOs; the purchase price of the shares
issuable pursuant to options (which price for ISOs may not be less than 100% of
the fair market value of the Common Stock, as determined in good faith by the
Board of Directors, on the date the option is granted); and the period during
which each option may be exercised (not to exceed ten years for ISOs). The
purchase price of the shares issued pursuant to each option must be paid, as
determined by the

43
<PAGE>
Board of Directors, (i) in cash, (ii) by promissory note, (iii) by surrender of
shares of Common Stock held by the participant or a combination of cash and
shares, or (iv) any combination of the foregoing methods of payment. The
aggregate fair market value of the shares of Common Stock for which ISOs may
first be exercisable by a participant during any one calendar year may not
exceed $100,000.

Generally, upon termination of a participant's employment with the Company
by reason of the participant's death or "permanent and total disability" (as
defined in Section 22(e)(3) of the Code), each option held by the participant on
the date of termination shall terminate on the earlier of the fixed expiration
date of such option, or the date that is one year after the date of termination
of employment. Upon termination of a participant's employment with the Company
by reason of disability that is not permanent and total, each option held by the
participant on the date of termination shall terminate on the earlier of the
fixed expiration date of such option, or the date that is ninety (90) days after
the date of termination of employment. Upon termination of a participant's
employment with the Company by any reason other than death or disability, each
option held by the participant on the date of termination shall terminate on the
earlier of the date that is ninety (90) days after the date of termination of
employment, or the fixed expiration date of such option. In the case of Kevin J.
Hafer, the Company's President and Chief Executive Officer, Mr. Hafer continues
to vest in options for a period of one year so long as his termination is
without cause (as defined in his Employment Agreement), and options that vest
within such one-year period must be exercised within ninety (90) days following
the end of such one-year period. See "Certain Transactions."

In the event that the Company enters into an agreement to dispose of all or
substantially all of its assets or if the Company's shareholders dispose or
agree to dispose of 50% or more of the outstanding shares of Common Stock (an
"Acceleration Event"), each outstanding option will be exercisable immediately
preceding such Acceleration Event. Upon consummation of the Acceleration Event,
all outstanding options, whether or not so accelerated, will terminate and cease
to be exercisable, unless assumed by the successor corporation.

In 1996, the Company granted to Messrs. Hafer, Sirianni and Bevis options to
purchase 24,000, 132,000 and 103,000 shares of Common Stock, respectively, and
to each of its non-employee directors, except Mr. Harper, options to purchase
24,000 shares of Common Stock, in all cases at an exercise price of $0.18375 per
share. In 1996, Mr. Harper was granted options to purchase 24,000 shares of
Common Stock at an exercise price of $0.50 per share. In October 1996, the
Company accelerated the vesting of up to 50% of the options previously granted
by the Company to its employees and non-employee directors. In 1996, Messrs.
Hafer, Sirianni, Bevis, Crum, Harper and McAleer exercised options for 404,844,
54,424, 25,748, 12,000, 12,000 and 12,000 shares of Common Stock, respectively.
In June 1997, the Company granted to Messrs. Hafer, Sirianni, Bevis, Crum,
Harper, Chambers and McAleer options to purchase 79,000, 22,000, 17,000, 4,000,
4,000, 4,000 and 4,000 shares of Common Stock, respectively.

A total of 2,161,760 shares of Common Stock has been reserved for issuance
under the Employee Stock Plan. As of June 27, 1997, the Company had options
outstanding to purchase an aggregate of 951,564 shares at a weighted average
exercise price of $4.7655 per share pursuant to the Employee Stock Plan. If
options expire without having been exercised, the unused shares revert to the
pool available for future option grants.

EMPLOYMENT AGREEMENT

In December 1995, the Company entered into an Employment Agreement (the
"Employment Agreement") with Mr. Hafer for a term of one year, subject to
automatic one-year renewal thereafter. Under the Employment Agreement, Mr. Hafer
in 1996 received a salary of $160,000 and received certain bonus payments upon
the achievement by Mr. Hafer and the Company of certain performance objectives.
Pursuant to the Employment Agreement, Mr. Hafer also received a one-time cash
bonus in the aggregate amount of approximately $1.4 million and a one-time stock
bonus of 200,000 shares of the Company's Series B Redeemable Preferred Stock
redeemable upon the occurrence of certain events, including the

44
<PAGE>
consummation of the IPO. Mr. Hafer also received under the Employment Agreement
quarterly performance bonuses of $17,500 in each quarter that the Company made
the required payments of interest on the Company's Class A and Class B
Subordinated Promissory Notes. Pursuant to the Employment Agreement, Mr. Hafer
was also granted options to purchase 705,880 shares of Common Stock at an
exercise price of $0.18375 per share. If Mr. Hafer is terminated without cause,
as defined in the Employment Agreement, he is entitled to receive his salary,
benefits, bonus and accelerated vesting of his stock options for a period of one
year, during which time and for an additional one year thereafter Mr. Hafer has
agreed not to compete, directly or indirectly, with the Company. See "Certain
Transactions." The Company was also obligated to maintain, at its expense, a
$1.0 million life insurance policy on Mr. Hafer's life, payable to his wife or
estate (or as otherwise directed by Mr. Hafer), until all shares of Series B
Redeemable Preferred Stock were redeemed at the time of the IPO.

In December 1996, the Employment Agreement was amended to accelerate the
vesting of all 200,000 shares of Series B Redeemable Preferred Stock to January
1, 1997, and to require the Company to redeem 80,000 shares on January 1, 1997
for $5.00 per share (an aggregate of $400,000). The balance of the shares were
redeemed for $5.00 per share upon the consummation of the IPO.

Pursuant to the terms of the Employment Agreement, for 1997 the Compensation
Committee of the Board of Directors has awarded Mr. Hafer a base salary of
$200,000, certain bonus payments of up to fifty percent (50%) of his annual base
salary upon the achievement of certain performance objectives, and the
possibility of certain additional bonus payments of up to twenty-five percent
(25%) of his annual base salary upon the achievement of certain other
performance objectives, in the latter case in the sole discretion of the
Compensation Committee.

401(k) PROFIT SHARING PLAN AND TRUST

In February 1993, the Company established the Apex PC Solutions, Inc. 401(k)
Profit Sharing Plan and Trust (the "401(k) Plan") under Section 401(k) of the
Code. Under the 401(k) Plan, employees may contribute up to $9,500 of their
compensation per year subject to the elective limits as defined by guidelines of
the Internal Revenue Service (the "IRS"), and the Company may make matching
contributions in amounts not to exceed 5% of each employee's annual
compensation. The Company's contributions to the 401(k) Plan during the years
ended December 31, 1994, 1995 and 1996 aggregated $19,603, $35,217 and $58,968,
respectively.

EMPLOYEE STOCK PURCHASE PLAN

The Company's Board of Directors adopted the Apex PC Solutions, Inc.
Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") in December
1996, which was approved by the Company's shareholders in January 1997 and
became effective upon consummation of the IPO. Pursuant to the Employee Stock
Purchase Plan, a total of 250,000 shares of the Company's Common Stock was
reserved for sale to employees at a discount. The Employee Stock Purchase Plan
is designed to comply with Section 423 of the Code and allows participating
employees to gain certain tax advantages, provided the participant meets certain
holding requirements.

All employees, including officers and employee-directors, are eligible to
participate in the Employee Stock Purchase Plan if they are regularly scheduled
to work 20 or more hours per week, and customarily work for more than five
months each calendar year. Independent contractors (such as non-employee
directors) and consultants not considered Company "employees" for tax purposes
are not eligible to participate. In addition, the Employee Stock Purchase Plan
excludes any employee who already owns 5% or more of the Company's stock.
Employees participate by directing the Company to withhold a specified amount
from each of their regular paychecks (in no event more than 10% of pay). At the
end of each calendar quarter, the Company uses each participant's withholdings
to purchase Company Common Stock on behalf of the participant. The purchase
price for each share is the lesser of (i) 85% of the fair market

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<PAGE>
value of a share on the first business day of the calendar quarter, or (ii) 85%
of the fair market value of a share on the last business day of the calendar
quarter. In no event may a participant acquire more than $25,000 worth of
Company Common Stock in a calendar year.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company's Amended and Restated Articles of Incorporation limit the
liability of its directors for monetary damages arising from their conduct as
directors, except for liability relating to acts or omissions that involve
intentional misconduct, a knowing violation of law or the authorization of
unlawful distributions, and liability relating to transactions in which the
directors derive a personal benefit to which they are not legally entitled. Such
limitation does not affect the availability of equitable remedies. The Company's
Amended and Restated Articles of Incorporation also provide that the Company
will indemnify its directors and officers to the fullest extent permitted by
Washington law. In particular, each officer and director of the Company is
entitled to indemnification against all liability, loss and expense reasonably
incurred by such officer or director in connection with any civil, criminal,
administrative or investigative proceeding in which he or she is involved
(whether in his or her official capacity or otherwise) by reason of the fact
that he or she is or was serving as an officer or director of the Company.
Washington law currently provides that a corporation may indemnify an officer or
director against liability if the individual acted in good faith and, in the
case of a non-criminal proceeding, if such individual reasonably believed he or
she was acting in the best interests of the corporation, or, in the case of a
criminal proceeding, if such individual had no reasonable cause to believe his
or her conduct was unlawful. In the case of a proceeding against an officer or
director brought by or on behalf of the corporation, Washington law does not
permit a corporation to indemnify an officer or director if he or she is found
liable in such proceeding. In all other proceedings, indemnification is not
permitted where the officer or director is found liable on the basis that he or
she improperly received a personal benefit. The Company maintains directors' and
officers' insurance. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company 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.

CERTAIN TRANSACTIONS

The Company operated as a division of Apex Computer Company through January
1993. In February 1993, the assets and liabilities of that division were spun
off as a dividend to Sterling Crum, who contributed those assets and liabilities
to the Company as its initial capitalization in return for the issuance by the
Company of 8.0 million shares of Common Stock. At that time, the assets were
valued by Mr. Crum, who was the sole director of the Company, at approximately
$776,000, and the liabilities were valued at approximately $189,000, for a net
value of approximately $587,000.

During 1994 and 1995, Mr. Crum advanced funds (by foregoing distributions)
for the operation of the Company in exchange for unsecured promissory notes
totaling approximately $225,000 for 1994 and $4.6 million for 1995. All of these
notes bore interest at the rate of 12% per annum except for two notes totaling
approximately $270,000 that bore interest at a rate equal to 100% of the
discounts taken by the Company for its early payments to suppliers (the "Net-10
Notes"). All principal and accrued and unpaid interest under these notes was
paid at or shortly after the closing of the Leveraged Recapitalization. At the
time of repayment, accrued interest on these notes (other than the Net-10 Notes)
totaled approximately $112,000, and accrued interest on the two Net-10 Notes
totaled less than $20,000.

During 1994 and 1995 when the Company was an S Corporation, the Company
distributed $792,279 and $992,815, respectively, to Mr. Crum as dividends. In
1993 and 1994 Mr. Crum received $101,534 and $3,000, respectively, as
compensation.

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<PAGE>
In connection with the Leveraged Recapitalization in December 1995, the
Company sold to several entities affiliated with TA Associates, Inc. (the "TA
Group") 1.6 million shares of Common Stock at a price of $0.18375 per share,
300,000 shares of Series A Redeemable and Convertible Preferred Stock at a price
of $7.35 per share, and $10.0 million in aggregate principal amount of Class A
Subordinated Promissory Notes, for an aggregate purchase price of approximately
$12.5 million. Jeffrey T. Chambers, a director of the Company, is a Managing
Director of TA Associates, Inc. The shares of Series A Redeemable and
Convertible Preferred Stock issued to the TA Group converted into 2.4 million
shares of Common Stock upon the closing of the IPO. The Class A Subordinated
Promissory Notes issued to the TA Group provided for the quarterly payment of
interest at 7% per annum and the repayment of the principal amount and any
accrued and unpaid interest upon consummation of the IPO. In connection with the
Leveraged Recapitalization, the Company, the TA Group, Sterling Crum, Kevin J.
Hafer, the Chief Executive Officer and a director of the Company, and Britannia
Holdings Limited ("Britannia"), a major shareholder of the Company, entered into
a Shareholders' Agreement pursuant to which, among other things, the TA Group
was granted certain preemptive rights, co-sale rights and rights of refusal on
transfers of shares by the other shareholder parties, and the Company granted
the TA Group certain registration rights pursuant to a Registration Rights
Agreement. See "Description of Capital Stock--Registration Rights." The
Shareholders' Agreement terminated by its terms upon consummation of the IPO.

In connection with the Leveraged Recapitalization, the Company redeemed from
Britannia 4.0 million shares of Common Stock for an aggregate price of
approximately $22.5 million, consisting of cash in the amount of $12.5 million
and the Class B Subordinated Promissory Note in the aggregate principal amount
of $10.0 million. The Class B Subordinated Promissory Note issued to Britannia
provided for the quarterly payment of interest at 7% per annum and the repayment
of the principal amount and any accrued and unpaid interest on the consummation
of the IPO. Of the approximately $12.5 million payable to Britannia, $2.5
million was placed in escrow by the Company to secure certain representations
and warranties made to the TA Group by the Company, Sterling Crum, the Company's
founder and a director, and Britannia in connection with the Leveraged
Recapitalization. This escrow arrangement expired on the 30th day after audited
financial statements for the year ended December 31, 1996 were provided to the
TA Group.

Simultaneously with the Leveraged Recapitalization, Mr. Crum entered into an
S Corporation Indemnification Agreement with the Company indemnifying the
Company from and against any federal or state income tax liability resulting
from the Company's failure to qualify as an S Corporation under Internal Revenue
Code Section 1361(a)(1) for any taxable year ending or prior to October 31,
1995, the date on which the Company's status as an S Corporation was terminated.

In connection with the Leveraged Recapitalization, Kevin J. Hafer, the
Company's President and Chief Executive Officer, entered into an Employment
Agreement with the Company for calendar year 1996, subject to automatic one-year
renewals thereafter. Pursuant to the Employment Agreement, Mr. Hafer received,
among other things, 200,000 shares of nonvoting Series B Redeemable Preferred
Stock. In December 1996, the Employment Agreement was amended so that the Series
B Redeemable Preferred Stock vested in Mr. Hafer on January 1, 1997, and the
Company was obligated to redeem 80,000 of such shares on January 1, 1997 for
$5.00 per share and to redeem the remaining 120,000 shares for $5.00 per share
upon consummation of the IPO. All of the shares of Series B Redeemable Preferred
Stock were redeemed in accordance with the Employment Agreement, as amended. See
"Management--Employment Agreement."

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<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth as of June 27, 1997, and as adjusted to
reflect the sale by the Company of the shares of Common Stock offered hereby,
certain information with respect to the ownership of the Common Stock of the
Company by (i) each person (or group of affiliated persons) known by the Company
to be the beneficial owner of more than 5% of the Company's outstanding Common
Stock, (ii) each director of the Company, (iii) each of the Company's executive
officers named under "Management-- Executive Officers and Directors," (iv) all
executive officers and directors of the Company as a group and (v) each Selling
Shareholder. Unless otherwise noted, each person or group identified possesses
sole voting and investment power with respect to such shares, subject to
community property laws, where applicable.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERING NUMBER OF AFTER THE OFFERING
-------------------------- SHARES -------------------------
NAME OF BENEFICIAL OWNER(1) SHARES PERCENTAGE OFFERED SHARES PERCENTAGE
- -------------------------------------------------- ----------- ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
TA Group(2) ...................................... 3,769,000 31.0% 956,500 2,812,500 21.4%
c/o TA Associates, Inc.
125 High Street
High Street Tower, Suite 2500
Boston, MA 02110
Sterling Crum(3).................................. 3,617,500 29.7 956,500 2,661,000 20.2
Britannia Holdings Limited(4) .................... 2,574,000 21.2 956,500 1,617,500 12.3
P.O. Box 556
Main Street
Charleston, Nevis
Crum Family Trust dated 8/18/93,
Sterling Crum and Jane E. Crum,
Trustors and/or Trustees ......................... 1,043,500 8.6 1,043,500 7.9
c/o Sterling Crum
Kevin J. Hafer.................................... 331,844 2.7 72,000 259,844 2.0
Christopher L. Sirianni(5)........................ 66,000 * 15,000 51,000 *
Douglas A. Bevis(6)............................... 26,150 * 26,150 *
Jeffrey T. Chambers(7)............................ 16,740 * 1,203 15,537 *
William McAleer................................... 12,000 * 12,000 *
Edwin L. Harper................................... 12,000 * 12,000 *
All directors and executive officers as a group (7
persons)(8)..................................... 4,082,234 33.5% 1,044,703 3,037,531 23.0%
</TABLE>

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

* Less than 1%.

(1) Except as set forth herein the address of the directors and executive
officers set forth in the table is the address of the Company appearing
elsewhere in this Prospectus.

(2) Includes (i) 2,262,319 shares of Common Stock owned by Advent VII L.P., (ii)
1,240,981 shares of Common Stock owned by Advent Atlantic and Pacific II
L.P., (iii) 226,238 shares of Common Stock owned by Advent New York L.P. and
(iv) 39,462 shares of Common Stock owned by TA Venture Investors Limited
Partnership. Advent VII L.P., Advent Atlantic and Pacific II L.P., Advent
New York L.P. and TA Venture Investors Limited Partnership are part of an
affiliated group of investment partnerships referred to, collectively, as
the TA Group. The general partner of Advent VII L.P. is TA Associates VII
L.P. The general partner of Advent Atlantic and Pacific II L.P. is TA
Associates AAP II Partners L.P. The general partner of Advent New York L.P.
is TA Associates VI L.P. The general partner of each of TA Associates VII
L.P., TA Associates AAP II Partners L.P. and TA Associates VI L.P. is TA
Associates, Inc. In such capacity, TA Associates, Inc. exercises sole voting
and investment power with respect to all of the shares held of record by the
named investment partnerships, with the

48
<PAGE>
exception of those shares held by TA Venture Investors Limited Partnership;
individually, no stockholder, director or officer of TA Associates, Inc. is
deemed to have or share such voting or investment power. Principals and
employees of TA Associates, Inc. (including Mr. Chambers, a director of the
Company) comprise the general partners of TA Venture Investors Limited
Partnership. In such capacity, Mr. Chambers may be deemed to share voting
and investment power with respect to the 39,462 shares of Common Stock held
of record by TA Venture Investors Limited Partnership. Mr. Chambers
disclaims beneficial ownership of such shares, except to the extent of the
4,740 shares as to which he holds a pecuniary interest. If the Underwriters'
over-allotment option is exercised in full, collectively the TA Group will
sell 225,000 additional shares of Common Stock and after this offering will
beneficially own 2,587,500 shares or 19.7% of the total number of shares of
Common Stock outstanding.

(3) Includes 2,574,000 shares beneficially owned by Britannia Holdings Limited,
whose sole shareholder is The Duvall Trust, an irrevocable trust for the
benefit of Mr. Crum and certain members of his family. Mr. Crum disclaims
beneficial ownership with respect to all of such 2,574,000 shares. Also
includes 1,043,500 shares beneficially owned by the Crum Family Trust, a
revocable trust for the benefit of Mr. Crum and certain members of his
family.

(4) If the Underwriters' over-allotment option is exercised in full, Britannia
will sell 225,000 additional shares of Common Stock and after this offering
will beneficially own 1,392,500 shares or 10.6% of the total number of
shares of Common Stock outstanding.

(5) Includes 11,576 shares of Common Stock issuable upon exercise of stock
options currently exercisable at $0.18375 per share.

(6) Includes 2 shares of Common Stock issuable upon exercise of stock options
currently exercisable at $0.18375 per share.

(7) Includes 12,000 shares of Common Stock issuable upon exercise of stock
options currently exercisable at $0.18375 per share and 4,740 shares
beneficially owned by Mr. Chambers through TA Venture Investors Limited
Partnership, of which the 4,740 shares beneficially owned by Mr. Chambers
through TA Venture Investors Limited Partnership are included in the
3,769,000 shares described in Note (2) above. Does not include any shares
beneficially owned by Advent VII L.P., Advent Atlantic and Pacific II L.P.
or Advent New York L.P., of which Mr. Chambers disclaims beneficial
ownership. If the Underwriters' over-allotment option is exercised in full,
TA Venture Investors Limited Partnership will sell 2,356 shares of Common
Stock, and after this offering Mr. Chambers will beneficially own 15,254
shares or 0.1% of the total number of shares of Common Stock outstanding.

(8) Includes 23,578 shares of Common Stock issuable upon exercise of stock
options currently exercisable at $0.18375 per share. Also includes 2,574,000
shares held by Britannia, 1,043,500 shares held by the Crum Family Trust and
4,740 shares held by TA Venture Investors Limited Partnership. See Notes
(2), (3), (5), (6) and (7) above. If the Underwriters' over-allotment option
is exercised in full, all directors and executive officers of the Company as
a group will beneficially own 2,812,248 shares or 21.3% of the total number
of shares of Common Stock outstanding after this offering.

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<PAGE>
DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, no par value, and 1,000,000 shares of Preferred Stock, no par
value.

COMMON STOCK

As of June 27, 1997, there were 12,163,328 shares of Common Stock
outstanding and held of record by 37 shareholders. Based upon such number of
shares deemed outstanding as of that date and giving effect to the issuance of
the 1,000,000 shares of Common Stock offered by the Company hereby, there will
be 13,163,328 shares outstanding upon the consummation of this offering.

Holders of Common Stock are entitled to one vote for each share held of
record on all matters to be submitted to a vote of the shareholders and do not
have cumulative voting rights. Subject to the preferences that may be applicable
to any outstanding shares of Preferred Stock, holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors of the Company out of funds legally available
therefor. All outstanding shares of Common Stock are, and the shares to be sold
in the offering when issued and paid for will be, fully paid and nonassessable.
In the event of any liquidation, dissolution or winding-up of the affairs of the
Company, holders of Common Stock will be entitled to share ratably in the assets
of the Company remaining after payment or provision for payment of all of the
Company's debts and obligations and liquidation payments to holders of
outstanding shares of Preferred Stock. Holders of Common Stock have no
preemptive or conversion rights or other subscription rights, and there are no
redemption or sinking fund provisions applicable to the Common Stock.

PREFERRED STOCK

The Board of Directors is authorized, subject to certain limitations
prescribed by law, without further shareholder approval, to issue from time to
time up to 1,000,000 shares of Preferred Stock in one or more series. Each
series of Preferred Stock shall have such designations, preferences, powers and
relative, participating, optional or other special rights and the qualifications
or restrictions thereof as the Board of Directors shall determine. The
preferences, powers, rights and restrictions of different series of Preferred
Stock may differ with respect to dividend rates, amounts payable on liquidation,
voting rights, conversion rights, redemption provisions, sinking fund provisions
and other matters. The issuance of Preferred Stock could decrease the amount of
earnings and assets available for distribution to holders of Common Stock or
affect adversely the rights and powers, including voting rights, of the holders
of Common Stock, and may have the effect of delaying, deferring or preventing a
change in control of the Company. The Company has no present plan or intent to
issue any shares of Preferred Stock. Upon consummation of this offering, there
will be no shares of Preferred Stock outstanding.

REGISTRATION RIGHTS

After October 19, 1997, the holders ("Holders") of an aggregate of
approximately 2,812,500 shares of Common Stock (2,587,500 shares if the
Underwriters' over-allotment option is exercised in full) (the "Registrable
Shares") are entitled to certain rights with respect to the registration of such
shares for offer and sale to the public under the Securities Act. Under these
provisions, the Holders of at least 40% of the Registrable Shares may request
that the Company file up to two registration statements under the Securities Act
with respect to such shares. Upon receipt of such a request, the Company is
required to notify all other Holders and to use all reasonable efforts to effect
such registration, subject to certain conditions. In addition, upon the request
of holders of at least 20% of the Registrable Shares, the Company may be
required to effect an unlimited number of registrations on Form S-3. Further,
whenever the Company proposes to register any of its securities under the
Securities Act for its own account or for the account of other security holders,
the Company is required to notify each Holder of the proposed registration and
include all Registrable Shares which such Holder may request to be included in
such

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<PAGE>
registration, subject to certain limitations. Generally, the Company is required
to bear all expenses (except underwriting discounts, selling commissions and
stock transfer taxes) of all registrations.

ANTITAKEOVER PROVISIONS

STATUTORY PROVISIONS. Washington law contains certain provisions that may
have the effect of delaying, deterring or preventing a change in control of the
Company. Chapter 23B.17 of the Washington Business Corporation Act (the "WBCA")
prohibits, subject to certain exceptions, a merger, sale of assets or
liquidation of the Company involving an "interested shareholder" (defined as a
person who owns beneficially 20% or more of the Company's voting securities)
unless the transaction is determined to be at a "fair price" or otherwise
approved by a majority of the Company's disinterested directors or is approved
by holders of two-thirds of the Company's outstanding voting securities, other
than those held by the interested shareholder. A Washington corporation may, in
its articles of incorporation, exempt itself from coverage of this provision,
but the Company has not done so. In addition, Chapter 23B.19 of the WBCA
prohibits the Company, with certain exceptions, from engaging in certain
significant business transactions with an "acquiring person" (defined as a
person who acquires 10% or more of the Company's voting securities without the
prior approval of the Company's Board of Directors) for a period of five years
after such acquisition. If the Company moves its principal executive offices
outside Washington State or if neither a majority nor 1,000 of the Company's
employees are residents of Washington State, the protections afforded by Chapter
23B.19 would no longer be available. The prohibited transactions include, among
others, a merger with, disposition of assets to, or issuance or redemption of
stock to or from, the acquiring person, or otherwise allowing the acquiring
person to receive any disproportionate benefit as a shareholder. The Leveraged
Recapitalization pursuant to which the TA Group became a greater-than-10%
shareholder was approved by the Company's Board of Directors, and as a result
the TA Group is not considered an "acquiring person" for purposes of Chapter
23B.19. The Company may not exempt itself from coverage of this statute. These
statutory provisions may have the effect of delaying, deterring or preventing a
change in control of the Company.

ARTICLES OF INCORPORATION AND BYLAW PROVISIONS. The Company's Amended and
Restated Articles of Incorporation authorize the Board of Directors to issue up
to 1,000,000 shares of Preferred Stock with such rights and preferences as the
Board of Directors may determine. The issuance of such shares may have the
effect of delaying, deterring or preventing a change in control of the Company.
See "--Preferred Stock."

The Amended and Restated Articles of Incorporation provide that holders of
the Company's voting securities are not entitled to cumulate votes in the
election of directors. As a result, holders of a majority of the Company's
voting securities may elect the entire Board of Directors, subject to the voting
rights of holders of Preferred Stock. See "--Common Stock."

In addition, the Company's Amended and Restated Bylaws provide that
shareholders may not raise new matters or nominate directors at a meeting of
shareholders unless certain advance notice requirements are satisfied.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Company's Common Stock is
ChaseMellon Shareholder Services, L.L.C.

51
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the offering, the Company will have 13,163,328 shares of
Common Stock outstanding. Of these shares, 4,200,829 shares are currently traded
or available for sale in the open market, and all of the 3,000,000 shares sold
in the offering (3,450,000 shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradeable without restriction or further
registration under the Securities Act, unless acquired by an "affiliate" of the
Company as that term is defined in Rule 144 ("Rule 144") under the Securities
Act, which shares will then be subject to the resale limitations of Rule 144
described below. The remaining 5,962,499 shares (5,512,499 shares if the
Underwriters' over-allotment option is exercised in full) will be "restricted
securities" within the meaning of Rule 144 (the "Restricted Shares"). On August
19, 1997, an aggregate of 30,000 of the Restricted Shares will become eligible
for sale to the public market upon the expiration of certain lock-up agreements
entered into in connection with the IPO. The holders of an aggregate of
7,931,516 Restricted Shares, including all of the Selling Shareholders and the
Company's directors, officers and major shareholders, have agreed pursuant to
certain lock-up agreements entered into in connection with this offering not to
sell their shares without the consent of Montgomery Securities until October 20,
1997. All of the Restricted Shares will become eligible for sale in the public
market after expiration of these lock-up agreements, subject to the provisions
of Rule 144. In addition, after such time the holders of 2,812,500 shares of
Common Stock (2,587,500 shares if the Underwriters' over allotment option is
exercised in full) may require that a portion of such shares be registered under
the Securities Act. See "Description of Capital Stock--Registration Rights."

In general, under Rule 144 as currently in effect, a shareholder who has
beneficially owned for at least one year shares privately acquired directly or
indirectly from the Company or from an affiliate of the Company, and persons who
are affiliates of the Company who have acquired the shares in registered
transactions, will be entitled to sell within any three-month period a number of
shares that does not exceed the greater of: (i) 1% of the outstanding shares of
the Common Stock (approximately 131,633 shares immediately after completion of
the offering); or (ii) the average weekly trading volume in the Common Stock
during the four calendar weeks preceding such sale. Sales under Rule 144 are
also subject to certain requirements relating to the manner and notice of sale
and the availability of current public information about the Company.

The Company also has agreed with the Underwriters not to offer, sell or
otherwise dispose of any shares of Common Stock or securities convertible into
or exercisable or exchangeable for such shares until October 20, 1997 without
the prior written consent of Montgomery Securities, except that the Company,
without such consent, may grant options or issue stock upon exercise of new or
outstanding options pursuant to the Employee Stock Plan.

The Company has reserved 2,161,760 shares of Common Stock for issuance under
the Employee Stock Plan and 250,000 shares of Common Stock for issuance under
the Employee Stock Purchase Plan. Shares issued under the Employee Stock Plan
and the Employee Stock Purchase Plan are freely tradeable without restriction or
further registration under the Securities Act, unless acquired by affiliates of
the Company.

52
<PAGE>
UNDERWRITING

Montgomery Securities, Dain Bosworth Incorporated and Cowen & Company (the
"Underwriters") have severally agreed, subject to the terms and conditions
contained in the Underwriting Agreement (the "Underwriting Agreement") by and
among the Company, the Selling Shareholders and the Underwriters, to purchase
from the Company and the Selling Shareholders the number of shares of Common
Stock indicated below opposite their respective names, at the 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 are subject to certain conditions precedent and that the
Underwriters are committed to purchase all of such shares of Common Stock, if
any are purchased.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ------------------------------------------------------------------------------------------- ----------
<S> <C>
Montgomery Securities......................................................................
Dain Bosworth Incorporated.................................................................
Cowen & Company............................................................................
----------
Total................................................................................ 3,000,000
----------
----------
</TABLE>

The Underwriters have advised the Company and the Selling Shareholders 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 offering price and other selling terms may be changed by the
Underwriters. 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.

Certain Selling Shareholders have granted the Underwriters an option
exercisable during the 30-day period after the date of this Prospectus to
purchase up to a maximum of 450,000 additional shares of Common Stock to cover
over-allotments, if any, at the same price per share as the initial 3,000,000
shares to be purchased by the Underwriters. To the extent that the Underwriters
exercise this over-allotment option, 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 Company, the Selling Shareholders and the Company's directors, executive
officers, certain employees and major Shareholders have agreed that, until
October 20, 1997, they will not, without the prior written consent of Montgomery
Securities, offer, sell or otherwise dispose of any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for any shares of
Common Stock, except that the Company, without such consent, may grant options
or issue stock upon exercise of new or outstanding options pursuant to the
Employee Stock Plan and issue stock pursuant to the Employee Stock Purchase Plan
and except that certain employees may sell an aggregate amount of up to 30,000
shares on or after August 19, 1997.

The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act of 1933, as amended, or
will contribute to payments the Underwriters may be required to make in respect
thereof.

Montgomery Securities and Dain Bosworth Incorporated were the
representatives of the several underwriters in the Company's initial public
offering of 3,500,000 shares of Common Stock in February 1997, for which they
received customary underwriting discounts and commissions.

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 Underwriters are permitted to engage in

53
<PAGE>
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 Underwriters may reduce that short position by purchasing Common
Stock in the open market. The Underwriters may also elect to reduce any short
position by exercising all or part of the over-allotment option described above.
The Underwriters may also impose a penalty bid on certain Underwriters and
selling group members. This means that if the Underwriters 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 who 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
discourages 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 Underwriters will engage in such
transactions or that such transactions, once commenced, will not be discontinued
without notice.

The Underwriters have advised the Company that the Underwriters and dealers
may engage in passive market making transactions in the Common Stock in
accordance with rules promulgated by the Commission. In general, a passive
market maker may not bid for or purchase the Common Stock at a price that
exceeds the highest independent bid. In addition, the net daily purchases made
by any passive market maker generally may not exceed 30% of its average daily
trading volume in the Common Stock during a specified two-month prior period or
200 shares, whichever is greater. A passive market maker must identify passive
market making bids as such on the Nasdaq electronic inter-dealer reporting
system. Passive market making may have the effect of stabilizing or maintaining
the market price of the Common Stock at a level above that which might otherwise
prevail in the open market. Underwriters and dealers are not required to engage
in passive market making and may discontinue such activities at any time.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Shareholders by Davis Wright Tremaine LLP,
Seattle, Washington. Certain legal matters relating to this offering will be
passed upon for the Underwriters by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California.

EXPERTS

The balance sheets as of December 31, 1995 and 1996 and the statements of
operations, changes in shareholders' equity (deficit) and cash flows for the
years ended December 31, 1994, 1995 and 1996 included in this Prospectus have
been included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed a registration statement on Form SB-2 (together with
any amendments thereto, the "Registration Statement") with the Securities and
Exchange Commission (the "Commission") under the Securities Act with respect to
the Common Stock. This Prospectus, which constitutes a part of the Registration
Statement, omits certain information contained in the Registration Statement and
reference is made to the Registration Statement and the exhibits and schedules
thereto for further

54
<PAGE>
information with respect to the Company and the Common Stock offered hereby.
This Prospectus contains summaries of the material terms and provisions of
certain documents and in each instance reference is made to the copy of such
document filed as an exhibit to the Registration Statement. Each such summary is
qualified in its entirety by such reference.

The Registration Statement (including the exhibits and schedules thereto)
and the periodic reports and other information filed by the Company with the
Commission may be inspected without charge at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at 7 World
Trade Center, 13th Floor, New York, New York 10048, and Suite 1400, Northwestern
Atrium Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
materials may be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, and its public reference
facilities in New York, New York, and Chicago, Illinois, at prescribed rates.
The Registration Statement and such exhibits and schedules are also available at
the Commission's Web site (http://www.sec.gov).

AVAILABLE INFORMATION

The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Company can be inspected and copied (at prescribed rates) at the
Commission's Public Reference Section, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, as well as the New York Regional Office, Seven World
Trade Center, 13th Floor, New York, New York 10048, and the Chicago Regional
Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60601. In
addition, the Commission maintains a World Wide Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The address of the site is
http://www.sec.gov. Quotations relating to the Company's Common Stock appear on
the Nasdaq National Market, and such reports, proxy statements and other
information concerning the Company can also be inspected at the offices of the
Nasdaq Stock Market, Inc., 1735 K Street, N.W., Washington, D.C. 20006.

55
<PAGE>
APEX PC SOLUTIONS, INC.
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
Report of Independent Accountants................................................................... F-2

Financial Statements:

Balance Sheets.................................................................................... F-3

Statements of Operations.......................................................................... F-4

Statement of Changes in Shareholders' Equity (Deficit)............................................ F-5

Statements of Cash Flows.......................................................................... F-6

Notes to Financial Statements..................................................................... F-7 - F-20
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders
Apex PC Solutions, Inc.

We have audited the accompanying balance sheets of Apex PC Solutions, Inc.
(the "Company") as of December 31, 1995 and 1996 and the related statements of
operations, changes in shareholders' equity (deficit) and cash flows for each of
the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Apex PC Solutions, Inc. as
of December 31, 1995 and 1996 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.

Coopers & Lybrand L.L.P.

Seattle, Washington
January 17, 1997,

except for note 14, as to which
the date is July 10, 1997

F-2
<PAGE>
APEX PC SOLUTIONS, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1995 1996
----------- ----------- JUNE 27,
1997
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 2,676,290 $ 2,118,887 $ 7,956,172
Accounts receivable, net of allowance for doubtful accounts............ 4,499,404 6,170,193 6,983,029
Inventories............................................................ 1,257,772 1,653,011 2,393,250
Prepaid expenses....................................................... 124,047 130,218 382,695
Deferred tax assets.................................................... 60,000 800,700 519,320
----------- ----------- -----------
Total current assets................................................. 8,617,513 10,873,009 18,234,466
----------- ----------- -----------
Property and equipment, at cost:
Leasehold improvements................................................. -- 4,677 12,239
Furniture and office equipment......................................... 125,846 273,831 359,030
Computer and other equipment........................................... 159,330 380,334 556,480
----------- ----------- -----------
285,176 658,842 927,749
Less accumulated depreciation.......................................... 86,089 195,959 283,812
----------- ----------- -----------
199,087 462,883 643,937
----------- ----------- -----------
Other assets............................................................. 231,400 617,255 17,672
----------- ----------- -----------
Total assets............................................................. $ 9,048,000 $11,953,147 $18,896,075
----------- ----------- -----------
----------- ----------- -----------

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt...................................... $ 674,125 $ 504,349 $ --
Accounts payable....................................................... 930,265 530,525 1,206,589
Accrued wages and commissions.......................................... 1,739,703 554,352 525,166
Accrued warranty costs................................................. -- 630,000 745,000
Other accrued expenses................................................. 343,337 282,040 546,175
Deferred revenue....................................................... 280,302 -- --
----------- ----------- -----------
Total current liabilities............................................ 3,967,732 2,501,266 3,022,930
Subordinated debt...................................................... 20,000,000 20,000,000 --
Long-term debt, less current portion................................... 5,614,988 5,110,549 --
Deferred taxes......................................................... 8,000 16,500 21,250
----------- ----------- -----------
Total liabilities...................................................... 29,590,720 27,628,315 3,044,180
----------- ----------- -----------
Commitments and contingencies
Preferred stock, Series A redeemable and convertible, no par value,
300,000 shares authorized, issued and outstanding at December 31,
1995 and 1996........................................................ 2,205,000 2,205,000 --
Preferred stock, Series B redeemable, no par value; 200,000 shares
authorized, issued and outstanding at December 31, 1995 and 1996..... 1,000,000 1,000,000 --
----------- ----------- -----------
Shareholders' equity (deficit):
Preferred stock, 100,000 shares authorized at December 31, 1995 and
1996 and 1,000,000 shares authorized at June 27, 1997; no shares issued
and outstanding........................................................ -- -- --
Common stock, no par value; 10,000,000 shares authorized at December
31, 1995 and 1996 and 100,000,000 authorized at July 27, 1997;
5,600,000, 6,260,016 and 12,163,328 shares issued and outstanding...... 295,000 648,260 31,526,508
Deferred compensation.................................................. (1,000,000) (93,431) (180,581)
Accumulated deficit.................................................... (23,042,720) (19,434,997) (15,494,032)
----------- ----------- -----------
Total shareholders' equity (deficit)................................... (23,747,720) (18,880,168) 15,851,895
----------- ----------- -----------
Total liabilities and shareholders' equity (deficit)................... $ 9,048,000 $11,953,147 $18,896,075
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

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

F-3
<PAGE>
APEX PC SOLUTIONS, INC.
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
YEAR ENDED DECEMBER 31, JUNE 30, JUNE 27,
------------------------------------------ 1996 1997
1994 1995 1996 (UNAUDITED) (UNAUDITED)
------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales............................. $ 7,310,565 $ 19,670,619 $ 33,621,936 $ 14,001,937 $ 23,681,366
Cost of sales......................... 4,493,275 10,635,672 19,238,965 8,343,392 12,991,830
------------ ------------- ------------- ------------- -------------
Gross profit...................... 2,817,290 9,034,947 14,382,971 5,658,545 10,689,536
------------ ------------- ------------- ------------- -------------
Research and development.............. 277,878 913,027 965,030 463,622 935,986
Sales and marketing................... 370,264 1,631,075 2,481,356 1,117,036 1,876,528
General and administrative............ 1,235,657 2,753,763 3,608,897 931,175 1,703,320
------------ ------------- ------------- ------------- -------------
Total operating expenses.......... 1,883,799 5,297,865 7,055,283 2,511,833 4,515,834
------------ ------------- ------------- ------------- -------------
Income from operations............ 933,491 3,737,082 7,327,688 3,146,712 6,173,702
Interest income (expense), net........ 7,023 (186,302) (1,859,170) (946,875) (123,344)
Other income.......................... -- -- -- -- 146,324
------------ ------------- ------------- ------------- -------------
Income from continuing operations
before income taxes and
extraordinary item.................. 940,514 3,550,780 5,468,518 2,199,837 6,196,682
Benefit (provision) for income
taxes............................... -- 52,000 (1,860,795) (748,185) (2,114,954)
------------ ------------- ------------- ------------- -------------
Income from continuing operations
before extraordinary item........... 940,514 3,602,780 3,607,723 1,451,652 4,081,728
Extraordinary item--loss on early
extinguishment of debt, net of
$72,513 of income taxes............. -- -- -- -- (140,763)
Income from discontinued service
operations.......................... 601,064 -- -- -- --
------------ ------------- ------------- ------------- -------------
Net income........................ $ 1,541,578 $ 3,602,780 $ 3,607,723 $ 1,451,652 $ 3,940,965
------------ ------------- ------------- ------------- -------------
------------ ------------- ------------- ------------- -------------
Pro forma data (Note 1):
Historical income before taxes...... $ 1,541,578 $ 3,550,780 $ 5,468,518 $ 2,199,837 $ 5,983,406
Provision for income taxes (pro
forma through 1995)............... 524,137 1,207,265 1,860,795 748,185 2,042,441
------------ ------------- ------------- ------------- -------------
Net income (pro forma through
1995)............................. $ 1,017,441 $ 2,343,515 $ 3,607,723 $ 1,451,652 $ 3,940,965
------------ ------------- ------------- ------------- -------------
------------ ------------- ------------- ------------- -------------
Pro forma per share amounts:
Income before extraordinary
item............................ $ 0.20 $ 0.40 $ 0.16 $ 0.34
Extraordinary item................ -- -- -- (0.01)
------------- ------------- ------------- -------------
Pro forma income per share........ $ 0.20 $ 0.40 $ 0.16 $ 0.33
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average shares used in
computing pro forma per share
amounts........................... 11,491,932 9,091,932 9,091,932 11,839,388
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>

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

F-4
<PAGE>
APEX PC SOLUTIONS, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
COMMON STOCK RETAINED
--------------------------- DEFERRED EARNINGS
SHARES AMOUNT COMPENSATION (DEFICIT) TOTAL
------------ ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1994.................. 8,000,000 586,075 -- 371,108 957,183
Net income................................. -- -- -- 1,541,578 1,541,578
Distribution to shareholder................ -- -- -- (1,037,124) (1,037,124)
------------ ------------- ------------- -------------- --------------
Balances, December 31, 1994................ 8,000,000 586,075 -- 875,562 1,461,637
Net income................................. -- -- -- 3,602,780 3,602,780
Distributions (cash and notes) to
shareholder.............................. -- (585,075) -- (5,022,062) (5,607,137)
Deferred compensation related to issuance
of Series B redeemable preferred stock... -- -- (1,000,000) -- (1,000,000)
Issuance of common stock................... 1,600,000 294,000 -- -- 294,000
Redemption of common stock................. (4,000,000) -- -- (22,499,000) (22,499,000)
------------ ------------- ------------- -------------- --------------
Balances, December 31, 1995................ 5,600,000 295,000 (1,000,000) (23,042,720) (23,747,720)
Net income................................. -- -- -- 3,607,723 3,607,723
Issuance of common stock options........... -- 170,574 (170,574) -- --
Tax benefit of common stock options
exercised................................ -- 56,002 -- -- 56,002
Exercise of common stock options........... 660,016 126,684 -- -- 126,684
Amortization of deferred
compensation............................. -- -- 1,077,143 -- 1,077,143
------------ ------------- ------------- -------------- --------------
Balances, December 31, 1996................ 6,260,016 648,260 (93,431) (19,434,997) (18,880,168)
Net income (unaudited)..................... -- -- -- 3,940,965 3,940,965
Proceeds from initial public offering of
common stock............................. 3,500,000 28,550,762 -- -- 28,550,762
Proceeds from issuance of common stock to
employee stock purchase plan............. 3,312 22,886 -- -- 22,886
Conversion of Series A redeemable and
convertible preferred stock to common
stock.................................... 2,400,000 2,205,000 -- -- 2,205,000
Deferred compensation related to issuance
of stock options......................... -- 99,600 (99,600) -- --
Amortization of deferred compensation...... -- -- 12,450 -- 12,450
------------ ------------- ------------- -------------- --------------
Balances, June 27, 1997 (unaudited)........ 12,163,328 $ 31,526,508 $ (180,581) $ (15,494,032) $ 15,851,895
------------ ------------- ------------- -------------- --------------
------------ ------------- ------------- -------------- --------------
</TABLE>

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

F-5
<PAGE>
APEX PC SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------
YEARS ENDED DECEMBER 31, JUNE 30, JUNE 27,
-------------------------------- 1996 1997
1994 1995 1996 (UNAUDITED) (UNAUDITED)
--------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................................... $1,541,578 $3,602,780 $3,607,723 $1,451,652 $ 3,940,965
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 43,530 60,288 154,225 71,658 94,239
Amortization of deferred compensation.............. -- -- 1,077,143 83,334 12,450
Loss on disposal of equipment...................... 2,583 10,614 -- -- --
Deferred taxes..................................... -- (52,000) (732,200) (104,000) 286,130
Tax benefit of common stock options exercised...... -- -- 56,002 -- --
Provision for obsolete and slow moving inventory... -- -- 215,000 -- --
Provision for doubtful accounts.................... -- 30,000 305,893 -- --
Extraordinary item--loss on early extinguishment of
debt............................................. -- -- -- -- 213,276
Changes in:
Accounts receivable.............................. (163,136) (3,052,603) (1,976,682) 995,591 (812,836)
Inventories...................................... (197,083) (919,748) (610,239) (130,181) (740,239)
Prepaid expenses................................. (45,346) (71,579) (6,171) 36,808 (252,477)
Other assets..................................... -- (10,922) (69,231) -- 63,942
Accounts payable................................. 294,061 543,079 (399,740) (313,195) 676,064
Accrued wages and commissions.................... 19,796 1,592,713 (1,185,351) (1,504,534) (29,186)
Accrued warranty costs........................... -- -- 630,000 240,000 115,000
Other accrued expenses........................... (52,495) 226,028 (61,297) 222,702 264,135
Deferred revenue................................. -- 280,302 (280,302) (280,302) --
--------- ---------- --------- ----------- -----------
Total adjustments.............................. (98,090) (1,363,828) (2,882,950) (682,119) (109,502)
--------- ---------- --------- ----------- -----------
Net cash provided by operating activities...... 1,443,488 2,238,952 724,773 769,533 3,831,463
--------- ---------- --------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of equipment...................... 1,839 -- -- -- --
Purchases of equipment............................... (25,718) (166,217) (373,666) (231,141) (268,907)
--------- ---------- --------- ----------- -----------
Net cash used in investing activities.......... (23,879) (166,217) (373,666) (231,141) (268,907)
--------- ---------- --------- ----------- -----------
Cash flows from financing activities:
Distributions paid................................... (792,279) (992,815) -- -- --
Principal payments on notes to shareholder........... (249,845) (4,569,322) (270,000) (270,000) --
Proceeds from the issuance of long-term debt......... -- 16,000,000 -- -- --
Repayments of long-term debt......................... -- (1,347) (404,215) (2,074) (25,614,898)
Payment of loan fees................................. -- (220,478) (45,000) (45,000) --
Proceeds from issuance of Series A redeemable and
convertible preferred stock........................ -- 2,205,000 -- -- --
Proceeds from initial public offering of common
stock.............................................. -- -- -- -- 28,866,741
Proceeds from issuance of common stock and exercise
of common stock options............................ -- 294,000 126,684 9,508 22,886
Payment of deferred offering costs................... -- -- (315,979) -- --
Redemption of Series B redeemable preferred stock.... -- -- -- -- (1,000,000)
Redemption of common stock........................... -- (12,499,000) -- -- --
--------- ---------- --------- ----------- -----------
Net cash provided by (used in) financing
activities................................... (1,042,124) 216,038 (908,510) (307,566) 2,274,729
--------- ---------- --------- ----------- -----------
Net increase (decrease) in cash and cash equivalents... 377,485 2,288,773 (557,403) 230,826 5,837,285
Cash and cash equivalents at beginning of period....... 10,032 387,517 2,676,290 2,676,290 2,118,887
--------- ---------- --------- ----------- -----------
Cash and cash equivalents at end of period............. $ 387,517 $2,676,290 $2,118,887 $2,907,116 $ 7,956,172
--------- ---------- --------- ----------- -----------
--------- ---------- --------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest............... $ 23,295 $ 186,817 $1,912,583 $ 956,018 $ 328,854
--------- ---------- --------- ----------- -----------
--------- ---------- --------- ----------- -----------
Cash paid for Federal income taxes................... $ -- $ -- $2,531,962 $ 763,375 $ 1,760,000
--------- ---------- --------- ----------- -----------
--------- ---------- --------- ----------- -----------
Equipment obtained through capital lease............. $ -- $ 20,460 $ -- $ -- $ --
--------- ---------- --------- ----------- -----------
--------- ---------- --------- ----------- -----------
Distributions to shareholder evidenced by notes
payable............................................ $ 244,845 $4,614,322 $ -- $ -- $ --
--------- ---------- --------- ----------- -----------
--------- ---------- --------- ----------- -----------
Redemption of common stock evidenced by note
payable............................................ $ -- $10,000,000 $ -- $ -- $ --
--------- ---------- --------- ----------- -----------
--------- ---------- --------- ----------- -----------
Conversion of Series A preferred stock to common
stock.............................................. $ -- $ -- $ -- $ -- $ 2,205,000
--------- ---------- --------- ----------- -----------
--------- ---------- --------- ----------- -----------
</TABLE>

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

F-6
<PAGE>
APEX PC SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS

(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND JUNE 27, 1997 IS UNAUDITED)

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

THE COMPANY

Apex PC Solutions, Inc. (the "Company") was incorporated in December 1992.
Through January of 1993, the Company operated as a division of another entity
owned by the Company's shareholder. In February 1993, $586,075 in net assets
were spun off from the related entity and represent the Company's initial
capitalization. The predecessor bases of assets and liabilities contributed in
the initial capitalization and recorded as contributed capital (common stock)
were as follows:

<TABLE>
<S> <C>
Cash............................................................. $ 131,200
Accounts receivable.............................................. 410,340
Inventories...................................................... 165,938
Plant and equipment.............................................. 68,044
Accounts payable................................................. (143,472)
Accrued liabilities.............................................. (45,975)
---------
$ 586,075
---------
---------
</TABLE>

The Company designs, manufactures and markets stand-alone switching systems
and integrated server cabinet solutions for the client/server computing market.
The Company's switching systems enable client/ server network administrators to
manage multiple servers from a single keyboard, monitor and mouse configuration,
facilitating more efficient network management and administration. The Company
purchases material component parts for the manufacture of switching systems and
integrated server cabinets from domestic suppliers, and generally contracts with
third parties for the subassembly of products.

RECAPITALIZATION OF THE COMPANY

During 1995, the Company was recapitalized through a series of transactions
whereby a portion of the interest of one of its shareholders was redeemed for
cash and a note. Concurrently, new shareholders purchased shares of common and
preferred stock and provided additional financing to the Company. Immediately
prior to the recapitalization, the Company declared dividends to the shareholder
of $992,815 (including redemption of common stock with a basis of $585,075). The
significant components of the leveraged recapitalization were as follows:

The Company split its common stock 1000 shares for 1.

A shareholder of the Company received $4,569,322 from the Company for
repayments of existing notes.

The Company redeemed 4,000,000 shares (adjusted for all stock splits)
from a shareholder through payment of $12,499,000 in cash and issuance of a
$10,000,000 subordinated note ("Class B Subordinated Promissory Note").

The Company issued 1,600,000 shares (adjusted for all stock splits) of
common stock and 300,000 shares of Series A Redeemable and Convertible
Preferred Stock for $294,000 and $2,205,000,

F-7
<PAGE>
APEX PC SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND JUNE 27, 1997 IS UNAUDITED)

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
respectively, to a group of investors. At the same time, the investors
loaned the Company $10,000,000 evidenced by Class A Subordinated Notes.

The Company issued 200,000 shares of Series B Redeemable Preferred Stock
to an officer of the Company.

The new investors did not acquire substantially all of the shares
representing voting interests of the Company. The voting interests of new
investors represented 50% of the voting interests of the Company after the
leveraged capitalization. Accordingly, the transaction has been recorded as a
recapitalization with amounts distributed to the selling shareholder recorded as
charges to shareholders' equity (deficit). The transaction did not result in a
new basis of accounting for the assets and liabilities of the Company because it
would not have been appropriate under EITF Issue No. 88-16, "Basis in Leveraged
Buyout Transactions" or pushdown accounting guidelines of the Securities and
Exchange Commission ("SEC").

PRESENTATION OF UNAUDITED INTERIM FINANCIAL STATEMENTS

The accompanying unaudited interim financial statements as of June 27, 1997
and for the six month periods ended June 30, 1996 and June 27, 1997 have been
prepared in conformity with generally accepted accounting principles and reflect
all adjustments, consisting of normal recurring adjustments, which, in the
opinion of management, are necessary for a fair presentation of the results for
the periods shown. The results of operations for such periods are not
necessarily indicative of the results expected for the full fiscal year or for
any future period.

The Company reports its annual results based on years ending December 31.
Interim periods in years prior to 1997 are reported on a calendar quarter basis.
Commencing in 1997, the Company reports its quarterly results for the first
three interim periods ending on the last Friday of March, June and September and
for the fourth interim period ending on December 31. The difference between
quarterly results reported on this basis and quarterly results reported on the
basis of calendar quarters for years prior to 1997 is not material.

The Company formed a foreign sales corporation subsidiary in the first
quarter of 1997. Consequently, beginning in 1997 the Company's financial
statements are presented on a consolidated basis.

CASH AND CASH EQUIVALENTS

The Company considers cash and short-term investments which are highly
liquid, with maturities of three months or less, to be cash equivalents.

INVENTORIES

Inventories are recorded at the lower of cost (as determined by the
first-in, first-out method) or market.

PROPERTY AND EQUIPMENT

Depreciation of property and equipment is computed on the basis of estimated
useful lives ranging from three to seven years using the straight-line method.
Maintenance and repairs are charged to expense

F-8
<PAGE>
APEX PC SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND JUNE 27, 1997 IS UNAUDITED)

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
as incurred. Significant betterments are capitalized. Upon retirement or sale,
the cost of the assets disposed of and the related accumulated depreciation are
removed from the accounts and any resulting gain or loss is reflected in the
statement of operations.

OTHER ASSETS

Other assets consist primarily of financing costs and costs incurred in
connection with the Company's initial public offering. Financing costs are
amortized using the effective interest method.

REVENUE RECOGNITION

Revenue on equipment sales is recognized upon shipment, net of allowances
for potential returns. Certain customer contracts require equipment installation
at the customer's location and in those circumstances, revenue is recognized
after completion of the installation.

INCOME TAXES

On October 31, 1995, the Company's status as an S Corporation for Federal
income tax purposes was automatically terminated due to a sale of stock to an
entity not eligible to be a shareholder of a subchapter S Corporation. Taxable
income prior to the change in status was taxed directly to the former sole
shareholder and financial statements for periods through this date reflected no
provision for income taxes. Subsequent to October 31, 1995 the Company has been
taxed as a C Corporation for Federal income tax purposes. The Company has
provided for these income taxes under the principles of Statement of Financial
Accounting Standards No. 109 (SFAS No. 109).

PRO FORMA INCOME PER SHARE

The pro forma income per share is based on the weighted average number of
shares of common stock and common equivalent shares outstanding, adjusted for
stock splits retroactively applied to all periods presented (see Note 8).
Pursuant to certain SEC Staff Accounting Bulletins, common stock and common
stock equivalents issued at prices below the initial public offering ("IPO")
price of $9 during the 12 months immediately preceding the date of the initial
filing of the Registration Statement have been included in the calculation of
income per share, using the treasury stock method based on the assumed IPO
price, as if the common stock equivalents were outstanding for all periods
through the date of the company's initial public offering.

PRO FORMA DATA

Pro forma provisions for income taxes, net income and per share data
represent the results of operations for the two years ended December 31, 1994
and 1995, adjusted to reflect a provision for income taxes, calculated as if the
Company had been taxed as a C Corporation.

USE OF ESTIMATES

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets

F-9
<PAGE>
APEX PC SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND JUNE 27, 1997 IS UNAUDITED)

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
and liabilities and 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
and assumptions.

FAIR VALUE OF FINANCIAL INSTRUMENTS

For certain financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities, recorded amounts
approximate market value.

The estimated fair value of notes payable approximates their recorded
amounts because these instruments bear interest either at market rates or at
floating rates which approximate market rates for similar instruments.

CONCENTRATIONS OF CUSTOMER BASE AND CREDIT RISK

A major customer accounted for 36%, 54%, and 30% of the Company's net sales
(excluding service sales) for the years ended December 31, 1994, 1995 and 1996,
respectively. The receivable from this customer totaled approximately 67% and
57% of trade receivables at December 31, 1995 and 1996, respectively. For the
year ended December 31, 1996, the Company had sales to two other major customers
which accounted for 18% and 15% of net sales. The aggregate receivables from
these two customers totaled 18% of trade accounts receivable at December 31,
1996. The customer which accounted for 18% of net sales for the year ended
December 31, 1996 accounted for 1% of the Company's sales in 1995 and cancelled
its 1996 OEM arrangement with the Company in mid-1996.

For the remaining customers, management believes concentrations of credit
risk with respect to trade receivables are limited due to the nature of the
customers comprising the Company's customer base. The Company performs credit
reviews on major new customers, but rarely requires collateral.

The Company maintains its cash in a bank in amounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts.

MAJOR VENDORS

The Company purchases all server cabinets from one vendor and has another
vendor sub-assemble its switching systems. Although there are a limited number
of vendors able to assemble concentrator switches, management believes that
other vendors could provide similar services on comparable terms. A change in
vendors, however, could cause a delay in manufacturing and possible loss of
sales, which would adversely affect operating results.

WARRANTY COSTS

The Company provides, by a current charge to operations, an amount it
estimates will be needed to cover future warranty obligations for products sold
during the period.

F-10
<PAGE>
APEX PC SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND JUNE 27, 1997 IS UNAUDITED)

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
RESEARCH AND DEVELOPMENT

The Company makes significant investments in research for the development of
new technologies and products, including both switching systems and server
cabinets. Research and development costs are charged to expense as incurred.

ADVERTISING

The Company expenses advertising costs as incurred. Advertising expense was
$309,936, $772,484 and $1,044,737 for the years ended December 31, 1994, 1995
and 1996, respectively.

RECLASSIFICATIONS

Because redemption of the Series A Redeemable and Convertible Preferred
Stock and Series B Redeemable Preferred Stock is controlled by the holders of
the stock, in accordance with certain financial statement requirements of the
SEC, such stock has been reclassified from shareholders' equity (deficit).

Certain other reclassifications were made to the 1994 and 1995 financial
statements to conform with the 1996 presentation. The reclassifications do not
affect net income, shareholders' equity (deficit) or cash flows as previously
reported.

NEW ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 128, "Earnings Per
Share." This statement specifies the computation, presentation and disclosure
requirements for earnings per share ("EPS"), to simplify the existing
computational guidelines and increase comparability on an international basis.
The statement will be effective for interim and annual reporting periods ending
after December 15, 1997. This statement will replace "primary" EPS with "basic"
EPS, the principal difference being the exclusion of common stock equivalents in
the computation of basic EPS. In addition, this statement will require the dual
presentation of basic and diluted EPS on the face of the consolidated statements
of operations. Basic EPS computed pursuant to this statement will differ from
historical net income per share previously reported due to the exclusion of
common stock equivalents from the computation. Diluted EPS computed pursuant to
this statement is not expected to be materially different from the historical
net income per share previously presented.

In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income." This statement requires that changes
in comprehensive income be shown in a financial statement that is displayed with
the same prominence as other financial statements. The statement will be
effective for fiscal years beginning after December 15, 1997. Reclassification
for earlier periods is required for comparative purposes. The Company is
currently evaluating the impact this statement will have on its financial
statements; however, because the statement requires only additional disclosure,
the Company does not expect the statement to have a material impact on its
financial position or results of operations.

In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
This statement supersedes Statement of Financial Accounting Standards No. 14,
"Financial Reporting for Segments of a Business Enterprise." This

F-11
<PAGE>
APEX PC SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND JUNE 27, 1997 IS UNAUDITED)

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
statement includes requirements to report selected segment information quarterly
and entity-wide disclosures about products and services, major customers, and
the material countries in which the entity holds assets and reports revenues.
The statement will be effective for fiscal years beginning after December 15,
1997. Reclassification for earlier periods is required, unless impracticable,
for comparative purposes. The Company is currently evaluating the impact this
statement will have on its financial statements; however, because the statement
requires only additional disclosure, the Company does not expect the statement
to have a material impact on its financial position or results of operations.

2. ACCOUNTS RECEIVABLE:

Accounts receivable consist of the following at December 31:

<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Trade receivables................................................. $ 4,529,404 $ 6,506,086
Less allowance for doubtful accounts.............................. (30,000) (335,893)
------------ ------------
$ 4,499,404 $ 6,170,193
------------ ------------
------------ ------------
</TABLE>

3. INVENTORIES:

Inventories consist of the following at December 31:

<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Raw materials..................................................... $ 688,855 $ 1,086,142
Work-in-process................................................... 243,790 260,356
Finished goods.................................................... 325,127 521,513
------------ ------------
1,257,772 1,868,011
Less reserve for obsolescence..................................... -- (215,000)
------------ ------------
$ 1,257,772 $ 1,653,011
------------ ------------
------------ ------------
</TABLE>

4. LINE OF CREDIT AND LETTERS OF CREDIT:

Under the terms of a credit agreement with a bank (Note 5), the Company has
an operating line of credit allowing it to borrow up to a specified amount based
upon eligible accounts receivable, as defined in the agreement. The agreement
also states that the bank will issue commercial letters of credit on the
Company's behalf such that the aggregate amount of borrowings under the
operating line and letter of credit arrangements does not exceed $3,000,000. The
operating line and letter of credit facility expire on April 15, 1997 and bear
interest at prime (8.25% at December 31, 1996) plus 1.5%. There were no
borrowings on the line of credit facility as of December 31, 1996, nor at any
time during 1996.

F-12
<PAGE>
APEX PC SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND JUNE 27, 1997 IS UNAUDITED)

5. SUBORDINATED AND LONG-TERM DEBT:

Long-term debt consisted of the following at December 31:

<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Note payable to bank, collateralized by substantially all of
the Company's assets, interest payable monthly at prime
(8.25%, at December 31, 1996) plus 1.5%, principal payment of
$500,000 is required at December 31, 1997, matures December
2002. The note payable was paid in full in February 1997...... $ 6,000,000 $ 5,600,000
Uncollateralized notes payable to shareholder, interest payable
monthly at 12%, paid in full in January, 1996................. 270,000 --
Notes payable to shareholders subordinated to borrowings from
the bank under note payable and line of credit and letter of
credit facility, principal payments of $10,000,000 in December
2000 and $10,000,000 in December 2001, and interest payable
quarterly at 7.0%. Unpaid interest and principal payable in
full on the consummation of a Qualified Liquidity Event as
defined in note agreements. The notes payable were paid in
full in February 1997......................................... 20,000,000 20,000,000
Capital lease obligation for the purchase of equipment totaling
$20,460, interest at 6.28%, monthly principal and interest
payments of $442, due in 1999. The lease obligation was paid
in full in March 1997......................................... 19,113 14,898
------------- -------------
26,289,113 25,614,898
Less current portion........................................... 674,125 504,349
------------- -------------
$ 25,614,988 $ 25,110,549
------------- -------------
------------- -------------
</TABLE>

The aggregate amount of required principal payments as of December 31, 1996
were as follows:

<TABLE>
<S> <C>
Period Ended December 31:
1997......................................................... $ 504,349
1998......................................................... 4,777
1999......................................................... 5,772
2000......................................................... 10,000,000
2001......................................................... 10,000,000
Thereafter................................................... 5,100,000
----------
$25,614,898
----------
----------
</TABLE>

The Company is party to an agreement with a bank for short-term (Note 4) and
long-term credit facilities, all as described above. Borrowings are
collateralized by substantially all assets of the Company.

F-13
<PAGE>
APEX PC SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND JUNE 27, 1997 IS UNAUDITED)

5. SUBORDINATED AND LONG-TERM DEBT, CONTINUED:
The agreement includes various restrictive covenants which, among other things,
restrict the payment of dividends and indebtedness and require the Company to
maintain minimum debt service coverage ratios, minimum working capital amounts
and limit capital expenditures. The agreement also specifies that, so long as
there are amounts outstanding pursuant to the credit facility, on May 1 of each
year, beginning in 1997, the Company will pay the bank 25% of its excess cash
flow, as defined in the agreement, unless the ratio of cash flow to debt service
is greater than 1:1.

6. OPERATING LEASE COMMITMENTS:

The Company leases its facilities for $18,074 per month under an operating
lease expiring September 30, 1998. The Company pays taxes, insurance, normal
maintenance and certain other operating expenses. The lease includes provisions
for rent escalation based on increases in the consumer price index. The Company
has two consecutive two year renewal options on this lease.

Future minimum payments as of December 31, 1996 under the non-cancelable
operating lease were as follows:

<TABLE>
<S> <C>
Year Ended December 31:
1997............................................................ $ 216,888
1998............................................................ 162,666
---------
$ 379,554
---------
---------
</TABLE>

Rent expense totaled $53,397, $125,238 and $216,888 for the years ended
December 31, 1994, 1995 and 1996, respectively.

7. EMPLOYEE BENEFIT PLAN:

The Company sponsors a 401(k) plan that covers eligible full-time employees.
Employer matching contributions are made at the discretion of the Board of
Directors. Employer contributions totaled $19,603, $35,217 and $58,968 for the
years ended December 31, 1994, 1995 and 1996, respectively.

8. SHAREHOLDERS' EQUITY (DEFICIT):

The Company is authorized to issue 10,000,000 shares of voting common stock,
no par value. At its discretion, the Board of Directors may declare dividends on
shares of common stock. Upon liquidation or dissolution, holders of common stock
will be paid only after Series A and Series B Preferred Stock preferences have
been satisfied.

On December 27, 1995 all outstanding shares of common stock were split 1,000
for one. On January 22, 1996 all outstanding shares of common stock were split
two for one. On December 9, 1996, all outstanding shares of common stock were
split four for one. All common stock share amounts have been restated to reflect
these stock splits.

During 1995 the Company authorized and issued 300,000 shares of Series A
Redeemable and Convertible Preferred Stock, no par value. All holders of Series
A Redeemable and Convertible Preferred Stock are entitled to vote on all matters
except election of directors with the holders of the common stock

F-14
<PAGE>
APEX PC SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND JUNE 27, 1997 IS UNAUDITED)

8. SHAREHOLDERS' EQUITY (DEFICIT), CONTINUED:
on an "as if converted" basis. The holders of the Series A Redeemable and
Convertible Preferred Stock are entitled to elect two directors voting
separately as a class, the holders of the common stock are entitled to elect two
directors, voting separately as a class and the holders of the Series A
Redeemable and Convertible Preferred Stock and the holders of the common stock
vote together to elect the fifth director. The holders of the Series A
Redeemable and Convertible Preferred Stock are entitled to receive any dividends
on an "as if converted" basis when, as and if dividends are declared by the
Board of Directors on the common stock or the Company's Series B Redeemable
Preferred Stock and to such additional dividends payable only to the holders of
the Series A Redeemable and Convertible Preferred Stock as may be declared by
the Board of Directors. Each share of Series A Redeemable and Convertible
Preferred Stock is convertible into that number of shares as is determined by
dividing the original per share purchase price by a conversion price. The Series
A Redeemable and Convertible Preferred Stock is convertible at the option of the
holder or automatically upon sale of the Company's common stock in a Qualified
Public Offering as defined in the Restated Articles of Incorporation or upon the
vote of the holders of 2/3 of the outstanding Series A Redeemable and
Convertible Preferred Stock in favor of conversion. The conversion price is
subject to weighted average anti-dilution protection and proportional
adjustments in the event of stock splits and similar events. Consequently, as a
result of the common stock splits in 1996, the shares of Series A Redeemable and
Convertible Preferred Stock are convertible into 2,400,000 shares of common
stock. The Series A Redeemable and Convertible Preferred Stock is redeemable, at
the option of the holders of 50% of the outstanding shares thereof, either upon
a change in control of the Company or in two installments on the fifth and sixth
anniversaries of the original issue date of such stock. To the extent that the
Series A Redeemable and Convertible Preferred Stock is not redeemed when
required, the Company is obligated to redeem such shares when, as and if
permitted by law, and the shares not so redeemed are entitled to cumulative
preferred dividends at an annual rate equal to the greater of (i) 12% or (ii)
prime plus 4% until redeemed or converted. The redemption price for each share
of Series A Redeemable and Convertible Preferred Stock shall be the original
issue price plus all accrued and unpaid dividends. Upon liquidation or
dissolution, holders of Series A Redeemable and Convertible Preferred Stock will
receive preference over holders of common stock and Series B Redeemable
Preferred Stock.

During 1995, the Company authorized and issued 200,000 shares of Series B
Redeemable Preferred Stock, no par value, to an officer as compensation for
future service. The Series B Redeemable Preferred Stock has no voting rights. At
its discretion, the Board of Directors can declare dividends on shares of Series
B Redeemable Preferred Stock. Upon liquidation or dissolution, after payment in
full of the liquidation preferences to holders of Series A Redeemable and
Convertible Preferred Stock, the holder of Series B Redeemable Preferred Stock
is entitled to the redemption value of the shares plus all accrued and unpaid
dividends. Under the terms of the officer's employment agreement, the shares
vested ratably over a period of six years. On December 9, 1996, the employment
agreement was modified whereby all 200,000 shares become fully vested on January
1, 1997. Under the terms of the amendment, 80,000 shares became redeemable at a
price of $5 per share on January 1, 1997. The remaining 120,000 shares become
redeemable at a price of $5 per share on the earlier of the closing of a
qualified public offering of the Company's stock, or if no such qualified public
offering has occurred, 60,000 shares in each of December 2000 and 2001. The
Series B Redeemable Preferred Stock has been recorded at its redemption price of
$5 per share with a corresponding charge to shareholders' equity (deficit) for
deferred compensation. Pursuant to the amendment, deferred compensation of
$1,000,000 was fully amortized to expense in 1996.

F-15
<PAGE>
APEX PC SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND JUNE 27, 1997 IS UNAUDITED)

9. STOCK OPTIONS:

The Company has adopted an employee stock option plan (the "Plan"), which
provides for nonqualified and incentive stock options for officers, directors,
employees, and consultants, and reserved a total of 2,161,760 shares of common
stock for issuance pursuant to the Plan. Options under the Plan will generally
expire 10 years from the date of grant, or 5 years in the case of an optionee
owning more than 10% of the voting power of all classes of stock. Under the
Plan, the Plan administrator will fix the conditions for the exercise of the
options. Purchase prices for common stock subject to options issued under the
Plan generally approximate fair market value of the related shares at the date
of grant. Generally, options vest over four years.

The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation" for the year ended December 31, 1996. The Company has
chosen to continue to account for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the fair value of the Company's stock at the date of the grant over the
amount an employee must pay to acquire the stock.

Information regarding activity of the option plan is as follows:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Options outstanding, January 1, 1995............................ -- --
Options granted--December 29, 1995.............................. 705,880 $0.184
----------
Options outstanding, December 31, 1995.......................... 705,880 $0.184
Options granted--February 1996.................................. 405,000 $0.184
Options granted--June 1996...................................... 106,000 $0.184
Options granted--September 1996................................. 103,000 $0.184
Options granted--October 1996................................... 24,000 $0.500
Options exercised............................................... (660,016) $0.1895
----------
Options outstanding, December 31, 1996.......................... 683,864 $0.1893
----------
----------
Options available for grant at December 31, 1996................ 817,880
----------
----------
Weighted average fair value of options granted in 1996 whose
exercise price was equal to the fair value of the stock on the
date of grant.................................................. $0.078
------
------
Weighted average fair value of options granted in 1996 whose
exercise price was less than the fair value of the stock on the
date of grant.................................................. $1.450
------
------
</TABLE>

No compensation expense has been recorded for options granted in December
1995, February 1996 and June 1996 because the options granted during these
periods were for prices equal to the fair value of the related shares, based on
the price of the shares of common stock purchased by investors in December 1995
(see Note 1) and independent appraisals of the Company's common stock. For
options

F-16
<PAGE>
APEX PC SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND JUNE 27, 1997 IS UNAUDITED)

9. STOCK OPTIONS, CONTINUED:
issued in September and October, 1996, deferred compensation expense of $32,574
and $138,000 respectively was recorded in the amounts of the excess of the
values of the underlying common stock based on an independent appraisal, over
the option prices. Vesting of 25% of the options granted in September 1996 was
accelerated in October 1996. In addition, 50% of the options granted in October
1996 were immediately exercisable. Remaining options granted in September and
October 1996 vest over four years. Deferred compensation expense is amortized as
the related options vest or become exercisable.

The following table summarizes information about fixed-price options
outstanding at December 31, 1996:

<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
NUMBER REMAINING AVERAGE NUMBER AVERAGE
OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 12/31/96 LIFE PRICE AT 12/31/96 PRICE
- --------------- ----------- --------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$ 0.184 671,864 9 Years $ 0.184 $ 109,408 $ 0.184
0.500 12,000 10 Years 0.500 -- --
</TABLE>

The following table presents net income and per share amounts for the years
ended December 31, 1995 and 1996, as if the Company accounted for compensation
expense related to stock options under the fair value method prescribed by SFAS
123:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
PRO FORMA PRO FORMA
------------ -------------
<S> <C> <C>
Net income--as reported......................................... $2,343,515 $ 3,607,723
------------ -------------
------------ -------------
Net income--pro forma........................................... $2,343,515 $ 3,476,338
------------ -------------
------------ -------------
Earnings per share--as reported................................. $ 0.20 $ 0.40
------------ -------------
------------ -------------
Earnings per share--pro forma................................... $ 0.20 $ 0.38
------------ -------------
------------ -------------
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following weighted average assumptions used
for grants in 1995 and 1996:

<TABLE>
<S> <C>
Risk free interest rate.................................... 5.38% to 6.77%
Expected lives............................................. 10 years
</TABLE>

10. EMPLOYEE STOCK PURCHASE PLAN:

On December 9, 1996, the Company adopted an employee stock purchase plan
(the "Plan"), which provides a means through which employees of the Company may
participate in stock ownership of the Company. Shares of common stock reserved
for the Plan total 250,000. Employees who have worked for the Company longer
than five months and a minimum of 20 hours per week are eligible to participate
in the Plan. Participants shall become ineligible if employment with the Company
terminates or the participant owns greater than 5% of the combined voting power
or value of all classes of stock of the Company. The price of shares purchased
under the Plan will be the lower of 85% of the fair market value

F-17
<PAGE>
APEX PC SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND JUNE 27, 1997 IS UNAUDITED)

10. EMPLOYEE STOCK PURCHASE PLAN, CONTINUED:
of the shares on the first day of each quarterly offering period or, 85% of the
fair market value of the shares on any purchase date in the offering period.
Under the Plan, the Plan administrator will administer and interpret all rules
and regulations applicable to the Plan. No shares were issued pursuant to this
Plan in 1996.

11. INCOME TAXES:

The Company's status as an S Corporation was automatically terminated on
October 31, 1995 as a result of the sale by the former sole shareholder of stock
to an entity that is not eligible to be a shareholder in a subchapter S
Corporation. For the period from January 1, 1995 through October 31, 1995 the
former sole shareholder was taxed on the Company's taxable income. The sole
shareholder of the Company for the periods in which the Company was taxed as an
S Corporation has indemnified and agreed to hold the Company harmless from any
federal or state income tax liability, including interest and penalties (if
any), resulting from the Company failing to qualify as an S Corporation from
inception through October 31, 1995.

For the income earned after the termination of its status as an S
Corporation, the Company will provide for income taxes under the principles of
SFAS No. 109. This statement requires that income taxes be provided for taxes
currently due and for expected future tax effects of the temporary differences
between the book and tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. Deferred tax assets are reduced by valuation allowances when
management determines that their realization is not likely.

The significant components of the Company's deferred tax assets and
liabilities were as follows on December 31:

<TABLE>
<CAPTION>
1995 1996
--------- ----------
<S> <C> <C>
Deferred income tax assets:
Tax loss carryforwards............................................... $ 28,000 $ --
Allowance for doubtful accounts...................................... 10,200 114,200
Inventory capitalization............................................. 9,500 40,400
Inventory reserve.................................................... -- 73,100
Accrued warranty costs............................................... -- 214,200
Amortization of deferred compensation................................ -- 340,000
Other accrued liabilities............................................ 12,300 18,800
--------- ----------
Deferred income tax assets......................................... 60,000 800,700
--------- ----------
Deferred income tax liability:
Depreciation......................................................... 8,000 16,500
--------- ----------
Deferred income tax liability...................................... 8,000 16,500
--------- ----------
Net deferred tax asset............................................. $ 52,000 $ 784,200
--------- ----------
--------- ----------
</TABLE>

F-18
<PAGE>
APEX PC SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND JUNE 27, 1997 IS UNAUDITED)

11. INCOME TAXES, CONTINUED:
Although realization is not assured, management believes that it is more
likely than not that all of the net deferred tax asset will be realized through
future taxable income.

The income tax (benefit) provision consisted of the following:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Current.......................................................... $ -- $2,592,995
Deferred......................................................... (25,000) (732,200)
Change in tax status............................................. (27,000) --
------------ ------------
$ (52,000) $1,860,795
------------ ------------
------------ ------------
</TABLE>

Reconciliations of the effective income tax rate on income before taxes with
the Federal statutory rate of 34% were as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995 1996
------------ -----------
<S> <C> <C>
Statutory Rate........................................................... 34.0% 34.0%
Change in tax status:
Effect of earnings attributable to S Corporation shareholder........... (35.0) --
Effect of establishment of deferred taxes.............................. (0.76) --
Other.................................................................... 0.30 --
----- ---
Effective tax rate....................................................... (1.46)% 34.0%
----- ---
----- ---
</TABLE>

The 1994 statement of operations does not reflect a provision for income
taxes due to the Company's status as an S Corporation. The pro forma provisions
for income taxes for the years ended December 31, 1994 and 1995 was based on the
statutory tax rate of 34%. In accordance with generally accepted accounting
principles, a tax benefit realized upon exercise of common stock options of
$56,002 for the year ended December 31, 1996 has been accounted for as an
increase to shareholders' equity (deficit).

12. COMMITMENTS AND CONTINGENCIES:

PURCHASE COMMITMENT

In October 1996, the Company signed a 12-month commitment to purchase
certain product components. The total commitment will range from $600,000 to
$950,000. Although future prices and demand for these components cannot be
predicted in advance with certainty, management does not anticipate that this
commitment will result in the recognition of gross losses for the Company.

F-19
<PAGE>
APEX PC SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND JUNE 27, 1997 IS UNAUDITED)

13. DISCONTINUED OPERATIONS:

In June 1994, the Company discontinued its computer maintenance service
business. Revenues from the discontinued operation were $1,776,070 for the year
ended December 31, 1994. There were no net gains or losses recorded on
disposition of the segment.

14. SUBSEQUENT EVENTS:

In January 1997, the Company issued options to purchase 24,000 shares of
common stock at an exercise price of $2.10 per share. The Company recorded
deferred compensation of $99,600 related to those options in January 1997.

In February and June 1997, the Company issued options to purchase 22,000
shares and 221,700 shares, respectively, of common stock at exercise prices of
$9.00 and $18.75 per share, respectively. No compensation expense was recorded
with respect to these options because the option exercise prices were equal to
the fair market value of the common stock at the time of grant.

In April 1997, the combined line of credit and letter of credit facility was
renewed, providing a final maturity date of April 30, 1998 and increasing the
aggregate borrowing capacity from $3.0 million to $5.0 million. There were no
borrowings under the line of credit and the letter of credit facility through
June 1997.

In February 1997, the Company consummated its IPO. The net proceeds to the
Company from the IPO were approximately $28.4 million, after deducting
approximately $190,000 of directors and officers insurance premium. Of that
amount, $20.0 million was used to repay the indebtedness evidenced by the Class
A and Class B Subordinated Promissory Notes issued in the Leveraged
Recapitalization, approximately $5.6 million was used to repay long-term bank
debt incurred by the Company in December 1995, and $600,000 was used to redeem
shares of Series B Redeemable Preferred Stock. After application of the net
proceeds of the IPO to the foregoing items, and payment of IPO expenses,
including $190,000 of directors and officers insurance premium which is being
expensed in 1997 as a period cost, the remaining proceeds from the IPO were
approximately $2.2 million.

In February 1997, the Company increased its number of authorized shares of
common stock and preferred stock to 100,000,000 and 1,000,000 shares,
respectively.

F-20
<PAGE>
FOR INSIDE BACK COVER:

The phrase "Innovation & Technology by Design" appears at the top of this
page, off center left.

The middle third of this page consists of the Company Logo, beneath which
the following text (the "Apex Value Statement") is centered:

"The Company provides "plug and play" stand-alone switching systems and
integrated server cabinet solutions for many of the network
administration, management and storage problems faced by organizations
with client/server networks."

Photographs depicting the Company's branded products, each with accompanying
text, are on either side of the Company Logo and Apex Value Statement. On the
left side, top, the product name "SunDial" and a photograph of a SunDial switch
with a keyboard, video monitor and mouse console appear, accompanied by the
following text:

"Single-user, Sun keyboard, monitor and mouse switch
10-port capacity (1 switch)
Operates 2--100 systems from one console (using multiple switches)
Integrates with OutLook and ViewPoint

Sundial allows administrators to control up to 10 Sun SPARC workstations
from a single console."

On the left side, middle, the product name "OutLook" and a photograph of an
OutLook switch with a keyboard, video monitor and mouse console appear,
accompanied by the following text:

"Single-user, PC keyboard, monitor and mouse switch
Multi-platform capability
Operates 2--64 systems from one console (using multiple switches)

OutLook utilizes Apex's proprietary On-Screen Configuration And
Reporting ("OSCAR") interface that allows administrators to use their
own naming conventions for individual servers, as opposed to
predesignated numbers. OutLook can be configured to enable
administrators to control up to 64 servers from a single console."

On the left side, bottom, the product name "OutLook4" and a photograph of an
OutLook4 switch with a keyboard, video monitor and mouse console appear,
accompanied by the following text:

"Multi-user, PC keyboard, monitor and mouse switch
Multi-platform capability
Operates 2--64 systems from one to four consoles

OutLook4 includes the same features as OutLook, except that this
multi-user system allows network administrators to operate multiple
servers from up to four console positions."

On the right side, top, the product name "ViewPoint" and a photograph of a
ViewPoint switch with a keyboard, video monitor and mouse console and other
hardware appear, accompanied by the following text:

"Sixteen-user, command center switching system
Multi-platform capability
1000 ft. extension

ViewPoint includes all of the attributes of OutLook except that it
enables network administration staff to control as many as 256 servers
by integrating the ViewPoint switch with multiple OutLook switches.
ViewPoint's technology allows 'out of band' access to servers up to
1,000 feet away."

On the right side, middle, the product name "DensePack" and a photograph of
four integrated DensePack cabinet systems appear, accompanied by the following
text:

"Customized server cabinet systems for network administration
<PAGE>
DensePack cabinets incorporate Apex's switching technology, as well as
built-in ventilator fans, large rear doors and optional slide-out
shelves to facilitate access to cables, connectors and servers.
DensePack Model RS is a scaled-down version of DensePack and can be used
in combination with full-sized DensePack cabinets or on a stand-alone
basis in remote office applications."

On the right side, bottom, the product name "SwitchBack" and a photograph of
a SwitchBack switch, consisting of a remote unit and a local unit, each of which
is paired with a keyboard, video monitor and mouse console, appear, accompanied
by the following text:

"600 ft. extension product
Remote lock-out feature

SwitchBack consists of a local unit and a remote unit that allow users
to control the attached server from either a primary or a remote console
position linked by a single cable. The SwitchBack system includes a
lock-out feature that prevents system capture. SwitchBack integrates
with OutLook and OutLook4."
<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 AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT 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........................................................................................ 6
USE OF PROCEEDS..................................................................................... 15
DIVIDEND POLICY..................................................................................... 15
PRICE RANGE OF COMMON STOCK......................................................................... 15
CAPITALIZATION...................................................................................... 16
SELECTED FINANCIAL DATA............................................................................. 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............... 19
BUSINESS............................................................................................ 28
MANAGEMENT.......................................................................................... 40
CERTAIN TRANSACTIONS................................................................................ 46
PRINCIPAL AND SELLING SHAREHOLDERS.................................................................. 48
DESCRIPTION OF CAPITAL STOCK........................................................................ 50
SHARES ELIGIBLE FOR FUTURE SALE..................................................................... 52
UNDERWRITING........................................................................................ 53
LEGAL MATTERS....................................................................................... 54
EXPERTS............................................................................................. 54
ADDITIONAL INFORMATION.............................................................................. 54
AVAILABLE INFORMATION............................................................................... 55
INDEX TO FINANCIAL STATEMENTS....................................................................... F-1
</TABLE>

3,000,000 SHARES

[LOGO]
COMMON STOCK
-------------------
PROSPECTUS
-------------------
MONTGOMERY SECURITIES

DAIN BOSWORTH
INCORPORATED
<PAGE>
COWEN & COMPANY
, 1997
<PAGE>
<PAGE>
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 23B.08.320 of the Washington Business Corporation Act provides that
a corporation's articles of incorporation may contain provisions that provide
indemnity to directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). The Company's Amended and Restated Articles
of Incorporation (Exhibit 3.1 hereto) limit the liability of its directors for
monetary damages arising from their conduct as directors, except for liability
relating to acts or omissions that involve intentional misconduct, a knowing
violation of law or the authorization of unlawful distributions, and liability
relating to transactions in which the directors derive a personal benefit to
which they are not legally entitled. Such limitation does not affect the
availability of equitable remedies. The Company's Amended and Restated Articles
of Incorporation also provide that the Company will indemnify its directors and
officers to the fullest extent permitted by Washington law. In particular, each
officer and director of the Company is entitled to indemnification against all
liability, loss and expense reasonably incurred by such officer or director in
connection with any civil, criminal, administrative or investigative proceeding
in which he or she is involved (whether in his or her official capacity or
otherwise) by reason of the fact that he or she is or was serving as an officer
or director of the Company. Washington law currently provides that a corporation
may indemnify an officer or director against liability if the individual acted
in good faith and, in the case of a non-criminal proceeding, if he or she
reasonably believed they were acting in the best interests of the corporation,
or, in the case of a criminal proceeding, if he or she had no reasonable cause
to believe their conduct was unlawful. In the case of a proceeding against an
officer or director brought by or on behalf of the corporation, Washington law
does not permit a corporation to indemnify an officer or director if he or she
is found liable in such proceeding. In all other proceedings, indemnification is
not permitted where the officer or director is found liable on the basis that he
or she improperly received a personal benefit. Reference is also made to the
Underwriting Agreement (Exhibit 1.1 hereto) which provides that the Underwriters
will indemnify officers and directors of the Company against certain
liabilities.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

Set forth below is an estimate of the amount of fees and expenses to be
incurred in connection with the registration of the Common Stock. The Company
will pay any expenses of the Selling Shareholders.

<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 24,177
NASD Filing Fee................................................. 8,479
Nasdaq Stock Market Fee......................................... 17,500
Legal Fees and Expenses......................................... 75,000
Auditing and Accounting Fees and Expenses....................... 60,000
Blue Sky Fees and Expenses...................................... 5,000
Printing and Engraving Expenses................................. 110,000
Transfer Agent and Registrar Fees and Expenses.................. 3,000
Miscellaneous................................................... 46,844
---------
Total....................................................... $ 350,000
---------
---------
</TABLE>

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.

The Company issued and/or sold the following securities within the past
three years that were not registered under the Securities Act since each such
transaction was, in the opinion of the Company,

II-1
<PAGE>
exempt from registration under the Securities Act by virtue of Section 4(2)
thereof and, where noted, other exemptions. No underwriters participated in the
offer or sale of any of these securities, and no underwriters' fees or
commissions were paid.

The share and per-share numbers presented below have been adjusted to
reflect the 1,000-for-one stock split of the Company's Common Stock effected in
December 1995, the two-for-one stock split of the Company's Common Stock
effected in January 1996, and the four-for-one stock split of the Company's
Common Stock effected in December 1996.

COMMON STOCK

(a) On December 29, 1995 the Company issued 1,600,000 shares of Common Stock
to certain accredited investors at a price of $0.18375 per share pursuant to
that certain Stock and Subordinated Note Purchase Agreement dated December 29,
1995. The Company relied on the exemption provided by Rule 506 under Regulation
D and Section 4(2) of the Securities Act. All purchasers were accredited
investors.

(b) From February 1996 through November 1996, the Company sold an aggregate
of 660,016 shares of its Common Stock to 12 employees and directors under the
Company's 1995 Employee Stock Plan at a weighted average exercise price of
$0.1895 per share. The Company relied on the exemption provided by Rule 701 of
the Securities Act.

SERIES A CONVERTIBLE PREFERRED STOCK

On December 29, 1995 the Company issued 300,000 shares of Series A
Convertible Preferred Stock to certain accredited investors at a price of $7.35
per share pursuant to the Stock and Subordinated Note Purchase Agreement. The
Company relied on the exemption provided by Rule 506 under Regulation D and
Section 4(2) of the Securities Act. All purchasers were accredited investors.

SERIES B REDEEMABLE PREFERRED STOCK

On December 29, 1995 the Company issued 200,000 shares of Series B
Redeemable Preferred to Mr. Hafer subject to certain restrictions pursuant to an
employment agreement dated December 29, 1995. The Company relied on the
exemption provided by Section 4(2) of the Securities Act.

The recipients of the above-described securities represented their intention
to acquire the securities for investment only and not with a view to
distribution thereof. Appropriate legends were affixed to the stock certificates
issued in such transactions. All recipients had adequate access, through
employment or other relationships or by disclosure by the Company, to
information about the Company.

ITEM 27. EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement

3.1 Amended and Restated Articles of Incorporation (incorporated by reference to Amendment No. 4 to the
Company's Registration Statement on Form SB-2 (Registration No. 333-17753))

3.2 Amended and Restated Bylaws

4.1 See Article III of Exhibit 3.1 and Articles II, IV and IX of Exhibit 3.2

5.1 Opinion of Davis Wright Tremaine LLP

10.1 Registration Rights Agreement dated December 29, 1995 (incorporated by reference to the Company's
Registration Statement on Form SB-2 (Registration No. 333-17753))
</TABLE>

II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.2 S Corporation Indemnification Agreement dated December 29, 1995 (incorporated by reference to the
Company's Registration Statement on Form SB-2 (Registration No. 333-17753))

10.3.1 Employment Agreement dated December 29, 1995 by and between the Company and Kevin J. Hafer (incorporated
by reference to the Company's Registration Statement on Form SB-2 (Registration No. 333-17753))

10.3.2 First Amendment to Employment Agreement dated December 1996 by and between the Company and Kevin J.
Hafer

10.4 Credit Agreement dated December 28, 1995 by and between the Company and U.S. Bank of Washington,
National Association (incorporated by reference to the Company's Registration Statement on Form SB-2
(Registration No. 333-17753))

10.5.1 Lease Agreement dated March 22, 1995 by and between the Company and Christopher L. Clark, as amended
(incorporated by reference to the Company's Registration Statement on Form SB-2 (Registration No.
333-17753))

10.5.2 Second Amendment to Lease dated March 13, 1997 by and between the Company and Christopher L. Clark

10.6 Purchase Agreement dated September 19, 1994 by and between the Company and Compaq Computer Corporation,
as amended+ ++

10.7 Private Label Agreement dated September 8, 1994 by and between the Company and Wright Line, Inc.++
(incorporated by reference to Amendment No. 1 to the Company's Registration Statement on Form SB-2
(Registration No. 333-17753))

10.8 Form of the Company's Proprietary Information and Noncompetition Agreement (incorporated by reference to
the Company's Registration Statement on Form SB-2 (Registration No. 333-17753))

10.9 1995 Employee Stock Plan (incorporated by reference to the Company's Registration Statement on Form S-8
(Registration No. 333-24011))

10.10 Form of Nonstatutory Stock Option Letter Agreement related to 1995 Employee Stock Plan (incorporated by
reference to the Company's Registration Statement on Form SB-2 (Registration No. 333-17753))

10.11 Employee Stock Purchase Plan

10.13 Stock and Subordinated Note Purchase Agreement dated December 29, 1995 (incorporated by reference to the
Company's Registration Statement on Form SB-2 (Registration No. 333-17753))

10.14 Class A Subordinated Promissory Notes dated December 29, 1995 (incorporated by reference to the
Company's Registration Statement on Form SB-2 (Registration No. 333-17753))

10.15 Class B Subordinated Promissory Note dated December 29, 1995 (incorporated by reference to the Company's
Registration Statement on Form SB-2 (Registration No. 333-17753))

10.16 Business Loan Agreement dated March 27, 1997 by and between the Company and U.S. Bank of Washington,
National Association

11.1 Computation of Pro Forma Income Per Share
</TABLE>

II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
21.1 Subsidiaries of Registrant

23.1 Consent of Davis Wright Tremaine LLP (contained in Exhibit 5.1)

23.2 Consent of Coopers & Lybrand L.L.P.

24.1 Power of Attorney (included on page II-5 hereto)

27.1 Financial Data Schedule
</TABLE>

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

+ Confidential treatment requested for portions of this agreement.

++ Portions of these agreements are subject to confidential treatment.

ITEM 28. UNDERTAKINGS.

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

The Company hereby undertakes that it will: (1) for determining any
liability under the Securities Act, treat 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 Company under Rule
424(b)(1) or (4) or 497(h) under the Securities Act as part of this registration
statement as of the time the Commission declared it effective; and (2) for
determining any liability under the Securities Act, treat each post-effective
amendment that contains a form of prospectus as a new registration statement for
the securities offered in the registration statement, and that offering of the
securities at that time as the initial bona fide offering of those securities.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company 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 Company of expenses
incurred or paid by a director, officer or controlling person of the Company 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 Company 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 it will be governed by the final
adjudication of such issue.

II-4
<PAGE>
SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Woodinville, State of Washington, on July 21, 1997.

APEX PC SOLUTIONS, INC.

By: /s/ KEVIN J. HAFER
------------------------------------------
Kevin J. Hafer
PRESIDENT AND CHIEF EXECUTIVE OFFICER

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Kevin J.
Hafer and Douglas A. Bevis, jointly and severally, as attorney-in-fact, each
with power of substitution, for such person and in any and all capacities, to
sign any amendments to this registration statement and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.

In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------------------------------------- ----------------------
<C> <S> <C>
/s/ KEVIN J. HAFER President, Chief Executive Officer and
------------------------------------------- Director (Principal Executive July 21, 1997
Kevin J. Hafer Officer)

/s/ DOUGLAS A. BEVIS Vice President, Chief Financial Officer
------------------------------------------- (Principal Financial and Accounting July 21, 1997
Douglas A. Bevis Officer)

/s/ JEFFREY T. CHAMBERS
------------------------------------------- Director July 21, 1997
Jeffrey T. Chambers

/s/ STERLING CRUM
------------------------------------------- Director July 21, 1997
Sterling Crum

/s/ EDWIN L. HARPER
------------------------------------------- Director July 21, 1997
Edwin L. Harper

/s/ WILLIAM MCALEER
------------------------------------------- Director July 21, 1997
William McAleer
</TABLE>

II-5
<PAGE>
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- --------- -----------------------------------------------------------------------------------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement.................................................................

3.1 Amended and Restated Articles of Incorporation (incorporated by reference to Amendment No. 4 to
the Company's Registration Statement on Form SB-2 (Registration No. 333-17753))

3.2 Amended and Restated Bylaws....................................................................

4.1 See Article III of Exhibit 3.1 and Articles II, IV and IX of Exhibit 3.2

5.1 Opinion of Davis Wright Tremaine LLP...........................................................

10.1 Registration Rights Agreement dated December 29, 1995 (incorporated by reference to the
Company's Registration Statement on Form SB-2 (Registration No. 333-17753))

10.2 S Corporation Indemnification Agreement dated December 29, 1995 (incorporated by reference to
the Company's Registration Statement on Form SB-2 (Registration No. 333-17753))

10.3.1 Employment Agreement dated December 29, 1995 by and between the Company and Kevin J. Hafer
(incorporated by reference to the Company's Registration Statement on Form SB-2 (Registration
No. 333-17753))

10.3.2 First Amendment to Employment Agreement dated December 1996 by and between the Company and
Kevin J. Hafer...............................................................................

10.4 Credit Agreement dated December 28, 1995 by and between the Company and U.S. Bank of
Washington, National Association (incorporated by reference to the Company's Registration
Statement on Form SB-2 (Registration No. 333-17753))

10.5.1 Lease Agreement dated March 22, 1995 by and between the Company and Christopher L. Clark, as
amended (incorporated by reference to the Company's Registration Statement on Form SB-2
(Registration No. 333-17753))

10.5.2 Second Amendment to Lease dated March 13, 1997 by and between the Company and Christopher L.
Clark........................................................................................

10.6 Purchase Agreement dated September 19, 1994 by and between the Company and Compaq Computer
Corporation, as amended+ ++..................................................................

10.7 Private Label Agreement dated September 8, 1994 by and between the Company and Wright Line,
Inc.++ (incorporated by reference to Amendment No. 1 to the Company's Registration Statement
on Form SB-2 (Registration No. 333-17753))

10.8 Form of the Company's Proprietary Information and Noncompetition Agreement (incorporated by
reference to the Company's Registration Statement on Form SB-2 (Registration No. 333-17753))

10.9 1995 Employee Stock Plan (incorporated by reference to the Company's Registration Statement on
Form S-8 (Registration No. 333-24011))

10.10 Form of Nonstatutory Stock Option Letter Agreement related to 1995 Employee Stock Plan
(incorporated by reference to the Company's Registration Statement on Form SB-2 (Registration
No. 333-17753))

10.11 Employee Stock Purchase Plan...................................................................

10.12 Letter Agreements dated October 16, 1996 and October 24, 1996 by and between the Company and
Pioneer Standard Electronics, Inc.++ (incorporated by reference to Amendment No. 1 to the
Company's Registration Statement on Form SB-2 (Registration No. 333-17753))
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- --------- -----------------------------------------------------------------------------------------------
<C> <S> <C>
10.13 Stock and Subordinated Note Purchase Agreement dated December 29, 1995 (incorporated by
reference to the Company's Registration Statement on Form SB-2 (Registration No. 333-17753))

10.14 Class A Subordinated Promissory Notes dated December 29, 1995 (incorporated by reference to the
Company's Registration Statement on Form SB-2 (Registration No. 333-17753))

10.15 Class B Subordinated Promissory Note dated December 29, 1995 (incorporated by reference to the
Company's Registration Statement on Form SB-2 (Registration No. 333-17753))

10.16 Business Loan Agreement dated March 27, 1997 by and between the Company and U.S. Bank of
Washington, National Association.............................................................

11.1 Computation of Pro Forma Income Per Share......................................................

21.1 Subsidiaries of Registrant.....................................................................

23.1 Consent of Davis Wright Tremaine LLP (contained in Exhibit 5.1)

23.2 Consent of Coopers & Lybrand L.L.P.............................................................

24.1 Power of Attorney..............................................................................

27.1 Financial Data Schedule........................................................................
</TABLE>

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

+ Confidential treatment requested for portions of this agreement.

++ Portions of these agreements are subject to confidential treatment.

<PAGE>

3,000,000 Shares

Apex PC Solutions, Inc.

Common Stock

UNDERWRITING AGREEMENT
----------------------
__________, 1997

MONTGOMERY SECURITIES
DAIN BOSWORTH INCORPORATED
COWEN & COMPANY
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111

Ladies & Gentlemen:

SECTION 1

INTRODUCTORY
------------

Apex PC Solutions, Inc., a Washington corporation (the "Company"), proposes
to issue and sell 1,000,000 shares of its authorized but unissued Common Stock
(the "Common Stock") to the several underwriters named in SCHEDULE A annexed
hereto (the "Underwriters"). In addition, certain shareholders of the Company
named in SCHEDULE B annexed hereto (the "Selling Shareholders") propose to sell
an aggregate of 2,000,000 shares of Common Stock to the Underwriters. Said
1,000,000 shares to be sold and issued by the Company and 2,000,000 shares to be
sold by the Selling Shareholders are herein called the "Firm Common Shares." In
addition, certain Selling Shareholders propose to grant to the Underwriters an
option to purchase up to 450,000 additional shares of Common Stock (the
"Optional Common Shares"), as provided in Section 5 hereof. The Firm Common
Shares and, to the extent such option is exercised, the Optional Common Shares
are hereinafter collectively referred to as the "Common Shares."

You have advised the Company and the Selling Shareholders that the
Underwriters propose to make a public offering of their respective portions of
the Common Shares on the effective date of the registration statement
hereinafter referred to, or as soon thereafter as in your judgment is advisable.

The Company and each of the Selling Shareholders hereby confirm their
respective agreements with respect to the purchase of the Common Shares by the
Underwriters as follows:

SECTION 2

REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------

The Company represents and warrants to the several Underwriters that:

(a) A registration statement on Form SB-2 (File No. 333-_____) with
respect to the Common Shares has been prepared by the Company in conformity with
the requirements of the Securities Act of 1933, as amended (the "Act"),

<PAGE>

and the rules and regulations (the "Rules and Regulations") of the Securities
and Exchange Commission (the "Commission") thereunder, and has been filed with
the Commission. The Company has prepared and has filed or proposes to file
prior to the effective date of such registration statement an amendment or
amendments to such registration statement, which amendments have been similarly
prepared. There have been delivered to you two signed copies of such
registration statement and amendments, together with two copies of each exhibit
filed therewith. Conformed copies of such registration statement and amendments
(but without exhibits) and of the related preliminary prospectus have been
delivered to you in such reasonable quantities as you have requested for each of
the Underwriters. The Company will next file with the Commission one of the
following: (i) prior to effectiveness of such registration statement, a further
amendment thereto, including the form of final prospectus, or (ii) a final
prospectus in accordance with Rules 430A and 424(b) of the Rules and
Regulations. As filed, such amendment and form of final prospectus, or such
final prospectus, shall include all Rule 430A Information and, except to the
extent that you shall agree in writing to a modification, shall be in all
substantive respects in the form furnished to you prior to the date and time
that this Agreement was executed and delivered by the parties hereto, or, to the
extent not completed at such date and time, shall contain only such specific
additional information and other changes (beyond that contained in the latest
Preliminary Prospectus) as the Company shall have previously advised you in
writing would be included or made therein.

The term "Registration Statement" as used in this Agreement shall mean such
registration statement at the time such registration statement becomes effective
and, in the event any post-effective amendment thereto becomes effective prior
to the First Closing Date (as hereinafter defined), shall also mean such
registration statement as so amended; provided, however, that such term shall
also include (i) all Rule 430A Information deemed to be included in such
registration statement at the time such registration statement becomes effective
as provided by Rule 430A of the Rules and Regulations and (ii) a registration
statement, if any, filed pursuant to Rule 462(b) of the Rules and Regulations
relating to the Common Shares. The term "Preliminary Prospectus" shall mean any
preliminary prospectus referred to in the preceding paragraph and any
preliminary prospectus included in the Registration Statement at the time it
becomes effective that omits Rule 430A Information. The term "Prospectus" as
used in this Agreement shall mean the prospectus relating to the Common Shares
in the form in which it is first filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations or, if no filing pursuant to
Rule 424(b) of the Rules and Regulations is required, shall mean the form of
final prospectus included in the Registration Statement at the time such
registration statement becomes effective. The term "Rule 430A Information"
means information with respect to the Common Shares and the offering thereof
permitted to be omitted from the Registration Statement when it becomes
effective pursuant to Rule 430A of the Rules and Regulations.

(b) The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus, and each Preliminary Prospectus has conformed
in all material respects to the requirements of the Act and the Rules and
Regulations and, as of its date, has not included any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and at the time the Registration Statement becomes
effective, and at all times subsequent thereto up to and including each Closing
Date hereinafter mentioned, the Registration Statement and the Prospectus, and
any amendments or supplements thereto, will contain all material statements and
information required to be included therein by the Act and the Rules and
Regulations and will in all material respects conform to the requirements of the
Act and the Rules and Regulations, and neither the Registration Statement nor
the Prospectus, nor any amendment or supplement thereto, will include any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, no representation or warranty contained in this
subsection 2(b) shall be applicable to information contained in or omitted from
any Preliminary Prospectus, the Registration Statement, the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Underwriter
specifically for use in the preparation thereof.

(c) The Company does not own or control, directly or indirectly, any
corporation, association or other entity other than the subsidiaries listed in
Exhibit 21 of the Registration Statement. The Company and each of its
subsidiaries have been duly incorporated and is validly existing as a
corporation in good standing (where applicable) under the laws of their
respective jurisdictions of incorporation, with full power and authority
(corporate and other) to own and lease their properties and conduct their
respective businesses as described in the Prospectus; the Company and each of
its subsidiaries are in possession of and operating in compliance with all
authorizations, licenses, permits, consents, certificates and orders material to
the conduct of their respective businesses, all of which are valid and in full
force and effect; the Company and each of its subsidiaries are duly qualified to
do business and in good standing as foreign corporations in each jurisdiction in
which the ownership or leasing of properties or the conduct of their respective
businesses requires such qualification, except for

-2-
<PAGE>

jurisdictions in which the failure to so qualify would not have a material
adverse effect upon the Company; and no proceeding has been instituted in any
such jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit
or curtail, such power and authority or qualification.

(d) The Company has an authorized and outstanding capital stock as set
forth under the heading "Capitalization" in the Prospectus; the issued and
outstanding shares of Common Stock have been duly authorized and validly issued,
are fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, were not issued in violation of or subject to
any preemptive rights or other rights to subscribe for or purchase securities,
and conform to the description thereof contained in the Prospectus. Except as
disclosed in or specifically contemplated by the Prospectus, the Company has no
outstanding options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. The
description of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted and exercised thereunder,
set forth in the Prospectus accurately and fairly presents the information
required to be shown with respect to such plans, arrangements, options and
rights.

(e) The Common Shares to be sold by the Company have been duly authorized
and, when issued, delivered and paid for in the manner set forth in this
Agreement, will be validly issued, fully paid and nonassessable, and will
conform to the description thereof contained in the Prospectus. No preemptive
rights or other rights to subscribe for or purchase exist with respect to the
issuance and sale of the Common Shares by the Company pursuant to this
Agreement. No shareholder of the Company has any right which has not been
waived to require the Company to register the sale of any shares owned by such
shareholder under the Act in the public offering contemplated by this Agreement.
No further approval or authority of the shareholders or the Board of Directors
of the Company will be required for the transfer and sale of the Common Shares
to be sold by the Selling Shareholders or the issuance and sale of the Common
Shares to be sold by the Company as contemplated herein.

(f) The Company has full legal right, power and authority to enter into
this Agreement and perform the transactions contemplated hereby. This Agreement
has been duly authorized, executed and delivered by the Company and constitutes
a valid and binding obligation of the Company in accordance with its terms. The
making and performance of this Agreement by the Company and the consummation of
the transactions herein contemplated will not violate any provisions of the
articles or certificate of incorporation or bylaws, or other organizational
documents, of the Company or its subsidiaries, as amended to date, and will not
conflict with, result in the breach or violation of, or constitute, either by
itself or upon notice or the passage of time or both, a default under any
agreement, mortgage, deed of trust, lease, franchise, license, indenture, permit
or other instrument to which the Company or any of its subsidiaries is a party
or by which the Company or any of its subsidiaries any of their respective
properties may be bound or affected, any statute or any authorization, judgment,
decree, order, rule or regulation of any court or any regulatory body,
administrative agency or other governmental body applicable to the Company or
any of its properties. No consent, approval, authorization or other order of
any court, regulatory body, administrative agency or other governmental body is
required for the execution and delivery of this Agreement or the consummation of
the transactions contemplated by this Agreement, except for compliance with the
Act, the Blue Sky laws applicable to the public offering of the Common Shares by
the several Underwriters and the clearance of such offering with the National
Association of Securities Dealers, Inc. (the "NASD").

(g) Coopers & Lybrand L.L.P., who have expressed their opinion with
respect to the financial statements and schedules filed with the Commission as a
part of the Registration Statement and included in the Prospectus and in the
Registration Statement, are independent accountants as required by the Act and
the Rules and Regulations.

(h) The financial statements and schedules of the Company, and the related
notes thereto, included in the Registration Statement and the Prospectus present
fairly the financial position of the Company as of the respective dates of such
financial statements and schedules, and the results of operations and changes in
financial position of the Company for the respective periods covered thereby.
Such statements, schedules and related notes have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis as
certified by the independent accountants named in subsection 2(g). No other
financial statements or schedules are required to be included in the
Registration Statement. The selected financial data set forth in the Prospectus
under the captions "Capitalization" and "Selected Financial Data" fairly present
the information set forth therein on the basis stated in the Registration
Statement.

-3-
<PAGE>

(i) The Company maintains a system of internal accounting control
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.

(j) The Company is not in violation or default of any provision of its
articles of incorporation or bylaws, or other organizational documents, and is
not in breach of or default with respect to any provision of any agreement,
judgment, decree, order, mortgage, deed of trust, lease, franchise, license,
indenture, permit or other instrument to which it is a party or by which it or
any of its properties are bound except as would not be material to the Company's
business, results of operations or financial condition; and there does not exist
any state of facts which constitutes an event of default on the part of the
Company as defined in such documents or which, with notice or lapse of time or
both, would constitute such an event of default except as would not be material
to the Company's business, results of operations or financial condition.

(k) There are no contracts or other documents required to be described in
the Registration Statement or to be filed as exhibits to the Registration
Statement or by the Rules and Regulations which have not been accurately and
completely described or filed as required. Except for contracts which have been
fully performed as of the date of this Agreement, the contracts so described in
the Registration Statement are in full force and effect on the date hereof; and
neither the Company nor, to the best of the Company's knowledge, any other party
is in breach of or default under any of such contracts except as would not be
material to the Company's business, results of operations or financial
condition.

(l) There are no legal or governmental actions, suits or proceedings
pending or, to the best of the Company's knowledge, threatened to which the
Company or any of its subsidiaries is or may be a party or of which property
owned or leased by the Company or any of its subsidiaries is or may be the
subject, or related to environmental or discrimination matters, which actions,
suits or proceedings might, individually or in the aggregate, prevent or
adversely affect the transactions contemplated by this Agreement or result in a
material adverse change in the condition (financial or otherwise), properties,
business, results of operations or prospects of the Company; and no labor
disturbance by the employees of the Company exists or is imminent which might be
expected to affect adversely such condition, properties, business, results of
operations or prospects. The Company is not a party or subject to the
provisions of any material injunction, judgment, decree or order of any court,
regulatory body, administrative agency or other governmental body.

(m) The Company and its subsidiaries have good and marketable title to all
the properties and assets reflected as owned in the financial statements
hereinabove described (or elsewhere in the Prospectus), subject to no lien,
mortgage, pledge, charge or encumbrance of any kind except (i) those, if any,
reflected in such financial statements (or elsewhere in the Prospectus), or
(ii) those which are not material in amount and do not adversely affect the use
made and proposed to be made of such property by the Company. The Company holds
its leased properties under valid and binding leases, with such exceptions as
are not materially significant in relation to the business of the Company.
Except as disclosed in the Prospectus, the Company owns or leases all such
properties as are necessary to its operations as now conducted or as proposed to
be conducted.

(n) Since the respective dates as of which information is given in the
Registration Statement and Prospectus, except as specifically disclosed or
contemplated therein: (i) the Company has not incurred any material liability or
obligation, indirect, direct or contingent, or entered into any material verbal
or written agreement or other transaction which is not in the ordinary course of
business; (ii) the Company has not sustained any material loss or interference
with its business or properties from fire, flood, windstorm, accident or other
calamity, whether or not covered by insurance; (iii) the Company has not paid or
declared any dividend or other distribution with respect to its capital stock
and the Company is not in default in the payment of principal or interest on any
outstanding debt obligations; (iv) there has not been any change in the capital
stock (other than upon the sale of the Common Shares hereunder and upon the
exercise of options or warrants described in the Registration Statement) or
indebtedness material to the Company (other than in the ordinary course of
business); and (v) there has not been any material adverse change in the
condition (financial or otherwise), business, properties, results of operations
or prospects of the Company.

(o) Except as disclosed in or specifically contemplated by the Prospectus,
the Company has sufficient trademarks, trade names, patent rights, mask works,
copyrights, licenses, approvals and governmental authorizations to

-4-
<PAGE>

conduct its business as now conducted and as proposed to be conducted; and the
Company has no knowledge of any material infringement by it of trademark, trade
name rights, patent rights, mask works, copyrights, licenses, trade secret or
other similar rights of others, and there is no claim being made against the
Company regarding trademark, trade name, patent, mask work, copyright, license,
trade secret or other infringement which could have a material adverse effect on
the condition (financial or otherwise), business, results of operations or
prospects of the Company.

(p) The Company is conducting business in compliance with all applicable
laws, rules and regulations of the jurisdictions in which it is conducting
business, including, without limitation, all applicable local, state and federal
environmental laws and regulations; except where failure to be so in compliance
would not materially adversely affect the condition (financial or otherwise),
business, results of operations or prospects of the Company.

(q) The Company has filed all necessary federal, state and foreign income
and franchise tax returns, and all such tax returns are complete and correct in
all material respects, and the Company has paid all taxes shown as due thereon.
The Company has no knowledge of any tax deficiency which has been or might be
asserted or threatened against the Company which could materially and adversely
affect the business, operations or properties of the Company.

(r) The Company is not, and upon the closing of the offering contemplated
hereby will not be, an "investment company" or a company "controlled by" an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.

(s) The Company has not distributed and will not distribute prior to the
First Closing Date any offering material in connection with the offering and
sale of the Common Shares other than the Prospectus, the Registration Statement
and the other materials permitted by the Act.

(t) The Company maintains insurance of the types and in the amounts
generally deemed adequate for its business, including, but not limited to,
insurance covering real and personal property owned or leased by the Company
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and effect.
The Company has not been refused any insurance coverage sought or applied for;
and the Company has no reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), properties, business or results of operations of the
Company.

(u) Neither the Company nor, to the best of the Company's knowledge, any
of its employees or agents has at any time during the last five years (i) made
any unlawful contribution to any candidate for foreign office, or failed to
disclose fully any contribution in violation of law, or (ii) made any payment to
any federal or state governmental officer or official, or other person charged
with similar public or quasi-public duties, other than payments required or
permitted by the laws of the United States of any jurisdiction thereof.

(v) The Company has not taken and will not take, directly or indirectly,
any action designed to or that might be reasonably expected to cause or result
in stabilization or manipulation of the price of the Common Stock to facilitate
the sale or resale of the Common Shares.

(w) The Company has caused (i) each of its executive officers and
directors and (ii) each other holder of Common Stock listed on SCHEDULE C
attached hereto (including shares issuable upon the exercise or conversion of
any option, warrant or other security which is or, at any time up to October 19,
1997, will become exercisable) to furnish to the Underwriters an agreement in
the form provided by the Underwriters, pursuant to which each such party has
agreed that until October 20, 1997, without the prior written consent of
Montgomery Securities, such party will not directly or indirectly, sell, offer,
contract or grant any option to sell or purchase, make any short sale (including
without limitation any "short vs. the box"), pledge, transfer, establish an open
"put equivalent position" within the meaning of Rule 16a-1(h) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise
dispose of any shares of Common Stock, options or warrants to acquire shares of
Common Stock, or securities exchangeable or exercisable for or convertible into
shares of Common Stock currently or hereafter owned either of record or
beneficially (as defined in Rule 13d-3 under Exchange Act) by such party, or
publicly announce such party's intention to do any of the foregoing; provided,
however, that such party may sell or otherwise transfer shares of Common Stock
(i) pursuant to the Underwriting Agreement, (ii) as a BONA FIDE gift or

-5-
<PAGE>

gifts, provided that such party provides prior written notice of such gift or
gifts to Montgomery Securities and the donee or donees thereof agree to be
bound by the restrictions set forth in such agreement, (iii) with the prior
written consent of Montgomery Securities, or (iv) as otherwise set forth in
such holder's lock-up agreement with the Underwriters.

(x) The Company has satisfied the conditions for use of Form SB-2, as set
forth in the General Instructions thereto, with respect to the Registration
Statement.

(y) The Company has duly filed on a timely basis with the Commission all
reports, registration statements and other documents required by the Act, the
Exchange Act, or the rules and regulations of the Commission promulgated
pursuant to the Act or the Exchange Act. All of such reports, registration
statements and other documents, when they were filed with the Commission,
conformed in all material respects to the requirements of the Act, the Exchange
Act or the rules and regulations of the Commission promulgated pursuant to the
Act or the Exchange Act, as appropriate. None of such reports, registration
statements or other documents contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading.

SECTION 3

REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------
OF THE SELLING SHAREHOLDERS
---------------------------

(a) Each Selling Shareholder represents and warrants, severally and not
jointly, to, and agrees with, the several Underwriters that:

(i) Such Selling Shareholder has, and, on each Closing Date
hereinafter mentioned on which such Selling Shareholder sells Common Shares
pursuant to this Agreement, will have, good and marketable title to the Common
Shares proposed to be sold by such Selling Shareholder hereunder on each such
Closing Date and full legal capacity, right, power and authority to enter into
this Agreement and to sell, assign, transfer and deliver such Common Shares
hereunder, free and clear of all voting trust arrangements, liens, encumbrances,
equities, security interests, restrictions and claims whatsoever; and upon
delivery of and payment for such Common Shares hereunder, the Underwriters will
acquire good and marketable title thereto, free and clear of all liens,
encumbrances, equities, claims, restrictions, security interests, voting trusts
or other defects of title whatsoever.

(ii) Such Selling Shareholder has executed and delivered a Power of
Attorney and caused to be executed and delivered on his, or her or its behalf a
Custody Agreement (hereinafter collectively referred to as the "Shareholders
Agreement") and in connection herewith such Selling Shareholder further
represents, warrants and agrees that such Selling Shareholder has deposited in
custody, under the Shareholders Agreement, with the agent named therein (the
"Agent") as custodian, certificates in negotiable form for the Common Shares to
be sold hereunder by such Selling Shareholder, for the purpose of further
delivery pursuant to this Agreement. Such Selling Shareholder agrees that the
Common Shares to be sold by such Selling Shareholder on deposit with the Agent
are subject to the interests of the Company and the Underwriters, that the
arrangements made for such custody are to that extent irrevocable, and that the
obligations of such Selling Shareholder hereunder shall not be terminated,
except as provided in this Agreement or in the Shareholders Agreement, by any
act of such Selling Shareholder, by operation of law, by the death or incapacity
of such Selling Shareholder or by the occurrence of any other event. If the
Selling Shareholder should die or become incapacitated, or if any other event
should occur, before the delivery of the Common Shares hereunder, the documents
evidencing Common Shares then on deposit with the Agent shall be delivered by
the Agent in accordance with the terms and conditions of this Agreement as if
such death, incapacity or other event had not occurred, regardless of whether or
not the Agent shall have received notice thereof. This Agreement and the
Shareholders Agreement have been duly executed and delivered by or on behalf of
such Selling Shareholder and the form of such Shareholders Agreement has been
delivered to you.

(iii)The performance of this Agreement and the Shareholders Agreement
and the consummation of the transactions contemplated hereby and by the
Shareholders Agreement will not result in a breach or violation by such Selling
Shareholder of any of the terms or provisions of, or constitute a default by
such Selling Shareholder under, any indenture, mortgage, deed of trust, trust
(constructive or other), loan agreement, lease, franchise, license or other
agreement or instrument to which such Selling Shareholder is a party or by which
such Selling Shareholder or any of its properties is

-6-
<PAGE>

bound, any statute, or any judgment, decree, order, rule or regulation of any
court or governmental agency or body applicable to such Selling Shareholder or
any of his, her or its properties.

(iv) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to or which has constituted or which
might reasonably be expected to cause or result in stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Common Shares.

(v) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto are made in reliance upon and in conformity with
written information furnished to the Company by such Selling Shareholder
expressly for use therein, such Preliminary Prospectus and the Registration
Statement did, and the Prospectus and any further amendments or supplements to
the Registration Statement and the Prospectus will, when they are filed with the
Commission or became effective, as the case may be, conform in all material
respects to the requirements of the Act and the rules and regulations of the
Commission thereunder and not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statement therein not misleading.

(vi) The Selling Shareholder has carefully reviewed the
representations and warranties of the Company contained in this Agreement and
the information contained in the Registration Statement. Based on the foregoing,
(1) the Selling Shareholder has no reason to believe and does not believe that
such representations and warranties of the Company contained in this Agreement
are not true and correct in all material respects; (2) the Selling Shareholder
has no knowledge of any fact, condition or information not disclosed in the
Registration Statement which has materially adversely affected or may materially
adversely affect the business of the Company; and (3) the sale of the Common
Shares by the Selling Shareholder pursuant hereto is not prompted by any adverse
information concerning the Company which is not set forth in the Registration
Statement.

(b) Each of the Selling Shareholders agrees with the Company and the
Underwriters not to offer to sell, sell or contract to sell or otherwise dispose
of any shares of Common Stock or securities convertible into or exchangeable for
any shares of Common Stock, until October 20, 1997, without the prior written
consent of Montgomery Securities, which consent may be withheld at the sole
discretion of Montgomery Securities.

SECTION 4

REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITERS
--------------------------------------------------

The Underwriters, represent and warrant to the Company and to the Selling
Shareholders that the information set forth (i) on the cover page of the
Prospectus with respect to price, underwriting discounts and commissions and
terms of offering and (ii) under "Underwriting" in the Prospectus was furnished
to the Company by and on behalf of the Underwriters for use in connection with
the preparation of the Registration Statement and the Prospectus and is true and
correct in all material respects.

SECTION 5

PURCHASE, SALE AND DELIVERY OF COMMON SHARES
--------------------------------------------

On the basis of the representations, warranties and agreements herein
contained, but subject to the terms and conditions herein set forth, the Company
agrees to issue and sell to the Underwriters 1,000,000 Firm Common Shares and
each Selling Shareholder agrees to sell to the Underwriters that number of Firm
Common Shares as is set forth opposite the name of such Selling Shareholder on
SCHEDULE B. Each Underwriter agrees, severally and not jointly, to purchase
from the Company and the Selling Shareholders the number of Firm Common Shares
set forth opposite the name of such Underwriter in SCHEDULE A hereto. The
purchase price per share to be paid by the several Underwriters to the Company
and the Selling Shareholders shall be $____ per share.

-7-
<PAGE>

Delivery of certificates for the Firm Common Shares to be purchased by the
Underwriters and payment therefor shall be made at the offices of Montgomery
Securities, 600 Montgomery Street, San Francisco, California (or such other
place as may be agreed upon by the Company and the Underwriters) at such time
and date, not later than the third (or, if the Firm Common Shares are priced as
contemplated by Rule 15c6-1(c) of the Exchange Act after 4:30 p.m. Washington,
D.C. time, the fourth) full business day following the first date that any of
the Common Shares are released by you for sale to the public, as you shall
designate by at least 48 hours' prior notice to the Company and the Selling
Shareholders (or at such other time and date, not later than one week after
such third or fourth, as the case may be, full business day as may be agreed
upon by the Company and the Underwriters) (the "First Closing Date"); provided,
however, that if the Prospectus is at any time prior to the First Closing Date
recirculated to the public, the First Closing Date shall occur upon the later of
the third or fourth, as the case may be, full business day following the first
date that any of the Common Shares are released by you for sale to the public or
the date that is 48 hours after the date that the Prospectus has been so
recirculated.

Delivery of certificates for the Firm Common Shares shall be made by or on
behalf of the Company and the Selling Shareholders to you, for the respective
accounts of the Underwriters against payment by you, for the accounts of the
several Underwriters, of the purchase price therefor by wire transfer of federal
funds to an account designated in writing by the Company and the Agent. The
certificates for the Firm Common Shares shall be registered in such names and
denominations as you shall have requested at least two full business days prior
to the First Closing Date, and shall be made available for checking and
packaging on the business day preceding the First Closing Date at a location in
New York, New York, as may be designated by you. Time shall be of the essence,
and delivery at the time and place specified in this Agreement is a further
condition to the obligations of the Underwriters.

In addition, on the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth,
certain Selling Shareholders, severally and not jointly, hereby grant options
to the several Underwriters to purchase, severally and not jointly, up to an
aggregate of 450,000 Optional Common Shares in the respective amounts set forth
opposite the name of each such Selling Shareholder in SCHEDULE B hereto; in each
case at the purchase price per share to be paid for the Firm Common Shares, for
use solely in covering any over-allotments made by you for the account of the
Underwriters in the sale and distribution of the Firm Common Shares. In the
event that the Underwriters elect to purchase less than all of the Optional
Common Shares, the number of Optional Common Shares to be purchased from each
such Selling Shareholder shall be determined by multiplying the aggregate number
of Optional Common Shares to be purchased by a fraction, the numerator of which
is the total number of Optional Common Shares set forth opposite the name of
such Selling Shareholder in SCHEDULE B hereto and the denominator of which is
450,000. The option granted hereunder may be exercised at any time (but not
more than once) within 30 days after the first date that any of the Common
Shares are released by you for sale to the public, upon notice by you to the
Company and the Selling Shareholders setting forth the aggregate number of
Optional Common Shares as to which the Underwriters are exercising the option,
the names and denominations in which the certificates for such shares are to be
registered and the time and place at which such certificates will be delivered.
Such time of delivery (which may not be earlier than the First Closing Date),
being herein referred to as the "Second Closing Date," shall be determined by
you, but if at any time other than the First Closing Date shall not be earlier
than three full business days after delivery of such notice of exercise. The
number of Optional Common Shares to be purchased by each Underwriter shall be
determined by multiplying the number of Optional Common Shares to be sold by the
Selling Shareholders pursuant to such notice of exercise by a fraction, the
numerator of which is the number of Firm Common Shares to be purchased by such
Underwriter as set forth opposite its name in SCHEDULE A and the denominator of
which is 3,000,000 (subject to such adjustments to eliminate any fractional
share purchases as you in your discretion may make). Certificates for the
Optional Common Shares will be made available for checking and packaging on the
business day preceding the Second Closing Date at a location in New York, New
York, as may be designated by you. The manner of payment and delivery of the
Optional Common Shares shall be the same as for the Firm Common Shares purchased
from the Selling Shareholders as specified in the two preceding paragraphs. At
any time before lapse of the option, you may cancel such option by giving
written notice of such cancellation to the Company and the Selling Shareholders.
If the option is cancelled or expires unexercised in whole or in part, the
Company will deregister under the Act the number of Optional Common Shares as to
which the option has not been exercised.

You have advised the Company and the Selling Shareholders that each
Underwriter has authorized you to accept delivery of its Common Shares, to make
payment and to give receipt therefor. You may (but shall not be obligated to)
make payment for any Common Shares to be purchased by any Underwriter whose
funds shall not have been received by you by the First Closing Date or the
Second Closing Date, as the case may be, for the account of such Underwriter,
but any such payment shall not relieve such Underwriter from any of its
obligations under this Agreement.

-8-
<PAGE>

Subject to the terms and conditions hereof, the Underwriters propose to
make a public offering of their respective portions of the Common Shares as soon
after the effective date of the Registration Statement as in the judgment of the
Underwriters is advisable and at the public offering price set forth on the
cover page of and on the terms set forth in the Prospectus.

SECTION 6

COVENANTS OF THE COMPANY
------------------------

The Company covenants and agrees that:

(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective. If the Registration Statement has become or becomes effective
pursuant to Rule 430A of the Rules and Regulations, or the filing of the
Prospectus is otherwise required under Rule 424(b) of the Rules and Regulations,
the Company will file the Prospectus, properly completed, pursuant to the
applicable paragraph of Rule 424(b) of the Rules and Regulations within the time
period prescribed and will provide evidence satisfactory to you of such timely
filing. The Company will promptly advise you in writing (i) of the receipt of
any comments of the Commission, (ii) of any request of the Commission for
amendment of or supplement to the Registration Statement (either before or after
it becomes effective), any Preliminary Prospectus or the Prospectus or for
additional information, (iii) when the Registration Statement shall have become
effective and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the institution
of any proceedings for that purpose. If the Commission shall enter any such
stop order at any time, the Company will use its best efforts to obtain the
lifting of such order at the earliest possible moment. The Company will not
file any amendment or supplement to the Registration Statement (either before or
after it becomes effective), any Preliminary Prospectus or the Prospectus of
which you have not been furnished with a copy a reasonable time prior to such
filing or to which you reasonably object or which is not in compliance with the
Act and the Rules and Regulations.

(b) The Company will prepare and file with the Commission, promptly upon
your request, a registration statement pursuant to Rule 462(b) of the Rules and
Regulations related to the Common Shares and any amendments or supplements to
the Registration Statement or the Prospectus which in your judgment may be
necessary or advisable to enable the several Underwriters to continue the
distribution of the Common Shares and will use its best efforts to cause the
same to become effective as promptly as possible. The Company will fully and
completely comply with the provisions of Rule 430A of the Rules and Regulations
with respect to information omitted from the Registration Statement in reliance
upon such Rule.

(c) The Company will immediately notify you in writing if, at any time
prior to the earliest of (i) the Second Closing Date on which all remaining
Optional Common Shares are purchased, (ii) the cancellation of the options to
purchase the Optional Common Shares as provided herein, and (iii) of the
expiration of the options to purchase the Optional Common Shares as provided
herein, any representation or warranty of the Company set forth herein shall not
be true and accurate in all material respects or, without limiting the
foregoing, if there shall have been any material adverse change, or a
development involving a material adverse change, in the condition (financial or
otherwise), properties, business, results of operations or prospects of the
Company.

(d) If at any time within the nine-month period referred to in
Section 10(a)(3) of the Act during which a prospectus relating to the Common
Shares is required to be delivered under the Act any event occurs, as a result
of which the Prospectus, including any amendments or supplements, would include
an untrue statement of a material fact, or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, or if it is necessary at any time to amend the Prospectus, including
any amendments or supplements, to comply with the Act or the Rules and
Regulations, the Company will promptly advise you thereof and will promptly
prepare and file with the Commission, at its own expense, an amendment or
supplement which will correct such statement or omission or an amendment or
supplement which will effect such compliance and will use its best efforts to
cause the same to become effective as soon as possible; and, in case any
Underwriter is required to deliver a prospectus after such nine-month period,
the Company upon request, but at the expense of such Underwriter, will promptly
prepare such amendment or amendments to the Registration Statement and such
Prospectus or Prospectuses as may be necessary to permit compliance with the
requirements of Section 10(a)(3) of the Act.

-9-
<PAGE>

(e) As soon as practicable, but not later than 45 days after the end of
the first quarter ending after one year following the "effective date of the
Registration Statement" (as defined in Rule 158(c) of the Rules and
Regulations), the Company will make generally available to its security holders
an earnings statement (which need not be audited) covering a period of 12
consecutive months beginning after the effective date of the Registration
Statement which will satisfy the provisions of the last paragraph of
Section 11(a) of the Act.

(f) During such period as a prospectus is required by law to be delivered
in connection with sales by an Underwriter or dealer, the Company, at its
expense, but only for the nine-month period referred to in Section 10(a) (3) of
the Act, will furnish to you and the Selling Shareholders or mail to your order
copies of the Registration Statement, the Prospectus, the Preliminary Prospectus
and all amendments and supplements to any such documents in each case as soon as
available and in such quantities as you and the Selling Shareholders may
request, for the purposes contemplated by the Act.

(g) The Company shall cooperate with you and your counsel in order to
qualify or register the Common Shares for sale under (or obtain exemptions from
the application of) the Blue Sky laws of such jurisdictions as you designate,
will comply with such laws and will continue such qualifications, registrations
and exemptions in effect so long as reasonably required for the distribution of
the Common Shares. The Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any such
jurisdiction where it is not presently qualified or where it would be subject to
taxation as a foreign corporation. The Company will advise you promptly of the
suspension of the qualification or registration of (or any such exemption
relating to) the Common Shares for offering, sale or trading in any jurisdiction
or any initiation or threat of any proceeding for any such purpose, and in the
event of the issuance of any order suspending such qualification, registration
or exemption, the Company, with your cooperation, will use its best efforts to
obtain the withdrawal thereof.

(h) During the period of five years hereafter, the Company will furnish to
the Underwriters: (i) as soon as practicable after the end of each fiscal year,
copies of the Annual Report of the Company containing the balance sheet of the
Company as of the close of such fiscal year and statements of operations,
shareholders' equity and cash flows for the year then ended and the opinion
thereon of the Company's independent public accountants; (ii) as soon as
practicable after the filing thereof, copies of each proxy statement, Annual
Report on Form 10-K or Form 10-KSB, Quarterly Report on Form 10-Q or Form
10-QSB, Report on Form 8-K or other report filed by the Company with the
Commission, the NASD or any securities exchange; and (iii) as soon as available,
copies of any report or communication of the Company mailed generally to holders
of its Common Stock.

(i) Until October 20, 1997, without the prior written consent of
Montgomery Securities (which consent may be withheld at the sole discretion of
Montgomery Securities), the Company will not, other than pursuant to the
Company's stock option or stock purchase plans disclosed in the Prospectus,
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 with its Common Stock or other equity security.

(j) The Company will apply the net proceeds of the sale of the Common
Shares sold by it substantially in accordance with its statements under the
caption "Use of Proceeds" in the Prospectus.

(k) The Company will use its best efforts to maintain the inclusion of the
Common Stock on the Nasdaq National Market (or on a national securities
exchange) for a period of five years after the effective date of the
Registration Statement.

(l) The Company will maintain a transfer agent and registrar for its
Common Stock.

You, on behalf of the Underwriters, may, in your sole discretion, waive in
writing the performance by the Company of any one or more of the foregoing
covenants or extend the time for their performance.

-10-
<PAGE>

SECTION 7

PAYMENT OF EXPENSES

Whether or not the transactions contemplated hereunder are consummated or
this Agreement becomes effective or is terminated, the Company and, unless
otherwise paid by the Company, the Selling Shareholders agree to pay in such
proportions as they may agree upon among themselves all costs, fees and expenses
incurred in connection with the performance of their obligations hereunder and
in connection with the transactions contemplated hereby, including without
limiting the generality of the foregoing, (i) all expenses incident to the
issuance and delivery of the Common Shares (including all printing and engraving
costs), (ii) all fees and expenses of the registrar and transfer agent of the
Common Stock, (iii) all necessary issue, transfer and other stamp taxes in
connection with the issuance and sale of the Common Shares to the Underwriters,
(iv) all fees and expenses of the Company's counsel and the Company's
independent accountants, (v) all costs and expenses incurred in connection with
the printing, filing, shipping and distribution of the Registration Statement,
each Preliminary Prospectus and the Prospectus (including all exhibits and
financial statements) and all amendments and supplements provided for herein,
any registration statement filed pursuant to Rule 462(b) of the Rules and
Regulations related to the Common Shares, this Agreement, the Agreement Among
Underwriters, the Selected Dealers Agreement, the Underwriters' Questionnaire,
the Underwriters' Power of Attorney and the Blue Sky memorandum, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Common Shares for offer
and sale under the state or Canadian Blue Sky laws and in obtaining the
clearance of the underwriting arrangements with the National Association of
Securities Dealers, Inc. and (vii) all other fees, costs and expenses referred
to in Item 25 of the Registration Statement. The Underwriters may deem the
Company to be the primary obligor with respect to all costs, fees and expenses
to be paid by the Company and by the Selling Shareholders. Except as provided
in this Section 7, Section 9 and Section 11 hereof, the Underwriters shall pay
all of their own expenses, including the fees and disbursements of their counsel
(excluding those relating to qualification, registration or exemption under the
Blue Sky laws and the Blue Sky memorandum referred to above). This Section 7
shall not affect any agreements relating to the payment of expenses between the
Company and the Selling Shareholders to the extent that such agreements do not
impair the obligation of the Company and the Selling Shareholders hereunder to
the several Underwriters.

The Selling Shareholders will pay (directly or by reimbursement) all fees
and expenses incident to the performance of their obligations under this
Agreement which are not otherwise specifically provided for herein, including
but not limited to (i) any fees and expenses of counsel for such Selling
Shareholders; (ii) any fees and expenses of the Agent; and (iii) all expenses
and taxes incident to the sale and delivery of the Common Shares to be sold by
such Selling Shareholders to the Underwriters hereunder.

SECTION 8

CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS

The obligations of the several Underwriters to purchase and pay for the
Firm Common Shares on the First Closing Date and the Optional Common Shares on
the Second Closing Date shall be subject to the accuracy of the representations
and warranties on the part of the Company and the Selling Shareholders herein
set forth as of the date hereof and as of the First Closing Date or the Second
Closing Date, as the case may be, to the accuracy of the statements of Company
officers and the Selling Shareholders made pursuant to the provisions hereof, to
the performance by the Company and the Selling Shareholders of their respective
obligations hereunder, and to the following additional conditions:

(a) The Registration Statement shall have become effective not later than
5:00 p.m.(or, in the case of a registration statement filed pursuant to
Rule 462(b) of the Rules and Regulations relating to the Common Shares, not
later than 10:00 p.m.), Washington, D.C. time, on the date of this Agreement, or
at such later time as shall have been consented to by you; if the filing of the
Prospectus, or any supplement thereto, is required pursuant to Rule 424(b) of
the Rules and Regulations, the Prospectus shall have been filed in the manner
and within the time period required by Rule 424(b) of the Rules and Regulations;
and prior to such Closing Date, no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or shall be pending or, to the knowledge of
the Company, the Selling Shareholders or you, shall be contemplated by the
Commission; and any request of

-11-
<PAGE>

the Commission for inclusion of additional information in the Registration
Statement, or otherwise, shall have been complied with to your satisfaction.

(b) You shall be satisfied that since the respective dates as of which
information is given in the Registration Statement and Prospectus, (i) there
shall not have been any change in the capital stock other than pursuant to the
exercise of outstanding options and warrants disclosed in the Prospectus of the
Company or any material change in the indebtedness of the Company, (ii) except
as set forth or contemplated by the Registration Statement or the Prospectus, no
material verbal or written agreement or other transaction shall have been
entered into by the Company, which is not in the ordinary course of business,
(iii) no loss or damage (whether or not insured) to the property of the Company
shall have been sustained which materially and adversely affects the condition
(financial or otherwise), business, results of operations or prospects of the
Company, (iv) no legal or governmental action, suit or proceeding affecting the
Company which is material to the Company or which affects or may affect the
transactions contemplated by this Agreement shall have been instituted or
threatened and (v) there shall not have been any material change in the
condition (financial or otherwise), business, management, results of operations
or prospects of the Company which makes it impractical or inadvisable in the
judgment of the Underwriters to proceed with the public offering or purchase the
Common Shares as contemplated hereby.

(c) There shall have been furnished to you on each Closing Date, in form
and substance satisfactory to you, except as otherwise expressly provided below:

(i) An opinion of Davis Wright Tremaine LLP, counsel for the Company,
addressed to the Underwriters and dated the First Closing Date, or the Second
Closing Date, as the case may be, to the effect that:

(1) The Company has been duly incorporated and is validly
existing as a corporation under the laws of the State of Washington
and, to such counsel's knowledge, is duly qualified to do business as
a foreign corporation and is in good standing in all other
jurisdictions where the ownership or leasing of properties or the
conduct of its business requires such qualification, except for
jurisdictions in which the failure to so qualify would not have a
material adverse effect on the Company, has full corporate power and
authority to own its properties and conduct its business as described
in the Registration Statement and to such counsel's knowledge has no
subsidiaries other than as listed in Exhibit 21 to the Registration
Statement;

(2) The authorized, issued and outstanding capital stock of the
Company is as set forth under the caption "Capitalization" in the
Prospectus; all necessary and proper corporate proceedings have been
taken in order to validly authorize the authorized Common Stock; all
outstanding shares of Common Stock (including the Optional Common
Shares) have been duly and validly issued, are fully paid and
nonassessable, have been issued in compliance with the registration
and qualification provisions of federal and state securities laws, to
such counsel's knowledge were not issued in violation of or subject to
any preemptive rights or other rights to subscribe for or purchase any
securities and conform to the description thereof in the Prospectus;
without limiting the foregoing, to such counsel's knowledge there are
no preemptive or other rights to subscribe for or purchase any of the
Common Shares to be sold by the Company or the Selling Shareholders
hereunder;

(3) The certificates evidencing the Common Shares to be
delivered hereunder are in due and proper form under Washington law,
and when duly countersigned by the Company's transfer agent and
registrar, and delivered to you or upon your order against payment of
the agreed consideration therefor in accordance with the provisions of
this Agreement, the Common Shares represented thereby will be duly
authorized and validly issued, fully paid and nonassessable, will not
have been issued in violation of or subject to any preemptive rights
or other rights to subscribe for or purchase securities and will
conform in all respects to the description thereof contained in the
Prospectus;

(4) Except as disclosed in or specifically contemplated by the
Prospectus, to the best of such counsel's knowledge, there are no
outstanding options, warrants or other rights calling for the issuance
of, and no commitments, plans or arrangements to issue, any shares of
capital stock of the Company or any security convertible into or
exchangeable for capital stock of the Company;

-12-
<PAGE>

(5) (a) The Registration Statement has become effective under
the Act, and, to such counsel's knowledge, no stop order suspending
the effectiveness of the Registration Statement or preventing the use
of the Prospectus has been issued and, to such counsel's knowledge, no
proceedings for that purpose have been instituted or are pending or
contemplated by the Commission; any required filing of the Prospectus
and any supplement thereto pursuant to Rule 424(b) of the Rules and
Regulations has been made in the manner and within the time period
required by such Rule 424(b);

(b) The Registration Statement, the Prospectus and each
amendment or supplement thereto (except for the financial statements
and schedules included therein as to which such counsel need express
no opinion) comply as to form in all material respects with the
requirements of the Act and the Rules and Regulations.

(c) To such counsel's knowledge, there are no franchises,
leases, contracts, agreements or documents of a character required to
be disclosed in the Registration Statement or Prospectus or to be
filed as exhibits to the Registration Statement which are not
disclosed or filed, as required; and

(d) To such counsel's knowledge, there are no legal or
governmental actions, suits or proceedings pending or threatened
against the Company which are required to be described in the
Prospectus which are not described as required.

(6) The Company has the corporate power and authority to enter
into this Agreement and to sell and deliver the Common Shares to be
sold by it to the several Underwriters; this Agreement has been duly
and validly authorized by all necessary corporate action by the
Company, has been duly and validly executed and delivered by and on
behalf of the Company, and is a valid and binding agreement of the
Company in accordance with its terms, except as enforceability may be
limited by general equitable principles, bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights
generally and except as to those provisions relating to indemnity or
contribution for liabilities arising under the Act as to which no
opinion need be expressed; and no approval, authorization, order,
consent, registration, filing, qualification, license or permit of or
with any court, regulatory, administrative or other governmental body
is required for the execution and delivery of this Agreement by the
Company or the consummation by the Company of the transactions
contemplated by this Agreement, except such as have been obtained and
are in full force and effect under the Act and such as may be required
under applicable Blue Sky laws in connection with the purchase and
distribution of the Common Shares by the Underwriters and the
clearance of such offering with the NASD;

(7) The execution and delivery of this Agreement by the Company
and the performance by the Company of its obligations set forth herein
will not conflict with, result in the breach of, or constitute, either
by itself or upon notice or the passage of time or both, a default
under, any agreement, mortgage, deed of trust, lease, franchise,
license, indenture, permit or other instrument known to such counsel
to which the Company is a party or by which the Company or any of its
property or assets may be bound or affected which is material to the
Company or its property or assets (each, a "Material Contract"), or
violate any of the provisions of the articles of incorporation or
bylaws, or other organizational documents, of the Company or, to such
counsel's knowledge, violate any statute, judgment, decree, order,
rule or regulation of any court or governmental body having
jurisdiction over the Company or any of its property;

(8) The Company is not in violation of its articles of
incorporation or bylaws, or other organizational documents, or to such
counsel's knowledge, in breach of or default with respect to any
provision of any Material Contract, except where such default would
not materially adversely affect the Company;

(9) To such counsel's knowledge, no holders of securities of the
Company have rights which have not been waived to the registration of
shares of Common Stock or other securities, because of the filing of
the Registration Statement by the Company or the offering contemplated
hereby;

-13-
<PAGE>

(10) The statements in the Registration Statement and Prospectus
under the headings "Management," "Certain Transactions," "Description
of Capital Stock" and "Shares Eligible for Future Sale" and in the
Registration Statement in Items 24 and 26, insofar as they are
descriptions of contracts, agreements or other legal documents or
refer to statements of law or legal conclusions, are accurate and
complete in all material respects and fairly present the information
contained therein.

(11) The Company has satisfied the conditions for use of Form
SB-2, as set forth in the General Instructions thereto, with respect
to the Registration Statement.

(12) No transfer taxes are required to be paid in connection with
the sale and delivery of the Common Shares to the Underwriters
hereunder.

In rendering such opinion, such counsel may rely as to matters of
fact, on certificates of officers of the Company and of governmental officials,
in which case their opinion is to state that they are so doing and that the
Underwriters are justified in relying on such opinions or certificates and
copies of said opinions or certificates are to be attached to the opinion. Such
counsel shall also include a statement to the effect that nothing has come to
such counsel's attention that would lead such counsel to believe that either at
the effective date of the Registration Statement or at the applicable Closing
Date the Registration Statement or the Prospectus, or any such amendment or
supplement, contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading;

(ii) An opinion of Davis Wright Tremaine LLP, counsel for each
of Kevin J. Hafer and Christopher L. Sirianni (each, an "Executive Selling
Shareholder"), addressed to the underwriters and dated the First Closing Date,
to the effect that:

(1) To such counsel's knowledge, this Agreement and the
Shareholders Agreement have been duly executed and delivered by or on
behalf of such Executive Selling Shareholder; the Agent has been duly
and validly authorized to act as the custodian of the Common Shares
to be sold by such Executive Selling Shareholder; and the performance
of this Agreement and the Shareholders Agreement and the consummation
of the transactions herein contemplated by such Executive Selling
Shareholder will not result in a breach of, or constitute a default
under, any material indenture, mortgage, deed of trust, trust
(constructive or other), loan agreement, lease, franchise, license
or other agreement or instrument, known to such counsel to which such
Executive Selling Shareholder is a party or by which such Executive
Selling Shareholder or any of his properties may be bound, or violate
any statute, judgment, decree, order, rule or regulation known to
such counsel of any court or governmental body having jurisdiction
over such Executive Selling Shareholder or any of his properties;
and to such counsel's knowledge, no approval, authorization, order
or consent of any court, regulatory body, administrative agency or
other governmental body is required for the execution and delivery
of this Agreement or the Shareholders Agreement by such Executive
Selling Shareholder or the consummation by such Executive Selling
Shareholder of the transactions contemplated by this Agreement,
except such as have been obtained and are in full force and effect
under the Act and such as may be required under the rules of the
NASD and applicable Blue Sky laws;

(2) To such counsel's knowledge, such Executive Selling
Shareholder has full right, power and authority to enter into
this Agreement and the Shareholders Agreement and to sell, transfer
and deliver the Common Shares to be sold on such Closing Date by
such Executive Selling Shareholder hereunder, and good and marketable
title to such Common Shares so sold, free and clear of all liens,
encumbrances, equities, claims, restrictions, security interests,
voting trusts, or other defects of title whatsoever, has been
transferred to the Underwriters (whom counsel may assume to be
bona fide purchasers) who have purchased such Common Shares
hereunder; and

(3) To such counsel's knowledge, this Agreement and the
Shareholders Agreement are valid and binding agreements of such
Executive Selling Shareholder in accordance with their terms
except as enforceability may be limited by general equitable
principles, bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally and except with
respect to those provisions relating to indemnities or contributions
for liabilities under the Act, as to which no opinion need
be expressed.

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<PAGE>

In rendering such opinion, such counsel may rely as to matters of
fact, on certificates of Kevin J. Hafer and of Christopher L. Sirianni, as
the case may be, and of governmental officials, in which case their opinion
is to state that they are so doing and that the Underwriters are justified in
relying on such certificates and copies of said certificates are to be
attached to the opinion.

(iii) An opinion of Christensen O'Connor Johnson & Kindness PLLC
addressed to the Underwriters and dated the First Closing Date, or the Second
Closing Date, as the case may be, with respect to certain intellectual property
matters, such opinion to be in form and substance satisfactory to counsel for
the Underwriters, and to the effect that:

(1) To such counsel's knowledge, the Company owns all patents,
patent applications, copyrights, licenses, inventions, trade secrets
and rights described in the Prospectus as being owned by it or
necessary for the conduct of its business, and such counsel is not
aware of any claim to the contrary or any challenge by any other
person to the rights of the Company with respect to the foregoing;

(2) Such counsel is not aware of any legal actions, claims or
proceedings pending or threatened against the Company alleging that
the Company is infringing or otherwise violating any patents or trade
secrets owned by others;

(3) Such counsel has reviewed the descriptions of the Company's
patent application under the captions "Risk Factors--Limited
Protection of Proprietary Rights; Risk of Third Party Infringements"
and "Business--Proprietary Technology" in the Registration Statement
and Prospectus, and, to the extent they constitute matters of law or
legal conclusions, these descriptions are accurate in all material
respects and fairly and completely present the patent application of
the Company;

(4) To such counsel's knowledge, for each patent or patent
application filed by the Company or described in the Prospectus as
being owned by it or necessary for the conduct of its business, the
Company has obtained a written assignment of all rights and title
therein to the Company from all inventors and owners of such patent or
patent application and has properly recorded such written assignment
with the appropriate patent office or governmental agency;

(5) To such counsel's knowledge, for each copyrightable product
described in the Prospectus, the Company was vested with original
title to all copyrights for such product and no written assignments
for such copyrights are required to perfect Company's rights and title
thereto; and

(6) To such counsel's knowledge after review of the file history
and patent attorney's file for the patent application described in the
Prospectus as being owned by the Company or necessary for the conduct
of its business, such counsel is aware of nothing that causes such
counsel to believe that, as of the date of the Registration Statement
became effective and as of the date of such opinion, the description
of patents and patent applications under the captions "Risk
Factors--Limited Protection of Proprietary Rights; Risk of Third Party
Infringements" and "Business--Proprietary Technology" in the
Registration Statement and Prospectus contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made therein, in light of the circumstances under which
they were made, not misleading, including without limitation, any
undisclosed material issue with respect to the subsequent validity or
enforceability of such patent or patent application.

(iv) An opinion of Goodwin, Proctor & Hoar, counsel for Selling
Stockholders Advent VII, L.P., Advent Atlantic & Pacific II L.P., Advent New
York L.P. and TA Venture Investors Limited Partnership (the "TA Selling
Shareholders"), addressed to the Underwriters and dated the First Closing Date,
or the Second Closing Date, as the case may be, to the effect that:

(1) To the best of such counsel's knowledge, this Agreement and
the Shareholders Agreement have been duly authorized, executed and
delivered by or on behalf of each of the TA Selling Shareholders; the
Agent has been duly and validly authorized to act as the custodian of
the Common Shares to be sold by each such TA Selling Shareholder; and
the performance of this Agreement and the Shareholders Agreement and
the consummation of the transactions herein contemplated by the TA
Selling

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<PAGE>

Shareholders will not result in a breach of, or constitute a default
under, any indenture, mortgage, deed of trust, trust (constructive or
other), loan agreement, lease, franchise, license or other agreement
or instrument to which any of the TA Selling Shareholders is a party
or by which any of the TA Selling Shareholders or any of their
properties may be bound, or violate any statute, judgment, decree,
order, rule or regulation known to such counsel of any court or
governmental body having jurisdiction over any of the TA Selling
Shareholders or any of their properties; and to the best of such
counsel's knowledge, no approval, authorization, order or consent of
any court, regulatory body, administrative agency or other
governmental body is required for the execution and delivery of this
Agreement or the Shareholders Agreement or the consummation by the TA
Selling Shareholders of the transactions contemplated by this
Agreement, except such as have been obtained and are in full force and
effect under the Act and such as may be required under the rules of
the NASD and applicable Blue Sky laws;

(2) To the best of such counsel's knowledge, the TA Selling
Shareholders have full right, power and authority to enter into this
Agreement and the Shareholders Agreement and to sell, transfer and
deliver the Common Shares to be sold on such Closing Date by such TA
Selling Shareholders hereunder and good and marketable title to such
Common Shares so sold, free and clear of all liens, encumbrances,
equities, claims, restrictions, security interests, voting trusts, or
other defects of title whatsoever, has been transferred to the
Underwriters (whom counsel may assume to be bona fide purchasers) who
have purchased such Common Shares hereunder;

(3) To the best of such counsel's knowledge, this Agreement and
the Shareholders Agreement are valid and binding agreements of each of
the TA Selling Shareholders in accordance with their terms except as
enforceability may be limited by general equitable principles,
bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally and except with respect to those
provisions relating to indemnities or contributions for liabilities
under the Act, as to which no opinion need be expressed;

In rendering such opinion, such counsel may rely as to matters of
fact, on certificates of officers of the TA Selling Shareholders and of
governmental officials, in which case their opinion is to state that they are so
doing and that the Underwriters are justified in relying on such certificates
and copies of said certificates are to be attached to the opinion.

(v) An opinion of Reiserer & Agee L.L.P., counsel for Selling
Shareholder Britannia Holdings Limited ("Britannia"), addressed to the
Underwriters and dated the First Closing Date, or the Second Closing Date, as
the case may be, to the effect that:

(1) To the best of such counsel's knowledge, this Agreement and
the Shareholders Agreement have been duly authorized, executed and
delivered by or on behalf of Britannia; the Agent has been duly and
validly authorized to act as the custodian of the Common Shares to be
sold by Britannia; and the performance of this Agreement and the
Shareholders Agreement and the consummation of the transactions herein
contemplated by Britannia will not result in a breach of, or
constitute a default under, any indenture, mortgage, deed of trust,
trust (constructive or other), loan agreement, lease, franchise,
license or other agreement or instrument to which Britannia is a party
or by which Britannia or any of its properties may be bound, or
violate any statute, judgment, decree, order, rule or regulation known
to such counsel of any court or governmental body having jurisdiction
over Britannia or any of its properties; and to the best of such
counsel's knowledge, no approval, authorization, order or consent of
any court, regulatory body, administrative agency or other
governmental body is required for the execution and delivery of this
Agreement or the Shareholders Agreement or the consummation by
Britannia of the transactions contemplated by this Agreement, except
such as have been obtained and are in full force and effect under the
Act and such as may be required under the rules of the NASD and
applicable Blue Sky laws;

(2) To the best of such counsel's knowledge, Britannia has full
right, power and authority to enter into this Agreement and the
Shareholders Agreement and to sell, transfer and deliver the Common
Shares to be sold on such Closing Date by Britannia hereunder and good
and marketable title to such Common Shares so sold, free and clear of
all liens, encumbrances, equities, claims, restrictions, security

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<PAGE>

interests, voting trusts, or other defects of title whatsoever, has
been transferred to the Underwriters (whom counsel may assume to be
bona fide purchasers) who have purchased such Common Shares hereunder;

(3) To the best of such counsel's knowledge, this Agreement and
the Shareholders Agreement are valid and binding agreements of
Britannia in accordance with their terms except as enforceability may
be limited by general equitable principles, bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights
generally and except with respect to those provisions relating to
indemnities or contributions for liabilities under the Act, as to
which no opinion need be expressed;

In rendering such opinion, such counsel may rely as to matters of
fact, on certificates of officers of Britannia and of governmental officials, in
which case their opinion is to state that they are so doing and that the
Underwriters are justified in relying on such certificates and copies of said
certificates are to be attached to the opinion.

(vi) Such opinion or opinions of Wilson Sonsini Goodrich & Rosati,
P.C., counsel for the Underwriters, dated the First Closing Date or the Second
Closing Date, as the case may be, with respect to the incorporation of the
Company, the sufficiency of all corporate proceedings and other legal matters
relating to this Agreement, the validity of the Common Shares, the Registration
Statement and the Prospectus and other related matters as you may reasonably
require, and the Company and the Selling Shareholders shall have furnished to
such counsel such documents and shall have exhibited to them such papers and
records as they may reasonably request for the purpose of enabling them to pass
upon such matters. In connection with such opinions, such counsel may rely on
representations or certificates of officers of the Company and governmental
officials and the opinions of counsel to the Company and the Selling
Shareholders.

(vii) A certificate of the Company executed by both the President
and Chief Executive Officer and the Chief Financial Officer of the Company,
dated the First Closing Date or the Second Closing Date, as the case may be, to
the effect that:

(1) The representations and warranties of the Company set forth
in Section 2 of this Agreement are true and correct as of the date of
this Agreement and as of the First Closing Date or the Second Closing
Date, as the case may be, and the Company has complied with all the
agreements and satisfied all the conditions on its part to be
performed or satisfied on or prior to such Closing Date;

(2) The Commission has not issued any order preventing or
suspending the use of the Prospectus or any Preliminary Prospectus
filed as a part of the Registration Statement or any amendment
thereto; no stop order suspending the effectiveness of the
Registration Statement has been issued; and to the best of the
knowledge of the respective signers, no proceedings for that purpose
have been instituted or are pending or contemplated under the Act;

(3) Each of the respective signers of the certificate has
carefully examined the Registration Statement and the Prospectus; in
his opinion and to the best of his knowledge, the Registration
Statement and the Prospectus and any amendments or supplements thereto
contain all statements required to be stated therein regarding the
Company; and neither the Registration Statement nor the Prospectus nor
any amendment or supplement thereto includes any untrue statement of a
material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading;

(4) Since the initial date on which the Registration Statement
was filed, no agreement, written or oral, transaction or event has
occurred which in his opinion, after consultation with counsel, should
have been set forth in an amendment to the Registration Statement or
in a supplement to or amendment of any prospectus which has not been
disclosed in such a supplement or amendment;

(5) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there has not been
any material adverse change or a development involving a material
adverse change in the condition (financial or otherwise), business,
properties, results of operations, management or prospects of the
Company; and no legal or governmental action, suit or proceeding is

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<PAGE>

pending or threatened against the Company which is material to the
Company, whether or not arising from transactions in the ordinary
course of business, or which may adversely affect the transactions
contemplated by this Agreement; since such dates the Company has not
entered into any verbal or written agreement or other transaction
which is not in the ordinary course of business or incurred any
material liability or obligation, direct, contingent or indirect, made
any change in its capital stock, made any material change in its
short-term debt or funded debt or repurchased or otherwise acquired
any of the Company's capital stock; and the Company has not declared
or paid any dividend, or made any other distribution, upon its
outstanding capital stock payable to shareholders of record on a date
prior to the First Closing Date or Second Closing Date; and

(6) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, the Company has not
sustained a material loss or damage by strike, fire, flood, windstorm,
accident or other calamity (whether or not insured).

(viii) On the First Closing Date and the Second Closing Date a
certificate, dated such Closing Date and addressed to you, signed by or on
behalf of each of the Selling Shareholders to the effect that the
representations and warranties of such Selling Shareholder in this Agreement are
true and correct, as if made at and as of such Closing Date, and such Selling
Shareholder has complied with all the agreements and satisfied all the
conditions on his part to be performed or satisfied prior to such Closing Date.

(ix) On the date before this Agreement is executed and also on the
First Closing Date and the Second Closing Date, a letter addressed to you from
Coopers & Lybrand L.L.P., independent accountants, the first one to be dated the
day before the date of this Agreement, the second one to be dated the First
Closing Date and the third one (in the event of a Second Closing) to be dated
the Second Closing Date, in form and substance satisfactory to you.

(x) On or before the First Closing Date, letters from each of the
Selling Shareholders, each holder of the Company's Common Stock listed on
SCHEDULE C and each director and executive officer of the Company, in form and
substance satisfactory to you, confirming that until October 20, 1997, such
person or entity will not directly or indirectly sell or offer to sell or
otherwise dispose of any shares of Common Stock or any right to acquire any such
shares without the prior written consent of Montgomery Securities, which consent
may be withheld at the sole discretion of Montgomery Securities, except in
accordance with the terms of the lock-up agreement.

All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory to you and
to Wilson Sonsini Goodrich & Rosati, P.C., counsel for the Underwriters. The
Company shall furnish you with such manually signed or conformed copies of such
opinions, certificates, letters and documents as you request. Any certificate
signed by any officer of the Company and delivered to the Underwriters or to
counsel for the Underwriters shall be deemed to be a representation and warranty
by the Company to the Underwriters as to the statements made therein.

If any condition to the Underwriters' obligations hereunder to be satisfied
prior to or at the First Closing Date is not so satisfied, this Agreement at
your election will terminate upon notification by you to the Company without
liability on the part of any Underwriter or the Company or the Selling
Shareholders except for the expenses to be paid or reimbursed by the Company and
by the Selling Shareholders pursuant to Sections 7 and 9 hereof and except to
the extent provided in Section 11 hereof.

SECTION 9

REIMBURSEMENT OF UNDERWRITERS' EXPENSES

Notwithstanding any other provisions hereof, if this Agreement shall be
terminated by you pursuant to Section 8, or if the sale to the Underwriters of
the Common Shares at the First Closing is not consummated because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein or to comply with any provision hereof, the Company agrees to
reimburse you and the other Underwriters upon demand for all out-of-pocket
expenses that shall have been reasonably incurred by you and them in connection
with the proposed purchase and the sale of the Common Shares,

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<PAGE>

including but not limited to fees and disbursements of counsel, printing
expenses, travel expenses, postage, telegraph charges and telephone charges
relating directly to the offering contemplated by the Prospectus. Any such
termination shall be without liability of any party to any other party except
that the provisions of this Section, Section 7 and Section 11 shall at all times
be effective and shall apply.

SECTION 10

EFFECTIVENESS OF REGISTRATION STATEMENT

You, the Company and the Selling Shareholders will use your, its and their
best efforts to cause the Registration Statement to become effective, to prevent
the issuance of any stop order suspending the effectiveness of the Registration
Statement and, if such stop order be issued, to obtain as soon as possible the
lifting thereof.

SECTION 11

INDEMNIFICATION

(a) The Company and each Selling Shareholder, severally and not jointly,
agree to indemnify and hold harmless each Underwriter and each person, if
any, who controls any Underwriter within the meaning of the Act against any
losses, claims, damages, liabilities or expenses, joint or several, to which
such Underwriter or such controlling person may become subject, under the
Act, the Exchange Act or other federal or state statutory law or regulation,
or at common law or otherwise (including in settlement of any litigation, if
such settlement is effected with the written consent of the Company), insofar
as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof as contemplated below) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, any Preliminary Prospectus, the Prospectus, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state in any of them a material fact required
to be stated therein or necessary to make the statements in any of them not
misleading, or arise out of or are based in whole or in part, in the case of
the Company, on any inaccuracy in any representation or warranty of the
Company or any failure of the Company to perform its obligations hereunder or
under law, or in the case of any Selling Shareholder, on any inaccuracy in
any representation or warranty of such Selling Shareholder contained herein
or any failure of such Selling Shareholder to perform its obligations
hereunder or under law; and will reimburse each Underwriter and each such
controlling person for any legal and other expenses as such expenses are
reasonably incurred by such Underwriter or such controlling person in
connection with investigating, defending, settling, compromising or paying
any such loss, claim, damage, liability, expense or action; provided,
however, that neither the Company nor the Selling Shareholders will be liable
in any such case to the extent that any such loss, claim, damage, liability
or expense arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto in reliance upon and in conformity with the information
furnished to the Company pursuant to Section 4 hereof; provided further that
the indemnity agreement provided in this Section 11(a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any loss, claim, charge, liability or litigation
based upon any untrue statement or alleged untrue statement of material fact
or omission or alleged omission to state therein a material fact purchased
Common Shares, if a copy of the Prospectus in which such untrue statement or
alleged untrue statement or omission or alleged omission was corrected has
not been sent or given to such person within the time required by the Act and
the Rules and Regulations thereunder unless such failure is the result of
noncompliance by the Company with Section 6(e) hereof; and provided further
that, under this paragraph 11(a), the liability (i) of each of the Selling
Shareholders other than the TA Selling Shareholder shall not exceed the net
proceeds received by each such Selling Shareholder upon the sale of the
Common Shares by such Selling Shareholder to the Underwriters, and (ii) of
each TA Selling Shareholder shall not exceed the lesser of (A) the aggregate
proceeds received by such TA Selling Shareholder upon the sale of the Common
Shares by such TA Selling Shareholder to the Underwriters and (B) that
proportion of aggregate losses, claims, damages, liabilities or expenses
indemnified against as is equal to the proportion of the total number of
Common Shares hereunder being sold by such TA Selling Shareholder to the
total number of Common Shares being sold by the Company and all Selling
Shareholders. No TA Selling Shareholder shall be required to provide

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<PAGE>

indemnification hereunder until the Underwriter or controlling person seeking
indemnification shall have first made a written demand for payment on the
Company with respect to any such loss, claim, damage, liability or expense and
the Company shall have either rejected such demand or failed to make such
requested payment within sixty (60) days after receipt thereof. In the event
that the Company rejects any such demand or fails to make any such requested
payment, the Underwriter or controlling person seeking indemnification agrees to
concurrently make demand for indemnification against all Selling Shareholders;
provided that such Underwriter or controlling person shall have sole discretion
as to whether to take any further action against any Selling Shareholder and no
failure by an Underwriter or controlling person to take further action against a
Selling Shareholder shall prejudice such Underwriter's or controlling person's
rights with respect to other Selling Shareholders. The Company and the Selling
Shareholders may agree, as among themselves and without limiting the rights of
the Underwriters under this Agreement, as to their respective amounts of such
liability for which they shall each be responsible. In addition to their other
obligations under this Section 11(a), the Company and the Selling Shareholders
agree that, as an interim measure during the pendency of any claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
statement or omission, or any alleged statement or omission, or any inaccuracy
in the representations and warranties of the Company or the Selling Shareholders
herein or failure to perform its obligations hereunder, all as described in this
Section 11(a), they will reimburse in the manner set forth above each
Underwriter and each such controlling person on a quarterly basis for all
reasonable legal or other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the obligation of the Company or the Selling Shareholders to
reimburse each Underwriter and each such controlling person for such expenses
and the possibility that such payments might later be held to have been improper
by a court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, each Underwriter and
each such controlling person shall promptly return it to the Company or the
Selling Shareholders, as appropriate, together with interest, compounded daily,
determined on the basis of the prime rate (or other commercial lending rate for
borrowers of the highest credit standing) announced from time to time by Bank of
America NT&SA, San Francisco, California (the "Prime Rate"). Any such interim
reimbursement payments which are not made to an Underwriter or a controlling
person within thirty (30) days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request. This indemnity
agreement will be in addition to any liability which the Company and the Selling
Shareholders may otherwise have.

(b) Each Underwriter will severally indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the Registration
Statement, the Selling Shareholders and each person, if any, who controls the
Company or any Selling Shareholder within the meaning of the Act, against any
losses, claims, damages, liabilities or expenses to which the Company, or any
such director, officer, Selling Shareholder or controlling person may become
subject, under the Act, the Exchange Act, or other federal or state statutory
law or regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of such
Underwriter), insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof as contemplated below) arise out of or are based
upon any untrue or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with the information
furnished to the Company pursuant to Section 4 hereof; and will reimburse the
Company, or any such director, officer, Selling Shareholder or controlling
person for any legal and other expense reasonably incurred by the Company, or
any such director, officer, Selling Shareholder or controlling person in
connection with investigating, defending, settling, compromising or paying any
such loss, claim, damage, liability, expense or action. In addition to its other
obligations under this Section 11(b), each Underwriter severally agrees that, as
an interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in this Section 11(b)
which relates to information furnished to the Company pursuant to Section 4
hereof, it will reimburse the Company (and, to the extent applicable, each
officer, director, controlling person or Selling Shareholders) on a quarterly
basis for all reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Underwriters' obligation to reimburse
the Company (and, to the extent applicable, each officer, director, controlling
person or Selling Shareholders) for such expenses and the possibility that such
payments might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement payment is so
held to have been improper, the Company (and, to the extent applicable, each
officer, director, controlling person or Selling

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<PAGE>

Shareholder) shall promptly return it to the Underwriters together with
interest, compounded daily, determined on the basis of the Prime Rate. Any such
interim reimbursement payments which are not made to the Company (and, to the
extent applicable, any officer, director, controlling person or Selling
Shareholder), within thirty (30) days of a request for reimbursement, shall bear
interest at the Prime Rate from the date of such request. This indemnity
agreement will be in addition to any liability which such Underwriter may
otherwise have.

(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section, notify the indemnifying party in writing of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party for contribution or
otherwise than under the indemnity agreement contained in this Section or to the
extent it is not prejudiced as a proximate result of such failure. In case any
such action is brought against any indemnified party and such indemnified party
seeks or intends to seek indemnity from an indemnifying party, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with all other indemnifying parties similarly notified, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be a conflict between the positions of
the indemnifying party and the indemnified party in conducting the defense of
any such action or that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of its election so to assume the defense of such action and approval by
the indemnified party of counsel, the indemnifying party will not be liable to
such indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed such counsel in
connection with the assumption of legal defenses in accordance with the proviso
to the next preceding sentence or (ii) the indemnifying party shall not have
employed counsel reasonably satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after notice of commencement of
the action, in each of which cases the fees and expenses of counsel shall be at
the expense of the indemnifying party.

(d) If the indemnification provided for in this Section 11 is required by
its terms but is for any reason held to be unavailable to or otherwise
insufficient to hold harmless an indemnified party under paragraphs (a), (b) or
(c) in respect of any losses, claims, damages, liabilities or expenses referred
to herein, then each applicable indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of any losses,
claims, damages, liabilities or expenses referred to herein (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Shareholders, on the one hand, and the Underwriters, on
the other hand, from the offering of the Common Shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and the
Selling Shareholders, on the one hand, and the Underwriters, on the other hand,
in connection with the statements or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The respective relative benefits received by the Company and the
Selling Shareholders, on the one hand, and the Underwriters, on the other hand,
shall be deemed to be in the same proportion, in the case of the Company and the
Selling Shareholders, as the total price paid to the Company and the Selling
Shareholders for the Common Shares sold by them to the Underwriters (net of
underwriting commissions but before deducting expenses), and in the case of the
Underwriters as the underwriting commissions received by them bears to the total
of such amounts paid to the Company and the Selling Shareholders and received by
the Underwriters as underwriting commissions. The relative fault of the Company
and the Selling Shareholders, on the one hand, and the Underwriters, on the
other hand, shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact or the inaccurate or the alleged inaccurate
representation and/or warranty relates to information supplied by the Company,
the Selling Shareholders or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in subparagraph (c) of
this Section 11, any legal or other fees or expenses reasonably incurred by such
party in connection with investigating or defending any action or claim. The
provisions set forth in subparagraph (c) of this Section 11 with respect to
notice of commencement of any action shall apply if a claim for contribution is
to be made under this subparagraph (d); provided, however, that no additional
notice shall

-21-
<PAGE>

be required with respect to any action for which notice has been given under
subparagraph (c) for purposes of indemnification. The Company, the Selling
Shareholders and the Underwriters agree that it would not be just and equitable
if contribution pursuant to this subparagraph 11(d) were determined solely by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 11, no Underwriter
shall be required to contribute any amount in excess of the amount of the total
underwriting commissions received by such Underwriter in connection with the
Common Shares underwritten by it and distributed to the public. No person guilty
of fraudulent misrepresentation (within the meaning of Section 10(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 11 are several in proportion to their respective
underwriting commitments and not joint. The Selling Shareholders' obligations
to contribute pursuant to this Section 11 are several in proportion to the
number of Common Shares sold and not joint.

(e) It is agreed that any controversy arising out of the operation of the
interim reimbursement arrangements set forth in Sections 11(a) and 11(b) hereof,
including the amounts of any requested reimbursement payments and the method of
determining such amounts, shall be settled by arbitration conducted under the
provisions of the Constitution and Rules of the Board of Governors of the New
York Stock Exchange, Inc. or pursuant to the Code of Arbitration Procedure of
the NASD. Any such arbitration must be commenced by service of a written demand
for arbitration or written notice of intention to arbitrate, therein electing
the arbitration tribunal. In the event that the party demanding arbitration does
not make such designation of an arbitration tribunal in such demand or notice,
then the party responding to said demand or notice is authorized to do so. Such
an arbitration would be limited to the operation of the interim reimbursement
provisions contained in Sections 11(a) and 11(b) hereof and would not resolve
the ultimate propriety or enforceability of the obligation to reimburse expenses
which is created by the provisions of such Sections 11(a) and 11(b) hereof.

SECTION 12

DEFAULT OF UNDERWRITERS
-----------------------

It shall be a condition to this Agreement and the obligation of the Company
and the Selling Shareholders to sell and deliver the Common Shares hereunder,
and of each Underwriter to purchase the Common Shares in the manner as described
herein, that, except as hereinafter in this paragraph provided, each of the
Underwriters shall purchase and pay for all the Common Shares agreed to be
purchased by such Underwriter hereunder upon tender to the Underwriters of all
such shares in accordance with the terms hereof. If any Underwriter or
Underwriters default in their obligations to purchase Common Shares hereunder on
either the First or Second Closing Date and the aggregate number of Common
Shares which such defaulting Underwriter or Underwriters agreed but failed to
purchase on such Closing Date does not exceed 10% of the total number of Common
Shares which the Underwriters are obligated to purchase on such Closing Date,
the non-defaulting Underwriters shall be obligated severally, in proportion to
their respective commitments hereunder, to purchase the Common Shares which such
defaulting Underwriters agreed but failed to purchase on such Closing Date. If
any Underwriter or Underwriters so default and the aggregate number of Common
Shares with respect to which such default occurs is more than the above
percentage and arrangements satisfactory to the Underwriters and the Company for
the purchase of such Common Shares by other persons ore not made within 48 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Underwriter or the Company or the Selling Shareholders
except for the expenses to be paid by the Company and the Selling Shareholders
pursuant to Section 7 hereof and except to the extent provided in Section 11
hereof.

In the event that Common Shares to which a default relates are to be
purchased by the non-defaulting Underwriters or by another party or parties, the
Underwriters or the Company shall have the right to postpone the First or Second
Closing Date, as the case may be, for not more than five business days in order
that the necessary changes in the Registration Statement, Prospectus and any
other documents, as well as any other arrangements, may be effected. As used in
this Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.

-22-
<PAGE>

SECTION 13

EFFECTIVE DATE
--------------

This Agreement shall become effective immediately as to Sections 7, 9, 11,
14 and 16 and, as to all other provisions, (i) if at the time of execution of
this Agreement the Registration Statement has not become effective, at 2:00
P.M., California time, on the first full business day following the
effectiveness of the Registration Statement, or (ii) if at the time of execution
of this Agreement the Registration Statement has been declared effective, at
2:00 P.M., California time, on the first full business day following the date of
execution of this Agreement; but this Agreement shall nevertheless become
effective at such earlier time after the Registration Statement becomes
effective as you may determine on and by notice to the Company or by release of
any of the Common Shares for sale to the public. For the purposes of this
Section 13, the Common Shares shall be deemed to have been so released upon the
release for publication of any newspaper advertisement relating to the Common
Shares or upon the release by you of telegrams (i) advising Underwriters that
the Common Shares are released for public offering, or (ii) offering the Common
Shares for sale to securities dealers, whichever may occur first.

SECTION 14

TERMINATION
-----------

Without limiting the right to terminate this Agreement pursuant to any
other provision hereof:

(a) This Agreement may be terminated by the Company by notice to you and
the Selling Shareholders or by you by notice to the Company and the Selling
Shareholders at any time prior to the time this Agreement shall become effective
as to all its provisions, and any such termination shall be without liability on
the part of the Company or the Selling Shareholders to any Underwriter (except
for the expenses to be paid or reimbursed by the Company and the Selling
Shareholders pursuant to Sections 7 and 9 hereof and except to the extent
provided in Section 11 hereof) or of any Underwriter to the Company or the
Selling Shareholders (except to the extent provided in Section 11 hereof).

(b) This Agreement may also be terminated by you prior to the First
Closing Date by notice to the Company (i) if additional material governmental
restrictions, not in force and effect on the date hereof, shall have been
imposed upon trading in securities generally or minimum or maximum prices shall
have been generally established on the New York Stock Exchange or on the
American Stock Exchange or in the over the counter market by the NASD, or
trading in securities generally shall have been suspended on either such
Exchange or in the over the counter market by the NASD, or a general banking
moratorium shall have been established by federal, New York or California
authorities, (ii) if an outbreak of major hostilities or other national or
international calamity or any change in political, financial or economic
conditions shall have occurred or shall have accelerated or escalated to such an
extent, as, in the judgment of the Underwriters, to affect adversely the
marketability of the Common Shares, (iii) if any adverse event shall have
occurred or shall exist which makes untrue or incorrect in a material respect
any statement or information contained in the Registration Statement or
Prospectus or which is not reflected in the Registration Statement or Prospectus
but should be reflected therein in order to make the statements or information
contained therein not misleading in any material respect, or (iv) if there shall
be any action, suit or proceeding pending or threatened, or there shall have
been any development or prospective development involving particularly the
business or properties or securities of the Company or the transactions
contemplated by this Agreement, which, in the judgment of the Underwriters, may
materially and adversely affect the Company's business or earnings and makes it
impracticable or inadvisable to offer or sell the Common Shares. Any termination
pursuant to this subsection (b) shall be without liability on the part of any
Underwriter to the Company or the Selling Shareholders or on the part of the
Company or the Selling Shareholders to any Underwriter (except for expenses to
be paid or reimbursed by the Company and the Selling Shareholders pursuant to
Sections 7 and 9 hereof and except to the extent provided in Section 11 hereof).

(c) This Agreement shall also terminate at 5:00 P.M., California Time, on
the tenth full business day after the Registration Statement shall have become
effective if the initial public offering price of the Common Shares shall not
then as yet have been determined as provided in Section 5 hereof. Any
termination pursuant to this subsection (c) shall be without liability on the
part of any Underwriter to the Company or the Selling Shareholders or on the
part of the Company or the

-23-
<PAGE>

Selling Shareholders to any Underwriter (except for expenses to be paid or
reimbursed by the Company and the Selling Shareholders pursuant to Sections 7
and 9 hereof and except to the extent provided in Section 11 hereof).

SECTION 15

FAILURE OF THE SELLING SHAREHOLDERS TO SELL AND DELIVER
-------------------------------------------------------

If one or more of the Selling Shareholders shall fail to sell and deliver
to the Underwriters the Common Shares to be sold and delivered by such Selling
Shareholders at the First Closing Date or the Second Closing Date under the
terms of this Agreement, then the Underwriters may at their option, by written
notice from you to the Company and the Selling Shareholders, purchase the shares
which the other Selling Shareholders have agreed to sell and deliver in
accordance with the terms hereof. In the event of a failure by one or more of
the Selling Shareholders to sell and deliver as referred to in this Section,
either you or the Company shall have the right to postpone the First Closing
Date or the Second Closing Date, as the case may be, for a period not exceeding
seven business days in order that the necessary changes in the Registration
Statement, Prospectus and any other documents, as well as any other
arrangements, may be effected.

SECTION 16

REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY
---------------------------------------------------

The respective indemnities, agreements, representations, warranties and
other statements of the Company, of its officers, of the Selling Shareholders
and of the several Underwriters set forth in or made pursuant to this Agreement
will remain in full force and effect, regardless of any investigation made by or
on behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, or the Selling Shareholders, as
the case may be, and will survive delivery of and payment for the Common Shares
sold hereunder and any termination of this Agreement.

SECTION 17

NOTICES
-------

All communications hereunder shall be in writing and, if sent to the
Underwriters shall be mailed, delivered or telegraphed and confirmed to you at
600 Montgomery Street, San Francisco, California 94111, Attention: Mr. David
DeRuff, with a copy to Wilson Sonsini Goodrich & Rosati, P.C., 650 Page Mill
Road, Palo Alto, California 94304, Attention: Patrick J. Schultheis, Esq.; and
if sent to the Company or the Selling Shareholders shall be mailed, delivered or
telegraphed and confirmed to the Company at 20031 142nd Avenue N.E.,
Woodinville, Washington 98072, Attention: Mr. Kevin J. Hafer, with a copy to
Davis Wright Tremaine LLP, 2600 Century Square, Seattle, Washington 98101,
Attention: Samuel F. Saracino, Esq. The Company, the Selling Shareholders or
you may change the address for receipt of communications hereunder by giving
notice to the others.

SECTION 18

SUCCESSORS
----------

This Agreement will inure to the benefit of and be binding upon the parties
hereto, including any substitute Underwriters pursuant to Section 12 hereof, and
to the benefit of the officers and directors and controlling persons referred to
in Section 11, and in each case their respective successors, personal
representatives and assigns, and no other person will have any right or
obligation hereunder. No such assignment shall relieve any party of its
obligations hereunder. The term "successors" shall not include any purchaser of
the Common Shares as such from any of the Underwriters merely by reason of such
purchase.

-24-
<PAGE>

SECTION 19

PARTIAL UNENFORCEABILITY
------------------------

The invalidity or unenforceability of any Section, paragraph or provision
of this Agreement shall not affect the validity or enforceability of any other
Section, paragraph or provision hereof. If any Section, paragraph or provision
of this Agreement is for any reason determined to be invalid or unenforceable,
there shall be deemed to be made such minor changes (and only such minor
changes) as are necessary to make it valid and enforceable.

SECTION 20

APPLICABLE LAW
--------------

This Agreement shall be governed by and construed in accordance with the
internal laws (and not the laws pertaining to conflicts of laws) of the State of
California.

SECTION 21

GENERAL
-------

This Agreement constitutes the entire agreement of the parties to this
Agreement and supersedes all prior written or oral and all contemporaneous oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may be executed in several counterparts, each one of
which shall be an original, and all of which shall constitute one and the same
document.

In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company, the Selling Shareholders and you.

Any person executing and delivering this Agreement as Attorney-in-fact for
the Selling Shareholders represents by so doing that he has been duly appointed
as Attorney-in-fact by such Selling Shareholder pursuant to a validly existing
and binding Power of Attorney which authorizes such Attorney-in-fact to take
such action. Any action taken under this Agreement by any of the
Attorneys-in-fact will be binding on all the Selling Shareholders.

-25-
<PAGE>

If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed copies hereof, whereupon it will
become a binding agreement among the Company, the Selling Shareholders and the
several Underwriters including you, all in accordance with its terms.

Very truly yours,

APEX PC SOLUTIONS, INC.

_______________________________________
Kevin J. Hafer,
President and Chief Executive Officer

SELLING SHAREHOLDERS

By: ___________________________________
(Attorney-in-fact)

The foregoing Underwriting Agreement
is hereby confirmed and accepted by
us in San Francisco, California as of
the date first above written.

MONTGOMERY SECURITIES
DAIN BOSWORTH INCORPORATED
COWEN & COMPANY

By: MONTGOMERY SECURITIES

By: _____________________________________
Richard A. Smith, Managing Director

-26-
<PAGE>

SCHEDULE A

Number of
Number of Firm Optional
Common Shares Common Shares
Name of Underwriter to be Purchased to be Purchased
- ---------------------------------------- --------------- ----------------

Montgomery Securities . . . . . . . . . .

Dain Bosworth Incorporated . . . . . . .

Cowen & Company . . . . . . . . . . . . .

_________

TOTAL . . . . .
---------
---------

A-1
<PAGE>

SCHEDULE B

Number of Number of
Firm Common Optional Common
Shares to be Shares to be
Sold
Sold by Selling by Selling
Name of Selling Shareholder Shareholders Shareholders
- ------------------------------------- ----------------
- -----------------

Kevin J. Hafer . . . . . . .

Christopher L. Sirianni. . .

Britannia Holdings Limited .

Advent VII L.P. . . . . . .

Advent Atlantic & Pacific II
L.P. . . . . . . . . . . . .

Advent New York L.P. . . . .

TA Venture Investors Limited ________ ________
Partnership . . . . . . . .

TOTAL . . . . .
--------
--------

B-1
<PAGE>

SCHEDULE C

Number of
Common
Name of Shareholder Shares Held
- ------------------------------------ -----------

Crum Family Trust dated 8/18/93 . . .

Mark Donohue. . . . . . . . . . . . .

Mary Flynn. . . . . . . . . . . . . .

Steve McCarthy. . . . . . . . . . . .

Danny Beasley . . . . . . . . . . . .

Steve Aubin . . . . . . . . . . . . .

C-1

<PAGE>

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

AMENDED AND RESTATED BYLAWS

APEX PC SOLUTIONS, INC.

As Amended through April 23, 1997

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

<PAGE>

TABLE OF CONTENTS

Page

ARTICLE I - REGISTERED OFFICE AND REGISTERED AGENT . . . . . . . . . 1

ARTICLE II - SHAREHOLDERS' MEETINGS. . . . . . . . . . . . . . . . . 1
Section 1. Annual Meetings . . . . . . . . . . . . . . . . . . 1
Section 2. Special Meetings. . . . . . . . . . . . . . . . . . 1
Section 3. Notice of Meetings. . . . . . . . . . . . . . . . . 1
Section 4. Waiver of Notice. . . . . . . . . . . . . . . . . . 2
Section 5. Record Date . . . . . . . . . . . . . . . . . . . . 2
Section 6. Shareholders' List for Meeting. . . . . . . . . . . 2
Section 7. Quorum and Adjourned Meetings . . . . . . . . . . . 3
Section 8. Proxies . . . . . . . . . . . . . . . . . . . . . . 3
Section 9. Voting of Shares. . . . . . . . . . . . . . . . . . 3
Section 10. Matters to be Considered at Shareholders Meetings . 3

ARTICLE III - DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . 4
Section 1. General Powers. . . . . . . . . . . . . . . . . . . 4
Section 2. Number. . . . . . . . . . . . . . . . . . . . . . . 4
Section 3. Tenure and Qualifications . . . . . . . . . . . . . 4
Section 4. Election. . . . . . . . . . . . . . . . . . . . . . 4
Section 5. Vacancies . . . . . . . . . . . . . . . . . . . . . 4
Section 6. Resignation . . . . . . . . . . . . . . . . . . . . 4
Section 7. Removal of Directors. . . . . . . . . . . . . . . . 4
Section 8. Meetings. . . . . . . . . . . . . . . . . . . . . . 5
Section 9. Quorum and Voting . . . . . . . . . . . . . . . . . 5
Section 10. Compensation. . . . . . . . . . . . . . . . . . . . 5
Section 11. Presumption of Assent . . . . . . . . . . . . . . . 6
Section 12. Committees. . . . . . . . . . . . . . . . . . . . . 6

ARTICLE IV - SPECIAL MEASURES FOR CORPORATE ACTION . . . . . . . . . 6
Section 1. Actions by Written Consent. . . . . . . . . . . . . 6
Section 2. Meetings by Conference Telephone. . . . . . . . . . 7

ARTICLE V - OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 1. Officers Designated . . . . . . . . . . . . . . . . 7
Section 2. Election, Qualification and Term of Office. . . . . 7
Section 3. Powers and Duties . . . . . . . . . . . . . . . . . 8
Section 4. Assistant Secretaries and Assistant Treasurers. . . 8
Section 5. Removal . . . . . . . . . . . . . . . . . . . . . . 8
Section 6. Vacancies.. . . . . . . . . . . . . . . . . . . . . 8
Section 7. Compensation. . . . . . . . . . . . . . . . . . . . 9

<PAGE>

ARTICLE VI - SHARE CERTIFICATES. . . . . . . . . . . . . . . . . . . 9
Section 1. Issuance, Form and Execution of Certificates. . . . 9
Section 2. Transfers . . . . . . . . . . . . . . . . . . . . . 9
Section 3. Loss or Destruction of Certificates . . . . . . . . 9

ARTICLE VII - BOOKS AND RECORDS. . . . . . . . . . . . . . . . . . . 10
Section 1. Books of Accounts, Minutes and Share Register . . . 10
Section 2. Financial Statements. . . . . . . . . . . . . . . . 10
Section 3. Copies of Resolutions . . . . . . . . . . . . . . . 10

ARTICLE VIII - CORPORATE SEAL. . . . . . . . . . . . . . . . . . . . 11

ARTICLE IX - AMENDMENT OF BYLAWS . . . . . . . . . . . . . . . . . . 11
Section 1. By the Shareholders . . . . . . . . . . . . . . . . 11
Section 2. By the Board of Directors . . . . . . . . . . . . . 11

ARTICLE X - FISCAL YEAR. . . . . . . . . . . . . . . . . . . . . . . 11

ARTICLE XI - RULES OF ORDER. . . . . . . . . . . . . . . . . . . . . 11

<PAGE>

AMENDED AND RESTATED BYLAWS

APEX PC SOLUTIONS, INC.

ARTICLE I

REGISTERED OFFICE AND REGISTERED AGENT

The registered office of the corporation shall be located in the State of
Washington at such place as may be fixed from time to time by the board of
directors upon filing of such notices as may be required by law, and the
registered agent shall have a business office identical with such registered
office. Any change in the registered agent or registered office shall be
effective upon filing such change with the office of the Secretary of State of
the State of Washington.

ARTICLE II

SHAREHOLDERS' MEETINGS

Section 1. ANNUAL MEETINGS. The annual meeting of the shareholders of
this corporation, for the purpose of election of directors and for such other
business as may come before it, shall be held either (a) at the registered
office of the corporation, on the last Thursday in June of each and every year,
at 10:00 a.m., but if such day shall be a legal holiday, the meeting shall be
held at the same hour and place on the next succeeding day not a holiday, or (b)
at such other place and time which may be within or without the State of
Washington, as may be determined by the board of directors and specified in the
notice of the meeting.

Section 2. SPECIAL MEETINGS. Special meetings of the shareholders of
this corporation may be called at any time by the holders of twenty-five percent
(25%) of the voting shares of the corporation, or by the president, or by the
board of directors. No business shall be transacted at any special meeting of
shareholders except as is specified in the notice calling for said meeting. The
place of any special meeting shall be the registered office of the corporation
or as otherwise determined, within or without the State of Washington, by the
board of directors and specified in the notice of the meeting.

Section 3. NOTICE OF MEETINGS. Written notice of annual or special
meetings of shareholders stating the place, day, and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called, shall be given by the secretary or persons authorized to call the
meeting to each shareholder of record entitled to vote at the meeting. Such
notice shall be given no fewer than ten (10) nor more than sixty (60) days
before the meeting date, except that notice of a meeting to act on an

<PAGE>

amendment to the Articles of Incorporation, a plan of merger or share exchange,
a proposed sale, lease, exchange or other disposition of all or substantially
all of the assets of the corporation other than in the usual or regular course
of business, or the dissolution of the corporation shall be given no fewer than
twenty (20) nor more than sixty (60) days before the meeting date. Notice may
be transmitted by mail, private carrier or personal delivery, telegraph or
teletype, or telephone, wire or wireless equipment which transmits a facsimile
of the notice. If mailed, such notice shall be effective when deposited in the
United States mail, first-class postage prepaid, and addressed to the
shareholder at his or her address as it appears on the stock transfer books of
the corporation. Otherwise, such notice shall be effective when received.

Section 4. WAIVER OF NOTICE. Notice of the time, place, and purpose of
any meeting may be waived in writing (either before or after such meeting).
Notice of time or place of a meeting will be waived by any shareholder by that
shareholder's attendance in person or by proxy, unless the shareholder at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting. Objection to consideration of a particular matter that is not
within the purposes described in a special meeting notice will be waived unless
the shareholder objects to considering the matter when it is presented. Any
shareholder so waiving shall be bound by the proceedings of any such meeting in
all respects as if due notice thereof had been given.

Section 5. RECORD DATE. The board of directors may fix in advance a
record date in order to determine the shareholders entitled to notice of a
shareholders' meeting, to demand a special meeting, to vote, or to take any
other action, such date to be not more than seventy (70) days prior to the date
on which the particular action requiring such determination of shareholders is
to be taken. If no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a share dividend or a distribution (other than
one involving the purchase, redemption, or other acquisition of the
corporation's shares), the day before the date on which notice of the meeting is
effective or the date on which the board of directors authorizes such share
dividend or distribution, as the case may be, shall be the record date for such
determination of shareholders. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination is effective for any adjournment thereof, unless the board of
directors fixes a new record date, which it must do if the meeting is adjourned
to a date more than one hundred twenty (120) days after the date fixed for the
original meeting.

Section 6. SHAREHOLDERS' LIST FOR MEETING. After fixing a record date
for a shareholders' meeting, the corporation shall prepare an alphabetical list
of the names of all shareholders on the record date who are entitled to notice
of the shareholders' meeting. The list shall be arranged by voting group, and
within each voting group by class or series of shares, and show the address of
and number of shares held by each shareholder. A shareholder, shareholder's
agent, or shareholder's attorney may inspect the shareholder list, beginning ten
(10) days prior to the shareholders' meeting and

2
<PAGE>

continuing through the meeting, at the corporation's principal office or at a
place identified in the meeting notice in the city where the meeting will be
held, during regular business hours and at the shareholder's expense. The
shareholders' list shall be kept open for inspection during such meeting or any
adjournment.

Section 7. QUORUM AND ADJOURNED MEETINGS. Unless otherwise provided in
the Articles of Incorporation, including but not limited to those provisions of
the Articles of Incorporation regarding the election of the Series A Directors,
as defined in the Articles of Incorporation, a majority of the votes entitled to
be cast on a matter by a voting group shall constitute a quorum of that voting
group at a meeting of shareholders. Once a share is represented for any purpose
at a meeting, in person or by proxy, other than solely to object to holding the
meeting or transacting business at the meeting, it is deemed present for quorum
purposes for the remainder of the meeting and for any adjournment of that
meeting, unless a new record date is or must be set for that adjourned meeting.

Section 8. PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by the shareholder's
attorney-in-fact or agent. An appointment of a proxy is effective when received
by the secretary or other officer or agent authorized to tabulate votes. An
appointment is valid for eleven (11) months unless a longer period is expressly
provided in the appointment of the proxy.

Section 9. VOTING OF SHARES. Except as otherwise provided in the
Articles of Incorporation or in these Bylaws, every shareholder of record shall
have the right at every shareholders' meeting to one vote for every share
standing in his or her name on the books of the corporation. If a quorum
exists, action on a matter, other than election of directors, is approved by a
voting group of shareholders if the votes cast within the voting group favoring
the action exceed the votes cast within the voting group opposing the action,
unless otherwise provided in the Washington Business Corporation Act or the
Articles of Incorporation, including but not limited to those provisions of the
Articles of Incorporation that provide for the redemption of the Series A
Preferred Stock and that impose restrictions and limitations on the actions of
the Corporation without the consent of the holders of the Series A Preferred
Stock.

Section 10. MATTERS TO BE CONSIDERED AT SHAREHOLDERS MEETINGS. If any
shareholder desires to bring up any matter for consideration or propose one or
more nominees for election to the board of directors at a meeting of the
shareholders of this corporation, such shareholder must give written notice to
the secretary of this corporation at least ninety (90) days in advance of the
date of the shareholders meeting setting forth in such notice the subject matter
that the shareholder desires to bring up at the meeting and the reason or
reasons for doing so or the name(s) of the nominees proposed for election to the
board of directors. The secretary shall then promptly make and forward copies
of such notice to each of the directors and officers of this corporation so that
they will be aware of the matter. Except as set forth herein, no matter may be
brought up for consideration by any shareholder at a special shareholders
meeting.

3
<PAGE>

ARTICLE III

DIRECTORS

Section 1. GENERAL POWERS. All corporate powers shall be exercised by or
under the authority of, and the business and affairs of the corporation shall be
managed under the direction of, the board of directors except as otherwise
provided by the laws under which this corporation exists or in the Articles of
Incorporation.

Section 2. NUMBER. The number of directors of the corporation shall be
as set forth by resolution of the Board of Directors of the corporation;
PROVIDED, HOWEVER, that no decrease in the number of directors shall shorten the
term of any incumbent director.

Section 3. TENURE AND QUALIFICATIONS. The term of each director shall
expire at the next annual meeting of shareholders. Despite the expiration of a
director's term, the director shall continue to serve until the director's
successor shall have been elected and qualified or until there is a decrease in
the number of directors. Directors need not be residents of the state or
shareholders of the corporation.

Section 4. ELECTION. The directors shall be elected at the shareholders'
annual meeting each year; and if, for any cause, the directors shall not have
been elected at an annual meeting, they may be elected at a special meeting of
shareholders called for that purpose in the manner provided by these Bylaws.
Directors shall be elected by the holders of classes or series of shares
entitled to elect them.

Section 5. VACANCIES. Except as provided in the Washington Business
Corporation Act or the Articles of Incorporation, including but not limited to
those provisions of the Articles of Incorporation regarding the election of
Series A Directors, as defined in the Articles of Incorporation, in the case of
any vacancy in the board of directors, including a vacancy resulting from an
increase in the number of directors, the board of directors, a majority of the
remaining directors if they do not constitute a quorum, or the shareholders may
fill the vacancy.

Section 6. RESIGNATION. Any director may resign at any time by
delivering written notice to the board of directors, its chairperson, or the
president or secretary of the corporation. A resignation shall be effective
when the notice is delivered, unless the notice specifies a later effective
date.

Section 7. REMOVAL OF DIRECTORS. At a meeting of shareholders called
expressly for that purpose, the entire board of directors, or any member
thereof, may be removed, with or without cause, by a vote of the holders of the
shares entitled to vote at an election of such directors.

4
<PAGE>

Section 8. MEETINGS.

(a) The board of directors shall hold an annual meeting
immediately after the annual shareholders' meeting, at the same place as the
annual shareholders' meeting or at such other place and at such time as may
be determined by the directors. No notice of the annual meeting of the board
of directors shall be necessary.

(b) Special meetings may be called at any time and place by the
president, secretary, or any one (1) director. Notice of the time and place
of each special meeting shall be given by the secretary, or the persons
calling the meeting. The notice may be written or oral and shall be given at
least two (2) days in advance of the meeting. Written notice may be given by
mail, private carrier or personal delivery, telegraph or teletype, or
telephone, wire or wireless equipment which transmits a facsimile of the
notice. Oral notice may be communicated in person or by telephone, wire or
wireless equipment which does not transmit a facsimile of the notice. Such
notice shall be effective at the earlier of (i) when it is received, or (ii)
five (5) days after it is deposited in the United States mail, first-class
postage prepaid, and correctly addressed. The purpose of the meeting need
not be given in the notice. Notice of any special meeting may be waived in
writing (either before or after such meeting) and will be waived by any
director by attendance at or participation in the meeting, unless the
director at the beginning of the meeting, or promptly upon the director's
arrival, objects and does not thereafter vote for or assent to action taken
at the meeting.

(c) Regular meetings of the board of directors may be held at
such place and on such day and hour as shall from time to time be fixed by
resolution of the board of directors. No notice of regular meetings of the
board of directors shall be necessary.

(d) At any meeting of the board of directors, any business may
be transacted, and the board may exercise all of its powers.

Section 9. QUORUM AND VOTING.

(a) A majority of the number of directors specified in or fixed
in accordance with the Articles of Incorporation or these Bylaws shall
constitute a quorum, but a lesser number may adjourn any meeting from time to
time until a quorum is obtained, and no further notice thereof need be given.

(b) If a quorum is present when a vote is taken, the affirmative
vote of a majority of the directors present at the meeting is the act of the
board of directors. If enough directors withdraw from a meeting to leave
less than a quorum, the remaining directors may not continue to transact
business at such meeting.

Section 10. COMPENSATION. By resolution of the board of directors, the
directors may be paid their expenses, if any, of attendance at each meeting of
the board of

<PAGE>

directors and may be paid a fixed sum for attendance at each meeting of the
board of directors or a stated salary as director. No such payment shall
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor.

Section 11. PRESUMPTION OF ASSENT. A director of the corporation who is
present at a meeting of the board of directors at which action on any corporate
matter is taken shall be deemed to have assented to the action taken unless:

(i) the director objects at the beginning of the meeting, or
promptly upon the director's arrival, to holding it or transacting business
at the meeting;

(ii) the director's dissent or abstention from the action
taken is entered in the minutes of the meeting; or

(iii) the director delivers written notice of the director's
dissent or abstention to the presiding officer of the meeting before its
adjournment or to the corporation within a reasonable time after
adjournment of the meeting.

The right of dissent or abstention is not available to a director who votes in
favor of the action taken.

Section 12. COMMITTEES. The board of directors, by resolution approved
by a majority of the full board of directors, may designate from among its
members one or more committees, each of which must have two (2) or more members
and, to the extent provided in such resolution, such committees shall have and
may exercise all the authority of the board of directors, except that no such
committee shall have the authority to: authorize or approve a distribution
except according to a general formula or method prescribed by the board of
directors; approve or propose to shareholders action that the Washington
Business Corporation Act requires to be approved by shareholders; fill vacancies
on the board of directors or on any of its committees; adopt amendments to the
Articles of Incorporation not requiring shareholder approval; adopt, amend or
repeal the Bylaws; approve a plan of merger not requiring shareholder approval;
or authorize or approve the issuance or sale or contract for sale of shares, or
determine the designation and relative rights, preferences, and limitations of a
class or series of shares, except that the board of directors may authorize a
committee, or a senior executive officer of the corporation, to do so within
limits specifically prescribed by the board of directors.

ARTICLE IV

SPECIAL MEASURES FOR CORPORATE ACTION

Section 1. ACTIONS BY WRITTEN CONSENT. Any corporate action required
or permitted by the Articles of Incorporation, Bylaws, or the Washington
Business Corpora-

6
<PAGE>

tion Act, to be voted upon or approved at a duly called meeting of the
directors, committee of directors, or shareholders may be accomplished without a
meeting if one or more unanimous written consents of the respective directors,
committee members, or shareholders entitled to vote on the actions, setting
forth the actions so taken, shall be signed by all the directors, committee
members, or shareholders entitled to vote thereon, as the case may be. Such
consents may be signed in counterpart. In the case of action by the directors
or a committee of the directors, the consents may be signed before or after the
action is taken. Action taken by unanimous written consent of the directors or
a committee of the directors is effective when the last director or committee
member signs the consent, unless the consent specifies a later effective date.
Action taken by unanimous written consent of the shareholders is effective when
all consents are in possession of the corporation, unless the consent specifies
a later effective date.

Section 2. MEETINGS BY CONFERENCE TELEPHONE. Members of the board of
directors, members of a committee of directors, or shareholders may participate
in or conduct their respective meetings by means of a conference telephone or
similar communications equipment by which all persons participating in the
meeting can hear each other at the same time, and participation in a meeting by
such means shall constitute presence in person at such meeting.

ARTICLE V

OFFICERS

Section 1. OFFICERS DESIGNATED. The officers of the corporation shall
be a president, one or more vice presidents (the number thereof to be determined
by the board of directors), a secretary, and a treasurer, each of whom shall be
elected by the board of directors. Such other officers and assistant officers
as may be deemed necessary may be elected or appointed by the board of
directors. Any two or more offices may be held by the same person.

The board of directors may, in its discretion, elect a chairperson of the
board of directors and, if a chairperson has been elected, the chairperson
shall, when present, preside at all meetings of the board of directors and the
shareholders and shall have such other powers as the board may prescribe.

Section 2. ELECTION, QUALIFICATION AND TERM OF OFFICE. Each of the
officers shall be elected by the board of directors. None of said officers,
except the president and the chairperson of the board of directors, need be a
director, but a vice president who is not a director cannot succeed to or fill
the office of president. The officers shall be elected by the board of
directors at each annual meeting of the board of directors. Except as
hereinafter provided, each of said officers shall hold office from the date of
his or her election until the next annual meeting of the board of directors and
until a successor shall have been duly elected and qualified.

7
<PAGE>

Section 3. POWERS AND DUTIES.

(a) PRESIDENT. Unless otherwise determined by the board of
directors, the president shall be the chief executive officer of the corporation
and, subject to the direction and control of the board of directors, shall have
general charge and supervision over its property, business, and affairs. The
president shall, unless a chairperson of the board of directors has been elected
and is present, preside at meetings of the shareholders and the board of
directors.

(b) VICE PRESIDENT. In the absence of the president or the
president's inability to act, the senior vice president shall act in the
president's place and stead and shall have all the powers and authority of the
president, except as limited by resolution of the board of directors.

(c) SECRETARY. The secretary shall: (1) keep the minutes of the
shareholders' and of the board of directors' meetings in one or more books
provided for that purpose; (2) see that all notices are duly given in accordance
with the provisions of these Bylaws or as required by law; (3) be custodian of
the corporate records and of the seal of the corporation and affix the seal of
the corporation to all documents as may be required; (4) keep, or cause to be
kept, a register of the post office address of each shareholder which shall be
furnished to the secretary by such shareholder; (5) have general charge of the
stock transfer books of the corporation; and (6) in general perform all duties
incident to the office of secretary and such other duties as from time to time
may be assigned to the secretary by the president or by the board of directors.

(d) TREASURER. Subject to the direction and control of the board of
directors, the treasurer shall have the custody, control, and disposition of the
funds and securities of the corporation and shall account for the same, and at
the expiration of term of office, the treasurer shall turn over to his or her
successor all property of the corporation in his or her possession.

Section 4. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
assistant secretaries and assistant treasurers shall perform such duties as
shall be assigned to them by the secretary or the treasurer, respectively, or by
the president or the board of directors.

Section 5. REMOVAL. The board of directors shall have the right to
remove any officer whenever in its judgment the best interests of the
corporation will be served thereby.

Section 6. VACANCIES. The board of directors shall fill any office
which becomes vacant with a successor who shall hold office for the unexpired
term and until a successor shall have been duly elected and qualified.

8
<PAGE>

Section 7. COMPENSATION. The compensation of all officers of the
corporation shall be fixed by the board of directors.

ARTICLE VI

SHARE CERTIFICATES

Section 1. ISSUANCE, FORM AND EXECUTION OF CERTIFICATES. No shares of
the corporation shall be issued unless authorized by the board. Such
authorization shall include the maximum number of shares to be issued, the
consideration to be received for each share, and a statement that the board has
determined that such consideration is adequate. Certificates for shares of the
corporation shall be in such form as is consistent with the provisions of the
Washington Business Corporation Act and shall state:

(i) the name of the corporation and that the corporation is
organized under the laws of this state;

(ii) the name of the person to whom issued; and

(iii) the number and class of shares and the designation of
the series, if any, which such certificate represents.

Certificates shall be signed by two (2) officers of the corporation, and the
seal of the corporation may be affixed thereto. If any officer who has signed
or whose facsimile signature has been placed upon any certificate shall have
ceased to be such officer before such certificate is issued, it may be issued by
the corporation with the same effect as if the person were such officer at the
date of its issue. Certificates may be issued for fractional shares. No
certificate shall be issued for any share until the consideration established
for its issuance has been paid.

Section 2. TRANSFERS. Shares may be transferred by delivery of the
certificate therefor, accompanied either by an assignment in writing on the back
of the certificate or by a written power of attorney to assign and transfer the
same, signed by the record holder of the certificate. The board of directors
may, by resolution, provide that beneficial owners of shares shall be deemed
holders of record for certain specified purposes. Except as otherwise
specifically provided in these Bylaws, no shares shall be transferred on the
books of the corporation until the outstanding certificate therefor has been
surrendered to the corporation.

Section 3. LOSS OR DESTRUCTION OF CERTIFICATES. In case of loss or
destruction of any certificate of shares, another may be issued in its place
upon proof of such loss or destruction and upon the giving of a satisfactory
indemnity bond to the corporation. A new certificate may be issued without
requiring any bond when, in the judgment of the board of directors, it is proper
to do so.

9
<PAGE>

ARTICLE VII

BOOKS AND RECORDS

Section 1. BOOKS OF ACCOUNTS, MINUTES AND SHARE REGISTER. The
corporation shall keep as permanent records minutes of all meetings of its
shareholders and board of directors, a record of all actions taken by the
shareholders and board of directors without a meeting, and a record of all
actions taken by a committee of the board of directors exercising the authority
of the board of directors on behalf of the corporation. The corporation shall
maintain appropriate accounting records. The corporation or its agent shall
maintain a record of its shareholders, in a form that permits preparation of a
list of the names and addresses of all shareholders, in alphabetical order by
class of shares showing the number and class of shares held by each. The
corporation shall keep a copy of the following records at its principal office:
the Articles or Restated Articles of Incorporation and all amendments to them
currently in effect; the Bylaws or Restated Bylaws and all amendments to them
currently in effect; the minutes of all shareholders' meetings and records of
all actions taken by shareholders without a meeting, for the past three (3)
years; its financial statements for the past three (3) years, including balance
sheets showing in reasonable detail the financial condition of the corporation
as of the close of each fiscal year, and an income statement showing the results
of its operations during each fiscal year; all written communications to
shareholders generally within the past three (3) years; a list of the names and
business addresses of its current directors and officers; and its most recent
annual report delivered to the Secretary of State of Washington.

Section 2. FINANCIAL STATEMENTS. The annual financial statements for
shareholders shall be prepared not later than four (4) months after the close of
each fiscal year and in any event prior to the annual meeting of shareholders.
If financial statements are prepared by the corporation for any purpose on a
particular basis (I.E., on the basis of generally accepted accounting principles
or on some other basis), the annual financial statements must be prepared, and
disclose that they are prepared, on that same basis. If the annual financial
statements are reported upon by a public accountant, the accountant's report
must accompany them. If not, the statements must be accompanied by a statement
of the president or the person responsible for the corporation's accounting
records, stating the person's reasonable belief whether the statements were
prepared on the basis of generally accepted accounting principles and, if not,
describing the basis of preparation, and describing any respects in which the
statements were not prepared on a basis of accounting consistent with the basis
used for statements prepared for the preceding year.

Section 3. COPIES OF RESOLUTIONS. Any person dealing with the
corporation may rely upon a copy of any of the records of the proceedings,
resolutions, or votes of the board of directors or shareholders, when certified
by the president or secretary.

10
<PAGE>

ARTICLE VIII

CORPORATE SEAL

The board of directors may provide for a corporate seal which shall have
inscribed thereon the name of the corporation, the year and state of
incorporation and the words "corporate seal".

ARTICLE IX

AMENDMENT OF BYLAWS

Section 1. BY THE SHAREHOLDERS. These Bylaws may be amended, altered,
or repealed at any annual or special meeting of the shareholders; provided that,
in the case of a special meeting, notice of the proposed alteration or amendment
is contained in the notice of the meeting.

Section 2. BY THE BOARD OF DIRECTORS. These Bylaws may be amended,
altered, or repealed by the board of directors at any annual, regular or special
meeting of the board.

ARTICLE X

FISCAL YEAR

The fiscal year of the corporation shall be set by resolution of the board
of directors.

ARTICLE XI

RULES OF ORDER

The rules contained in the most recent edition of Robert's Rules of Order,
Newly Revised, shall govern all meetings of shareholders and directors where
those rules are not inconsistent with the Articles of Incorporation, these
Bylaws, or special rules of order of the corporation.

<PAGE>
Davis Wright Tremaine LLP
LAW OFFICES
2600 Century Square - 1501 Fourth Avenue - Seattle, Washington 98101-1688
(206) 622-3150 - Fax: (206) 628-7699

July 21, 1997

Apex PC Solutions, Inc.
20031 - 142nd Ave. N.E.
Woodinville, WA 98072

Ladies and Gentlemen:

We have acted as counsel to Apex PC Solutions, Inc., a Washington
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended (the "Act"), of 3,450,000 shares of Common
Stock of the Company (the "Shares") on a registration statement on Form SB-2
filed on July 21, 1997 with the Securities and Exchange Commission (the
"Registration Statement"). 1,000,000 of the Shares will be issued and sold by
the Company (the "Company Shares"), and 2,450,000 of the Shares will be sold by
certain selling shareholders (the "Selling Shareholder Shares"), in each case
pursuant to an Underwriting Agreement, the form of which is attached as Exhibit
1.1 to the Registration Statement.

We have examined the Registration Statement, the Amended and Restated
Articles of Incorporation and the Amended and Restated Bylaws of the Company,
certain records of the Company's proceedings as reflected in its minute books,
and the originals, or certified, conformed or reproduction copies, of such other
documents, certificates and records as we have deemed relevant or necessary as
the basis for the opinions hereinafter expressed. In rendering our opinion, we
have assumed the genuineness of all signatures on original or certified copies,
the authenticity of documents, certificates and records submitted to us as
originals, the conformity to original or certified copies of all copies
submitted to us as certified or reproduction copies, the legal capacity of all
natural persons executing documents, certificates and records, and the
completeness and accuracy as of the date of this opinion letter of the
information contained in such documents, certificates and records.

Subject to the foregoing, we are of the opinion that the Shares have been
duly authorized and, in the case of the Company Shares, when issued and
delivered by the Company and paid for by the underwriters in accordance with the
Underwriting Agreement, and, in the case of the Selling Shareholder Shares, when
delivered by the selling shareholders and paid for by the underwriters in
accordance with the Underwriting Agreement, will be validly issued, fully paid
and nonassessable.

We consent to the filing of this opinion as Exhibit 5.1 to the Registration
Statement and to the reference to this firm under the caption "Legal Matters" in
the Prospectus which is a part

<PAGE>

Apex PC Solutions, Inc.
July 21, 1997
Page 2

of the Registration Statement. In giving this consent, we do not admit that we
come within the category of persons whose consent is required by the Act.

Very truly yours,

DAVIS WRIGHT TREMAINE LLP

/s/ Davis Wright Tremaine LLP

<PAGE>

FIRST AMENDMENT TO EMPLOYMENT AGREEMENT

THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is being
entered into this ____ day of December, 1996, by and between and between APEX PC
SOLUTIONS, INC., a Washington corporation (the "Company"), and KEVIN J. HAFER
(the "Employee").

RECITALS

A. Pursuant to an Employment Agreement dated December 29, 1995 (the
"Employment Agreement"), Employee was awarded a restricted stock bonus of
200,000 shares of the Company's Series B Redeemable Preferred Stock to vest on
the earlier of (i) the closing of a Qualified Public Offering as defined in the
Company's Restated Articles of Incorporation under certain conditions or (ii) on
the fifth and sixth anniversaries of the original issue date of the Series B
Redeemable Preferred Stock.

B. The Company now wishes to accelerate the vesting of Employee's Series
B Redeemable Preferred Stock in consideration for Employee's services to the
Company as President and Chief Executive Officer.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Amendment, the Company and Employee agree as follows:

1. ACCELERATION OF RESTRICTED STOCK BONUS. Section 1.3(c) of the
Employment Agreement is hereby amended by deleting the existing provision and
substituting the following new provision:

(c) STOCK BONUS. Employee shall receive a stock bonus
for the number of shares of the Company's Series B
Redeemable Preferred Stock as set forth on the Benefit
Schedule; PROVIDED, HOWEVER, that Employee shall have no
immediate right, title or interest in or to such shares of
Series B Redeemable Preferred Stock, which shall vest only
as follows:

(i) All such shares of the Company's Series B Redeemable
Preferred Stock shall vest on January 1, 1997, if Employee is
still employed by the Company, and the Company hereby agrees to
redeem 80,000 of such shares at the purchase price of $5.00 per
share on January 1, 1997 (and, in connection with the redemption
of such 80,000 shares, Employee hereby authorizes the Company to
withhold any or all of the redemption proceeds otherwise due to
Employee and to pay over to the

<PAGE>

Internal Revenue Service or other taxing authorities such amount
in fulfillment of Employee's withholding obligation resulting
from such vesting) and to redeem all remaining shares held by
Employee at $5.00 per share on the earlier of the closing of a
Qualified Public Offering as defined in the Company's Restated
Articles of Incorporation, or if no such Qualified Public
Offering has occurred, to redeem 60,000 shares at $5.00 per share
on each of the fifth and sixth anniversaries of the original
issue date of the Series B Redeemable Preferred Stock; or

(ii) If Employee was previously terminated for
Cause under Section 1.7(e) of the Employment Agreement,
at the time of the redemption of the Series B
Redeemable Preferred Stock pursuant to Section 5(b) of
Article III of the Company's Restated Articles of
Incorporation (including, without limitation, a
redemption upon the closing of a Qualified Public
Offering as defined in the Company's Restated Articles
of Incorporation or a redemption on the fifth and sixth
anniversary of the original issue date of the Series B
Redeemable Preferred Stock), and in such event only if,
as, and to the extent that Employee's shares of Series
B Redeemable Preferred Stock are actually redeemed for
cash, AND, PROVIDED, FURTHER, that in the event
Employee's shares of the Company's Series B Redeemable
Preferred Stock are redeemed for cash only in part,
Employee shall vest only in the number of shares of
Series B Redeemable Preferred Stock calculated by
multiplying 200,000 by a fraction, the numerator of
which is the amount of the cash proceeds paid to
Employee in the redemption (other than amounts paid in
the redemption for accrued and unpaid dividends on the
Series B Redeemable Preferred Stock), and the
denominator of which is One Million Dollars
($1,000,000).

All certificates for such shares of the Company's Series B Redeemable
Preferred Stock shall contain the following legend:

The shares represented by this certificate have not vested
and are subject to forfeiture under the terms and conditions
set forth in the Employment Agreement dated December 29,
1995, between Kevin Hafer and the corporation. A copy of
the Employment Agreement is on file at the corporation's
principal place of business and it registered office.

<PAGE>

2. LIFE INSURANCE. Section 1.3(e) of the Employment Agreement is hereby
amended by deleting the existing provision and substituting the following new
provision:

(e) LIFE INSURANCE. The Company agrees to purchase
and maintain on Employee's life a One Million Dollar
($1,000,000) life insurance policy payable to Employee's
wife or estate (or as otherwise directed by Employee) for so
long as Employee is employed by the Company until such time
as all of the shares of Series B Redeemable Preferred Stock
have been purchased and redeemed by the Company from
Employee.

3. REMAINING TERMS UNCHANGED. The remaining terms and conditions of the
Employment Agreement remain unchanged and in full force and effect.

APEX PC SOLUTIONS, INC.

By /s/
----------------------------------
Its
----------------------------

/s/
-------------------------------------
KEVIN J. HAFER

CONSENT OF TA PARTNERSHIPS

Each of the undersigned hereby consents to the vesting and redemption
described above and waives the provisions of Section III.B.6(a)(i) of the
Company's Restated Articles of Incorporation (relating to certain redemptions of
stock) and Section 5(c) of those certain Class A Subordinated Promissory Notes
dated December 29, 1995 (relating to incurring debt).

ADVENT VII L.P.

By: TA Associates VII L.P., its General Partner
By: TA Associates, Inc., its General Partner

By /s/
--------------------------------------
Jeffrey T. Chambers, Managing Director

<PAGE>

ADVENT ATLANTIC AND PACIFIC II L.P.

By: TA Associates AAP II Partners, its General Partner
By: TA Associates, Inc., its General Partner

By /s/
--------------------------------------
Jeffrey T. Chambers, Managing Director

ADVENT NEW YORK L.P.

By: TA Associates VI L.P., its General Partner
By: TA Associates, Inc., its General Partner

By /s/
--------------------------------------
Jeffrey T. Chambers, Managing Director

TA VENTURE INVESTORS LIMITED PARTNERSHIP

By /s/
--------------------------------------------
Jeffrey T. Chambers, General Partner

CONSENT OF BRITANNIA HOLDINGS LIMITED

The undersigned hereby consents to the vesting and redemption described
above and waives the provisions of Section 5(c) of that certain Class B
Subordinated Promissory Note dated December 29, 1995 (relating to incurring
debt).

BRITANNIA HOLDINGS LIMITED

By /s/
--------------------------------------------
Its Director

<PAGE>

SECOND AMENDEMENT TO LEASE

This Amendment amends that certain Lease dated March 22, 1995, as amended by a
First Amendment to Lease regarding Addition of Extra Space, dated September 14,
1995 (collectively, the "Lease") between Christopher L. Clark, Landlord; and
Apex P.C. Solutions, Inc., Tenant.

The Lease is amended as follows:

1. Christopher L. Clark, Trustee of The Clark Industrial Building Trust is now
the Landlord.

2. Tenant agrees to lease additional space (The Hutton Space) depicted by
cross-hatching on Exhibit A in the Clark Industrial Building at 20091
142nd Ave. NE, Woodinville, WA consisting of approximately 11,261 sq. ft.
warehouse/assembly space including approximately 1,250 sq. ft. of ground
level office and 1,250 sq. ft. of second level office. The terms of the
Lease regarding The Hutton Space shall be as follows:

a) Lease Term: Commencing on the Turnover Date (see paragraph 3) and
ending on January 31, 2001.

b) Permitted Uses: Same as basic Lease.

c) Parking: 16 additional stalls are allocated to Tenant.

d) Base Rent: $6,050 per month through January, 1999, and $6,595 per
month thereafter.

e) Other Periodic Payments: Tenant will be responsible for 100% of all
NNN expenses after the Turnover Date.

3. Tenant and Hutton Communications, Inc. have executed a Turnover Agreement
establishing the Turnover Date, addressing the removal of personal
property, debris, cleaning, repairs, utility transfers, etc. Landlord is
not responsible to repair damage done by Hutton. Tenant accepts the Hutton
space "as is" subject to any repairs Hutton has agreed to make in the
Turnover Agreement. Landlord is not responsible for a delay in Tenant's
occupancy caused by Hutton's failure to vacate on the agreed Turnover Date.
Tenant shall look solely to Hutton for delay damages, if any.

<PAGE>

4. Tenant shall pay Landlord $6,050 additional security deposit. Tenant's
security deposit with Landlord will thus be increased by $6,050 to $16,970
and will be held in escrow by Norris, Beggs & Simpson.

5. No other provisions of the basic Lease are changed by this amendment, and
all such provisions shall apply to The Hutton Space, except as specifically
amended herein.

Signed this 13th day of March, 1997.

Landlord: Tenant:
Clark Industrial Building Trust Apex P.C. Solutions, Inc.

by: /s/ C.L. Clark Trustee by: /s/ Kevin J. Hafer President
-------------------- ---------------------

<PAGE>

COMPAQ COMPUTER CORPORATION
PURCHASE AGREEMENT

This Purchase Agreement ("Agreement") is made by Compaq Computer
Corporation ("Buyer") and Apex PC Solutions, Inc. a Washington Corporation
("Seller"). The terms and conditions contained in this Agreement shall
govern the purchase and sale of Product listed in Exhibit A ("Products and
Pricing").

1. INTENT

A. Buyer intends to enter into a long-term relationship with Seller. As such,
Seller is willing to cooperate with Buyer to further mutual long term goals
by sharing Product road map and technology directions. Seller agrees to
cooperate to achieve Buyer's long term program goals such as shortening
Product lead-times, increasing volume flexibility, achieving Just-in-Time
delivery, achieving ongoing cost reductions and specific quality goals, and
continuous quality improvement.

B. This Agreement is not a requirements contract and does not obligate Buyer
to purchase any minimum quantity of Product but only establishes the terms
and conditions for such purchases if and when they occur.

2. PURCHASE ORDERS

A. Buyer will purchase Products only by issuing purchase orders ("Order or
Orders") to Seller. Orders shall contain such things as quantity, price,
delivery date, part number, and revision level. Buyer shall make
commercially reasonable efforts to send written confirmation (except by
mutual agreement) of Orders within one (1) week after Issuance. If Seller
fails to return the acknowledgment, Seller will be deemed to have accepted
any Order which conforms with the terms of this Agreement. No additional
or different provisions proposed by Seller shall apply unless expressly
agreed to in writing by Buyer. Buyer hereby gives notice of its objection
to any additional or different terms.

B. Seller agrees that all Buyer sites, subsidiaries, affiliated companies and
subcontractors, wherever located, shall be entitled to make purchases under
this Agreement.

3. TERM OF AGREEMENT

A. The term of this Agreement shall be twelve (12) months, commencing on the
date Buyer executes this Agreement ("Effective Date"). This Agreement will
be automatically renewed at the conclusion of the initial twelve (12) month
period

<PAGE>

for successive twelve (12) month periods unless one of the parties
indicates by written notice to the other party not less than thirty (30)
days prior to the end of any such twelve (12) month period that it does not
intend to renew the Agreement. Notwithstanding the foregoing, the
Agreement shall remain in full force and effect and shall be applicable to
any Order(s) issued by Buyer to Seller during the term of this Agreement
until any and all obligations of the parties under such Order(s) have been
fulfilled.

4. PRICING

A. The prices for the Products shall be set forth in Exhibit A and shall be
fixed for the period set forth therein (the "Pricing Period").

B. Prices shall include all charges such as packaging, packing, crating,
storage, forwarding agent or brokerage fees, freight shipping charges,
document fees, duties, and any and all sales, use, excise and similar
taxes. F.O.B. point specified in Exhibit A.

C. Seller represents that the prices charged for Products are * .In the
event Seller provides prices and/or terms for Products * , Buyer shall
be entitled to * .

D. Seller shall maintain a vigorous cost reduction program to ensure that
pricing is competitive at times. In the event that Buyer does not consider
Seller's pricing aggressive relative to the market during any Pricing
Period, Buyer shall have the right to request an immediate meeting with
Seller to renegotiate pricing.

5. DELIVERY

A. Time shall be of the essence in meeting Buyer's requirements. Delivery
performance shall be measured by on-dock date at Buyer's specified ship-to
location.

B. Unless otherwise set forth in the Order, title and risk of loss shall pass
to Buyer at Buyer's specified ship-to location.

C. If Seller delivers Product in advance of the specified delivery date, Buyer
may either return such Product at Seller's risk and expense for subsequent
delivery on the specified delivery date or retain such material and make
payment when it would have been due based on the specified delivery date.

* Subject to confidential treatment request; filed separately with the
Securities and Exchange Commission

<PAGE>

D. Changes to delivery dates may only be made by Buyer's authorized purchasing
representatives. Buyer may, without cost or liability, issue change
requests for Product quantities and schedule dates in accordance with the
Flexibility Agreement attached as Exhibit D ("Flexibility Agreement").
Written confirmation will be sent by Seller to Buyer within two (2) work
days of receiving a change request, and Buyer shall provide a confirming
Order change within ten (10) working days of receiving Seller's
confirmation.

E. Seller shall notify Buyer in writing immediately if Seller has knowledge of
any event which could result in any change to the agreed delivery plan.

F. In the event that Product scheduled for delivery is more than one (1)
business day late, Buyer may request such Product to be shipped and
delivered via a different mode of transportation at sellers expense.
Alternatively, Buyer may purchase substitute Product elsewhere without
affecting other remedies Buyer may have and charge Seller any additional
cost incurred as a result.

6. PACKING, MARKING, AND SHIPPING INSTRUCTIONS

A. All Product shall be prepared and packed in a commercially reasonably
manner so as to secure the lowest transportation rates and meet carrier's
requirements or those set forth in the Product specification attached as
Exhibit B ("Specification").

B. Each shipping container shall be marked to show Buyer's Order number, part
number, revision level, lot number, and quantity contained therein. A
packing list showing the Order number shall be included in each container.

C. Seller agrees to standardize the count multiples used in shipments.

7. QUALITY

A. Seller shall establish and/or maintain a quality improvement plan
acceptable to Buyer. Seller's Quality improvement Plan is attached to this
Agreement as Exhibit C ("Quality Plan").

B. At Buyer's request, Seller will facilitate on-site visits and inspections
by Buyer during normal business hours. Buyer's inspections shall In no way
relieve Seller of its obligation to deliver conforming Product or waive
Buyer's right of inspection and acceptance at the time the Products are
delivered.

C. Seller agrees to provide relevant outgoing inspection, quality, and
reliability data upon Buyer's request.

<PAGE>

D. Seller agrees to conform to the revision level stated on Buyer's Order.

E. Seller agrees to advise Buyer of any changes to process, materials, or
sources of supply and ensure that such changes do not compromise
specifications, quality, or reliability of Products ordered by Buyer.

8. INSPECTION AND ACCEPTANCE

A. Products purchased pursuant to this Agreement shall be subject to
inspection and test by Buyer at all times and places, including the period
of manufacture or development. Unless otherwise specified in the Order,
final inspection and acceptance of Product by Buyer shall be at Buyer's
facilities. Buyer reserves the right to reject Product which does not
conform to the specifications, drawings, samples or other descriptions
specified by Buyer. Buyer may, at its option, either return defective or
nonconforming Product for full credit of the purchase price plus any
transportation charges paid by Buyer, or require prompt correction or
replacement of defective or nonconforming Product, which rights shall be in
addition to such other rights as Buyer may have in law or in equity.
Product required to be corrected or replaced shall be subject to the same
inspection and warranty provisions of this Agreement as Product originally
delivered under any Order. Buyer may charge Seller for costs of any above
normal level of inspection.

B. In the event Buyer returns Product back to Seller for correction or
replacement, Seller shall repair or replace all defective Product within
* of receipt of such Product. Seller will issue a "Return Material
Authorization" within twenty-four (24) hours of receipt. Seller shall bear
all risk and costs such as labor, material, inspection, and shipping to and
from Buyer's facilities. If Buyer incurs any such costs, it may either
recover them directly from Seller or set off via a credit note any amounts
due to Seller. Seller agrees to provide failure analysis of rejected
material within * after receipt of reject materials. Seller will also
provide a written corrective action report addressing the steps that will
be taken to eliminate the cause of the problem. Buyer and Seller will
negotiate in good faith any cost incurred by Seller on product returned
where failure cannot be found.

9. WARRANTY

A. Seller warrants that title to all Products delivered to Buyer under this
Agreement shall be free and clear of all liens, encumbrances, security
interests or other claims and that for a period of * from date of
acceptance of material by Buyer, that all Product shall be free from
defects in material, workmanship, and design. Seller further warrants that
all Product shall conform to applicable specifications, drawings, samples,
and descriptions referred to in this

* Subject to confidential treatment request; filed separately with the
Securities and Exchange Commission

<PAGE>

Agreement. The warranty for replaced or repaired Product will be the same
as the original Product.

B. Defective material discovered during Buyer's manufacturing or assembly
processes are not considered to be a warranty repair and shall be corrected
in accordance with paragraph 8.B.

C. Seller agrees that in case of epidemic failure (greater than * failure
for the same cause in any * period), Seller shall provide correction or
replacement in accordance with Paragraph 8.B.

D. EXCEPT AS EXPRESSLY PROVIDED IN THIS SECTION 9, NO WARRANTIES, EXPRESS OR
IMPLIED, STATUTORY OR OTHERWISE, ARE MADE WITH RESPECT TO THE PRODUCT
DELIVERED BY SELLER TO BUYER UNDER THIS AGREEMENT.

10. OUT OF WARRANTY REPAIRS and SPARE PARTS AVAILABILITY

A. Seller agrees to refurbish to a "like new" condition any out of warranty
Product at the refurbishment prices listed in Exhibit E ("Service, Repair,
and Refurbishment"). In addition, Seller agrees to make available for
purchase by Buyer replacement and repair parts for Products ("Spares") in
accordance with Exhibit E.

11. PAYMENT AND SETOFF

A. Terms of payment shall be net 45 from the date of Seller's invoice provided
that Product has been received by Buyer. Payment of invoices shall not
constitute final acceptance of the Product.

B. Buyer retains the right to setoff rejections of Product or discrepancies on
paid invoices against future invoices.

C. Unless otherwise specified in Exhibit A or agreed to in writing by the
parties, payment shall be in U.S. dollars.

12. CHANGES

A. Buyer may from time to time change the specifications for the Products and
Seller agrees to make best efforts to comply. If changes result in a
change in Seller's costs or in the time for performance, an adjustment will
be made. Any adjustment must be in writing and must be requested within
ten (10) days of receipt by Seller of the notice of change.

* Subject to confidential treatment request; filed separately with the
Securities and Exchange Commission

<PAGE>

B. No changes shall be made by Seller in the form, fit, or function of
Products purchased hereunder without Buyer's prior written approval.

13. TERMINATION FOR CAUSE

A. Seller may terminate this Agreement and/or any Order issued hereunder at
any time by written notice in the event Buyer:

1. Fails to comply with any material provision of this Agreement or any
Order issued hereunder, and, in the case of a breach which is capable
of remedy, falls to remedy same within thirty (30) days of
notification of said breach, or

2. Becomes insolvent or makes an assignment for the benefit of creditors,
or a receiver or similar officer is appointed to take charge of all or
a part of the Buyer's assets and such condition is not cured within
thirty (30) days.

B. Buyer may terminate this Agreement and/or any Order issued hereunder at any
time by written notice in the event Seller:

1. Fails to comply with any material provision of this Agreement or any
Order issued hereunder, and in the case of a breach which is capable
of remedy, fails to remedy same within thirty (30) days of
notification of said breach, or

2. Becomes insolvent or makes an assignment for the benefit of creditors,
or a receiver or similar officer is appointed to take charge of all or
a part of Seller's assets and such condition is not cured within
thirty (30) days, or

3. Assigns or attempts to assign, or subcontracts or attempts to
subcontract, any or all of its rights or obligations under this
Agreement or any Orders issued hereunder to a third party without
Buyer's prior written approval, or

4. Failure to agree on pricing for any Pricing Period.

C. Upon termination by Seller of the Agreement and/or any Order issued under
13A above, Buyer's entire liability shall be to purchase all finished
goods, work in progress, and Buyer unique materials that have been
purchased within lead time by Seller to fulfill Buyer's Order(s).

D. Upon termination by Buyer of the Agreement and/or any Order issued under
13B above:

<PAGE>

1. Buyer shall have the option to purchase any materials or work in
progress which Seller may have purchased or processed for the
fulfillment of any Order at Seller's cost plus a reasonable amount for
any value already added by Seller,

2. Buyer shall have no liability beyond payment for any balance due for
Products delivered by Seller before notice of termination.

14. TERMINATION FOR CONVENIENCE

A. Buyer may terminate this Agreement and/or any Order issued hereunder at any
time for any reason upon giving written notice of termination to the
Seller. Upon receipt of such notice, Seller shall immediately cease to
incur expenses pursuant to this Agreement and/or the Order that has been
terminated unless otherwise directed in the termination notice. Seller
shall also take all reasonable steps to mitigate the cost to Buyer for
terminating this Agreement and/or any Order. Within sixty (60) days from
the date of notice, Seller shall notify Buyer of costs incurred up to the
date of termination. In no event shall such cost exceed the unpaid
balance:

1. Due for conforming material delivered prior to receipt of Buyer's
termination notice; and

2. Due on purchase orders previously issued in conformance with this
Agreement.

B. In addition to the foregoing, in the event that this Agreement is
terminated pursuant to this Paragraph, Buyer's entire liability shall be to
purchase all finished goods, work in progress, and Buyer unique materials
that have been purchased within lead time by Seller to fulfill Buyer's
Order(s).

15. LIMITATION OF LIABILITY

A. EXCEPT FOR A BREACH OF SECTION 19, 23 OR 24 OF THIS AGREEMENT, NEITHER
PARTY SHALL BE LIABLE FOR ANY CONSEQUENTIAL (INCLUDING, WITHOUT LIMITATION,
LOST PROFITS, UNLIQUIDATED INVENTORY, ETC.), INCIDENTAL, INDIRECT, SPECIAL,
ECONOMIC, OR PUNITIVE DAMAGES ARISING OUT OF OR RESULTING FROM THIS
AGREEMENT EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES. SELLER'S LIABILITY TO BUYER FOR DIRECT DAMAGES UNDER THIS
AGREEMENT SHALL BE LIMITED TO THE AMOUNTS

<PAGE>

PAID BY BUYER UNDER THIS AGREEMENT, INCLUDING ANY OTHER AMOUNTS PAID BY
BUYER SUCH AS FREIGHT AND STORAGE.

16. FORCE MAJEURE

A. Neither party shall be liable for its failure to perform any of its
obligations hereunder during any period in which performance is delayed by
earthquake, fire, flood, war, embargo, riot or the intervention of any
government authority ("Force Majeure"), provided that the party suffering
such delay immediately notifies the other party of the delay. If, however,
Seller's performance is delayed for reasons set forth above for a
cumulative period of thirty (30) calendar days or more, the Buyer,
notwithstanding any other provision of this Agreement to the contrary. may
terminate this Agreement and/or any Order issued hereunder by notice to
Seller. In the event of such termination, Buyer's sole liability hereunder
will be for the payment to Seller of any balance due and owing for
conforming Product delivered by Seller prior to Seller's notification of
delay to Buyer. In the event the parties do not terminate this Agreement
and/or Order due to a Force Majeure, the time for performance or cure will
be extended for a period equal to the duration of the Force Majeure.

17. PRODUCT NOTICES

A. Any notice given under this Agreement shall be in writing and will be
effective when delivered personally or deposited in the mail, postage
prepaid and addressed to the parties at their respective addresses set
forth below, or at any new address subsequently designated in writing by
either party to the other:

If to Seller: If to Buyer:
APEX PC SOLUTIONS, INC. COMPAQ COMPUTER CORPORATION
4580 150TH AVENUE, NE P.O. BOX 692000
REDMOND, WA 98052 20555 S.H. 249
HOUSTON, TEXAS 77269-2000
ATTN.: CHRIS SlRIANNI ATTN.: JOHN BRADSHAW

with a copy to:
COMPAQ COMPUTER CORPORATION
P.O. BOX 692000
20555 S.H. 249
HOUSTON, TX 77269-2000
ATTN.: Division Counsel-Operations

<PAGE>

18. COMPLIANCE WITH LAWS

A. All Product supplied and work performed under this Agreement shall comply
with all applicable laws and regulations in effect. In particular, Seller
agrees that its performance under this Agreement shall comply with all laws
governing its relationship with its employees, agents or subcontractors and
with the chlorofluorocarbon labeling requirements of the U.S. Clean Air Act
of 1990. Upon request, Seller agrees to certify compliance with such
applicable laws and regulations.

19. PATENT, COPYRIGHT AND TRADEMARK INDEMNITY

A. Seller shall defend, at its expense, any claim against Buyer alleging that
Products furnished under this Agreement (other than claims related to the
Buyer's logo and/or trademark) infringe any patent, copyright or trademark
and shall pay all costs and damages awarded, provided Seller is notified in
writing of such claim and permitted to defend and compromise such claim.
If a final injunction against Buyer's use of the Products results from such
a claim (or, if Buyer reasonably believes such a claim is likely) Seller
shall, at its expense, and at Buyer's request, either use commercially
reasonable efforts to obtain for Buyer the right to continue using the
Product or replace or modify the Product so that it becomes noninfringing.
In the event that Seller cannot obtain such right for Buyer, Seller shall
repurchase all finished Products which Buyer has unsold in its warehouse at
that time. The foregoing states the sole and exclusive liability of Seller
for infringement of proprietary rights.

B. Seller warrants that there are no claims of infringement with respect to
the Product.

C. Seller is authorized to use Compaq logo and trademark only to the extent
necessary to meet the required specification for the Product(s). No other
rights with respect to Buyer's trademarks, trade names or brand names are
conferred, other expressly or by implication, upon Seller.

20. CAPACITY PLANNING

A. Seller agrees to review forecasts provided by Buyer and advise Buyer if
Seller anticipates that he will be unable to achieve the requested volumes.
Buyer volume forecasts will be provided to Seller in accordance with
Exhibit A. Seller may from time to time request Buyer to review Buyer's
forecast and advise of any changes.

<PAGE>

21. GRATUITIES

A. Each party represents that it has not offered nor given and will not offer
nor give any employee, agent, or representative of the other party any
gratuity with a view toward securing any business from the other party or
influencing such person with respect to the business between the parties.

22. INSURANCE AND STATUTORY OBLIGATIONS

A. If Seller's work under this Agreement requires access by Seller to any of
Buyer's premises or the premises of Buyer's customers or locations where
Buyer conducts business, or with material or equipment furnished by Buyer,
Seller shall take all necessary precautions to prevent the occurrence of
any injury to persons or property during the progress of such work and,
except to the extent that such injury is due solely and directly to Buyer's
acts or negligence, Seller shall indemnify Buyer against all loss which may
result in any way from any act or negligence of Seller; its employees,
servants, agents or subcontractors, and Seller shall maintain such
insurance as shall protect Buyer from such risks and from any statutory
liabilities arising therefrom and shall provide evidence of such insurance
to Buyer upon request.

23. INDEMNIFICATION

Seller agrees to protect, defend, indemnify and save Buyer harmless from
all sums, costs and expense which Buyer may incur or be obliged to pay as a
result of any loss, expense, damage, liability, claims, demands in favor of
any person, as a result of personal injury or death resulting from the use
of the Products where the personal injury or death is solely and directly
the result of the gross negligence or willful misconduct of Seller.

24. CONFIDENTIAL INFORMATION

A. Each party recognizes that it may have previously entered or will in the
future enter into various agreements with the other party which obligates
it to maintain as confidential certain information disclosed to it by the
other party. To the extent that such information or any further
confidential information, which might include but is not limited to
business plans, forecasts, capacity, pricing, inventory levels, etc.
(collectively referred to hereinafter as "Information"), is disclosed in
furtherance of this Agreement or any Order issued hereunder, such
information shall be so disclosed pursuant to the minimum terms and
conditions listed below; provided, however, the minimum terms and
conditions listed below shall in no way relieve the parties from any
obligation or modify such obligations previously agreed to in other
agreements. Both parties agree that this Agreement and any

<PAGE>

other agreements regarding confidential information shall hereafter be
considered as coterminous, and shall expire no earlier than the date of
expiration or termination of this Agreement.

B. Both parties agree that the party receiving Information will maintain such
Information in confidence for a period of three (3) years from the date of
disclosure of such information.

C. Each party shall protect the other party's information to the same extent
that it protects it own confidential and proprietary information and shall
take all reasonable precautions to prevent unauthorized disclosure to third
parties.

D. The parties acknowledge that the unauthorized disclosure of such
Information will cause irreparable harm. Accordingly, the parties agree
that the injured party shall have the right to seek immediate injunctive
relief enjoining such unauthorized disclosure.

E. This provision shall not apply to information (1) known to the receiving
party at the time of receipt from the other party, (2) generally known or
available to the public through no act or failure to act by the receiving
party, (3) furnished to third parties by the disclosing party without
restriction on disclosure, or (4) furnished to the receiving party by a
third party as a matter of right and without restriction on disclosure.

F. Immediately upon termination of this Agreement or at the request of the
other party, each of the parties shall promptly return all materials in its
possession containing Information of the other party.

25. COUNTRY OF ORIGIN

A. For each Product purchased under this Agreement, Seller shall furnish Buyer
with country of origin (manufacture), by quantity and part number (Buyer's
and Seller's) if necessary.

B. Seller agrees to provide necessary export documents and to facilitate
export of Product. Seller further agrees to assist Buyer's import of
Product as reasonably requested by Buyer.

26. PROPERTY FURNISHED BY BUYER

A. Any tools, drawings, specifications, or other materials furnished by Buyer
for use by Seller in its performance under this Agreement or any Order
issued hereunder shall be identified and shall remain the property of Buyer
and shall be used by

<PAGE>

Seller only in its performance hereunder. Such property shall be
delivered, upon request, to destination specified by Buyer in good
condition, except for normal wear and tear.

27. GENERAL

A. Any obligations and duties which by their nature extend beyond the
expiration or earlier termination of this Agreement shall survive any such
expiration or termination and remain in effect.

B. If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable, such provision shall be enforced to the
fullest extent permitted by applicable law and the validity, legality and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.

C. No action, except those regarding claims by third parties, or claims with
respect to patents, copyrights, trademarks or trade names or the
unauthorized disclosure of Confidential Information, regardless of form,
arising out of this Agreement may be brought by either party more than two
(2) years after the cause of action has arisen, or, in the case of
nonpayment, more than two (2) years from the date the payment was due.

D. Any waiver of any kind by a party of a breach of this Agreement must be in
writing, shall be effective only to the extent set forth in such writing
and shall not operate or be construed as a waiver of any subsequent breach.
Any delay or omission in exercising any right, power or remedy pursuant to
a breach or default by a party shall not impair any right, power or remedy
which either party may have with respect to a future breach or default.

E. Seller hereby gives assurance to Buyer that it shall not export, re-export
or otherwise disclose, directly or indirectly, technical data received from
Buyer or the direct product of such technical data to any person or
destination when such export, re-export or disclosure is prohibited by the
laws of the United States or regulations of a Department of the United
States.

F. This Agreement is considered to be Compaq Confidential.

G. The entire Agreement between the parties is incorporated in this Agreement
and Appendices attached hereto, and it supersedes all prior discussions and
agreements between the parties relating to the subject matter hereof. This
Agreement can be modified only by a written amendment duly signed by
persons authorized to sign agreements on behalf of both parties, and shall
not be supplemented or modified by any course of dealing or trade usage.
Variance

<PAGE>

from or addition to the terms and conditions of this Agreement in any
Order, or other written notification from Seller will be of no effect.

H. THE CONSTRUCTION, VALIDITY, AND PERFORMANCE OF THIS AGREEMENT AND ANY ORDER
ISSUED UNDER IT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF WASHINGTON,
U.S.A.

IN WITNESS, THE AUTHORIZED REPRESENTATIVES OF THE PARTIES HAVE EXECUTED THIS
AGREEMENT.

For the Buyer For the Seller

/s/ Grover Edmiston for Ron Hughes /s/ Kevin J. Hafer
- ---------------------------------- ------------------------------
9/19/94 9-8-94
- ---------------------------------- ------------------------------
Signature (date) Signature (date)

Ronald J. Hughes Kevin J. Hafer
- ---------------- ------------------------------
Name Name

Vice-president Corporate Procurement General Manager
- ------------------------------------ ------------------------------
Title Title

<PAGE>

EXHIBIT A

ITEM SELLER REFERENCE COMPAQ REFERENCE LEAD-TIME PRICE TIME
- ---- ---------------- ---------------- --------- ----- ----

1 242694-001 242694-001 8 WEEKS * *
(4-PORT-SWITCHBOX) * *
* *

2 242695-001 242695-001 8 WEEKS * *
(8-PORT SWITCHBOX) * *
* *

3 242778-001 242778-001 8 WEEKS * *
(SWITCHBOX * *
INTERCONNECT KIT) * *

4 242691-001 242691-002 8 WEEKS * *
(115 DOMESTIC * *
FRONT CONNECT * *

5 242691-002 242691-002 8 WEEKS * *
(230 DOMESTIC * *
FRONT CONNECT * *
PANEL)

6 242691-B33 242691-B33 8 WEEKS * *
(240 INTERNATIONAL * *
FRONT CONNECT * *
PANEL)

- -------------------------------- -----------------------------
PAT HESSION CHRIS SIRIANNI
COMPAQ COMPUTER CORPORATION APEX PC SOLUTIONS, INC.

* Subject to confidential treatment request; filed separately with the
Securities and Exchange Commission.

<PAGE>

EXHIBIT B

SPECIFICATION

Buyer's specification number 169953-001/-002 and 169954-001/-002 is incorporated
by reference.

<PAGE>

EXHIBIT C

QUALITY AGREEMENT

<PAGE>

COMPAQ COMPUTER CORPORATION

AND

APEX PC SOLUTIONS, INC.

QUALITY PLAN

APPROVALS:

/s/ Jose Antonio Rodriguez
- ----------------------------------- ------------------------------------
Jose Antonio Rodriguez

17
<PAGE>
REVISION HISTORY

Revision A (9/23/96) Original

18
<PAGE>
TABLE OF CONTENTS

1.0 Purpose

2.0 Scope

3.0 References

4.0 Quality Systems Survey

5.0 Quality Planning

6.0 Quality Assurance Methodology

7.0 Design/Process Change Requirements

8.0 Inspection Requirements

9.0 Performance Reports

10.0 Traceability Identification

11.0 Reliability

12.0 Supplier obligations

13.0 COMPAQ's obligations

19
<PAGE>

1.0 Purpose:
This plan documents the specific systems of process and product controls
required to provide defect free product to our customers, on time, and at
a mutually beneficial price.

2.0 Scope:
This plan documents the specific system of process and product controls
required to prevent incidents of non-conforming product. It is
understood that the manufacturing subcontractor *** is
responsible for insuring quality objectives for the product are met, and
APEX PC SOLUTIONS, INC. having control of the design is responsible for
the reliability as well as ultimate responsibility for the final quality
of the product. Reliability is defined as the demonstrated field
performance and MTBF of the *** . This plan identifies
actions necessary to assure conformance of:

A. Documentation
B. Equipment Qualification
C. Correlation (functional/nonfunctional)
D. Workmanship
E. Process Capability
F. Critical Parameters

This document is a supplement to Compaq Computer Corporation's contractual
agreements and engineering specifications. In any case of conflicting
requirements, purchasing and engineering documents shall take precedence.

3.0 References:
A. Compaq *** Specifications (part number
*** )
B. Compaq *** Specification (part number
*** )
C. World Class Supplier Process Handbook (WCSP)

4.0 Quality Systems Survey:
In accordance with the requirements of WCSP handbook FM1 001, a full
quality system survey will be completed.

*** Subject to confidential treatment request; filed separately with the
Securities and Exchange Commission.
20
<PAGE>

The results of the survey will be used to establish a baseline from which
an improvement plan may be launched and results measured. Based upon the
survey results, a classification will be assigned to APEX PC SOLUTIONS,
INC.

5.0 Quality Planning:
APEX PC SOLUTIONS, INC. shall be responsible for a controlled and capable
process to ensure the product is in total compliance with the product
specifications. ( *** )

5.1 Documentation Review:
As a part of the product evaluation process, members of the
Compaq/APEX PC SOLUTIONS, INC. team will review the current
engineering specification package to assure:

A. All documentation is present and legible
B. Specified tolerances are defined and APEX PC SOLUTIONS, INC.
and/or subtier supplier manufacturing process capabilities
known
C. Specified dimensions must not conflict with other
documentation
D. Clarity of workmanship standards

Any discrepancies or issues shall be noted on the WCSP Print
Acceptance Form, PAF. The items will be assigned to the project team
for resolution. The project team will be accountable for completing
the items within a specified time frame. The project team may consist
of the Compaq/APEX PC SOLUTIONS, INC. team. When changes to any
content within the Kit have occurred then; Each *** , Compaq
Procurement Engineering will be responsible for issuing APEX PC
SOLUTIONS, INC. Quality Assurance Manager all new released and ECN
documentation. This documentation distribution will include the
assembly, reference specifications, Receiving Inspection Procedures,
and Compaq manufacturing diagnostics. Each *** , APEX PC SOLUTIONS,
INC. shall send Compaq Procurement Engineer ***
. This information is
required for Compaq documentation control.

5.2 Work Instruction:

*** Confidential treatment request; filed separately with the
Securities and Exchange Commission.
21
<PAGE>

The process document should be a controlled procedure which includes:
scope, equipment/materials requirements, detail process methods, and
inspection. APEX PC SOLUTIONS, INC. shall issue Compaq Procurement
Engineer the final assembly process documentation before
pre-production.

Each work station (final assembly and mold shop) should have a
cosmetic inspection work aid. The work aid must meet or exceed Compaq
requirements.

5.3 Training:
Personnel performing assembly, fabrication, inspection, and tests of
any activity affecting quality shall have appropriate experience and
training. Appropriate records of training shall be maintained.

5.4 Process Flow Diagrams:
APEX PC SOLUTIONS, INC. shall submit a process flow diagram from raw
material receipt to product shipment. The process diagram identifies
the main steps, branches, and eventual outcome of the process. The
following information should be included within the diagram:

***
***
***
***
***
***
***
***

5.5 Product Flow Diagrams:
APEX PC SOLUTIONS, INC. shall submit a product flow diagram. The
product flow diagram is a pictorial document of the actual path of the
product throughout the manufacturing facility.

5.6 Process Critical Parameter Review
The Compaq/APEX PC SOLUTIONS, INC. team will develop a control plan
for critical product parameters and critical operations. Critical
parameters are features, properties, attributes, or performance that
render the product unacceptable if found to be beyond the
specification limits. Critical

*** Confidential treatment request; filed separately with the
Securities and Exchange Commission.
22
<PAGE>

operations are those control areas within the manufacturing process
that create critical parameters. These systems insure that all
requirements and processes meet or exceed customer expectations.

The critical parameters must be defined in the following plans:

***
***
***

The Process Management Plan (PMP) shall be completed for all
operations at APEX PC SOLUTIONS, INC. and subtier suppliers where
critical parameters are affected in the process. The PMP will contain
the following details:

***
***
***
***
***
***
***
***

6.0 Quality Assurance Methodology:
Compaq's objective is to eliminate the function of performing receiving
inspection to accept incoming material for manufacturing. The intent of
this section is to identify specific actions, improvement plans, goals,
and responsibilities to assure product quality and continuous improvement.

The data collected must be available to the operator in a timely manner
so it can be used for process improvements. Each operator should know why
they are collecting the data, what the requirements are, and the operation
trend.

6.1 Process Capability Studies: *** Manufacturing Facility Attribute
features shall be recorded with *** and variable characteristics shall
be monitored *** . This method will identify
*** .

*** Confidential treatment request; filed separately with the
Securities and Exchange Commission.
23
<PAGE>

Also, these critical parameters must be evaluated to establish a
*** . Identification of the critical parameters are defined
in the Supplier Process Management Plan in the WCSP Manual.

Critical parameters are considered capable if the *** .
Any parameter that results in a *** will result in a
corrective action or equivalent containment plan.

The process capability results shall be documented and available for
review by both organizations. Subcontractor ( *** ) and APEX PC
SOLUTIONS, INC. engineering are responsible for evaluating this
information. Each *** the APEX PC SOLUTIONS, INC. Process
Parameter Control Plan (see form in FMI 001) will be sent to Compaq
Procurement Engineer along with the improvement plan.

NOTE: ATTRIBUTES DATA COLLECTED TO INCLUDE***.

6.2 Measurement Precision:
Measurement Precision is the extent to which a repeated measurement
gives the same result. Variations may arise from inherent capabilities
of the instrument, from variations of the operators use of the
equipment, or from changes in operating conditions.

All instruments, gages, test equipment, and inspectors/operators shall
be evaluated for Repeatability and Reproductibility.

6.3 Measurement Correlation:

All major inspection techniques and equipment must be correlated in
order to prevent disagreements about product attributes.

Correlation of visual attributes indicate both Compaq and APEX PC
SOLUTIONS, INC. agree in the accept/reject criteria for generic types of
non-conformance. Techniques for documentation include:
***
. Both Compaq and APEX PC SOLUTIONS, INC.
shall be utilizing the same accept/reject criteria.

*** Confidential treatment request; filed separately with the
Securities and Exchange Commission.
24
<PAGE>

The method to calculate and evaluate a correlation coefficient is in the
WCSP manual. A correlation action is requested if the correlation
coefficient, *** .

6.4 First Article Inspection:
APEX PC SOLUTIONS, INC. must submit samples of *** .
The samples should be representative of a capable process.

If Compaq deems that APEX PC SOLUTION, INC.'s measuring equipment is
capable, Compaq will use APEX PC SOLUTIONS, INC. FAI reports and test
results for qualifying a design/process change.

Compaq Procurement Engineer shall evaluate all samples for
qualification. Compaq will provide APEX PC SOLUTIONS, INC. with written
documentation on all reviews within *** of receipt.

6.5 Supplier Corrective Action Request (SCAR):

Compaq Procurement Engineer will initiate Supplier Corrective Action
Request whenever system or material deficiencies are identified. If
Compaq receives non-conforming material, the part and SCAR will be
*** to APEX PC SOLUTIONS, INC. APEX PC SOLUTIONS, INC.
shall reply within *** acknowledging the receipt of
the SCAR. Corrective action shall be submitted within *** from
*** first reported. If the corrective action can not be answered within
*** , APEX PC SOLUTIONS, INC. must notify Compaq prior to the
due date.

The intent of the SCAR is to eliminate potential problems or recurrence.
APEX PC SOLUTIONS, INC. shall be responsible to answer the following
concerns:

***
***
***
***
***
***

*** Confidential treatment request; filed separately with the
Securities and Exchange Commission.

25
<PAGE>

***

6.6 Experimental Design:

Design of Experiments will be used throughout the program where
applicable.

7.0 Design/Process Change Requirements:
All Engineering changes to the Assembly that effect the ***
must be approved by Compaq prior to production implementation. The
change request form is located in the WCSP manual.

7.1 Sample Submittal:
APEX PC SOLUTIONS, INC. should send purpose of change request (Form G),
the FAI report, qualification test results, and six sample parts to Compaq
Procurement Engineer for sustaining product or the Program Manager for new
product development. The sample parts should be a result of a capable
process, with documentation available to show capability. If the
qualification results are in-process, this should be noted during the
submittal. Compaq will evaluate this information within ***
.

If the APEX PC SOLUTIONS, INC. measuring and/or test equipment is not
compatible to Compaq, Compaq will initiate test qualification. Otherwise
evaluations will be given from the APEX PC SOLUTIONS, INC. results.

7.2 Capability Evaluation:
***

7.3 Design/Process Change Summary List:
APEX PC SOLUTIONS, INC. will be responsible for recording all major
process and design changes. The following information must be
recorded: ***
. This product updated listing should be sent to Compaq
after each production cut-in.

8.0 Inspection Requirements:
Unless otherwise specified in the contract or purchase order, APEX PC
SOLUTIONS, INC. shall be responsible for performing inspections that are
sufficient to assure

*** Confidential treatment request; filed separately with the
Securities and Exchange Commission.
26
<PAGE>

that the parts supplied meet the requirements specified in the product
assembly documentation.

8.1 Lot Acceptance:
All lots shall be capable of passing a sampling inspection of ***
AQL (Acceptable Quality Level); C=O (Rejected lots at supplier shall
be re-inspected ***).
***
.

8.2 Electrical Criteria:
Electrical assemblies and components shall comply with the APEX PC
SOLUTIONS, INC. " *** ." Each PCA
will be *** visual inspected and *** tested. The inspector
shall mark conforming PCB.

Compaq must approve changes to all critical components before production
release ( ***
)

8.3 Record Retention:
APEX PC SOLUTIONS, INC. inspection/test records should be recorded and
thereby maintained for a minimum duration of *** from the
date of shipment or Compaq approved alternate. Incoming inspection
records shall be capable of tracking receipt history. Quality status
for each process shall be reported to departments concerned on a
regular basis.

8.4 Nonconforming Product:
Rejected assemblies will be verified by Compaq MRB team. If verified
as defective, the material/lot will be disposition as RTV, UAI, Scrap
or Rework. Supplier Corrective Action will be initiated for each
unit defect (Section 6.6).

8.5 Out of Box Audit
Lot sampling of Finished goods should be conducted on an audit basis
employing a C=O sampling plan using a *** *** sampling rate. The
audit should include the following visual checks:

***
***
***

*** Confidential treatment request; filed separately with the
Securities and Exchange Commission.
27
<PAGE>

*** . The
lot disposition will be to check *** of the lot for non-conformity
before shipping the lot to Compaq. All audit failures require ***
analysis by the supplier.

9.0 Performance Reports:
Compaq will issue *** performance reports. This information will trend
*** . The reports are as follows:

***
***

Each *** APEX PC SOLUTIONS, INC. will compile final assembly production
yield and functional test yield consisting of the number of units produced
and number of failures by product. If the lots are shipped by air freight,
APEX PC SOLUTIONS, INC. shall compile *** reports. These reports shall
identify *** and *** . The APEX PC SOLUTIONS, INC. information
will be collected by inspection function:

***
***
***
***

The APEX PC SOLUTIONS, INC./Compaq team shall use this information for
identifying trends and developing improvement plans.

10.0 Traceability Identification:

10.1 Major Piece Parts:
The major piece parts shall have traceability identification.
The PCB and assembly are examples of major components. The Assembly,
and PCB require the following marking:

***

*** Confidential treatment request; filed separately with the
Securities and Exchange Commission.
28
<PAGE>

The PCB should also include a Vendor Final QA marking
*** .

Additional marking is allowed including manufacture S/N, manufacture
order, flammability rating, etc.

10.2 Assembly.
The final test (Functional Tester) acceptance marking shall be placed
on the underside of assembly. This marking shall be traceable to the
tester and operator. Each assembly will be serialized. The label and
or marking will identify: ***
.

11.0 Reliability:
Reliability audits shall be performed at least *** or after any
major design or production change.

11.1 Field Return Verification & Failure Analysis:
APEX PC SOLUTIONS, INC. shall verify field return product and identify
reason for the return. If the defect is verified, APEX PC SOLUTIONS,
INC. will identify cause and initiate corrective action.

The field return information should be compiled in *** reports.
This information shall be used to improve design, workmanship,
quality, and reliability.

12.0 Supplier Obligations:

*** Cognizant Required
Personnel Due Date

*** APEX PC SOLUTIONS, INC. Eng. ***
- Final Assembly
- Sub Assembly

*** Confidential treatment request; filed separately with the
Securities and Exchange Commission.
29
<PAGE>

*** APEX PC SOLUTIONS, INC. Eng. ***
- Final Assembly
- Sub Assembly
- Critical Components

*** APEX PC SOLUTIONS, INC. Mfg. Eng. ***
- Final Test
- Mechanical Inspection Equipment
- Gaging

*** APEX PC SOLUTIONS, INC. QA Eng. ***
- Procedure
- AQL Specifications
- out-of-Box Disposition

***
*** APEX PC SOLUTIONS, INC. ***

*** QA Eng ***
- Final Inspection
- Out-Going Inspection
- Field Return Pareto QA Eng. ***
- ORT Reports Rel Eng. ***

*** QA Eng. ***

13.0 Compaq Obligations: Date Required

- Site Survey Rating: ***

- Specification Release to A ***

*** Confidential treatment request; filed separately with the
Securities and Exchange Commission.
30
<PAGE>

- Business Reviews ***

- Quality Performance Reviews ***

*** Confidential treatment request; filed separately with the
Securities and Exchange Commission.
31
<PAGE>

SUPPLIER APPROVAL

Supplier: APEX

Manufacturing Site: REDMOND, WASHINGTON

Commodity: ***

This supplier has been evaluated and approved by the methods and personnel
listed below.

Refer to document 410-05-Q01 for qualification options.

QUALIFICATION METHOD: COMPLETION OF CORPORATE MATERIALS *** SUPPLIER
DEVELOPMENT (5 Step, past performance, other)

RESTRICTIONS: CURRENT AGENCY APPROVALS: *** . ALL REMAINING AGENCY
APPROVALS ARE IN PROCESS.

APPROVED BY:

Purchasing JOHN R. BRADSHAW 5/26/94 /s/ John R. Bradshaw

Purchasing Eng. STEPHANIE A. JONES 5/20/94 /s/ Stephanie A. Jones

Other (as required)

*** Confidential treatment request; filed separately with the
Securities and Exchange Commission.
32

<PAGE>

EXHIBIT D

FLEXIBILITY AGREEMENT

The following changes to volumes on existing purchase orders may be made without
cost or liability to Buyer.

NUMBER OF WEEKS PRIOR % INCREASE
TO SCHEDULED DELIVERY DATES

8 weeks or more *
6 weeks *
5 weeks *
4 weeks *
3 weeks or less *

Schedule Decrease/Cancellation

Based on our current * lead time, the following table establishes
Compaq's commitment to accept finished inventory and work in process in the
event of an outright order cancellation. In general, orders become *
prior to schedule ship date. In addition, * prior scheduled ship date,
Apex WIP becomes subject to assembly and shipment according to order
schedule.

Vendor WIP * determined to be * complete shall be completed and
delivered to Apex for assembly and subsequent shipment to Compaq. Vendor
WIP determined to be less than * complete * will be scrapped and
invoiced to Compaq at vendor cost. Also, vendor raw materials * that
can not be absorbed by the vendor * .

* Subject to confidential treatment request; filed separately with the
Securities and Exchange Commission

<PAGE>

*
- --------------------------------------------------------------------------------
WEEK/ORDER * * * * * * * * * *
- --------------------------------------------------------------------------------
Apex Inventory * * * * * * * * * *
- --------------------------------------------------------------------------------
Apex WIP * * * * * * * * * *
- --------------------------------------------------------------------------------
Vendor WIP * C * * * * * * * * * *
- --------------------------------------------------------------------------------
Vendor WIP * C * * * * * * * * * *
- --------------------------------------------------------------------------------
Vendor Raw Material * * * * * * * * * *
- --------------------------------------------------------------------------------

* Subject to confidential treatment request; filed separately with the
Securities and Exchange Commission

<PAGE>

Schedule Decrease/Reschedule

Orders and or individual scheduled releases are * prior to
shipment. Any order * may be rescheduled * for a period not
to exceed * .

If schedule delays exceed * , Compaq has the option to purchase * .

- --------------------------------------------------------------------------------
Week/Order * * * * * * * * * * * *
- --------------------------------------------------------------------------------
Compaq Option * * * * * * * * * * * *
*
- --------------------------------------------------------------------------------
* * * * * * * * * * * *
- --------------------------------------------------------------------------------

In addition, supplier agrees to maintain * and * switch boxes
of buffer stock in finished goods inventory for shipment at buyer's
request.

Seller agrees to reduce product lead times to * by * and *
by * .

* Subject to confidential treatment request; filed separately with the
Securities and Exchange Commission

<PAGE>

EXHIBIT E

SERVICE, REPAIR, AND REFURBISHMENT

A. OUT OF WARRANTY REPAIRS

1. Seller agrees to refurbish to "like new" condition any out of warranty
Product at the prices listed below. This obligation shall be
satisfied by either refurbishing Product submitted by Buyer or
replacing such Product with refurbished Product of the same part
number. Returned Product shall be at the latest revision level.
"Like new" condition means refurbished to meet the electrical and
mechanical requirements of the Buyer's applicable specifications
including the replacement of non-functioning parts.

2. Product submitted by Buyer for refurbishment will be in reasonably
good condition and repairable. In the event Product submitted for
refurbishment has been tampered with in an attempt to repair it or has
been damaged beyond repair, Seller will not be obligated to make out
of warranty repairs.

3. Seller agrees to provide monthly status reports indicating quantities
of units returned, units which aren't repairable, and units for which
no trouble was found.

4. Seller agrees, upon Buyer request, to provide repair training,
documentation, and spare parts to local service providers. Local
service providers will be selected by mutual agreement.

5. Fair and equitable repair pricing to be negotiated in good faith at a
later date.

B. SPARE PARTS AVAILABILITY

No spare parts. Whole unit replacement.

C. DOCUMENTATION

In addition to warranty service, Apex agrees to provide out of warranty
service for a period of up to * . Apex also agrees that if for any
reason Apex is unable to perform out of warranty service, bills of
material, wiring schematics and other pertinent documentation will be
provided to Compaq, or its designated

* Subject to confidential treatment request; filed separately with the
Securities and Exchange Commission

<PAGE>

representative. It is understood that this information is and will remain
the property of Apex PC Solutions and will be used under license by Compaq
Computer Corporation and or its designated representative.

D. LOCAL SERVICE SUPPORT

Seller will, at buyer's request, and by mutual consent, provide spare parts
and training for Buyer's local service providers in Buyer's geographic
sales regions.

<PAGE>

EXHIBIT F

LOCAL SITE REQUIREMENTS

HOUSTON

to be determined

SCOTLAND

to be determined

SINGAPORE

to be determined

<PAGE>

APEX PC SOLUTIONS, INC.

EMPLOYEE STOCK PURCHASE PLAN

Adopted by the Board of Directors on December 9, 1996,
and effective upon the consummation of an Initial Public Offering
of the Common Stock of Apex PC Solutions, Inc.

As amended by the Board of Directors
effective February 24, 1997.

<PAGE>

Table of Contents

PAGE

ARTICLE I .................................................................. 1

ARTICLE II ................................................................. 1
2.1 Account.......................................................... 1
2.2 Beneficiary...................................................... 1
2.3 Board............................................................ 1
2.4 Code............................................................. 1
2.5 Committee........................................................ 1
2.6 Compensation..................................................... 1
2.7 Common Stock..................................................... 2
2.8 Disability....................................................... 2
2.9 Employee......................................................... 2
2.10 Employer......................................................... 2
2.11 Employment....................................................... 2
2.12 Enrollment Date.................................................. 3
2.13 Offering......................................................... 3
2.14 Participant...................................................... 3
2.15 Payroll Deduction Authorization Form............................. 3
2.16 Plan Administrator............................................... 3
2.17 Purchase Date.................................................... 3
2.18 Retirement....................................................... 3
2.19 Share............................................................ 3
2.20 Subsidiary....................................................... 3
2.21 Valuation Date................................................... 3
2.22 Vested........................................................... 3

ARTICLE III................................................................. 4
3.1 Participation.................................................... 4
3.2 Requirements for Participation................................... 4
3.3 Cessation of Participation....................................... 5
3.4 Voluntary Participation.......................................... 5

ARTICLE IV.................................................................. 5
4.1 Payroll Deduction Authorization.................................. 5
4.2 Amount of Deductions............................................. 5
4.3 Commencement of Deductions....................................... 5
4.4 Accounts......................................................... 6
4.5 Modification of Authorized Deductions............................ 6

ARTICLE V................................................................... 6
5.1 Purchase Date.................................................... 6
5.2 Purchase of Shares............................................... 6

PAGE i - EMPLOYEE STOCK PURCHASE PLAN
<PAGE>

5.3 Price............................................................ 6
5.4 Fair Market Value................................................ 7
5.5 Unused Contributions............................................. 7

ARTICLE VI.................................................................. 7
6.1 Termination of Employment........................................ 7
6.2 Termination upon Death, Retirement or Disability within Three
Months of Purchase Date.......................................... 7
6.3 Designation of Beneficiary....................................... 8
6.4 Withdrawal....................................................... 8

ARTICLE VII................................................................. 8
7.1 Source and Limitation of Shares.................................. 8
7.2 Delivery of Shares............................................... 8
7.3 Interest in Shares............................................... 8

ARTICLE VIII................................................................ 9

ARTICLE IX.................................................................. 9
9.1 Rights of the Company............................................ 9
9.2 Recapitalizations................................................ 9
9.3 Consolidation or Merger.......................................... 9

ARTICLE X................................................................... 10
10.1 Vacation, Leave or Layoff........................................ 10
10.2 Military Leave................................................... 10

ARTICLE XI.................................................................. 10

ARTICLE XII................................................................. 11
12.1 Amendment and Termination........................................ 11
12.2 Non-Transferability.............................................. 11
12.3 Limitation on Purchase........................................... 11
12.4 Use of Funds..................................................... 11
12.5 Expenses......................................................... 11
12.6 No Interest...................................................... 12
12.7 Registration and Qualification of Shares......................... 12
12.8 Plan Not a Contract of Employment................................ 12
12.9 Notice........................................................... 12
12.10 Governing Law.................................................... 12
12.11 Plurals.......................................................... 12
12.12 Titles........................................................... 13
12.13 References....................................................... 13

PAGE ii - EMPLOYEE STOCK PURCHASE PLAN
<PAGE>
APEX PC SOLUTIONS, INC.
EMPLOYEE STOCK PURCHASE PLAN

ARTICLE I

PURPOSE

The purpose of this Apex PC Solutions, Inc. Employee Stock Purchase Plan
(this "Plan") is to provide a convenient and practical means through which
employees of Apex PC Solutions, Inc. (the "Company") may participate in stock
ownership of the Company. The Company believes this Plan will be to the mutual
benefit of the employees and the Company by creating a greater community of
interest between the Company's stockholders and its employees and by permitting
the Company to compete with other companies in obtaining and retaining the
services of competent employees. The Company intends for this Plan to
constitute an "employee stock purchase plan" within the meaning of Section 423
of the Internal Revenue Code of 1986.

ARTICLE II

DEFINITIONS

The following terms, when capitalized, shall have the meanings specified
below unless the context clearly indicates to the contrary:

2.1 ACCOUNT shall mean each separate account maintained for a Participant
under this Plan, collectively or singly as the context requires. Each Account
shall be credited with a Participant's contributions. A Participant shall be
fully vested in the cash contributions to his or her Account at all times. The
Plan Administrator may create special types of Accounts for administrative
convenience or other reasons.

2.2 BENEFICIARY shall mean a person or entity entitled under Section 6.2
to receive Shares purchased by, and any remaining balance in, a Participant's
Account on the Participant's death.

2.3 BOARD shall mean the Board of Directors of the Company.

2.4 CODE shall mean the Internal Revenue Code of 1986, as amended from
time to time.

2.5 COMMITTEE shall mean the Committee, if any, appointed by the Board of
Directors in accordance with Article VIII.

2.6 COMPENSATION shall mean the total cash compensation (except as
otherwise set forth below) paid to the Employee in the period in question for
services rendered to the Employer while a Participant. Compensation shall
include the salary and wages deferred by an Employee pursuant to a salary
reduction arrangement under any cash or

PAGE 1 - EMPLOYEE STOCK PURCHASE PLAN
<PAGE>

deferred or cafeteria plan that is maintained by the Employer and that is
intended to qualify under Sections 401(k) or 125 of the Code. An Employee's
Compensation shall not include (a) severance pay, (b) hiring or relocation
bonuses, or (c) pay in lieu of vacations or sick leave.

2.7 COMMON STOCK shall mean the common stock, no par value, of the
Company.

2.8 DISABILITY shall refer to a mental or physical impairment that is
expected to result in death or which has lasted or is expected to last for a
continuous period of twelve (12) months or more and which prevents the Employee,
in the opinion of the Company and two independent physicians, to perform his or
her duties as an employee of the Company and to engage in any substantial
gainful activity. Disability shall be deemed to have occurred on the first day
after the Company and the two independent physicians furnish their opinion of
Disability to the Plan Administrator.

2.9 EMPLOYEE shall mean an individual who renders services to his or her
Employer pursuant to a continuing, regular employment relationship. A person
rendering services to an Employer purportedly as an independent contractor or
consultant shall not be an Employee for purposes of this Plan.

2.10 EMPLOYER shall mean, both individually and collectively, the Company
and any Subsidiary, or any successor entity that continues this Plan. All
Employees of entities that constitute the Employer shall be treated as employed
by a single entity for all Plan purposes, except that:

(a) No person shall become a Participant except while employed by an
entity that is an Employer;

(b) A Participant shall cease to be a Participant if he or she
transfers to an entity that is not an Employer and ceases to be employed by an
Employer;

(c) An Employer shall cease to be an Employer for purposes of this
Plan, and a Participant who is an Employee of such an Employer shall cease to be
a Participant, upon the happening of any event, or the consummation of any
transaction, which causes the Employer to cease being an Employer, as defined
above; and

(d) Amounts paid by entities other than the Employer shall be ignored
in determining Compensation under this Plan.

In contexts in which actions are required or permitted to be taken or
notices to be given, the Employer shall mean the Company or any successor
corporation.

2.11 EMPLOYMENT shall mean the period during which an individual is an
Employee. Employment shall commence on the day the individual first performs

PAGE 2 - EMPLOYEE STOCK PURCHASE PLAN
<PAGE>

services for the Employer as an Employee and shall terminate on the day such
services cease as determined under Article VI.

2.12 ENROLLMENT DATE shall mean the first day of the applicable Offering.

2.13 OFFERING shall mean a period of time established by the Plan
Administrator for the accumulation of payroll deductions for the purchase of
Shares. Offerings shall be each calendar quarter, commencing with the effective
date of this Plan.

2.14 PARTICIPANT shall mean any Employee who is participating in any
Offering under this Plan pursuant to Article III.

2.15 PAYROLL DEDUCTION AUTHORIZATION FORM shall mean the form provided by
the Company for eligible Employees to elect to participate by designating the
rate of his or her Compensation to be contributed to his or her Account through
payroll deductions.

2.16 PLAN ADMINISTRATOR shall mean the Board or the Committee, whichever
shall be administering the Plan from time to time in the discretion of the
Board, as described in Article VIII.

2.17 PURCHASE DATE shall mean the last day of the applicable Offering.

2.18 RETIREMENT shall mean a Participant's termination of Employment on or
after attaining the age of 65 or after the Plan Administrator has determined
that he or she has suffered a Disability.

2.19 SHARE shall mean one share of Common Stock adjusted in accordance
with Section 9.2 (if applicable).

2.20 SUBSIDIARY shall mean any corporation, association or other business
entity at least fifty percent (50%) or more of the total combined voting power
of all classes of stock of which is owned or controlled directly or indirectly
by the Company or one or more of such subsidiary entities or both.

2.21 VALUATION DATE shall mean the date upon which the fair market value
of Shares is to be determined for purposes of setting the price of Shares under
Section 5.3 (that is, the Enrollment Date or the Purchase Dates for each
Offering). If the Enrollment Date is not a date on which the fair market value
may be determined in accordance with Section 5.3, the Valuation Date shall be
the first day after the Enrollment Date for which such fair market value may be
determined. If the Purchase Date is not a date on which the fair market value
may be determined in accordance with Section 5.3, the Valuation Date shall be
the first date prior to the Purchase Date on which such fair market value may be
determined.

2.22 VESTED shall mean non-forfeitable.

PAGE 3 - EMPLOYEE STOCK PURCHASE PLAN
<PAGE>

ARTICLE III

EMPLOYEE PARTICIPATION

3.1 PARTICIPATION. Subject to the provisions of this Article III, an
Employee may elect to participate in this Plan, effective as of any Enrollment
Date, by completing and filing a Payroll Deduction Authorization Form as
provided in Section 4.1.

3.2 REQUIREMENTS FOR PARTICIPATION.

(a) An Employee shall be eligible to participate in this Plan on the
first Enrollment Date on which he or she first meets all of the following
requirements:

(i) The Employee's customary period of Employment is for more
than twenty (20) hours per week; and

(ii) The Employee's customary period of Employment is for more
than five (5) months in any calendar year.

(b) Employees who are also directors or officers of the Company may
participate only in accordance with section 16(b) of the Securities Exchange Act
of 1934, as amended, particularly Rule 16b-3 issued thereunder, as in effect
from time to time.

(c) Any eligible Employee may enroll or re-enroll in this Plan as of
the first trading day of any Offering by filing timely written notice of such
participation, subject to the following provisions:

(i) In order to enroll in this Plan initially, an eligible
employee must complete, sign and submit to the Company a Payroll Deduction
Authorization Form. Any Payroll Deduction Authorization Form received by
the Company before the Friday preceding an Enrollment Date, or such other
deadline established by the Plan Administrator from time to time, will be
effective on that Enrollment Date.

(ii) Absent withdrawal from this Plan pursuant to Section 6.4, a
Participant will automatically be re-enrolled in this Plan on the next
Enrollment Date immediately following the Offering of which he or she is then a
Participant.

(d) A Participant shall become ineligible to participate in this Plan
and shall cease to be a Participant when any of the following occurs:

(i) His or her Employment terminates;

(ii) He or she owns Shares possessing five percent (5%) or more
of the combined voting power or value of all classes of stock of the
Company or a parent or Subsidiary of the Company. For purposes of
determining share

PAGE 4 - EMPLOYEE STOCK PURCHASE PLAN
<PAGE>

ownership, the rules of Section 424(d) of the Code shall apply and Shares
that the Employee may purchase under any Vested options or rights to
purchase shall be treated as Shares owned by the Employee; or

(iii) Upon the happening of any event or the consummation of
any transaction which causes the entity of which the Participant is an
Employee to cease being an Employer as defined in Section 2.10.

(e) A Participant shall cease to be a Participant, but shall be
eligible to participate in this Plan with respect to any subsequent Offering, if
he or she notifies the Company in writing of his or her desire to withdraw from
participation in this Plan.

3.3 CESSATION OF PARTICIPATION. A Participant whose participation has
ceased in accordance with Sections 3.2(d) and (e) shall have the rights provided
in Article VI.

3.4 VOLUNTARY PARTICIPATION. Participation in this Plan shall be
voluntary.

ARTICLE IV

PAYROLL DEDUCTIONS

4.1 PAYROLL DEDUCTION AUTHORIZATION. An Employee may contribute to this
Plan only by means of payroll deductions, except in connection with the initial
Offering or other Offering specified by the Committee. Other than as set forth
in Section 3.2(c)(ii), a Payroll Deduction Authorization Form must be filed with
the enrolling individual's payroll office no later than the Friday immediately
preceding the Enrollment Date as of which the payroll deductions are to take
effect, except for the first Offering or other Offering specified by the
Committee, for which a different deadline may apply.

4.2 AMOUNT OF DEDUCTIONS. A Participant may specify the rate at which he
or she desires to contribute to this Plan, which rate shall not be less than one
percent (1%) and not more than ten percent (10%) of the Participant's
Compensation during each pay period in the Offering. For administrative
convenience, the Company may round off Participant contributions to an even
dollar amount, such as the nearest $5.00 increment. A Participant's particular
election shall apply during any period of continuous participation in the Plan,
unless modified or discontinued as provided in Section 4.5 or as otherwise
provided in this Plan. If a payroll deduction cannot be made in whole or in
part because the Participant's pay for the period in question is insufficient to
fund the deduction after having first withheld all other amounts deductible from
his or her pay, the amount that was not withheld cannot be made up by the
Participant nor will it be withheld from subsequent pay checks.

4.3 COMMENCEMENT OF DEDUCTIONS. Payroll deductions for a Participant
shall commence on the Enrollment Date of the Offering for which his or her
Payroll Deduction Authorization Form is effective and shall continue for future
Offerings, unless modified or discontinued as provided in Section 4.5 or as
otherwise provided in this Plan.

PAGE 5 - EMPLOYEE STOCK PURCHASE PLAN
<PAGE>

4.4 ACCOUNTS. All payroll deductions made for a Participant shall be
credited to his or her Account.

4.5 MODIFICATION OF AUTHORIZED DEDUCTIONS.

(a) A Participant may at any time discontinue his or her payroll
deductions, effective for all subsequent payroll periods, by completing an
amended Payroll Deduction Authorization Form and filing it with his or her
payroll office. At such time, the Participant may elect to retain previous
payroll deductions in his or her Account and continue participation in this Plan
for subsequent offering or to withdraw from this Plan pursuant to Section 6.4.

(b) For purposes of this Section 4.5, an amended Payroll Deduction
Authorization Form that completely discontinues payroll deductions shall be
effective for a specific pay period when filed no later than the final Friday of
such pay period. An amended Payroll Deduction Authorization Form that alters
the rate of withholding, but does not completely discontinue payroll deductions,
shall be effective at the start of the next Offering, provided it is filed no
later than the Friday immediately prior to the specific Offering's Enrollment
Date.

ARTICLE V

PURCHASES OF SHARES

5.1 PURCHASE DATE. Unless a Participant terminates participation, as
described in Section 4.5(b), or gives written notice to the Company as provided
in Section 6.4, the Company shall purchase, as of the Purchase Date, the number
of Shares determined pursuant to this Article V.

5.2 PURCHASE OF SHARES. On each Purchase Date, the Company shall,
subject to the limitations of Article VI, apply the amount credited to each
Participant's Account to the purchase of as many full Shares that may be
purchased with such amount at the price set forth in Section 5.3, and shall
issue such Shares to the Participant. Payment for Shares purchased under this
Plan will be made only through payroll withholding in accordance with
Article IV.

5.3 PRICE. The price of Shares to be purchased under Section 5.2 shall
be the lower of:

(a) Eighty-five percent (85%) of the fair market value of the Shares
on the Enrollment Date of the Offering; or

(b) Eighty-five percent (85%) of the fair market value of the Shares
on any Purchase Date of the Offering.

PAGE 6 - EMPLOYEE STOCK PURCHASE PLAN
<PAGE>

5.4 FAIR MARKET VALUE.

(a) The fair market value of the Shares on any date shall be equal to
the bid price of the Company's Common Stock at the close of business on the
Valuation Date, as reported on the automated quotation system of the NASD or
such other quotation system that supersedes it.

(b) If (a) is not applicable, the fair market value of the Shares
shall be determined by the Plan Administrator in good faith. Such determination
shall be conclusive and binding on all persons.

5.5 UNUSED CONTRIBUTIONS.

(a) Subject to the limitations of Sections 3.2(e) and 12.3, a
Participant may withdraw from any Offering and apply any or all amounts then
credited to his or her Account to the Offering commencing on the next occurring
Enrollment Date following such withdrawal by re-enrolling in such subsequent
Offering pursuant to Section 3.2(c)(ii).

(b) Provided that a Participant's Employment with the Company has not
terminated and the Participant has not withdrawn from the Plan pursuant to
Article VI, and subject to Section 7.1(b), any amount credited to a
Participant's Account and remaining therein immediately after a Purchase Date
shall be carried forward in such Participant's Account for application on the
next succeeding Purchase Date, subject to the notice provisions of Section 5.1.

ARTICLE VI

TERMINATION AND WITHDRAWAL

6.1 TERMINATION OF EMPLOYMENT. Upon termination of a Participant's
Employment for any reason other than as set forth in Section 6.2, the payroll
deductions credited to such Participant's Account shall be returned to the
Participant. Except as provided in Section 6.2, a Participant shall have no
right under this Plan to acquire Shares upon or after termination of his or her
Employment.

6.2 TERMINATION UPON DEATH, RETIREMENT OR DISABILITY WITHIN THREE MONTHS
OF PURCHASE DATE. Upon termination of the Participant's Employment within the
three-month period preceding a Purchase Date because of his or her death,
Retirement or Disability, the payroll deductions credited to his or her Account
shall be used to purchase Shares as provided in Article V on the next Purchase
Date. Any remaining balance in the Participant's Account shall be returned to
him or her or, in the case of death, any Shares purchased and any remaining
balance shall be transferred to the deceased Participant's Beneficiary, or if
none, to his or her estate.

PAGE 7 - EMPLOYEE STOCK PURCHASE PLAN
<PAGE>

6.3 DESIGNATION OF BENEFICIARY. Each Participant may designate, revoke
and redesignate Beneficiaries. This action shall be taken in writing on a form
provided by the Plan Administrator and shall be effective upon delivery of the
election to the Plan Administrator.

6.4 WITHDRAWAL. A Participant whose Employment with the Company is
continuing (i.e., has not been terminated as described in Sections 6.1 and 6.2)
may elect to withdraw the entire amount credited to his or her Account and cease
further participation at any time by giving written notice to the Company at
least by the Friday prior to the next Purchase Date. The amount withdrawn shall
be paid to the Participant promptly after receipt of proper notice of withdrawal
and no further payroll deductions shall be made from his or her compensation
unless and until a new Payroll Deduction Authorization Form is submitted in
accordance with Section 4.1.

ARTICLE VII

SHARES PURCHASED UNDER THE PLAN

7.1 SOURCE AND LIMITATION OF SHARES.

(a) The Company has reserved for sale under this Plan 250,000 shares
of its Common Stock, subject to adjustment upon changes in Capitalization of the
Company as provided in Section 9.2. Shares sold under this Plan may be newly
issued Shares or Shares reacquired in private transactions or open market
purchases, but all Shares sold under this Plan regardless of source shall be
counted against the 250,000 share limitation.

(b) If there is an insufficient number of Shares to permit the full
exercise of all existing rights to purchase Shares, or if the legal obligations
of the Company prohibit the issuance of all Shares purchasable upon the full
exercise of such rights, the Plan Administrator shall make a pro rata allocation
of the Shares remaining available in as nearly a uniform and equitable manner as
possible, based pro rata on the aggregate amounts then credited to each
Participant's Account. In such event, payroll deductions to be made shall be
reduced accordingly and the Plan Administrator shall give written notice of such
reduction to each Participant affected thereby. Any amount remaining in a
Participant's Account immediately after all available Shares have been purchased
will be promptly remitted to such Participant. Determination by the Plan
Administrator in this regard shall be final, binding and conclusive on all
persons. No deductions shall be permitted under this Plan at any time when no
Shares are available.

7.2 DELIVERY OF SHARES. As promptly as practicable after the Purchase
Date, the Company shall deliver to the Participant the full Shares purchased
with his or her payroll deductions.

7.3 INTEREST IN SHARES. The rights to purchase Shares granted pursuant
to this Plan will in all respects be subject to the terms and conditions of this
Plan, as interpreted

PAGE 8 - EMPLOYEE STOCK PURCHASE PLAN
<PAGE>

by the Plan Administrator from time to time. The Participant shall have no
interest in Shares purchasable under this Plan until payment for the Shares has
been completed at the close of business on the relevant Purchase Date. This
Plan provides only an unfunded, unsecured promise by the Employer to pay money
or property in the future. Except with respect to the Shares purchased on a
Purchase Date, an Employee choosing to participate in this Plan shall have no
greater rights than an unsecured creditor of the Company. After the purchase of
the Shares, the Participant shall be entitled to all rights of a stockholder of
the Company.

ARTICLE VIII

PLAN ADMINISTRATION

This Plan shall be administered by the Board of Directors, who shall be
vested with full authority to make, administer and interpret all rules and
regulations applicable to this Plan as it deems necessary for purposes of
administering this Plan. This Plan is intended to qualify for the "Stock
Purchase Plan" exemption of Rule 16b-3 of the regulations promulgated under the
Securities Exchange Act. Any determination, decision or action of the Plan
Administrator with respect to the construction, interpretation, administration
or application of this Plan shall be final, conclusive and binding upon all
Participants and any and all persons claiming benefits under this Plan. The
provisions of this Plan shall also be construed so as to extend and limit
participation in a manner consistent with the requirements of Section 423 of the
Code.

ARTICLE IX

CHANGES IN CAPITALIZATION, MERGER, ETC.

9.1 RIGHTS OF THE COMPANY. The grant of a right to purchase Shares
pursuant to this Plan shall not affect in any way the right or power of the
Company to make adjustments, reclassifications, reorganizations or other changes
of its capital or business structure or to merge or to consolidate or to
dissolve, liquidate or transfer all or any part of its divisions, subsidiaries,
business or assets.

9.2 RECAPITALIZATIONS. Subject to any required action by the
stockholders, the number of Shares covered by this Plan as provided in Section
7.1 and the price per share shall be proportionately adjusted for any increase
or decrease in the number of issued Shares of the Company resulting from a
subdivision or consolidation of Shares or the payment of a stock dividend (but
only on the Shares) or any other increase or decrease in the number of such
Shares affected without receipt of consideration by the Company.

9.3 CONSOLIDATION OR MERGER. In the event of the consolidation or merger
of the Employer with or into any other business entity, or the sale by the
Employer of substantially all of its assets, the successor may continue this
Plan by adopting the same by resolution of its board of directors or agreement
of its partners or proprietors. If,

PAGE 9 - EMPLOYEE STOCK PURCHASE PLAN
<PAGE>

within 90 days after the effective date of a consolidation, merger or sale of
assets, the successor corporation, partnership or proprietorship does not adopt
this Plan, this Plan shall be terminated in accordance with Section 11.1.

ARTICLE X

TERMINATION OF EMPLOYMENT

10.1 VACATION, LEAVE OR LAYOFF. A person's Employment shall not terminate
on account of an authorized leave of absence, sick leave or vacation, or on
account of a military leave described in Section 10.2, or a direct transfer
between Employers. Failure to return to work upon expiration of any leave of
absence, sick leave or vacation shall be considered a resignation effective as
of the expiration of such leave of absence, sick leave or vacation.

10.2 MILITARY LEAVE. Any Employee who leaves the Employer directly to
perform services in the Armed Forces of the United States or in the United
States Public Health Service under conditions entitling the Employee to
re-employment rights provided by the laws of the United States, shall be on
military leave. An Employee's military leave shall expire if the Employee
voluntarily resigns from the Employer during the leave or if he or she fails to
make application for re-employment within the period specified by such law for
the preservation of employment rights. In such event, the individual's
employment shall terminate by resignation on the day the military leave expires.

ARTICLE XI

STOCKHOLDER APPROVAL

This Plan is expressly made subject to the approval of the holders of a
majority of the outstanding shares of the Company within 12 months after the
date this Plan is adopted. If this Plan is not so approved by the stockholders
within 12 months after the date this Plan is adopted, this Plan shall not come
into effect. Notwithstanding any other provision of this Plan to the contrary,
no Shares shall actually be issued under this Plan until there has been approval
of this Plan by a majority of the Company's shareholders, as described in this
Article XI. In the event that this Plan becomes effective prior to such
shareholder approval, the Plan Administrator shall record the participation of
each Participant, including the amounts in each Participant's Account and the
number of Shares that each Participant is entitled to purchase, and the
corresponding applicable purchase price, at each Purchase Date, but no actual
purchase and issuance of Shares shall take place prior to shareholder approval.
If shareholder approval is not obtained, as described in this Article XI, then
all amounts held by this Plan under the Participants' Account shall be returned
to the Participants, and this Plan shall be become null and void.

PAGE 10 - EMPLOYEE STOCK PURCHASE PLAN
<PAGE>

ARTICLE XII

MISCELLANEOUS PROVISIONS

12.1 AMENDMENT AND TERMINATION.

(a) The Board of Directors of the Company may at any time amend this
Plan. An amendment shall require the approval of the Stockholders of the
Company if the amendment would permit the sale of more Shares than are
authorized under Section 7.1, or the amendment otherwise requires shareholder
approval under Section 423 of the Code or Rule 16b of the Securities Exchange
Act.

(b) This Plan is intended to be a permanent program, but an Employer
shall have the right at any time to declare this Plan terminated completely as
to it or as to any of the Employer's divisions, facilities, operational units or
job classifications. Upon such termination, amounts credited to the Accounts of
Participants with respect to whom the Plan has been terminated shall be returned
to such Participants.

12.2 NON-TRANSFERABILITY. Neither payroll deductions credited to a
Participant's Account nor any rights with regard to the purchase of Shares under
this Plan may be assigned, transferred, pledged or otherwise disposed of in any
way by the Participant except as provided in Section 6.2, and any attempted
assignment, transfer, pledge, or other disposition shall be null and void. The
Company may treat any such act as an election to withdraw funds in accordance
with Section 6.4.

12.3 LIMITATION ON PURCHASE. No Participant may obtain a right to
purchase Shares under this Plan if such right would, upon immediate exercise for
shares, result in that Participant:

(a) owning stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or its
Subsidiaries; or

(b) obtain rights to purchase stock under this Plan or under any
other employee stock purchase plan of the Company or any of its Subsidiaries or
its parents that will accrue at a rate which exceeds $25,000 in fair market
value (determined as of the Enrollment Date) of the stock for each calendar year
in which he or she is a Participant;

both as determined under Section 423(b) of the Code.

12.4 USE OF FUNDS. All payroll deductions received or held by the Company
under this Plan may be used by the Company for any corporate purposes and the
Company shall not be obligated to segregate the payroll deductions.

12.5 EXPENSES. All expenses of administering this Plan shall be borne by
the Company and its Subsidiaries.

PAGE 11 - EMPLOYEE STOCK PURCHASE PLAN
<PAGE>

12.6 NO INTEREST. No Participant shall be entitled, at any time, to any
payment or credit for interest with respect to or on the payroll deductions
contemplated herein, or on any other assets held hereunder for the Participant's
Account.

12.7 REGISTRATION AND QUALIFICATION OF SHARES. The offering of the Shares
hereunder shall be subject to the effecting by the Company of any registration
or qualification of the Shares under any federal or state law or the obtaining
of the consent or approval of any governmental regulatory body which the Company
shall determine, in its sole discretion, is necessary or desirable as a
condition to, or in connection with, the offering or the issue or purchase of
the Shares covered thereby. The Company shall make every reasonable effort to
effect such registration or qualification or to obtain such consent or approval.

12.8 PLAN NOT A CONTRACT OF EMPLOYMENT. This Plan is strictly a voluntary
undertaking on the part of the Employer and shall not constitute a contract
between the Employer and any Employee, or consideration for an inducement or a
condition of, the employment of an Employee. Except as otherwise required by
law or any applicable collective bargaining agreement, nothing contained in this
Plan shall give any Employee the right to be retained in the service of the
Employer or to interfere with or restrict the right of the Employer, which is
hereby expressly reserved, to discharge or retire any Employee at any time, with
or without cause and with or without notice. Except as otherwise required by
law, inclusion under this Plan will not give any Employee any right or claim to
any benefit hereunder except to the extent such right has specifically become
fixed under the terms of the Plan. The doctrine of substantial performance
shall have no application to any Employee, Participant or Beneficiary. Each
condition and provision, including numerical items, has been carefully
considered and constitutes the minimum limit on performance which will give rise
to the applicable right.

12.9 NOTICE. All notices or other communications by a Participant to the
Company under or in connection with this Plan shall be deemed to have been duly
given when received by the Plan Administrator. Any notice required by this Plan
to be received by the Company prior to an Enrollment Date, payroll period or
other specified date, and received by the Plan Administrator subsequent to such
date, shall be effective on the next occurring Enrollment Date, payroll period
or other specified date to which such notice applies.

12.10 GOVERNING LAW. This Plan shall be interpreted, administered and
enforced in accordance with the Code, and the rights of Participants, former
Participants, Beneficiaries and all other persons shall be determined in
accordance with it. To the extent that state law is applicable, however, the
laws of the State of Washington shall apply.

12.11 PLURALS. Where the context so indicates, the singular shall include
the plural and vice versa.

PAGE 12 - EMPLOYEE STOCK PURCHASE PLAN
<PAGE>

12.12 TITLES. Titles of Articles and Sections are provided herein for
convenience only and are not to serve as the basis for interpretation or
construction of this Plan.

12.13 REFERENCES. Unless the context clearly indicates to the contrary,
reference to a Plan provision, statute, regulation or document shall be
construed as referring to any subsequently enacted, adopted or executed
counterpart.

ADOPTED BY THE BOARD OF DIRECTORS ON DECEMBER 9, 1996,
AND EFFECTIVE UPON THE CONSUMMATION OF AN INITIAL
PUBLIC OFFERING OF THE COMPANY'S COMMON STOCK

AMENDED BY THE BOARD OF DIRECTORS
EFFECTIVE FEBRUARY 24, 1997

PAGE 13 - EMPLOYEE STOCK PURCHASE PLAN

<PAGE>

[LOGO]

BUSINESS LOAN AGREEMENT

Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C>
$5,000,000.00 03-27-1997 04-30-1998 391-91 365 0328497064 61291 TL

References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or term.

<CAPTION>
<S> <C>
BORROWER: APEX PC SOLUTIONS, INC. LENDER: U.S. BANK OF WASHINGTON,
20031 - 142ND AVENUE NORTHEAST NATIONAL ASSOCIATION
WOODINVILLE, WA 98072 EAST KING COUNTY
CORPORATE BANKING
10800 NE 8TH STREET,
SUITE 1000
BELLEVUE, WA 98004

</TABLE>

- -------------------------------------------------------------------------------
THIS BUSINESS LOAN AGREEMENT BETWEEN APEX PC SOLUTIONS, INC. ("BORROWER") AND
U.S. BANK ("LENDER") IS MADE AND EXECUTED ON THE FOLLOWING TERMS AND
CONDITIONS. BORROWER HAS RECEIVED PRIOR COMMERCIAL LOANS FROM LENDER OR HAS
APPLIED TO LENDER FOR A COMMERCIAL LOAN OR LOANS AND OTHER FINANCIAL
ACCOMMODATIONS, INCLUDING THOSE WHICH MAY BE DESCRIBED ON ANY EXHIBIT OR
SCHEDULE ATTACHED TO THIS AGREEMENT. ALL SUCH LOANS AND FINANCIAL
ACCOMMODATIONS, TOGETHER WITH ALL FUTURE LOANS AND FINANCIAL ACCOMMODATIONS
FROM LENDER TO BORROWER, ARE REFERRED TO IN THIS AGREEMENT INDIVIDUALLY AS
THE "LOAN" AND COLLECTIVELY AS THE "LOANS." BORROWER UNDERSTANDS AND AGREES
THAT: (a) IN GRANTING, RENEWING, OR EXTENDING ANY LOAN, LENDER IS RELYING
UPON BORROWER'S REPRESENTATIONS, WARRANTIES, AND AGREEMENTS, AS SET FORTH IN
THIS AGREEMENT; (b) THE GRANTING, RENEWING, OR EXTENDING OF ANY LOAN BY
LENDER AT ALL TIMES SHALL BE SUBJECT TO LENDER'S SOLE JUDGMENT AND
DISCRETION; AND (c) ALL SUCH LOANS SHALL BE AND SHALL REMAIN SUBJECT TO THE
FOLLOWING TERMS AND CONDITIONS OF THIS AGREEMENT.

TERM. This Agreement shall be effective as of March 27, 1997, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.

DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.

AGREEMENT. The word "Agreement" means this Business Loan Agreement, as
this Business Loan Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Business Loan
Agreement from time to time.

BORROWER. The word "Borrower" means APEX PC SOLUTIONS, INC.. The word
"Borrower" also includes, as applicable, all subsidiaries and affiliates of
Borrower as provided below in the paragraph titled "Subsidiaries and
Affiliates."

CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.

CASH FLOW. The words "Cash Flow" mean net income after taxes, and
exclusive of extraordinary gains and income, plus depreciation and
amortization.

COLLATERAL. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan, whether
real or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a security
interest, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise.

DEBT. The word "Debt" means all of Borrower's liabilities excluding
Subordinated Debt.

ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.

EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."

GRANTOR. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all Borrowers
granting such a Security Interest.

GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.

INDEBTEDNESS. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them, as well as
all claims by Lender against Borrower, or any one or more of them; whether
now or hereafter existing, voluntary or involuntary, due or not due,
absolute or contingent, liquidated or unliquidated; whether Borrower may be
liable individually or jointly with others; whether Borrower may be
obligated as a guarantor, surety, or otherwise; whether recovery upon such
Indebtedness may be or hereafter may become barred by any statute of
limitations; and whether such Indebtedness may be or hereafter may become
otherwise unenforceable.

LENDER. The word "Lender" means U.S. BANK OF WASHINGTON, NATIONAL
ASSOCIATION, its successors and assigns.

LIQUID ASSETS. The words "Liquid Assets" mean Borrower's cash on hand plus
Borrower's readily marketable securities.

LOAN. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.

NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note
or notes therefor.

PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being
contested in good faith; (c) liens of materialmen, mechanics,
warehousemen, or carriers, or other like liens arising in the ordinary
course of business and securing obligations which are not yet delinquent;
(d) purchase money liens or purchase money security interests upon or in
any property acquired or held by Borrower in the ordinary course of
business to secure indebtedness outstanding on the date of this Agreement
or permitted to be incurred under the paragraph of this Agreement titled
"Indebtedness and Liens"; (e) liens and security interests which, as of
the date of this Agreement, have been disclosed to and approved by the
Lender in writing; and (f) those liens and security interests which in the
aggregate constitute an immaterial and insignificant monetary amount with
respect to the net value of Borrower's assets.

RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.

SECURITY AGREEMENT. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.

SECURITY INTEREST. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended as
a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.

SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.

SUBORDINATED DEBT. The words "Subordinated Debt" mean indebtedness and
liabilities of Borrower which have been subordinated by written agreement
to indebtedness owed by Borrower to Lender in form and substance acceptable
to Lender.

TANGIBLE NET WORTH. The words "Tangible Net Worth" mean Borrower's total
assets excluding all intangible assets (i.e., goodwill, trademarks,
patents, copyrights, organizational expenses, and similar intangible items,
but including leaseholds and leasehold improvements) less total Debt.

WORKING CAPITAL. The words "Working Capital" mean Borrower's current
assets, excluding prepaid expenses, less Borrower's current liabilities.

CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions set
forth in this Agreement and in the Related Documents.

LOAN DOCUMENTS. Borrower shall provide to Lender in form satisfactory to
Lender the following documents for the Loan: (a) the Note, (b) Security
Agreements granting to Lender security interests in the Collateral, (c)
Financing Statements perfecting Lender's Security Interests; (d)

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03-27-1997 BUSINESS LOAN AGREEMENT Page 2
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evidence of insurance as required below; and (e) any other documents
required under this Agreement or reasonably required by Lender or its
counsel.

BORROWER'S AUTHORIZATION. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and the
Related Documents, and such other authorizations and other documents and
instruments as Lender or its counsel, in their reasonable discretion, may
require.

PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as specified in
this Agreement or any Related Document.

REPRESENTATIONS AND WARRANTIES. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document or
certificate delivered to Lender under this Agreement are true and correct.

NO EVENT OF DEFAULT. There shall not exist at the time of any advance a
condition which would constitute an Event of Default under this Agreement.

REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:

ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Washington
and is validly existing and in good standing in all states in which
Borrower is doing business. Borrower has the full power and authority to
own its properties and to transact the businesses in which it is presently
engaged or presently proposes to engage. Borrower also is duly qualified
as a foreign corporation and is in good standing in all states in which the
failure to so qualify would have a material adverse effect on its
businesses or financial condition.

AUTHORIZATION. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of incorporation or organization, or bylaws,
or any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.

FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material
contingent obligations except as disclosed in such financial statements.

LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.

PROPERTIES. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender and as
accepted by Lender, and except for property tax liens for taxes not
presently due and payable, Borrower owns and has good title to all of
Borrower's properties free and clear of all Security Interests, and has not
executed any security documents or financing statements relating to such
properties. All of Borrower's properties are titled in Borrower's legal
name, and Borrower has not used, or filed a financing statement under, any
other name for at least the last five (5) years.

HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.,
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing "Hazardous Materials Laws".
Except as disclosed to and acknowledged by Lender in writing, Borrower
represents and warrants that: (a) During the period of Borrower's
ownership of the properties, there has been no use, generation,
manufacture, storage, treatment, disposal, release or threatened release of
any hazardous waste or substance by any person on, under, about or from any
of the properties. (b) Borrower has no knowledge of, or reason to believe
that there has been (i) any use, generation, manufacture, storage,
treatment, disposal, release, or threatened release of any hazardous waste
or substance on, under, about or from the properties by any prior owners or
occupants of any of the properties, or (ii) any actual or threatened
litigation or claims of any kind by any person relating to such matters.
(c) Neither Borrower nor any tenant, contractor, agent or other authorized
user of any of the properties shall use, generate, manufacture, store,
treat, dispose of, or release any hazardous waste or substance on, under,
about or from any of the properties; See Attachment A. Note 1 and any such
activity shall be conducted in compliance with all applicable federal,
state, and local laws, regulations, and ordinances, including without
limitation those laws, regulations and ordinances described above.
Borrower authorizes Lender and its agents to enter upon the properties to
make such inspections and tests as Lender may deem reasonably appropriate
to determine compliance of the properties with this section of the
Agreement. Any inspections or tests made by Lender shall be at Borrower's
expense and for Lender's purposes only and shall not be construed to create
any responsibility or liability on the part of Lender to Borrower or to any
other person. The representations and warranties contained herein are
based on Borrower's due diligence in investigating the properties for
hazardous waste and hazardous substances. Borrower hereby (a) releases
and waives any future claims against Lender for indemnity or contribution
in the event Borrower becomes liable for cleanup or other costs under any
such laws, and (b) agrees to indemnify and hold harmless Lender against
any and all claims, losses, liabilities, damages, penalties, and expenses
which Lender may directly or indirectly sustain or suffer resulting from a
breach of this section of the Agreement or as a consequence of any use,
generation, manufacture, storage, disposal, release or threatened release
occurring prior to Borrower's ownership or interest in the properties,
whether or not the same was or should have been known to Borrower. The
provisions of this section of the Agreement, including the obligation to
indemnify, shall survive the payment of the Indebtedness and the
termination or expiration of this Agreement and shall not be affected by
Lender's acquisition of any interest in any of the properties, whether by
foreclosure or otherwise.

LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.

TAXES. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.

LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.

BINDING EFFECT. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.

COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.

EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable
Event nor Prohibited Transaction (as defined in ERISA) has occurred with
respect to any such plan, (ii) Borrower has not withdrawn from any such
plan or initiated steps to do so, (iii) no steps have been taken to
terminate any such plan, and (iv) there are no unfunded liabilities other
than those previously disclosed to Lender in writing.

LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business,
or Borrower's Chief executive office, if Borrower has more than one place
of business, is located at 20031 - 142ND AVENUE NORTHEAST, WOODINVILLE, WA
98072. Unless Borrower has designated otherwise in writing this location
is also the office or offices where Borrower keeps its records concerning
the Collateral.

INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to make
such information not misleading.

SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and
agrees that Lender, without independent investigation, is relying upon the
above representations and warranties in extending Loan Advances to
Borrower. Borrower further agrees that the foregoing representations and
warranties shall be continuing in nature and shall remain in full force and
effect until such time as Borrower's Indebtedness shall be paid in full, or
until this Agreement shall be terminated in the manner provided above,
whichever is the last to occur.

AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:

LITIGATION. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.

FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.

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03-27-1997 BUSINESS LOAN AGREEMENT Page 3
Loan No 391-91 (Continued)
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FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in no
event later than one hundred twenty (120) days after the end of each fiscal
year, Borrower's balance sheet and income statement for the year ended,
audited by a certified public accountant satisfactory to Lender, and, as
soon as available, but in no event later than forty five (45) days after
the end of each fiscal quarter, Borrower's balance sheet and profit and
loss statement for the period ended, prepared and certified as correct to
the best knowledge and belief by Borrower's chief financial officer or
other officer or person acceptable to Lender. All financial reports
required to be provided under this Agreement shall be prepared in
accordance with generally accepted accounting principles, applied on a
consistent basis, and certified by Borrower as being true and correct.

ADDITIONAL INFORMATION. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and other
reports with respect to Borrower's financial condition and business
operations as Lender may reasonably request from time to time.

FINANCIAL COVENANTS AND RATIOS. Comply with the following covenants and
ratios:

TANGIBLE NET WORTH. Maintain a minimum Tangible Net Worth of not
less than $10,000,000.00.

NET WORTH RATIO. Maintain a ratio of Total Liabilities to Tangible Net
Worth of less than 1.00 TO 1.00.

WORKING CAPITAL. Maintain Working Capital in excess of $9,000,000.00.

The following provisions shall apply for purposes of determining compliance
with the foregoing financial covenants and ratios: BORROWER'S COMPLIANCE
WITH THE FINANCIAL COVENANTS OF THIS AGREEMENT WILL BE TESTED ON A
QUARTERLY BASIS. Except as provided above, all computations made to
determine compliance with the requirements contained in this paragraph
shall be made in accordance with generally accepted accounting principles,
applied on a consistent basis, and certified by Borrower as being true and
correct.

INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies reasonably acceptable to Lender. Borrower, upon
request of Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without at
least ten (10) days' prior written notice to Lender. Each insurance policy
also shall include an endorsement providing that coverage in favor of
Lender will not be impaired in any way by any act, omission or default of
Borrower or any other person. In connection with all policies covering
assets in which Lender holds or is offered a security interest for the
Loans, Borrower will provide Lender with such loss payable or other
endorsements as Lender may require.

INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the policy;
(d) the properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition,
upon request of Lender (however not more often than annually), Borrower
will have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.

OTHER AGREEMENTS. Subject to any applicable notice and cure period, comply
with all terms and conditions of all other agreements, whether now or
hereafter existing, between Borrower and any other party and notify Lender
immediately in writing of any default in connection with any other such
agreements.

LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.

TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature,
imposed upon Borrower or its properties, income, or profits, prior to the
date on which penalties would attach, and all lawful claims that, if
unpaid, might become a lien or charge upon any of Borrower's properties,
income, or profits. Provided however, Borrower will not be required to pay
and discharge any such assessment, tax, charge, levy, lien or claim so long
as (a) the legality of the same shall be contested in good faith by
appropriate proceedings, and (b) Borrower shall have established on its
books adequate reserves with respect to such contested assessment, tax,
charge, levy, lien, or claim in accordance with generally accepted
accounting practices. Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies,
liens and claims and will authorize the appropriate governmental official
to deliver to Lender at any time a written statement of any assessments,
taxes, charges, levies, liens and claims against Borrower's properties,
income, or profits.

PERFORMANCE. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely
manner, and promptly notify Lender if Borrower learns of the occurrence of
any event which constitutes an Event of Default under this Agreement or
under any of the Related Documents.

OPERATIONS. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable
federal, state and municipal laws, ordinances, rules and regulations
respecting its properties, charters, businesses and operations, including
without limitation, compliance with the Americans With Disabilities Act and
with all minimum funding standards and other requirements of ERISA and
other laws applicable to Borrower's employee benefit plans.

INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and
records. If Borrower now or at any time hereafter maintains any records
(including without limitation computer generated records and computer
software programs for the generation of such records) in the possession of
a third party, Borrower, upon request of Lender, shall notify such party to
permit Lender free access to such records at all reasonable times and to
provide Lender with copies of any records it may request, all at Borrower's
expense.

COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender
NOT APPLICABLE and at the time of each disbursement of Loan proceeds with a
certificate executed by Borrower's chief financial officer, or other
officer or person acceptable to Lender, certifying that the representations
and warranties set forth in this Agreement are true and correct as of the
date of the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.

ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all
respects with all environmental protection federal, state and local laws,
statutes, regulations and ordinances; not cause or permit to exist, as a
result of an intentional or unintentional action or omission on its part or
on the part of any third party, on property owned and/or occupied by
Borrower, any environmental activity where damage may result to the
environment, unless such environmental activity is pursuant to and in
compliance with the conditions of a permit issued by the appropriate
federal, state or local governmental authorities; shall furnish to Lender
promptly and in any event within thirty (30) days after receipt thereof a
copy of any notice, summons, lien, citation, directive, letter or other
communication from any governmental agency or instrumentality concerning
any intentional or unintentional action or omission on Borrower's part in
connection with any environmental activity whether or not there is damage
to the environment and/or other natural resources.

ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.

RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law,
rule, regulation or guideline, or the interpretation or application of any
thereof by any court or administrative or governmental authority (including any
request or policy not having the force of law) shall impose, modify or make
applicable any taxes (except U.S. federal, state or local income or franchise
taxes imposed on Lender), reserve requirements, capital adequacy requirements or
other obligations which would (a) increase the cost to Lender for extending or
maintaining the credit facilities to which this Agreement relates, (b) reduce
the amounts payable to Lender under this Agreement or the Related Documents, or
(c) reduce the rate of return on Lender's capital as a consequence of Lender's
obligations with respect to the credit facilities to which this Agreement
relates, then Borrower agrees to pay Lender such additional amounts as will
compensate Lender therefor, within five (5) days after Lender's written demand
for such payment, which demand shall be accompanied by an explanation of such
imposition or charge and a calculation in reasonable detail of the additional
amounts payable by Borrower, which explanation and calculations shall be
conclusive in the absence of manifest error.

NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:

INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, and as disclosed to Lender in writing create, incur or assume
indebtedness for borrowed money, including capital leases, (b) except as
allowed as a Permitted Lien, sell, transfer, mortgage, assign, pledge,
lease, grant a security interest in, or encumber any of Borrower's assets,
or (c) [See Attachment A, Note 2] sell with recourse any of Borrower's
accounts, except to Lender.

CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, change its name, dissolve or
transfer or sell Collateral out of the ordinary course of business, (c) pay
any dividends on Borrower's stock (other than dividends payable in its
stock), provided, however that notwithstanding the foregoing, but only so
long as no Event of Default has occurred and is continuing or would result
from

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03-27-1997 BUSINESS LOAN AGREEMENT Page 4
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the payment of dividends, if Borrower is a "Subchapter S Corporation" (as
defined in the Internal Revenue Code of 1986, as amended), Borrower may pay
cash dividends on its stock to its shareholders from time to time in
amounts necessary to enable the shareholders to pay income taxes and make
estimated income tax payments to satisfy their liabilities under federal
and state law which arise solely from their status as Shareholders of a
Subchapter S Corporation because of their ownership of shares of stock of
Borrower, or (d) purchase or retire any of Borrower's outstanding shares or
alter or amend Borrower's capital structure.

LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money
or assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.

CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender; or (e) Lender in good faith deems itself insecure, even
though no Event of Default shall have occurred.

ACCESS LAWS. Without limiting the generality of any provision of this agreement
requiring Borrower to comply with applicable laws, rules, and regulations,
Borrower agrees that it will at all times comply with applicable laws relating
to disabled access including, but not limited to, all applicable titles of the
Americans with Disabilities Act of 1990.

STATUTE OF FRAUDS DISCLOSURE. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN
MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW.

ANNUAL RESTING LINE OF CREDIT. As a condition for Borrower's line of credit
facility with Lender, Borrower agrees to rest the line of credit and leave at
zero (0) dollars the balance owing thereunder for a period of not less than
thirty (30) consecutive days annually.

RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on the Indebtedness against
any and all such accounts, and, at Lender's option, to administratively freeze
all such accounts to allow Lender to protect Lender's charge and setoff rights
provided on this paragraph.

EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:

DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment within 5
days after payment is due on the Loans.

OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure
of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower. See Attachment A, Note 3.

DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.

FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at
any time thereafter.

DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
Security Agreement to create a valid and perfected Security Interest) at
any time and for any reason.

INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.

CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any creditor
of any Grantor against any collateral securing the Indebtedness, or by any
governmental agency. This includes a garnishment, attachment, or levy on
or of any of Borrower's deposit accounts with Lender.

EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or any Guarantor dies
or becomes incompetent, or revokes or disputes the validity of, or
liability under, any Guaranty of the Indebtedness.

CHANGE IN OWNERSHIP. Acquisition by any one person of a majority of
Borrower's Common Stock.

ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition.

INSECURITY. Lender, in good faith, deems itself insecure.

EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option, all
Indebtedness immediately will become due and payable, all without notice of any
kind to Borrower, except that in the case of an Event of Default of the type
described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's
rights and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of Borrower or of any Grantor shall not affect Lender's
right to declare a default and to exercise its rights and remedies.

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:

AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.

APPLICABLE LAW. This Agreement has been delivered to Lender and accepted
by Lender in the State of Washington. If there is a lawsuit, Borrower
agrees upon Lender's request to submit to the jurisdiction of the courts of
King County, the State of Washington. Subject to the provisions on
arbitration, this Agreement shall be governed by and construed in
accordance with the laws of the State of Washington.

ARBITRATION. Lender and Borrower agree that all disputes, claims and
controversies between them, whether individual, joint, or class in nature,
arising from this Agreement or otherwise, including without limitation
contract and tort disputes, shall be arbitrated pursuant to the Rules of
the American Arbitration Association, upon request of either party. No act
to take or dispose of any Collateral shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief or a temporary
restraining order; invoking a power of sale under any deed of trust or
mortgage; obtaining a writ of attachment or imposition of a receiver; or
exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to
Article 9 of the Uniform Commercial Code. Any disputes, claims, or
controversies concerning the lawfulness or reasonableness of any act, or
exercise of any right, concerning any Collateral, including any claim to
rescind, reform, or otherwise modify any agreement relating to the
Collateral, shall also be arbitrated, provided however that no arbitrator
shall have the right or the power to enjoin or restrain any act of any
party. Judgment upon any award rendered by any arbitrator may be entered in
any court having jurisdiction. Nothing in this Agreement shall preclude
any party from seeking equitable relief from a court of competent
jurisdiction. The statute of limitations, estoppel, waiver, laches, and
similar doctrines which would otherwise be applicable in an action brought
by a party shall be applicable in any arbitration proceeding, and the
commencement of an arbitration proceeding shall be deemed the commencement
of an action for these purposes. The Federal Arbitration Act shall apply
to the construction, interpretation, and enforcement of this arbitration
provision.

CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.

MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Borrower under
this Agreement shall be joint and several, and all references to Borrower
shall mean each and every Borrower. This means that each of the persons
signing below is responsible for ALL obligations in this Agreement.

CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation
whatsoever, to any one or more purchasers, or potential purchasers, any
information or knowledge Lender may have about Borrower or about any other
matter relating to the Loan, and Borrower hereby waives any rights to
privacy it may have with respect to such matters. Borrower additionally
waives any and all notices of sale of participation interests, as well as
all notices of any repurchase of such participation interests. Borrower
also agrees that

<PAGE>

03-27-1997 BUSINESS LOAN AGREEMENT Page 5
Loan No 391-91 (Continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
the purchasers of any such participation interests will be considered as
the absolute owners of such interests in the Loans and will have all the
rights granted under the participation agreement or agreements governing
the sale of such participation interests. Borrower further waives all
rights of offset or counterclaim that it may have now or later against
Lender or against any purchaser of such a participation interest and
unconditionally agrees that either Lender or such purchaser may enforce
Borrower's obligation under the Loans irrespective of the failure or
insolvency of any holder of any interest in the Loans. Borrower further
agrees that the purchaser of any such participation interests may enforce
its interests irrespective of any personal claims or defenses that Borrower
may have against Lender.

COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
reasonable expenses, including without limitation attorneys' fees, incurred
in connection with the preparation, execution, enforcement, modification
and collection of this Agreement or in connection with the Loans made
pursuant to this Agreement. Lender may pay someone else to help collect
the Loans and to enforce this Agreement, and Borrower will pay that amount.
This includes, subject to any limits under applicable law, Lender's
attorneys' fees and Lender's legal expenses, whether or not there is a
lawsuit, including attorneys' fees for bankruptcy proceedings (including
efforts to modify or vacate any automatic stay or injunction), appeals, and
any anticipated post-judgment collection services. Borrower also will pay
any court costs, in addition to all other sums provided by law.

NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier or deposited in the United States mail, first class, postage
prepaid, addressed to the party to whom the notice is to be given at the
address shown above. Any party may change its address for notices under
this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address.
To the extent permitted by applicable law, if there is more than one
Borrower, notice to any Borrower will constitute notice to all Borrowers.
For notice purposes, Borrower will keep Lender informed at all times of
Borrower's current address(es).

SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.

SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.

SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.

SURVIVAL. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.

WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a waiver
of Lender's right otherwise to demand strict compliance with that provision
or any other provision of this Agreement. No prior waiver by Lender, nor
any course of dealing between Lender and Borrower, or between Lender and
any Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent in subsequent instances where such consent is required,
and in all cases such consent may be granted or withheld in the sole
discretion of Lender.

BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
MARCH 27, 1997.

BORROWER:
APEX PC SOLUTIONS, INC.

BY: /s/ Douglas A. Bevis
----------------------------------
TITLE: Chief Financial Officer

LENDER:
U.S. BANK OF WASHINGTON, NATIONAL ASSOCIATION

BY: /s/ Tony W. Chalfant, V.P.
----------------------------------
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.23 (c) 1997 CFI ProServices, Inc.
All rights reserved. [WA-C40 APEXPC.LN C3.OVL]
<PAGE>

ATTACHMENT A

This Attachment is attached to and by reference made a part of the BUSINESS LOAN
AGREEMENT dated March 27, 1997, as if the terms and conditions herein have been
fully set forth therein.

NOTE 1
except for merchandise, cleaning supplies, and other similar materials sold,
used, stored, or otherwise handled in the ordinary course of Borrower's existing
business in compliance with all Hazardous Materials Laws.

NOTE 2
and except for inventory sold and accounts collected in the ordinary course of
Borrower's business.

NOTE 3
within the cure period specified in such other agreement (and if no cure period
is specified, then within 5 days after notice of such default).

The undersigned hereby acknowledges receipt of a completed copy of this
Attachment.

Apex PC Solutions, Inc.

By: /s/ Douglas A. Bevis
--------------------
Title: Chief Financial Officer
-------------------------

U.S. Bank of Washington, National Association

By: /s/ Tony W. Chalfant
--------------------
Title: Vice President
--------------------------

<PAGE>
ALTERNATIVE RATE OPTIONS
PROMISSORY NOTE
(PRIME RATE, IBOR)

$5,000,000.00 Date: March 27, 1997

Apex PC Solutions, Inc. ("Borrower")

U. S. BANK OF WASHINGTON, NATIONAL ASSOCIATION ("Lender")

1. TYPE OF CREDIT. This note is given to evidence Borrower's
obligation to repay all sums which Lender may from time to time advance to
Borrower ("Advances") under a:

/ / single disbursement loan. Amounts loaned to Borrower hereunder will
be disbursed in a single Advance in the amount shown in Section 2.

/X/ revolving line of credit. No Advances shall be made which create a
maximum amount outstanding at any one time which exceeds the maximum
amount shown in Section 2. However, Advances hereunder may be
borrowed, repaid and reborrowed, and the aggregate Advances loaned
hereunder from time to time may exceed such maximum amount.

/ / non-revolving line of credit. Each Advance made from time to time
hereunder shall reduce the maximum amount available shown in Section
2. Advances loaned hereunder which are repaid may not be reborrowed.

2. PRINCIPAL BALANCE. The unpaid principal balance of all Advances
outstanding under this note ("Principal Balance") at one time shall not exceed
$5,000,000.00.

3. PROMISE TO PAY. For value received Borrower promises to pay to
Lender or order at 10800 NE 8th St., Ste. 800, Bellevue, WA 98004, the
Principal Balance of this note, with interest thereon at the rate(s)
specified in Sections 4 and 11 below.

4. INTEREST RATE. The interest rate on the Principal Balance
outstanding may vary from time to time pursuant to the provisions of this
note. Subject to the provisions of this note, Borrower shall have the option
from time to time of choosing to pay interest at the rate or rates and for
the applicable periods of time based on the rate options provided herein;
PROVIDED, however, that once Borrower notifies Lender of the rate option
chosen in accordance with the provisions of this note, such notice shall
constitute Borrower's irrevocable request for an Advance hereunder at the
rate option specified in such notice. The rate options are the Prime
Borrowing Rate and the IBOR Borrowing Rate, each as defined herein.

(a) THE PRIME BORROWING RATE.

(i) The Prime Borrowing Rate is a per annum rate equal to Lender's
prime rate plus 0.00% per annum.

(ii) Whenever Borrower desires to use the Prime Borrowing Rate
option, Borrower shall give Lender notice orally or in writing in accordance
with Section 15 of this note, which notice shall specify the requested
disbursement date and principal amount of the Advance, and that Borrower has
chosen the Prime Borrowing Rate option.

(iii) Prepayments of all or any part of the Principal Balance bearing
interest at the Prime Borrowing Rate may be made at any time without penalty.
Upon prepayment of any such principal amount, Borrower also must pay all
accrued interest thereon to the date of prepayment.

(iv) Subject to Section 11 of this note, interest shall accrue on
the unpaid Principal Balance at the Prime Borrowing Rate unless and except to
the extent that the IBOR Borrowing Rate is in effect.

(b) THE IBOR BORROWING RATE.

(i) The following terms shall have the following meanings:

"Business Day" means any day other than a Saturday, Sunday, or
other day that commercial banks in Portland, Oregon or New York City are
authorized or required by law to close.

"IBOR Amount" means each principal amount for which Borrower
chooses to have the IBOR Borrowing Rate apply for any specified IBOR Interest
Period.

"IBOR Interest Period" means as to any IBOR Amount, a period of
1, 2, 3, 6 and 12 months commencing on the date the IBOR Borrowing Rate
becomes applicable thereto; PROVIDED, however, that: (A) no IBOR Interest
Period shall be selected which would extend beyond April 30, 1998; (B) no
IBOR Interest Period shall extend beyond the date of any principal payment
required under Section 6 of this note, unless the sum of the principal
amounts bearing interest at the Prime Borrowing Rate, plus IBOR Amounts with
IBOR Interest Periods ending on or before the scheduled date of such
principal payment, plus principal amounts remaining unborrowed under a line
of credit, equals or exceeds the amount of such principal payment; (C) any
IBOR Interest Period which would otherwise expire on a day which is not a
Business Day, shall be extended to the next succeeding Business Day, unless
the result of such extension would be to extend such IBOR Interest Period
into another calendar month, in which event the IBOR Interest Period shall
end on the immediately preceding Business Day; and (D) any IBOR Interest
Period that begins on the last Business Day of a calendar month (or on a day
for which there is no numerically corresponding day in the calendar month at
the end of such IBOR Interest Period) shall end on the last Business Day of a
calendar month.

(ii) The IBOR Borrowing Rate is Lender's IBOR Rate plus 1.90% per
annum. Lender's IBOR Rate for any IBOR Interest Period is the rate per annum
(computed on the basis of a 360-day year and the actual number of days
elapsed) equal to the arithmetic average (rounded upward to the nearest 1/16
of 1%) of the rates per annum determined by Lender as of the times specified
in Section 4(b)(iii) on the date two (2) Business Days prior to the first day
of such IBOR Interest Period as the rates offered to Lender by three
Eurodollar money market dealers in such Eurodollar market as may be selected
by Lender for U.S. dollar deposits to be delivered on the first day of such
IBOR Interest Period for the number of months therein; PROVIDED, however,
that Lender's IBOR Rate shall be adjusted to take into account the maximum
reserves required to be maintained for Eurocurrency liabilities by banks
during each such IBOR Interest Period as specified in Regulation D of the
Board of Governors of the Federal Reserve System or any successor regulation.

(iii) Borrower may obtain IBOR Borrowing Rate quotes from Lender
between 8:00 a.m. and 12:00 noon (Portland, Oregon time) on any Business Day.
Any IBOR Borrowing Rate quoted (A) before 10:00 a.m. shall be based on
Lender's IBOR Rate determined as of approximately 8:00 a.m. on such day, and
Borrower may request an Advance at such rate only by giving Lender notice in
accordance with Section 4(b)(iv) before 10:00 a.m. on such day; and (B)
between 10:00 a.m. and 12:00 noon shall be based on Lender's IBOR Rate
determined as of approximately 10:00 a.m. on such day, and Borrower may
request an Advance at such rate only by giving Lender notice in accordance
with Section 4(b)(iv) not later than 12:00 noon on such day.

(iv) Whenever Borrower desires to use the IBOR Borrowing Rate
option, Borrower shall give Lender irrevocable notice (either in writing or
orally and promptly confirmed in writing) between 8:00 a.m. and 12:00 noon
(Portland, Oregon time) two (2) Business Days in advance of the desired
effective date of such rate. Any oral notice shall be given by, and any
written notice or confirmation of an oral notice shall be signed by, the
person(s) authorized in Section 15 of this note, and shall specify the
requested effective date of the rate, IBOR Interest Period and IBOR Amount,
and whether Borrower is requesting a new Advance at the IBOR Borrowing Rate
under a line of credit, conversion of any portion of the Principal Balance
bearing interest at the Prime Borrowing Rate to an IBOR Amount, or a new IBOR
Interest Period for an outstanding IBOR Amount. Notwithstanding any other
term of this note, Borrower may elect the IBOR Borrowing Rate in the minimum
principal amount of $1,000,000.00 and in integral multiples of $ 100,000.00;
PROVIDED, however, that no more than 5 separate IBOR Interest Periods may be
in effect at any one time.

Page 1 of 4
<PAGE>

(v) Borrower may not prepay all or any part of any IBOR Amount(s).

(vi) If at any time Lender's IBOR Rate is unascertainable or
unavailable to Lender or if IBOR Rate loans become unlawful, the option to
select the IBOR Borrowing Rate shall terminate immediately. If the IBOR
Borrowing Rate is then in effect, (A) it shall terminate automatically with
respect to all IBOR Amounts (i) on the last day of each then applicable IBOR
Interest Period, if Lender may lawfully continue to maintain such loans, or
(ii) immediately if Lender may not lawfully continue to maintain such loans
through such day, and (B) subject to Section 11, the Prime Borrowing Rate
automatically shall become effective as to such amounts upon such termination.

(vii) If at any time after the date hereof (A) any revision in or
adoption of any applicable law, rule, or regulation or in the interpretation
or administration thereof (i) shall subject Lender or its Eurodollar lending
office to any tax, duty, or other charge, or change the basis of taxation of
payments to Lender with respect to any loans bearing interest based on
Lender's IBOR Rate, or (ii) shall impose or modify any reserve, insurance,
special deposit, or similar requirements against assets of, deposits with or
for the account of, or credit extended by Lender or its Eurodollar lending
office, or impose on Lender or its Eurodollar lending office any other
condition affecting any such loans, and (B) the result of any of the
foregoing is (i) to increase the cost to Lender of making or maintaining any
such loans or (ii) to reduce the amount of any sum receivable under this note
by Lender or its Eurodollar lending office, Borrower shall pay Lender within
15 days after demand by Lender such additional amount as will compensate
Lender for such increased cost or reduction. The determination hereunder by
Lender of such additional amount shall be conclusive in the absence of
manifest error. If Lender demands compensation under this Section 4(b)(vii),
Borrower may upon three (3) Business Days' notice to Lender pay the accrued
interest on all IBOR Amounts, together with any additional amounts payable
under Section 4(b)(viii). Subject to Section 11, upon Borrower's paying such
accrued interest and additional costs, the Prime Borrowing Rate immediately
shall be effective with respect to the unpaid principal balance of such IBOR
Amounts.

(viii) Upon any termination of any IBOR Borrowing Rate (including but
not limited to conversion to another rate) or payment of all or any portion
of any IBOR Amount on a date other than the last day of the then applicable
IBOR Interest Period, including without limitation (A) acceleration under
Section 11 or (B) repayment in response to a notice under Section 4(b)(vii),
Borrower shall pay to Lender on demand such amount as Lender reasonably
determines (determined as though 100% of the applicable IBOR Amount had been
funded in the applicable Eurodollar market) is equivalent to all direct or
indirect losses, expenses, liabilities, or reductions in yield to Lender
resulting therefrom, whether incurred in connection with liquidation or
reemployment of funds or otherwise.

(ix) If Borrower chooses the IBOR Borrowing Rate, Borrower shall pay
interest based on such rate, plus any other applicable taxes or charges
hereunder, even though Lender may have obtained the funds loaned to Borrower
from sources other than the applicable Eurodollar market. Lender's
determination of the IBOR Borrowing Rate and any such taxes or charges shall
be conclusive in the absence of manifest error.

(x) Notwithstanding any other term of this note, Borrower may not
select the IBOR Borrowing Rate if an event of default hereunder has occurred
and is continuing.

(xi) Nothing contained in this note, including without limitation
the determination of any IBOR Interest Period or Lender's quotation of any
IBOR Borrowing Rate, shall be construed to prejudice Lender's right, if any,
to decline to make any requested Advance or to require payment on demand.

5. COMPUTATION OF INTEREST. All interest under Section 4 and Section
11 will be computed at the applicable rate based on a 360-day year and
applied to the actual number of days elapsed.

6. PAYMENT SCHEDULE.

(a) PRINCIPAL. Principal shall be paid:

/ / on demand.
/ / on demand, or if no demand, on_______.
/X/ on APRIL 30, 1998.
/ / subject to Section 7, in installments of
/ / each, plus accrued interest
/ / each including accrued interest
beginning on and on the same day of each thereafter
until when the entire Principal Balance plus interest
thereon shall be due and payable.
/ / (Other)________

(b) INTEREST.

(i) Interest on all amounts bearing interest at the Prime
Borrowing Rate shall be paid:

/X/ on the 30th day of April, 1997 and on the same day of
each month thereafter prior to maturity and at
maturity.
/ / at maturity.
/ / at the time each principal installment is due and at
maturity.
/ / (Other)________

(ii) Interest on all IBOR Borrowing Rate Amounts shall be paid:

/ / on the last day of the applicable IBOR Interest Period,
and if such IBOR Interest Period is longer than three
months, on the last day of each three month period
occurring during such IBOR Interest Period, and at
maturity.
/X/ on the 30th day of April, 1997 and on the same day of
each month thereafter prior to maturity and at
maturity.
/ / at maturity.
/ / at the time each principal installment is due and at
maturity.
/ / (Other)________

7. CHANGE IN PAYMENT AMOUNT. If the interest rate on this note is
subject to change in accordance with Section 4, the holder of this note may,
from time to time, in holder's sole discretion, increase or decrease the
amount of each of the installments remaining unpaid at the time of each
change in rate to an amount holder in its sole discretion deems necessary to
continue amortizing the Principal Balance at the same rate established by the
installment amounts specified in Section 6(a), whether or not a "balloon"
payment may also be due upon maturity of this note. Holder shall notify the
undersigned of each such change in writing. Whether or not the installment
amount is increased under this Section 7, Borrower understands that, as a
result of increases in the rate of interest in accordance with Section 4, the
final payment due, whether or not a "balloon" payment, shall include the
entire Principal Balance and interest thereon then outstanding, and may be
substantially more than the installment specified in Section 6.

8. ALTERNATE PAYMENT DATE. Notwithstanding any other term of this note,
if in any month there is no day on which a scheduled payment would otherwise
be due (e.g. February 31), such payment shall be paid on the last banking day
of that month.

9. PAYMENT BY AUTOMATIC CHARGE.

/X/ Please automatically deduct the amount of all principal and interest
payments from account number 0287-037238. If there are insufficient funds in
the account to pay the automatic deduction in full, Lender may allow the account
to become overdrawn, or Lender may reverse the automatic deduction. Borrower
will pay all the fees on the account which result from the automatic deductions,
including any overdraft/NSF charges. If for any reason Lender does not charge
the account for a payment, or if an automatic payment is reversed, the payment
is still due according to this note. If the account is a Money

Page 2 of 4
<PAGE>

Market Account, the number of withdrawals from that account is limited as set
out in the agreement. Lender may cancel the automatic deduction at any time in
its discretion.

Provided, however, if no account number is entered above, Borrower does not want
to make payments by automatic charge.

10. LENDER'S PRIME RATE. Lender's prime rate is the rate of interest
which Lender from time to time establishes as its prime rate and is not, for
example, the lowest rate of interest which Lender collects from any borrower or
class of borrowers. When Lender's prime rate is applicable under Section 4(a)
or 11(b), the interest rate hereunder shall be adjusted without notice effective
on the day Lender's prime rate changes, but in no event shall the rate of
interest be higher than allowed by law.

11. DEFAULT.

(a) Without prejudice to any right of Lender to require payment on
demand or to decline to make any requested Advance, each of the following
shall be an event of default: (i) Borrower fails to make any payment within 5
days after when due. (ii) Borrower fails to perform or comply with any term,
covenant or obligation in this note or any agreement related to this note, or
in any other agreement or loan Borrower has with Lender within the cure
period specified in such other agreement. (and if no such cure period is
specified, then within 5 days after notice of such default. (iii) Borrower
defaults under any loan, extension of credit, security agreement, purchase or
sales agreement, or any other agreement, in favor of any other creditor or
person that may materially affect any of Borrower's property or Borrower's
ability to repay this note or perform Borrower's obligations under this note
or any related documents. (iv) Any representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf is false or
misleading in any material respect. (v) Borrower becomes insolvent, a
receiver is appointed for any part of Borrower's property, Borrower makes an
assignment for the benefit of creditors, or any proceeding is commenced
either by Borrower or against borrower under any bankruptcy or insolvency
laws. (vi) Any creditor tries to take any of Borrower's property on or in
which Lender has a lien or security interest. This includes a garnishment of
any of Borrower's accounts with Lender. (vii) Any of the events described in
this default section occurs with respect to any guarantor of this note or any
guaranty of Borrower's indebtedness to Lender ceases to be, or is asserted
not to be, in full force and effect. (viii) Lender in good faith deems itself
insecure. If this note is payable on demand, the inclusion of specific events
of default shall not prejudice Lender's right to require payment on demand or
to decline to make any requested Advance.

(b) Without prejudice to any right of Lender to require payment on demand,
upon the occurrence of an event of default, Lender may declare the entire unpaid
Principal Balance on this note and all accrued unpaid interest immediately due
and payable, without notice. Upon default, including failure to pay upon final
maturity, Lender, at its option, may also, if permitted under applicable law,
increase the interest rate on this note to a rate equal to the Prime Borrowing
Rate plus 5%. The interest rate will not exceed the maximum rate permitted by
applicable law. In addition, if any payment of principal or interest is 15 or
more days past due, Borrower will be charged a late charge of 5% of the
delinquent payment.

12. EVIDENCE OF PRINCIPAL BALANCE; PAYMENT ON DEMAND. Holder's records
shall, at any time, be conclusive evidence of the unpaid Principal Balance and
interest owing on this note. Notwithstanding any other provisions of this note,
in the event holder makes Advances hereunder which result in an unpaid Principal
Balance on this note which at any time exceeds the maximum amount specified in
Section 2, Borrower agrees that all such Advances, with interest, shall be
payable on demand.

13. LINE OF CREDIT PROVISIONS. If the type of credit indicated in Section
1 is a revolving line of credit or a non-revolving line of credit, Borrower
agrees that Lender is under no obligation and has not committed to make any
Advances hereunder. Each Advance hereunder shall be made at the sole option of
Lender.

14. DEMAND NOTE. If this note is payable on demand, Borrower acknowledges
and agrees that (a) Lender is entitled to demand Borrower's immediate payment in
full of all amounts owing hereunder and (b) neither anything to the contrary
contained herein or in any other loan documents (including but not limited to,
provisions relating to defaults, rights of cure, default rate of interest,
installment payments, late charges, periodic review of Borrower's financial
condition, and covenants) nor any act of Lender pursuant to any such provisions
shall limit or impair Lender's right or ability to require Borrower's payment in
full of all amounts owing hereunder immediately upon Lender's demand.

15. REQUESTS FOR ADVANCES.

(a) Any Advance may be made or interest rate option selected upon the
request of Borrower (if an individual), any of the undersigned (if Borrower
consists of more than one individual), any person or persons authorized in
subsection (b) of this Section 15, and any person or persons otherwise
authorized to execute and deliver promissory notes to Lender on behalf of
Borrower.

(b) Borrower hereby authorizes any 1 of the following individuals to
request Advances and to select interest rate options: KEVIN HAFER AND DOUGLAS
BEVIS, unless Lender is otherwise instructed in writing.

(c) All Advances made pursuant to this Section 15 shall be disbursed by
deposit directly to Borrower's account number 0287-037238 at the Bellevue
Highlands branch of Lender, or by cashier's check issued to Borrower.

(d) Borrower agrees that Lender shall have a reasonable obligation to
verify the identity of any person making any request pursuant to Section 15, and
Borrower assumes all risks of the validity and authorization of such requests.
In consideration of Lender agreeing, at its sole discretion, to make Advances
upon such requests, Borrower promises to pay holder, in accordance with the
provisions of this note, the Principal Balance together with interest thereon
and other sums due hereunder, although any Advances may have been requested by a
person or persons not authorized to do so.

16. PERIODIC REVIEW. Lender will review Borrower's credit accommodations
periodically. At the time of the review, Borrower will furnish Lender with any
additional information regarding Borrower's financial condition and business
operations that Lender requests. This information may include but is not
limited to, financial statements, tax returns, lists of assets and liabilities,
agings of receivables and payable, inventory schedules, budgets and forecasts.
If upon review, Lender, in its sole discretion, determines that there has been a
material adverse change in Borrower's financial condition, Borrower will be in
default. Upon default, Lender shall have all rights specified herein.

17. NOTICES. Any notice hereunder may be given by ordinary mail, postage
paid and addressed to Borrower at the last known address of Borrower as shown on
holder's records. If Borrower consists of more than one person, notification of
any of said persons shall be complete notification of all. Notice may be given
either before or reasonably soon after the effective date of the change.

18. ATTORNEY FEES. Whether or not litigation or arbitration is commenced,
Borrower promises to pay all costs of collecting overdue amounts. Without
limiting the foregoing, in the event that holder consults an attorney regarding
the enforcement of any of its rights under this note or any document securing
the same, or if this note is placed in the hands of an attorney for collection
or if suit or litigation is brought to enforce this note or any document
securing the same, Borrower promises to pay all costs thereof including such
additional sums as the court or arbitrator(s) may adjudge reasonable as attorney
fees, including without limitation, costs and attorney fees incurred in any
appellate court, in any proceeding under the bankruptcy code, or in any
receivership and post-judgment attorney fees incurred in enforcing any judgment.

19. WAIVERS; CONSENT. Each party hereto, whether maker, co-maker,
guarantor or otherwise, waives diligence, demand, presentment for payment,
notice of non-payment, protest and notice of protest and waives all defenses
based on suretyship or impairment of collateral. Without notice to Borrower and
without diminishing or affecting Lender's rights or Borrower's obligations
hereunder, Lender may deal in any manner with any person who at any time is
liable for, or provides any real or personal property collateral for, any
indebtedness of Borrower to Lender, including the indebtedness evidenced by this
note. Without limiting the foregoing, Lender may, in its sole discretion: (a)
make secured or unsecured loans to Borrower and agree to any number of waivers,
modifications, extensions and renewals of any length of such loans, including
the loan evidenced by this note; (b) impair, release (with or without
substitution of new collateral), fail to perfect a security interest in, fail to
preserve the value of, fail to dispose of in accordance with applicable law, any
collateral provided by any person; (c) sue, fail to sue, agree not to sue,
release, and settle or compromise with, any person.

20. JOINT AND SEVERAL LIABILITY. All undertakings of the undersigned
Borrowers are joint and several and are binding upon any marital community of
which any of the undersigned are members. Holder's rights and remedies under
this note shall be cumulative.

21. ARBITRATION.

Page 3 of 4
<PAGE>

(a) Either Lender or Borrower may require that all disputes, claims,
counterclaims and defenses, including those based on or arising from any alleged
tort ("Claims") relating in any way to this note or any transaction of which
this note is a part (the "Loan"), be settled by binding arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and Title 9 of the U.S. Code. All Claims will be subject to the
statutes of limitation applicable if they were litigated. This provision is
void if the Loan, at the time of the proposed submission to arbitration, is
secured by real property located outside of Oregon or Washington, or if the
effect of the arbitration procedure (as opposed to any Claims of Borrower) would
be to materially impair Lender's ability to realize on any collateral securing
the Loan.

(b) If arbitration occurs and each party's Claim is less than $100,000, one
neutral arbitrator will decide all issues; if any party's Claim is $100,000
or more, three neutral arbitrators will decide all issues. All arbitrators
will be active California State Bar members in good standing. All
arbitration hearings will be held in King County, Washington. In addition to
all other powers, the arbitrator(s) shall have the exclusive right to
determine all issues of arbitrability. Judgment on any arbitration award may
be entered in any court with jurisdiction.

(c) If either party institutes any judicial proceeding relating to the Loan,
such action shall not be a waiver of the right to submit any Claim to
arbitration. In addition, each has the right before, during and after any
arbitration to exercise any number of the following remedies, in any order or
concurrently: (i) setoff; (ii) self-help repossession; (iii) judicial or
non-judicial foreclosure against real or personal property collateral; and (iv)
provisional remedies, including injunction, appointment of receiver, attachment,
claim and delivery and replevin.

22. GOVERNING LAW.

This note shall be governed by and construed and enforced in accordance with the
laws of the State of Washington without regard to conflicts of law principles;
PROVIDED, however, that to the extent that Lender has greater rights or remedies
under Federal law, this provision shall not be deemed to deprive Lender of such
rights and remedies as may be available under Federal law.

EACH OF THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS
DOCUMENT.

APEX PC SOLUTIONS, INC.
Borrower Name (Corporation, Partnership or other Entity)

/s/ Douglas A. Bevis
- -----------------------------------
By DOUGLAS A. BEVIS
----------------------------
Title CHIEF FINANCIAL OFFICER
-------------------------

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

For valuable consideration, Lender agrees to the terms of the arbitration
provision set forth in this note.

Lender Name: U. S. BANK OF WASHINGTON,
NATIONAL ASSOCIATION

By: /s/ Tony W. Chalfant
-----------------------------------

Title: Vice President
--------------------------------

Date: 4/2/97
---------------------------------

Page 4 of 4

<PAGE>

[LOGO]

COMMERCIAL SECURITY AGREEMENT

Borrower: APEX PC SOLUTIONS, INC. Lender: U.S. BANK OF WASHINGTON, NATIONAL ASSOCIATION
20031 - 142ND AVENUE NORTHEAST East King County Corporate Banking
WOODINVILLE, WA 98072 10800 NE 8th Street, Suite 1000
Bellevue, WA 98004

</TABLE>

THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN APEX PC SOLUTIONS,
INC. (REFERRED TO BELOW AS "GRANTOR"); AND U.S. BANK OF WASHINGTON, NATIONAL
ASSOCIATION (REFERRED TO BELOW AS "LENDER"). FOR VALUABLE CONSIDERATION,
GRANTOR GRANTS TO LENDER A SECURITY INTEREST IN THE COLLATERAL TO SECURE THE
INDEBTEDNESS AND AGREES THAT LENDER SHALL HAVE THE RIGHTS STATED IN THIS
AGREEMENT WITH RESPECT TO THE COLLATERAL, IN ADDITION TO ALL OTHER RIGHTS
WHICH LENDER MAY HAVE BY LAW.

AGREEMENT. The word "Agreement" means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.

COLLATERAL. The word "Collateral" means the following described property
of Grantor, whether now owned or hereafter acquired, whether now existing
or hereafter arising, and wherever located:

ALL INVENTORY, CHATTEL PAPER, ACCOUNTS AND GENERAL INTANGIBLES,
TOGETHER WITH THE FOLLOWING SPECIFICALLY DESCRIBED PROPERTY: THE
FOREGOING ARE COVERED WHEREVER LOCATED.

In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:

(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions
for any property described above.

(b) All products and produce of any of the property described in this
Collateral section.

(c) All accounts, general intangibles, instruments, rents, monies,
payments, and all other rights, arising out of a sale, lease, or other
disposition of any of the property described in this Collateral
section.

(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.

(e) All records and data relating to any of the property described in
this Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or
data on electronic media.

EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."

GRANTOR. The word "Grantor" means APEX PC SOLUTIONS, INC., its successors
and assigns

GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.

INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor is responsible under
this Agreement or under any of the Related Documents. In addition, the
word "Indebtedness" includes all other obligations, debts and liabilities,
plus interest thereon, of Grantor, or any one or more of them, to Lender,
as well as all claims by Lender against Grantor, or any one or more of
them, whether existing now or later; whether they are voluntary or
involuntary, due or not due, direct or indirect, absolute or contingent,
liquidated or unliquidated; whether Grantor may be liable individually or
jointly with others; whether Grantor may be obligated as guarantor, surety,
accommodation party or otherwise; whether recovery upon such indebtedness
may be or hereafter may become barred by any statute of limitations; and
whether such indebtedness may be or hereafter may become otherwise
unenforceable.

LENDER. The word "Lender" means U.S. BANK OF WASHINGTON, NATIONAL
ASSOCIATION, its successors and assigns.

NOTE. The word "Note" means the note or credit agreement dated March 27,
1997, in the principal amount of $5,000,000.00 from APEX PC SOLUTIONS, INC.
to Lender, together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of and substitutions for the note or credit
agreement.

RIGHT OF SETOFF. Grantor hereby grants Lender a contractual possessory security
interest in and hereby assigns, conveys, delivers, pledges, and transfers all of
Grantor's right, title and interest in and to Grantor's accounts with Lender
(whether checking, savings, or some other account), including all accounts held
jointly with someone else and all accounts Grantor may open in the future,
excluding, however, all IRA and Keogh accounts, and all trust accounts for which
the grant of a security interest would be prohibited by law. Grantor authorizes
Lender, to the extent permitted by applicable law, to charge or setoff all
Indebtedness against any and all such accounts, and, at Lender's option, to
administratively freeze all such accounts to allow Lender to protect Lender's
charge and setoff rights provided in this paragraph.

OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:

PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby appoints Lender as its
irrevocable attorney-in-fact for the purpose of executing any documents
necessary to perfect or to continue the security interest granted in this
Agreement. Lender may at any time, and without further authorization from
Grantor, file a carbon, photographic or other reproduction of any financing
statement or of this Agreement for use as a financing statement. Grantor
will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of
Grantor. THIS IS A CONTINUING SECURITY AGREEMENT AND WILL CONTINUE IN
EFFECT EVEN THOUGH ALL OR ANY PART OF THE INDEBTEDNESS IS PAID IN FULL AND
EVEN THOUGH FOR A PERIOD OF TIME GRANTOR MAY NOT BE INDEBTED TO LENDER.

NO VIOLATION. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a
party, and its certificate or articles of incorporation and bylaws do not
prohibit any term or condition of this Agreement.

ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear
to be on the Collateral. At the time any account becomes subject to a
security interest in favor of Lender, the account shall be a good and valid
account representing an undisputed, bona fide indebtedness incurred by the
account debtor, for merchandise held subject to delivery instructions or
theretofore shipped or delivered pursuant to a contract of sale, or for
services theretofore performed by Grantor with or for the account debtor;
there shall be no setoffs or counterclaims against any such account; and no
agreement under which any deductions or discounts may be claimed shall have
been made with the account debtor except those disclosed to Lender in
writing.

LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will deliver
to Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased
by Grantor; (b) all real property being rented or leased by Grantor; (c)
all storage facilities owned, rented, leased, or being used by Grantor; and
(d) all other properties where Collateral is or may be located. Except in
the ordinary course of its business, Grantor shall not remove the

<PAGE>

03-27-1997 COMMERCIAL SECURITY AGREEMENT Page 2
Loan No. 391-91 (Continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Collateral from its existing locations without the prior written consent of
Lender.

REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the
records concerning the Collateral) at Grantor's address shown above, or at
such other locations as are acceptable to Lender. Except in the ordinary
course of its business, including the sales of inventory, Grantor shall not
remove the Collateral from its existing locations without the prior written
consent of Lender. To the extent that the Collateral consists of vehicles,
or other titled property, Grantor shall not take or permit any action which
would require application for certificates of title for the vehicles
outside the State of Washington, without the prior written consent of
Lender.

TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
While Grantor is not in default under this Agreement, Grantor may sell
inventory, but only in the ordinary course of its business and only to
buyers who qualify as a buyer in the ordinary course of business. A sale
in the ordinary course of Grantor's business does not include a transfer in
partial or total satisfaction of a debt or any bulk sale. Grantor shall
not pledge, mortgage, encumber or otherwise permit the Collateral to be
subject to any lien, security interest, encumbrance, or charge, other than
the security interest provided for in this Agreement, without the prior
written consent of Lender. This includes security interests even if junior
in right to the security interests granted under this Agreement. Unless
waived by Lender, all proceeds from any disposition of the Collateral (for
whatever reason) shall be held in trust for Lender and shall not be
commingled with any other funds; provided however, this requirement shall
not constitute consent by Lender to any sale or other disposition. Upon
receipt, Grantor shall immediately deliver any such proceeds to Lender.

TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's
rights in the Collateral against the claims and demands of all other
persons.

COLLATERAL SCHEDULES AND LOCATIONS. As often as Lender shall require, and
insofar as the Collateral consists of accounts and general intangibles,
Grantor shall deliver to Lender schedules of such Collateral, including
such information as Lender may require, including without limitation names
and addresses of account debtors and agings of accounts and general
intangibles. Insofar as the Collateral consists of inventory, Grantor
shall deliver to Lender, as often as Lender shall require, such lists,
descriptions, and designations of such Collateral as Lender may require to
identify the nature, extent, and location of such Collateral. Such
information shall be submitted for Grantor and each of its subsidiaries or
related companies.

MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit
or permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall
have the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify Lender of
all cases involving the return, rejection, repossession, loss or damage of
or to any Collateral; of any request for credit or adjustment or of any
other dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral or the value or the amount
of the Collateral.

TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness,
or upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and
so long as Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion. If the Collateral is subjected to a lien which is
not discharged within fifteen (15) days, Grantor shall deposit with Lender
cash, a sufficient corporate surety bond or other security satisfactory to
Lender in an amount adequate to provide for the discharge of the lien plus
any interest, costs, attorneys' fees or other charges that could accrue as
a result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender as an
additional obligee under any surety bond furnished in the contest
proceedings.

COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not jeopardized.

HAZARDOUS SUBSTANCES. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien
on the Collateral, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"),
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901,
et seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. The terms "hazardous waste" and
"hazardous substance" shall also include, without limitation, petroleum and
petroleum by-products or any fraction thereof and asbestos. The
representations and warranties contained herein are based on Grantor's due
diligence in investigating the Collateral for hazardous wastes and
substances. Grantor hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in the event Grantor becomes
liable for cleanup or other costs under any such laws, and (b) agrees to
indemnify and hold harmless Lender against any and all claims and losses
resulting from a breach of this provision of this Agreement. This
obligation to indemnify shall survive the payment of the Indebtedness and
the satisfaction of this Agreement.

MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, upon request of Lender, will deliver to
Lender from time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not be
cancelled or diminished without at least ten (10) days' prior written
notice to Lender and not including any disclaimer of the insurer's
liability for failure to give such a notice. Each insurance policy also
shall include an endorsement providing that coverage in favor of Lender
will not be impaired in any way by any act, omission or default of Grantor
or any other person. In connection with all policies covering assets in
which Lender holds or is offered a security interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require.
If Grantor at any time fails to obtain or maintain any insurance as
required under this Agreement, Lender may (but shall not be obligated to)
obtain such insurance as Lender deems appropriate, including if it so
chooses "single interest insurance," which will cover only Lender's
interest in the Collateral.

APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds which
have not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.

INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following: (a)
the name of the insurer; (b) the risks insured; (c) the amount of the
policy; (d) the property insured; (e) the then current value on the basis
of which insurance has been obtained and the manner of determining that
value; and (f) the expiration date of the policy. In addition, Grantor
shall upon request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the
cash value or replacement cost of the Collateral.

GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except
as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to possession
and beneficial use shall not apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender's security interest in
such Collateral. Until otherwise notified by Lender, Grantor may collect any of
the Collateral consisting of accounts. Upon the occurrence, and during the
continuation, of any Event of Default under the Loan Documents. Lender
may exercise its rights to collect the accounts and to notify account debtors to
make payments directly to Lender for application to the Indebtedness. If Lender
at any time has possession of any Collateral, whether before or after an Event
of Default, Lender shall be deemed to have exercised reasonable care in the
custody and preservation of the Collateral if Lender takes such action for that
purpose as Grantor shall request or as Lender, in Lender's reasonable
discretion, shall deem appropriate under the circumstances, but failure to honor
any request by Grantor shall not of itself be deemed to

<PAGE>

03-27-1997 COMMERCIAL SECURITY AGREEMENT Page 4
Loan No. 391-91 (Continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

be a failure to exercise reasonable care. Lender shall not be required to take
any steps necessary to preserve any rights in the Collateral against prior
parties, nor to protect, preserve or maintain any security interest given to
secure the Indebtedness.

EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will
be due and payable at the Note's maturity. This Agreement also will secure
payment of these amounts. Such right shall be in addition to all other rights
and remedies to which Lender may be entitled upon the occurrence of an Event of
Default.

EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:

DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment within 5
days after when due on the Indebtedness.

OTHER DEFAULTS. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other note, security agreement,
lease agreement or lease schedule, loan agreement or other agreement,
whether now existing or hereafter made, between Grantor and U.S. Bancorp or
any direct or indirect subsidiary of U.S. Bancorp. Within the cure period
specified in such other agreement ( and if no such cure period is ).

FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement, the
Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.

DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
collateral documents to create a valid and perfected security interest or
lien) at any time and for any reason.

INSOLVENCY. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.

CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the Indebtedness. This includes a garnishment of any of Grantor's deposit
accounts with Lender.

EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or such Guarantor dies
or becomes incompetent.

INSECURITY. Lender, in good faith, deems itself insecure.

RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Washington Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:

ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.

ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all
or any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If
the Collateral contains other goods not covered by this Agreement at the
time of repossession, Grantor agrees Lender may take such other goods,
provided that Lender makes reasonable efforts to return them to Grantor
after repossession.

SELL THE COLLATERAL. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds thereof in its
own name or that of Grantor. Lender may sell the Collateral at public
auction or private sale. Unless the Collateral threatens to decline
speedily in value or is of a type customarily sold on a recognized market,
Lender will give Grantor reasonable notice of the time after which any
private sale or any other intended disposition of the Collateral is to be
made. The requirements of reasonable notice shall be met if such notice is
given at least ten (10) days before the time of the sale or disposition.
All expenses relating to the disposition of the Collateral, including
without limitation the expenses of retaking, holding, insuring, preparing
for sale and selling the Collateral, shall become a part of the
Indebtedness secured by this Agreement and shall be payable on demand, with
interest at the Note rate from date of expenditure until repaid.

APPOINT RECEIVER. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
of the Indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid.

COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the Indebtedness in
such order of preference as Lender may determine. Insofar as the
Collateral consists of accounts, general intangibles, insurance policies,
instruments, chattel paper, choses in action, or similar property, Lender
may demand, collect, receipt for, settle, compromise, adjust, sue for,
foreclose, or realize on the Collateral as Lender may determine, whether or
not Indebtedness or Collateral is then due. For these purposes, Lender
may, on behalf of and in the name of Grantor, receive, open and dispose of
mail addressed to Grantor; change any address to which mail and payments
are to be sent; and endorse notes, checks, drafts, money orders, documents
of title, instruments and items pertaining to payment, shipment, or storage
of any Collateral. To facilitate collection, Lender may notify account
debtors and obligors on any Collateral to make payments directly to Lender.

OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining
on the Indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.

OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies
of a secured creditor under the provisions of the Uniform Commercial Code,
as may be amended from time to time. In addition, Lender shall have and
may exercise any or all other rights and remedies it may have available at
law, in equity, or otherwise.

CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other
writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Grantor under this Agreement, after
Grantor's failure to perform, shall not affect Lender's right to declare a
default and to exercise its remedies.

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:

APPLICABLE LAW. This Agreement has been delivered to Lender and accepted
by Lender in the State of Washington. If there is a lawsuit, Grantor
agrees upon Lender's request to submit to the jurisdiction of the courts of
King County, the State of Washington. Subject to the provisions on
arbitration, this Agreement shall be governed by and construed in
accordance with the laws of the State of Washington.

ARBITRATION. LENDER AND GRANTOR AGREE THAT ALL DISPUTES, CLAIMS AND
CONTROVERSIES BETWEEN THEM, WHETHER INDIVIDUAL, JOINT, OR CLASS IN NATURE,
ARISING FROM THIS AGREEMENT OR OTHERWISE, INCLUDING WITHOUT LIMITATION
CONTRACT AND TORT DISPUTES, SHALL BE ARBITRATED PURSUANT TO THE RULES OF
THE AMERICAN ARBITRATION ASSOCIATION, UPON REQUEST OF EITHER PARTY. No act
to take or dispose of any Collateral shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief or a temporary
restraining order; invoking a power of sale under any deed of trust or
mortgage; obtaining a writ of attachment or imposition of a receiver; or
exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to
Article 9 of the Uniform Commercial Code. Any disputes, claims, or
controversies concerning the lawfulness or reasonableness of any act, or
exercise of any right, concerning any Collateral, including any claim to
rescind, reform, or otherwise modify any agreement relating to the
Collateral, shall also be arbitrated, provided however that no arbitrator
shall have the right or the power to enjoin or restrain any act of any
party. Judgment upon any award rendered by any arbitrator may be entered
in any court having jurisdiction. Nothing in this Agreement shall

<PAGE>

preclude any party from seeking equitable relief from a court of competent
jurisdiction. The statute of limitations, estoppel, waiver, laches, and similar
doctrines which would otherwise be applicable in an action brought by a party
shall be applicable in any arbitration proceeding, and the commencement of an
arbitration proceeding shall be deemed the commencement of an action for these
purposes. The Federal Arbitration Act shall apply to the construction,
interpretation, and enforcement of this arbitration provision.

ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement.
Lender may pay someone else to help enforce this Agreement, and Grantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Grantor also shall pay all court costs and such additional fees
as may be directed by the court.

CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.

MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Grantor under
this Agreement shall be joint and several, and all references to Grantor
shall mean each and every Grantor. This means that each of the persons
signing below is responsible for ALL obligations in this Agreement.

NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier or deposited in the United States mail, first class, postage
prepaid, addressed to the party to whom the notice is to be given at the
address shown above. Any party may change its address for notices under
this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address.
To the extent permitted by applicable law, if there is more than one
Grantor, notice to any Grantor will constitute notice to all Grantors. For
notice purposes, Grantor will keep Lender informed at all times of
Grantor's current address(es).

POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: Upon the occurrence, and during the continuation of, an Event
of Default under the Loan Documents. (a) to demand, collect, receive,
receipt for, sue and recover all sums of money or other property which may
now or hereafter become due, owing or payable from the Collateral; (b) to
execute, sign and endorse any and all claims, instruments, receipts,
checks, drafts or warrants issued in payment for the Collateral; (c) to
settle or compromise any and all claims arising under the Collateral, and,
in the place and stead of Grantor, to execute and deliver its release and
settlement for the claim; and (d) to file any claim or claims or to take
any action or institute or take part in any proceedings, either in its own
name or in the name of Grantor, or otherwise, which in the discretion of
Lender may seem to be necessary or advisable. This power is given as
security for the Indebtedness, and the authority hereby conferred is and
shall be irrevocable and shall remain in full force and effect until
renounced by Lender.

PREFERENCE PAYMENTS. Any monies Lender pays because of an asserted
preference claim in Borrower's bankruptcy will become a part of the
Indebtedness and, at Lender's option, shall be payable by Borrower as
provided above in the "EXPENDITURES BY LENDER" paragraph.

SUCCESSOR INTERESTS. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and inure
to the benefit of the parties, their successors and assigns.

WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a waiver
of Lender's right otherwise to demand strict compliance with that provision
or any other provision of this Agreement. No prior waiver by Lender, nor
any course of dealing between Lender and Grantor, shall constitute a waiver
of any of Lender's rights or of any of Grantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.

WAIVER OF CO-OBLIGOR'S RIGHTS. If more than one person is obligated for
the Indebtedness, Borrower irrevocably waives, disclaims and relinquishs
all claims against such other person which Borrower has or would otherwise
have by virtue of payment of the Indebtedness or any part thereof,
specifically including but not limited to all rights of indemnity,
contribution or exoneration.

GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED MARCH 27,
1997.

GRANTOR:

APEX PC SOLUTIONS, INC.

BY: /s/ Douglas A. Bevis
------------------------------------------------
TITLE: CHIEF FINANCIAL OFFICER
--------------------------------------------

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

<PAGE>

AGREEMENT TO PROVIDE INSURANCE

<TABLE>

<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
$5,000,000.00 03-27-1997 04-30-1998 391-91 365 0328497064 61291 TC
- --------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------------------------------------------------------
BORROWER: APEX PC SOLUTIONS, INC. LENDER: U.S. BANK OF WASHINGTON, NATIONAL ASSOCIATION
20031 - 142ND AVENUE NORTHEAST EAST KING COUNTY CORPORATE BANKING
WOODINVILLE, WA 98072 10800 NE 8TH STREET, SUITE 1000
BELLEVUE, WA 98004
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------

</TABLE>

INSURANCE REQUIREMENTS. APEX PC SOLUTIONS, 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 Lender. These
requirements are set forth in the security documents. The following minimum
insurance coverages must be provided on the following described collateral (the
"Collateral"):

COLLATERAL: ALL INVENTORY, INCLUDING THE FOREGOING ARE COVERED WHEREVER LOCATED.
TYPE. All risks, including fire, theft and liability.
AMOUNT. Full insurable value.
BASIS. Replacement value.
ENDORSEMENTS. Lender's loss payable clause with stipulation that
coverage will not be cancelled or diminished without a minimum of
ten (10) days' prior written notice to Lender.

INSURANCE COMPANY. Grantor may obtain insurance from any insurance company
Grantor may choose that is reasonably acceptable to Lender. Grantor understands
that credit may not be denied solely because insurance was not purchased through
Lender.

FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Lender, ten (10)
days from the date of this Agreement, evidence of the required insurance as
provided above, with an effective date of March 27, 1997, or earlier. Grantor
acknowledges and agrees that if Grantor fails to provide any required insurance
or fails to continue such insurance in force, Lender may do so at Grantor's
expense as provided in the applicable security document. The cost of any such
insurance, at the option of Lender, shall be payable on demand or shall be added
to the indebtedness as provided in the security document. GRANTOR ACKNOWLEDGES
THAT IF LENDER 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 Lender to provide to any person (including any insurance agent or
company) all information Lender 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 27, 1997.

GRANTOR:

APEX PC SOLUTIONS, INC.

BY: /s/ Douglas A. Bevis
------------------
TITLE: CHIEF FINANCIAL OFFICER
-------------------------

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

FOR LENDER USE ONLY
INSURANCE VERIFICATION

DATE: 4-3-97 PHONE: 454-9346
--------- ----------
AGENT'S NAME: MR. WALLY BOSTICK, CPCU
--------------------------------
INSURANCE COMPANY: BOSTICK - MONARCH INSURANCE, INC.
---------------------------------------------------
POLICY NUMBER:
---------------------------------------------------------

EFFECTIVE DATES:
-------------------------------------------------------
COMMENTS:
--------------------------------------------------------------

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

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

<PAGE>

EXHIBIT 11.1 STATEMENT RE COMPUTATION OF EARNINGS PER SHARE

APEX PC SOLUTIONS, INC.
COMPUTATION OF PRO FORMA NET INCOME PER SHARE

FOR THE YEAR ENDED FOR THE SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 27,
1995 1996 1996 1997
---------- ---------- ---------- -----------

Net income $2,343,515 $3,607,723 $1,451,652 $ 3,940,965
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Pro forma weighted
average common
shares outstanding 8,000,000 5,600,000 5,600,000 10,536,546

Pro forma common
stock equivalents -
Series A redeemable
and convertible
preferred stock 2,155,000 2,155,000 2,155,000 607,813

Pro forma common stock
equivalents - stock
options 1,336,932 1,336,932 1,336,932 695,029
---------- ---------- ---------- -----------

Weighted average shares
used in computing pro
forma income per share 11,491,932 9,091,932 9,091,932 11,839,388
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------

Pro forma income per
share $0.20 $0.40 $0.16 $0.33
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------

<PAGE>

EXHIBIT 21.1

Subsidiaries of Registrant
--------------------------

Name of Subsidiary Jurisdiction of Organization
- ------------------------ -----------------------------

Apex PC Solutions, Ltd. Barbados

<PAGE>
EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this registration statement on Form SB-2 of
our report dated January 17, 1997, except for Note 14, as to which the date is
July 10, 1997, on our audits of the financial statements of Apex PC Solutions,
Inc. We also consent to the reference to our firm under the caption "Experts."

Coopers & Lybrand L.L.P.

Seattle, Washington
July 21, 1997

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S REGISTRATION STATEMENT ON FORM
SB-2 FILED WITH THE SEC ON JULY 21, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-27-1997
<CASH> 7,956,172
<SECURITIES> 0
<RECEIVABLES> 7,318,932
<ALLOWANCES> 335,903
<INVENTORY> 2,393,250
<CURRENT-ASSETS> 18,234,466
<PP&E> 927,749
<DEPRECIATION> 283,812
<TOTAL-ASSETS> 18,896,075
<CURRENT-LIABILITIES> 3,022,930
<BONDS> 0
0
0
<COMMON> 31,526,508
<OTHER-SE> (15,674,613)
<TOTAL-LIABILITY-AND-EQUITY> 18,896,075
<SALES> 23,681,366
<TOTAL-REVENUES> 23,681,366
<CGS> 12,991,830
<TOTAL-COSTS> 12,991,830
<OTHER-EXPENSES> 4,515,834
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 123,344
<INCOME-PRETAX> 6,196,682
<INCOME-TAX> 2,114,954
<INCOME-CONTINUING> 4,081,728
<DISCONTINUED> 0
<EXTRAORDINARY> (140,763)
<CHANGES> 0
<NET-INCOME> 3,940,965
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.33

</TABLE>