GARDEN COM INC, DEFM14A, 2000-12-29

GARDEN COM INC
DEFM14A, 2000-12-29
BUILDING MATERIALS, HARDWARE, GARDEN SUPPLY

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SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934

[X] Filed by the registrant

[_] Filed by a party other than the registrant

Check the appropriate box:

[_] Preliminary proxy statement

[X] Definitive proxy statement

[_] Definitive additional materials

[_] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12

GARDEN.COM, INC.
(Name of Registrant as Specified in Its Charter)

Registrant
(Name of Person(s) Filing Proxy Statement)

Payment of filing fee (Check the appropriate box):

[_] No fee required.

[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-
11.

(1) Title of each class of securities to which transaction applies:
Common Stock, par value $0.01 per share

(2) Aggregate number of securities to which transaction applies:
17,739,845 (shares of Common Stock outstanding as of November 30,
2000).

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: $1.39 (based on the net
tangible assets of the registrant as of September 30, 2000,
solely for purposes of calculating the filing fee)

(4) Proposed maximum aggregate value of transaction: $24,700,000
(based on the net tangible assets of the registrant as of
September 30, 2000, solely for purposes of calculating the filing
fee).

(5) Total fee paid: $4,940

[X] Fee paid previously with preliminary materials.

[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously.
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Identify the previous filing by registration statement number, or the form or
schedule and the date of its filing.

(1) Amount previously paid:

(2) Form, schedule or registration statement no.:

(3) Filing party:

(4) Date filed:

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GARDEN.COM, INC.
3301 STECK AVENUE
AUSTIN, TEXAS 78757

December 29, 2000

Dear Fellow Stockholder:

You are cordially invited to attend the Annual Meeting of Stockholders of
Garden.com, Inc., to be held at the Company's headquarters located at 3301
Steck Avenue, Austin, Texas 78757 on January 8, 2001, at 11:00 a.m., local
time.

At the Annual Meeting, your will be asked to consider and vote on a proposal
to approve and adopt a Plan of Liquidation and Dissolution (the "Plan of
Liquidation") pursuant to which Garden.com's assets would be liquidated over a
maximum three-year period, known liabilities satisfied, reserves established
and remaining proceeds distributed to our stockholders.

On November 15, 2000, Garden.com announced that it would begin a phased
shut-down of its retail operations and the sale of its consumer business
assets, including product inventory, URLs, content, photo library, its popular
online gardening tools such as Landscape Planner and Plant Finder, as well as
other intellectual property. Garden.com also announced that it would continue
to evaluate strategic alternatives for its technology assets. On December 1,
2000, Garden.com shut-down its web site and ceased the operation of its
commerce business. Since that time, Garden.com has solicited bids for the sale
of various of its assets. The Board of Directors has approved the Plan of
Liquidation as the means to effect this wind down of Garden.com's business and
the sale of its assets, including its consumer business assets and its
technology assets. The Plan of Liquidation is described in the accompanying
Proxy Statement and is attached as Annex A to the Proxy Statement.

The Board of Directors has unanimously determined that the Plan of
Liquidation is advisable for, and in the best interests of, Garden.com and its
stockholders. Accordingly, the Board of Directors recommends that stockholders
vote "FOR" the proposal to approve and adopt the Plan of Liquidation.

At the annual meeting, you will also be asked to consider and vote on the
election of two directors, each to serve a three-year term, and to ratify the
appointment of the accounting firm of Ernst & Young LLP as independent
auditors of Garden.com for its fiscal year ending June 30, 2001. The Board of
Directors recommends that stockholders vote "FOR" each nominee for election to
the Board of Directors and "FOR" the ratification of the appointment of
independent auditors of the Company.

Attached is a Notice of the Annual Meeting of Stockholders and a Proxy
Statement containing a discussion of the background of, reasons for, and terms
of the Plan of Liquidation. We urge you to read and carefully consider the
information presented in the accompanying Proxy Statement. Whether or not you
plan to attend the Annual Meeting in person and regardless of the number of
shares of Common Stock you own, please complete, sign, date and return the
enclosed proxy card promptly. If you attend the Annual Meeting, you may vote
your shares of Common Stock personally whether or not you have previously
submitted a proxy.

Very truly yours,

Clifford A. Sharples
President and Chief Executive
Officer
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GARDEN.COM, INC.
3301 STECK AVENUE
AUSTIN, TEXAS 78757

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

Notice of Annual Meeting of Stockholders to be held on January 8, 2001

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

The Annual Meeting of Stockholders of Garden.com, Inc., a Delaware
corporation (the "Company"), will be held at the Company's headquarters
located at 3301 Steck Avenue, Austin, Texas 78757 on January 8, 2001, at 11:00
a.m., local time, for the following purposes:

1. To approve and adopt a Plan of Liquidation and Dissolution pursuant to
which the Company's assets would be liquidated, known liabilities
satisfied, reserves established and remaining proceeds, if any, distributed
to stockholders.

2. To elect two directors, each to serve for a three-year term.

3. To ratify the appointment of Ernst & Young LLP, independent public
accountants, as auditors of the Company for its fiscal year ending June 30,
2001.

4. To take action with respect to any other matters that may be properly
brought before the meeting and that might be considered by the stockholders
of a Delaware corporation at their annual meeting.

By Order of the Board of Directors

Jana D. Wilson,
Secretary
Austin, Texas
December 29, 2000

Stockholders of record at the close of business on December 22, 2000 are
entitled to vote at the meeting. Your vote is important to ensure that a
majority of the stock is represented. Please complete, sign and date the
enclosed proxy and return it promptly in the enclosed envelope whether or not
you plan to attend the meeting. If you later find that you may be present at
the meeting or for any other reason desire to revoke your proxy, you may do so
at any time before it is voted.
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GARDEN.COM, INC.
3301 STECK AVENUE
AUSTIN, TEXAS 78757

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

Proxy Statement for the Annual Meeting of Stockholders
to be Held on January 8, 2001

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

This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Garden.com, Inc. ("Garden.com" or the "Company") of
proxies, in the accompanying form, to be used at the Annual Meeting of
Stockholders of the Company to be held at the Company's headquarters located
at 3301 Steck Avenue, Austin, Texas 78757 on January 8, 2001, at 11:00 a.m.,
local time, and any adjournments thereof. This Proxy Statement is being mailed
on or about December 29, 2000 to stockholders of record at the close of
business on December 22, 2000.

At the annual meeting, stockholders of the Company will consider a proposal
to approve and adopt a Plan of Liquidation and Dissolution (the "Plan of
Liquidation") pursuant to which the Company's assets would be liquidated over
a maximum three-year period, known liabilities satisfied, reserves established
and remaining proceeds distributed to the Company's stockholders. The Plan of
Liquidation is attached as Annex A to this Proxy Statement. A majority of the
outstanding shares of Common Stock must be voted in favor of the Plan of
Liquidation for the Plan of Liquidation to be approved.

The shares represented by each valid proxy received in time will be voted at
the meeting and, if a choice is specified in the proxy, it will be voted in
accordance with that specification. If no instructions are specified in a
signed proxy returned to the Company, the shares represented thereby will be
voted (1) in FAVOR of the proposal to approve and adopt the Plan of
Liquidation, (2) in FAVOR of the election of the directors listed in the
enclosed proxy, and (3) in FAVOR of the ratification of the appointment of
Ernst & Young LLP as the Company's auditors for fiscal 2001.

Only stockholders of record at the close of business on December 22, 2000
will be entitled to notice of and to vote at the annual meeting. On the record
date, the Company had outstanding 17,739,845 shares of Common Stock, par value
$0.01 per share (the "Common Stock"), entitled to one vote per share.

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TABLE OF CONTENTS

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Page
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Summary.................................................................. 3
Cautionary Note on Forward-Looking Statements............................ 6
The Annual Meeting....................................................... 7
The Plan of Liquidation and Dissolution.................................. 9
Selected Financial Data.................................................. 17
More Information About Garden.com........................................ 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Security Ownership....................................................... 29
Election of Directors.................................................... 31
Ratification of Appointment of Auditors.................................. 40
Annual Report to the Securities and Exchange Commission.................. 40
Stockholder Proposals.................................................... 40
Other Matters............................................................ 40
Index to Financial Statements............................................ F-1
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Annex A - Plan of Liquidation and Dissolution

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SUMMARY

The following is a summary of some of the information in this Proxy
Statement. It is not meant to be comprehensive and does not contain all the
information that is important to you. We have included page references to
direct you to more complete information in this document. You should carefully
read the entire Proxy Statement to fully understand the Plan of Liquidation
and its consequences.

<TABLE>
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The Plan of Liquidation -- Pursuant to the Plan of Liquidation,
(See pages 9 to 16) Garden.com's Board of Directors would have the
authority to effect the dissolution of
Garden.com. If Garden.com is dissolved,
Garden.com's assets would be liquidated over a
maximum three-year period, known liabilities
satisfied, reserves established and remaining
proceeds, if any, distributed to Garden.com's
stockholders.
Why the Board of Directors -- Garden.com's board of directors recommends
Recommends that You Vote that you vote in favor of approval of the Plan
for the Plan of of Liquidation. In the opinion of the board of
Liquidation (See page 12) directors, the Plan of Liquidation is
advisable for, and in the best interests of,
Garden.com and its stockholders.
Vote Required to Approve -- The holders of a majority of the outstanding
the Plan of Liquidation shares of our common stock must vote to
(See page 7) approval of the Plan of Liquidation. The
directors and executive officers of
Garden.com, who beneficially own a total of
approximately 44.2% of the outstanding shares
of our common stock as of November 30, 2000,
have indicated that they intend to vote all
such shares in favor of the Plan of
Liquidation. If you do not vote your shares,
the effect will be a vote against approval of
the Plan of Liquidation. The board of
directors unanimously recommends voting "FOR"
the approval of the Plan of Liquidation.
Garden.com (See page 19) -- Garden.com has operated an online destination
integrating gardening and gardening-related
commerce, content and community. Primarily
through our flagship Web site, www.garden.com,
we have provided consumers with an intuitive,
easy-to-use environment through which they can
access a wide variety of gardening information
and resources, purchase a broad selection of
products, receive specific gardening advice
and other personalized services and interact
with an online gardening community. On
November 15, 2000, Garden.com announced that
it would begin a phased shut-down of its
retail operations and the sale of its consumer
business assets, including product inventory,
URLs, content, photo library, its popular
online gardening tools such as Landscape
Planner and Plant Finder, as well as other
intellectual property. Garden.com also
announced that it would continue to evaluate
strategic alternatives for its technology
assets. Garden.com has substantially completed
a "going-out-of-business sale" of its product
inventory. On December 1, 2000, Garden.com
shut-down its web site and ceased the
operation of its commerce business. Since that
time, Garden.com has solicited bids for the
sale of various of its assets. Pursuant to the
proposed Plan of Liquidation, Garden.com
intends to sell all of its assets, including
its consumer business assets and its
technology assets. Garden.com expects to
complete most of these sales within six
months.
</TABLE>

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What You will Receive in -- If the Plan of Liquidation is approved and the
the Plan of Liquidation Board of Directors authorizes the filing of a
(See pages 11 to 12) Certificate of Dissolution with the Secretary
of State of the State of Delaware, following
the sale of Garden.com's assets and
satisfaction by Garden.com, through payment or
establishment of reserves, of all of its
liabilities and obligations, including the
expenses of liquidation, Garden.com will
distribute to its stockholders the balance of
available liquidation proceeds, if any,
through one or more liquidating distributions.
It is not possible at this time to predict the
amount or timing of any liquidating
distributions to stockholders, which could be
made over a substantial period of time.
Purpose of the Plan of -- The purpose of the Plan of Liquidation is to
Liquidation (See pages 9 provide for the liquidation of Garden.com's
to 10) assets over a maximum three-year period, the
satisfaction of known liabilities, the
establishment of reserves and the distribution
of the remaining proceeds, if any, to our
stockholders.
Completion of the Plan -- If the Plan of Liquidation is approved at the
of Liquidation annual meeting, Garden.com may effect, at such
(See pages 9 to 11) time as the Board of Directors may determine
in its sole discretion, the dissolution and
liquidation by filing a Certificate of
Dissolution with the Secretary of State of the
State of Delaware. Pursuant to the Plan of
Liquidation, Garden.com's Board of Directors
has retained the authority to abandon the
proposed liquidation without further action by
Garden.com's stockholders. If Garden.com is
dissolved, its existence will automatically be
continued for a term of three years solely for
the purpose of winding up its business. If
Garden.com is dissolved, Garden.com will seek
to complete the liquidation as soon as
practicable, but can make no assurance as to
the timing of any distributions to
stockholders.
Risks Related to the -- Although Garden.com has determined that it is
Liquidation (See Pages 12 not feasible to continue as a going concern,
to 14) you should consider the following risks and
uncertainties related to the Plan of
Liquidation:
. the risk that you may not receive any
meaningful cash distributions pursuant to
the Plan of Liquidation;
. the risk that you may be liable to
Garden.com's creditors up to the amount of
any liquidating distributions paid to you
if Garden.com's contingency reserve is
inadequate to cover expenses and
liabilities;
. Garden.com does not intend to obtain an
appraisal or fairness opinion regarding the
value of its assets;
. sales of assets pursuant to the Plan of
Liquidation will not be subject to further
stockholder approval;
. Garden.com may not be able to retain the
services of key employees required to
complete its liquidation;
. our common stock will be delisted from the
Nasdaq National Market and Garden.com may
fix a final record date pursuant to the
Plan of Liquidation after which no
transfers of the common stock will be
permitted; and
. Garden.com intends to terminate its
registration under the Securities Exchange
Act of 1934, including all regular
reporting obligations.
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Location, Date and Time -- The annual meeting with be held on January 8,
of Annual Meeting 2001, at 11:00 a.m. local time, at the
(See Page 7) Company's headquarters located at 3301 Steck
Avenue, Austin, Texas 78757. If the meeting is
adjourned for any reason, we will give you
notice of the new date and time.
What to do now -- Please mark your vote on, sign, date and mail
your proxy card in the enclosed return
envelope as soon as possible, so that your
shares may be represented and voted at the
annual meeting.
You are not entitled to -- Under Delaware law, stockholders are not
Dissenters' Rights in entitled to dissenters' rights with respect to
connection with the Plan the Plan of Liquidation.
of Liquidation (See page
14)
Who may vote on the -- All stockholders of record as of the close of
Plan of Liquidation business on December 22, 2000 will be entitled
(See page 7) to notice of, and to vote at, the annual
meeting.
Changing your Vote -- If you have signed and mailed back your proxy
(See pages 7 to 8) card and want to change your vote, you may
either send a written revocation or another
signed proxy card with a later date to
Garden.com's transfer agent, before the annual
meeting or simply attend the annual meeting
and vote in person.
U.S. Federal Income Tax -- The sale of Garden.com's assets will result in
Consequences of the Plan gains or losses, which will be reported in
of Liquidation Garden.com's tax returns for the years in
(See pages 14 to 16) which the assets are sold, net of any current
or carryover tax losses. Any liquidating
distributions will be reported as
distributions in complete liquidation of
Garden.com for federal income tax purposes. To
review the federal income taxes in greater
detail, see pages 21 to 23.
Other Matters to be Voted -- At the annual meeting, you will also be asked
on at the Annual Meeting to vote on the election of two directors, each
(See page 7) to hold office for a three-year term, and you
will also be asked to vote to ratify the
appointment of Ernst & Young LLP as
independent auditors for the fiscal year
ending June 30, 2001.
Who Can Help Answer Other -- If you have more questions about the Plan of
Questions Liquidation or would like additional copies of
this Proxy Statement, you should contact the
Corporate Secretary of Garden.com, Inc., 3301
Steck Avenue, Austin, Texas 78757 (telephone
(512) 532-4000).
</TABLE>

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CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS

Certain statements contained in this Proxy Statement constitute forward-
looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934. The Company intends such forward-looking statements to
be covered by the safe harbor provisions for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995, and is
including this statement for purposes of invoking these safe harbor
provisions. You can identify these statements from our use of the words "may,"
"will," "should," "expect," "plan," "intend," "anticipate," "could,"
"believe," "estimate," "predict," "objective," "potential," "projection,"
"forecast," "goal," "project," "anticipate," "target" and similar expressions.

Such forward-looking statements involve known and unknown risks,
uncertainties and other important factors that could cause the Company's
actual results, performance or achievements, or industry results, to differ
materially from the Company's expectations of future results, performance or
achievements expressed or implied by such forward-looking statements. Although
the Company believes that the expectations reflected in any forward-looking
statements are reasonable, it cannot guarantee future events or results.
Except as may be required under federal law, the Company undertakes no
obligation to update publicly any forward-looking statements for any reason,
even if new information becomes available or other events occur. In addition,
the Company's past results of operations do not necessarily indicate its
future results. These and other uncertainties are discussed in "Plan of
Liquidation and Dissolution--Risks Related to Liquidation."

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THE ANNUAL MEETING

Purpose

This Proxy Statement is being furnished to holders of shares of Common Stock
in connection with the solicitation of proxies by the Board of Directors for
use at the annual meeting. At the annual meeting, stockholders of the Company
will consider a proposal to approve and adopt the Plan of Liquidation. The
Plan of Liquidation is attached as Annex A to this Proxy Statement. In
addition, at the annual meeting, stockholders of the Company will be asked to
consider and vote on the election of two directors, each to serve a three-year
term, and to ratify the appointment of independent auditors of the Company.

The Board of Directors has approved the Plan of Liquidation, and has
determined that the Plan of Liquidation is advisable for, and in the best
interests of, the Company and its stockholders. The Board of Directors
recommends that the stockholders of the Company vote "FOR" the approval and
adoption of the Plan of Liquidation. In addition, the Board of Directors
recommends that stockholders of the Company vote "FOR" each nominee for
election to the Board of Directors and "FOR" ratification of the appointment
of Ernst & Young LLP as the Company's independent auditors.

Record Date; Voting Rights

Only holders of shares of Common Stock at the close of business on December
22, 2000 (the "Record Date") will be entitled to notice of, and to vote at,
the annual meeting. 17,739,845 shares of Common Stock were outstanding on the
Record Date held by 195 holders of record. Each share of Common Stock entitles
the registered holder thereof to one vote.

Required Vote

The Delaware General Corporation Law requires that a majority of the issued
and outstanding shares of Common Stock must be voted in favor of the Plan of
Liquidation for the Plan of Liquidation to be approved.

The Company's By-Laws provide that a majority of the votes entitled to be
cast with respect to the election of members of the Board of Directors,
represented either in person or by proxy, shall constitute a quorum with
respect to such matter. If a quorum exists, the election of each nominee for
director requires the affirmative vote of a plurality of the votes represented
at the annual meeting.

The appointment of independent auditors is not required to be submitted to a
vote of stockholders; however, the Board of Directors believes it appropriate
as a matter of policy to request that stockholders ratify the appointment. If
stockholder ratification is not received, the Board of Directors will
reconsider the appointment. The ratification of independent auditors requires
the affirmative vote of a majority of the votes represented at the annual
meeting at which a quorum is present.

Abstentions and broker non-votes (i.e., shares held by brokers in street
name, voting on certain matters due to discretionary authority or instructions
from the beneficial owners but not voting on other matters due to lack of
authority to vote on such matters without instructions from the beneficial
owner) will count toward the quorum requirement and will not count toward the
determination of whether the ratification of auditors is approved or directors
are elected. However, because the Plan of Liquidation must be approved by the
holders of a majority of the outstanding shares of Common Stock entitled to
vote thereon, abstentions and broker non-votes will act as a vote against the
proposed Plan of Liquidation. The Inspector of Election appointed by the Board
of Directors will count the votes and ballots.

Proxies

All shares of Common Stock represented by properly executed proxies that are
received in time for the annual meeting and which have not been revoked will
be voted in accordance with the instructions indicated in

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such proxies. If no such instructions are indicated, such shares of Common
Stock will be voted "FOR" the approval and adoption of the Plan of
Liquidation, "FOR" each nominee for election to the Board of Directors and
"FOR" ratification of the Company's independent auditors. In addition, the
persons designated in such proxies will have the discretion to vote on matters
incident to the conduct of the annual meeting. If the Company proposes to
adjourn the annual meeting, the persons named in the enclosed proxy card will
vote all shares of Common Stock for which they have authority, other than
those that have been voted against the approval and adoption of the Plan of
Liquidation, in favor of such adjournment.

The grant of a proxy on the enclosed proxy card does not preclude a
stockholder from voting in person at the annual meeting. A stockholder may
revoke a proxy at any time prior to its exercise by delivering to the
Secretary of the Company, prior to the annual meeting, a written notice of
revocation bearing a later date or time than the proxy, delivering to the
Secretary of the Company a duly executed proxy bearing a later date or time
than the revoked proxy or attending the annual meeting and voting in person.
Attendance at the annual meeting will not in and of itself constitute the
revocation of a proxy.

The Company will bear the cost of solicitation of proxies from its
stockholders. In addition to solicitation by mail, the directors, officers and
employees of the Company and its subsidiaries may solicit proxies from
stockholders of the Company by telephone, telegram or in person. Arrangements
will also be made with brokerage houses and other custodians, nominees and
fiduciaries for the forwarding of solicitation material to the beneficial
owners of shares of Common Stock held of record by such persons, and the
Company will reimburse such custodians, nominees and fiduciaries for their
reasonable out-of-pocket expenses.

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PLAN OF LIQUIDATION AND DISSOLUTION

Background

The Company was originally formed in December 1995 as a result of a merger
with The Asbury Group, Inc., a Texas corporation formed in October 1995. The
Company began offering products for sale on its Web site in March 1996. On
September 21, 1999, the Company completed its initial public offering of
4,650,000 shares of its common stock, which raised net proceeds to the Company
of $49.8 million in the aggregate. The Company has incurred net losses since
inception, including net losses of $19.1 million in fiscal 1999, $38.7 million
in fiscal 2000 and $9.9 million in the first quarter of fiscal 2001. As of
September 30, 2000, the Company has incurred cumulative net losses of $75.5
million.

On November 15, 2000, the Company announced that it would begin a phased
shut-down of its retail operations and the sale of its consumer business
assets, including product inventory, URLs, content, photo library, its popular
online gardening tools such as Landscape Planner and Plant Finder, as well as
other intellectual property. The Company also announced that it would continue
to evaluate strategic alternatives for its technology assets. Since the
quarter ended June 30, 2000, the Company had unsuccessfully sought to find
strategic alternatives for the Company's business through both financial
investors and strategic partnerships. The Company also took initiatives to
reduce operating expenses through restructuring efforts and refocused
marketing programs to extend the timeframe during which it could find and
evaluate strategic alternatives. The Company decided to begin a phased shut-
down of its operations after it became apparent that there were no companies
or investors interested in the Company as a full going concern. Garden.com has
substantially completed a "going-out-of-business sale" of its product
inventory. On December 1, 2000, Garden.com shut-down its web site and ceased
the operation of its commerce business. Since that time, Garden.com has
solicited bids for the sale of various of its assets.

On December 15, 2000, the Board of Directors of the Company unanimously
voted to approve and adopt the Plan of Liquidation. The Board of Directors
approved the Plan of Liquidation as the means to effect the wind down of
Garden.com's business and the sale of its assets, including its consumer
business assets and its technology assets.

Plan of Liquidation and Dissolution

In accordance with the requirements of the Delaware General Corporation Law,
the Company's Board of Directors has authorized the submission of the Plan of
Liquidation to the holders of the Common Stock. The affirmative vote of the
holders of a majority of the aggregate shares of the Common Stock issued and
outstanding on the Record Date is required for approval of the Plan of
Liquidation. Directors and officers of the Company who own or control shares
of Common Stock constituting approximately 44.2% of the outstanding shares of
Common Stock as of November 30, 2000, have indicated to the Company that they
intend to vote all such shares in favor of the Plan of Liquidation. The Board
of Directors believes that the Plan of Liquidation is advisable for, and in
the best interests of, the Company and its stockholders and recommends that
stockholders vote FOR this proposal. See "--Recommendation of the Board of
Directors" below.

Dissolution Under Delaware Law. Section 275 of the Delaware General
Corporation Law provides that a corporation may dissolve upon either (a) a
majority vote of the Board of Directors of the corporation followed by a
majority vote of its stockholders; or (b) a unanimous stockholder consent.
Following such approval, the dissolution is effected by filing a Certificate
of Dissolution with the Secretary of State of the State of Delaware. Once a
corporation is dissolved, its existence is automatically continued for a term
of three years, but solely for the purpose of winding up its business. The
process of winding up includes:

. the prosecution and defense of lawsuits, if any;

. the settling and closing of business;

. the disposition and conveyance of any property;

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. the discharge of any liabilities; and

. the distribution of any remaining assets to the stockholders of the
corporation.

If any action, suit or proceeding is commenced by or against the corporation
before or within the winding up period, the corporation will automatically
continue to exist beyond the three-year period until any judgments, orders or
decrees are fully executed.

Description of the Plan of Liquidation. The following is a brief summary of
the Plan of Liquidation. It is qualified in its entirety by reference to the
full text of the Plan of Liquidation attached hereto as Annex A and
incorporated herein by reference. You should read the Plan of Liquidation
carefully.

The Plan of Liquidation provides that, if it is approved by the holders of
at least a majority of the outstanding shares of Common Stock, the Company may
file a Certificate of Dissolution with Secretary of State of the State of
Delaware to effect the dissolution of the Company at such time as the Board of
Directors may determine in its sole discretion. If the Certificate of
Dissolution is filed, the Company will take such actions as are deemed
necessary or appropriate by the Board of Directors to wind up all of the
Company's business and affairs and to dispose of, by sale, all of the assets
of the Company. The Company's assets consist primarily of its product
inventory, URLs, content, photo library, its popular online gardening tools
such as Landscape Planner and Plant Finder, its technology assets, as well as
other intellectual property. The Company's other assets consist of cash and
cash equivalents, investments and other assets comprised primarily of certain
computer hardware and software.

The Plan of Liquidation provides that the Company's assets may be converted
into cash or other assets which may be conveniently distributed to
stockholders. If the Plan of Liquidation is approved by stockholders at the
annual meeting, the Company will not obtain any further approvals from its
stockholders. The Company expects that all of its assets will be sold for
cash. Other than as set forth below under "--Sale of Assets Pursuant to the
Plan of Liquidation - Solicitation of Offers to Acquire the Company's Assets,"
no discussions have occurred and no negotiations have been entered into with
any prospective buyers with respect to the terms of any liquidating sales. The
Company may sell its assets to persons deemed to be affiliates of the Company
to the extent such persons submit the highest bids in respect of such assets.

The Plan of Liquidation does not specify the manner in which the Company
would sell its assets. Such sales could take the form of individual sales of
assets, sales of groups of assets organized by business, type of asset or
otherwise, a single sale of all or substantially all of the Company's assets
or some combination of these. As part of the Plan of Liquidation, the Company
intends to satisfy its existing debts and obligations from existing cash
balances and the proceeds of the sale of the Company's assets. In addition,
the Company's Board of Directors may establish reserves, as it deems
necessary, for liabilities or expenses, contingent or otherwise, that may
arise. The remaining proceeds would be distributed to the Company's
stockholders as full payment for their capital stock. It is difficult to
predict the timing of the sale of the Company's assets and, consequently, the
timing of liquidating distributions to stockholders. See "--Distributions to
Stockholders" below.

If the Plan of Liquidation is approved by stockholders, and the Board of
Directors decides to effect the dissolution of the Company, the appropriate
officers of the Company, in accordance with the terms of the Plan of
Liquidation, will execute, acknowledge and file a Certificate of Dissolution
with the Secretary of State of the State of Delaware which will effect the
dissolution of the Company. The Company will be continued for the sole purpose
of disposing of its assets, settling and closing its business, discharging its
liabilities, making distributions to its stockholders and prosecuting and
defending claims. See "--Dissolution Under Delaware Law" above. Under the Plan
of Liquidation, the Board of Directors has retained the authority to abandon
the dissolution without further action by the Company's stockholders.

The Company does not expect that any federal or state regulatory approvals
will be required to consummate the liquidation of the Company in accordance
with the Plan of Liquidation.

10
<PAGE>

The Plan of Liquidation provides that, if it is approved and the Company is
dissolved, the sale and distribution of assets will be completed not more than
three years after the approval of the Plan of Liquidation by the holders of
the Common Stock. However, the Company anticipates that it will attempt to
liquidate within six months after approval of the Plan of Liquidation. See "--
Risks Related to Liquidation - Uncertain Timing of Liquidation" below.

Appraisals. The Company does not intend to obtain an appraisal, fairness
opinion or any similar report or opinion in connection with the Plan of
Liquidation. See "--Risks Related to Liquidation - Absence of Appraisal or
Fairness Opinion."

Sale of Assets Pursuant to the Plan of Liquidation.

If the Plan of Liquidation is approved and the Certificate of Dissolution is
filed with the Secretary of State of the State of Delaware, the Company will
attempt to sell its assets at an aggregate purchase price that would yield the
greatest net proceeds to the stockholders. The assets could be sold to one or
more purchasers in one or more transactions over a period of time, in which
case the Company would continue to operate until all assets are sold.

It is impossible to determine with any precision the aggregate net proceeds
that may ultimately be available for distribution to the Company's
stockholders if the Plan of Liquidation is approved. That amount will depend
upon a variety of factors, including the timing of and the net proceeds
realized from the sale of the Company's assets, as well as the ultimate
amounts of liquidation-related expenses and other obligations and liabilities
that must be satisfied out of the Company's assets, as well as general and
local economic conditions over the period during which the liquidation is
conducted. See "--Risks Related to Liquidation" below.

Satisfaction of Obligations. As part of the Plan of Liquidation, the Company
intends to satisfy its existing debts and obligations, and establish reserves
for liabilities or expenses as it deems necessary, before any liquidating
distributions may be made to stockholders. Currently, the Company's
obligations consist primarily of accounts payable and contractual obligations.
The Company also expects to make total severance payments of between $2.3
million and $2.7 million to its employees. The Company anticipates that other
obligations will arise during the liquidation process, including expenses
relating to the liquidation.

Solicitation of Offers to Purchase the Company's Assets. Since the Company
announced the phased shut-down of its retail operations on November 15, 2000,
the Company has been actively seeking potential purchasers of all or part of
the Company's consumer business assets. The Company has also started to
solicit bids to purchase the Company's technology assets. As of the date of
this Proxy Statement, the Company has solicited bids from approximately 100
potential buyers and the Company has entered into separate letters of intent
with two potential buyers of significant portions of the Company's consumer
business assets.

Distributions to Stockholders

If the Plan of Liquidation is approved and the Certificate of Dissolution is
filed with the Secretary of State of the State of Delaware, following the sale
of the Company's assets and satisfaction by the Company, through payment or
establishment of reserves, of all of its liabilities and obligations,
including the expenses of liquidation, the Company will distribute to its
stockholders the balance of available liquidation proceeds. The Company may
make partial liquidating distributions prior to the satisfaction of all of its
liabilities and obligations. It is not possible to predict the timing of the
sale of the Company's assets and the distributions to stockholders, which
could be made over a substantial period of time.

If the Plan of Liquidation is approved and the Certificate of Dissolution is
filed with the Secretary of State of the State of Delaware, the Company will
make distributions to stockholders at such times and upon such terms as are
determined by the Board of Directors. The Company will advise stockholders at
the time of any such distribution as to the details of the mechanics of
distribution. If the Company transfers its assets to a liquidating trust as
discussed below, certificates for shares of Common Stock will be deemed to
represent a stockholder's interest in the liquidating trust.

11
<PAGE>

The Company intends to close its stock transfer books and discontinue
recording transfers of Common Stock at the close of business on the final
record date to be fixed by the Board of Directors for filing the Certificate
of Dissolution after approval by the Company's stockholders. Thereafter,
certificates representing the Common Stock will not be assignable or
transferable on the books of the Company except by will, intestate succession
or operation of law. The Company anticipates that the shares of Common Stock
will be delisted from the Nasdaq National Market. See "--Risks Related to
Liquidation - Delisting of Shares of Common Stock " below. The Company
anticipates that the current directors of the Company will continue to serve
following the filing of the Certificate of Dissolution. See "--Risks Related
to Liquidation - Risk of Loss of Personnel" below.

Under the Plan of Liquidation, the Board of Directors will have the
authority to transfer the assets of the Company to a liquidating trust
designated by the Board of Directors. The liquidating trust would be
established pursuant to a Liquidating Trust Agreement in such form as the
Board of Directors may approve. The Board of Directors would not expect to
transfer assets to a liquidating trust except (i) when such a transfer is
required to avoid the imposition of federal income taxes on the Company or
(ii) to establish reserves for liabilities and obligations of the Company
(contingent or otherwise) out of amounts which would otherwise be distributed
to stockholders. See "--Federal Income Tax Consequences - Liquidating Trust"
below.

Recommendation of the Board of Directors

The Board of Directors believes the approval and adoption of the Plan of
Liquidation is advisable for, and in the best interests of, the Company and
its stockholders and recommends that stockholders vote "FOR" the Plan of
Liquidation. The Board of Directors has made this determination following the
phased shut-down of the Company's consumer business announced on November 15,
2000. As described above under "--Background," this announcement followed an
extensive consideration of strategic alternatives for the Company's business
and the implementation of initiatives to reduce operating expenses through
restructuring efforts and refocused marketing programs. Without a significant
financing or other strategic transaction, the Board of Directors determined
that the Company could not continue its operations as a full going concern.
The Plan of Liquidation provides the Company with the authority under the
Delaware General Corporation Law to liquidate the Company's assets, satisfy
known liabilities, establish reserves and distribute the remaining proceeds,
if any, to the Company's stockholders.

Risks Related to Liquidation

There are a number of factors that could affect the amount of net proceeds
payable to stockholders if the Plan of Liquidation is approved and the Company
is dissolved. In addition to the other information set forth in this Proxy
Statement, stockholders should carefully consider the following:

Stockholders May Not Receive Any Distributions Pursuant to the Plan of
Liquidation. The Company may not be able to find qualified buyers for its
assets. Even if the Company is able to sell such assets, the Company may not
generate sufficient cash through the liquidation of its assets to satisfy its
current and future obligations. The liquidation of the Company's business
assets will likely involve a sale other than as a going concern which would
adversely affect the value the Company may realize for such assets. The
Company also may not be able to consummate the sale of its assets in time to
generate meaningful value. In addition, the Company may not be able to
negotiate the orderly wind down of its obligations to creditors. These
include, without limitation, long term contractual payment and performance
obligations associated with the Company's e-commerce platform, building and
facilities leases, business agreements with third parties, and agreements with
vendors. The Company also expects to make total severance payments of between
$2.3 million and $2.7 million to its employees, and may make incentive bonus
payments to employees relating to asset sales. The amount of severance
payments will depend on, among other things, the timing of layoffs by the
Company and the rate of employee attrition. As a result of these and other
factors, the Company may not be able to generate meaningful cash, or any cash,
which could be returned to its stockholders.

Uncertain Timing of Liquidation. The Plan of Liquidation provides that, if
it is approved and the Board of Directors determines to dissolve the Company,
the sale and distribution of assets will be completed not more

12
<PAGE>

than three years after the approval of the Plan of Liquidation by the holders
of the Common Stock. The Company anticipates that it will attempt to liquidate
within six months after approval of the Plan of Liquidation. However, the
Company may not be able to meet this timetable. For example, it may not be
possible for the Company to sell its assets at acceptable prices during such
period. Also, under the Plan of Liquidation, the Board of Directors has
retained the authority to abandon the dissolution of the Company without
further action by the Company's stockholders. Under the Plan of Liquidation,
the Board of Directors would have the authority to transfer the assets of the
Company to a liquidating trust designated by the Board of Directors. The Board
of Directors would not expect to transfer assets to a liquidating trust except
(i) when such a transfer is required to avoid the imposition of federal income
taxes on the Company or (ii) to establish reserves for liabilities and
obligations of the Company (contingent or otherwise) out of amounts which
would otherwise be distributed to stockholders. A distribution to a
liquidating trust would be treated as a direct distribution to the Company's
stockholders. As a result, a stockholder would recognize gain to the extent
his share of the cash and the fair market value of any assets received by the
liquidating trust was greater than the stockholder's basis in its stock,
notwithstanding that the stockholder would not receive a contemporaneous
distribution of cash or any other assets with which to satisfy the resulting
tax liability. See "--Federal Income Tax Consequences - Liquidating Trust."

If the Company's Contingency Reserve is Inadequate to Cover Expenses and
Liabilities, Stockholders May be Liable to Creditors of the Company for
Amounts Received. If the Plan of Liquidation is approved by the stockholders,
the Board of Directors will have the authority to cause a Certificate of
Dissolution to be filed with the State of Delaware dissolving the Company. If
the Company is dissolved, pursuant to the Delaware General Corporation Law,
the Company will continue to exist for three years after the dissolution
becomes effective or for such longer period as the Delaware Court of Chancery
shall direct, for the purpose of prosecuting and defending suits against it
and enabling the Company gradually to close its business, to dispose of its
property, to discharge its liabilities and to distribute to its stockholders
any remaining assets. The Company will establish a contingency reserve for
payment of its expenses and liabilities during this three-year period. Under
the Delaware General Corporation Law, in the event the contingency reserve
created by the Company is inadequate for payment of its expenses and
liabilities during this three-year period, each stockholder could be held
liable for payment to the Company's creditors of such stockholder's pro rata
share of amounts owed to creditors in excess of the contingency reserve. The
liability of any stockholder would be limited to the amounts previously
received by such stockholder from the Company (and from any liquidating trust
or trusts) as distributions. Accordingly, in such event a stockholder could be
required to return all such distributions previously made to such stockholder.
In such event, a stockholder could receive nothing from the Company. Moreover,
in the event a stockholder has paid taxes on amounts previously received, a
repayment of all or a portion of such amount could result in a stockholder
incurring a net tax cost if the stockholder's repayment of an amount
previously distributed does not cause a commensurate reduction in taxes
payable. There can be no assurance that the contingency reserve established by
the Company will be adequate to cover any expenses and liabilities. If the
Company were held by a court to have failed to make adequate provision for its
expenses and liabilities or if the amount ultimately required to be paid in
respect of such liabilities exceeded the amount available from the contingency
reserve and the assets of the liquidating trust or trusts, a creditor of the
Company could seek an injunction against the making of distributions under the
Company's wind down on the ground that the amounts to be distributed were
needed to provide for the payment of the Company's expenses and liabilities.
Any such action could delay or substantially diminish the cash distributions
to be made to stockholders.

Absence of Appraisal or Fairness Opinion. The Company has commenced a
process to sell all or any part of its assets to potential buyers. The Company
does not intend to obtain any appraisal of the value of any of its assets or
any fairness opinion prior to any sales of the Company's assets. A liquidation
of the Company's assets would likely involve a sale other than as a going
concern which would adversely affect the value the Company may realize for
such assets. The Company also may not be able to consummate the sale of its
assets in time to generate meaningful value.

The Company May Not be Able to Retain the Services of the Key Employees
Required to Complete its Liquidation. The success of the Company's liquidation
will depend in large part upon the Company's ability to

13
<PAGE>

retain the services of certain of its current personnel and its directors or
to attract qualified replacements for them. The retention and attraction of
qualified personnel is particularly difficult under the Company's current
circumstances.

The Company May Fix a Final Record Date on Which it Will Determine the
Proportionate Interest of each Stockholder and After Which it will be Unable
to Record Transfers of Common Stock on the Company's Books. The Company
intends to close its stock transfer books and discontinue recording transfers
of Common Stock at the close of business on the final record date to be fixed
by the Board of Directors for filing the Certificate of Dissolution after
approval by the Company's stockholders. Thereafter, certificates representing
the Common Stock will not be assignable or transferable on the books of the
Company except by will, intestate succession or operation of law. The
proportionate interests of all of the stockholders of the Company will be
fixed on the basis of their respective stock holdings at the close of business
on the final record date, and, after the final record date, any distributions
made by the Company shall be made solely to the stockholders of record at the
close of business on the final record date, except as may be necessary to
reflect subsequent transfers recorded on the books of the Company as a result
of any assignments by will, intestate succession or operation of law.

The Common Stock Will Be Delisted from the Nasdaq National Market. The
Company has received delisting notices from the Nasdaq Stock Market due to its
failure to maintain a minimum bid price of its Common Stock of at least $1.00
per share and its failure to maintain a minimum market value of public float
of at least $5.0 million. These notices provide that the Common Stock could be
delisted as early as February 9, 2001. The Company expects that it will be
unable to satisfy the requirements for continued listing of its Common Stock
on the Nasdaq National Market. Moreover, the rules of the Nasdaq Stock Market
require that companies listed on the Nasdaq National Market continue to have
an operating business. If the Company completes the Plan of Liquidation, it
will no longer have an operating business. In addition, as the Company
distributes cash to its stockholders, certain other listing criteria may not
be met. The Company expects that Nasdaq will delist its common stock from
Nasdaq National Market by February 9, 2001, if not earlier. When Nasdaq
delists the Common Stock from the Nasdaq National Market, the ability of
stockholders to buy and sell shares may be materially impaired.

Sales of Assets Not Subject to Further Stockholder Approval. If stockholders
approve the Plan of Liquidation, the Board of Directors will have the
authority to sell all of the Company's assets on such terms as the Board of
Directors determines appropriate. The stockholders will have no subsequent
opportunity to vote on such matters and will, therefore, have no right to
approve or disapprove the terms of any such sale.

No Appraisal Rights. Under Delaware law and the Company's Restated
Certificate of Incorporation, stockholders who vote against the Plan of
Liquidation will not have any appraisal rights or similar dissenters' rights
for their shares of Common Stock.

The Company Expects to Terminate its Obligation to Continue to Comply with
Public Company Reporting Requirements. The Company may file to terminate its
reporting obligation under the Securities Exchange Act of 1934. The Company
qualifies for such termination because it has less than 300 stockholders of
record. Upon such filing, the Company's obligation to file regular reports
under the Exchange Act such as reports on Form 10-K, Form 10-Q and Form 8-K
would be suspended.

Certain Federal Income Tax Consequences

The following discussion is a summary of the material federal income tax
consequences to the Company and to stockholders relevant to the Company's
adoption and implementation of the Plan of Liquidation. The discussion does
not deal with all of the tax consequences of the Plan of Liquidation that may
be relevant to every stockholder of the Company. Stockholders should therefore
consult their own tax advisors as to the tax consequences associated with the
implementation of the Plan of Liquidation under applicable federal, state,
local and foreign tax laws. The discussion of tax consequences that follows is
based upon the provisions

14
<PAGE>

of the Internal Revenue Code of 1986 (the "Code"), existing regulations
promulgated thereunder, Internal Revenue Service rulings, and judicial
decisions in effect on the date of this Proxy Statement, all of which are
subject to change at any time; any such changes may be applied retroactively.

Tax Consequences to the Company. Pursuant to the Plan of Liquidation, the
Company will sell all its assets. It is the Company's intention to liquidate
its assets over a maximum 3 year period. The gains or losses resulting from
the sales of assets will be included in the Company's tax returns for the
years in which the sales occur. The Company may disburse some part of its
assets to a Liquidating Trust (see --"Liquidating Trust", below). In this
event, the Company will report gains or losses on those assets at the time
they are disbursed to the Liquidating Trust, as if such assets had been sold.
The Company may utilize current year and carryover tax losses to offset any
reportable gains on sale or disbursements to a Liquidating Trust, subject to
certain limitations.

Tax Consequences to Stockholders. The Company believes that the
distributions of proceeds of sales of assets, if any, to its stockholders
pursuant to the Plan of Liquidation would be treated as distributions in
complete liquidation of the Company. In such case, a stockholder would
recognize gain or loss with respect to each share of Company stock held by the
stockholder, measured by the difference between: (i) the total amount of cash
and fair market value of other property, if any, received by the stockholder
with respect to such share pursuant to the Plan of Liquidation; and (ii) the
stockholder's basis in that share. (See "--Liquidating Trust," below, for the
consequences to stockholders if the Company's assets are dispersed to a
liquidating trust.) If a stockholder holds more than one block of shares
(groups of shares acquired at different times or at different costs), each
liquidating distribution would be allocated ratably among the various blocks
of shares, and gain or loss would be computed separately with respect to each
block of shares.

Gain or loss recognized by a stockholder would be capital gain or loss
provided the shares are held by the stockholder as capital assets. Capital
gain or loss would be long-term if the shares were held for more than
12 months.

If adopted, the Plan of Liquidation could result in more than one
liquidating distribution to the stockholders, which may affect the timing of
the gain or loss recognition to the stockholders.

Liquidating Trust. In the event that the Company is unable to dispose of all
of its assets within three years after adoption of the Plan of Liquidation, or
if it is otherwise advantageous or appropriate to do so, the Company may
establish a liquidating trust to which the Company could distribute in kind
its unsold assets. In any event, even if all of the Company's assets were
disposed of within such period, it might be necessary to establish a
liquidating trust to retain cash reserves beyond such three-year period to
meet contingent liabilities of the Company. Under the Code, a trust will be
treated as a liquidating trust if it is organized for the primary purpose of
liquidating and distributing the assets transferred to it, and if its
activities are all reasonably necessary to and consistent with the
accomplishment of that purpose. However, if the liquidation is prolonged or if
the liquidation purpose becomes so obscured by business activities that the
declared purpose of the liquidation can be said to be lost or abandoned, it
will no longer be considered a liquidating trust.

An entity classified as a liquidating trust may receive assets, including
cash, from the liquidating entity without incurring any tax. It will be
treated as a grantor trust, and accordingly will also not be subject to tax on
any income or gain recognized by it. Instead, each beneficiary will be treated
as the owner of his or her pro rata portion of each asset, including cash,
received by and held by the liquidating trust. Accordingly, if the Plan of
Liquidation is adopted and if the Company ultimately employs a liquidating
trust, each stockholder of the Company would be treated as having received a
liquidating distribution equal to his or her share of the amount of cash and
the fair market value of any asset distributed to the liquidating trust and
generally would recognize gain to the extent such value was greater than such
stockholder's basis in his or her stock, notwithstanding that the stockholder
may not contemporaneously receive a distribution of cash or any other assets
with which to satisfy the resulting tax liability. In addition, each
stockholder would be required to take into account in computing such
stockholder's own taxable income his or her pro rata share of each item of
income, gain and loss of the liquidating trust. Since stockholders would be
treated as owning their respective shares of the trust's assets, they would be
treated as directly engaging in the operations of the trust.

15
<PAGE>

Backup Withholding. Liquidating distributions will not be subject to back-up
withholding.

Pending Legislation. Stockholders should be aware that a variety of tax-
related legislation is under consideration before Congress, some of which
could affect the tax treatment of transactions described in this Proxy
Statement. The Company is not able to predict whether any of these proposals
will ultimately be enacted or whether any enactments would have an adverse
effect on the Company or any stockholder. Stockholders are urged to contact
their own tax advisors regarding the effect any proposed changes may have on
their own individual situations.

The foregoing is a summary description of certain federal income tax
consequences of the Plan of Liquidation to stockholders without consideration
of the particular facts and circumstances of any holder of shares of Common
Stock. The discussion does not deal with all of the tax consequences of the
Plan of Liquidation that may be relevant to every stockholder of the Company.
Stockholders should therefore consult their own tax advisors as to the tax
consequences associated with the implementation of the Plan of Liquidation
under applicable federal, state, local and foreign tax laws. The Company can
make no assurance that the tax treatment described above will be obtained by
the holders of the Common Stock.

16
<PAGE>

SELECTED FINANCIAL DATA

The statement of operations data for the fiscal years ended June 30, 2000,
1999, 1998 and 1997 and for the period from October 2, 1995 (inception) to
June 30, 1996 and the balance sheet data as of June 30, 2000, 1999, 1998, 1997
and 1996 are derived from the Company's financial statements that have been
audited by Ernst & Young LLP, independent auditors. The statement of
operations data for the quarters ended September 30, 2000 and 1999 and the
balance sheet data as of September 30, 2000 and 1999 are derived from the
Company's unaudited financial statements. In the Company's opinion, all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of results as of and for the quarters ended September 30, 2000
and 1999 have been included. This information should be read together with the
Company's consolidated financial statements and related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Proxy Statement. Results for past
periods are not necessarily indicative of results that may be expected for
future periods, and results for the quarter ended September 30, 2000 are not
necessarily indicative of results that may be expected for the entire year
ending June 30, 2001.

17
<PAGE>

<TABLE>
<CAPTION>
Quarter Ended Period from
September 30, Fiscal Year Ended June 30, October 2, 1995
----------------------- --------------------------------------------- (inception) to
2000 1999 2000 1999 1998 1997 June 30, 1996
----------- ---------- ----------- ---------- ---------- -------- ---------------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Products............... $ 2,209 $ 1,159 $ 13,564 $ 4,952 $ 1,283 $ 308 $ 8
Advertising............ 393 253 1,938 442 56 8 --
----------- ---------- ----------- ---------- ---------- -------- --------
Total revenues........ 2,602 1,412 15,502 5,394 1,339 316 8
----------- ---------- ----------- ---------- ---------- -------- --------
Cost of revenues:
Products............... 1,796 1,049 11,416 4,466 1,086 242 5
Advertising............ 47 44 205 74 22 4 --
----------- ---------- ----------- ---------- ---------- -------- --------
Total cost of
revenues............. 1,843 1,093 11,621 4,540 1,108 246 5
----------- ---------- ----------- ---------- ---------- -------- --------
Gross Profit............ 759 319 3,881 854 231 70 3
Operating expenses:
Marketing and sales.... 3,841 2,699 26,654 13,305 2,411 927 189
Technology, content and
product development... 1,944 1,408 6,918 3,167 1,188 858 161
General and
administrative........ 1,629 1,308 7,052 2,941 1,218 668 311
Depreciation and
amortization.......... 838 347 2,107 610 219 97 29
Amortization of
deferred
compensation.......... 151 374 1,136 674 73 -- --
Restructuring and other
activities............ -- -- 888 -- -- -- --
Discontinued marketing
activities and
severance costs....... 2,578 -- -- -- -- -- --
----------- ---------- ----------- ---------- ---------- -------- --------
Total operating
expenses............. 10,981 6,136 44,755 20,697 5,109 2,550 690
----------- ---------- ----------- ---------- ---------- -------- --------
Operating loss.......... (10,222) (5,817) (40,874) (19,843) (4,878) (2,480) (687)
Other income and
expense................ 302 249 2,151 784 194 40 22
----------- ---------- ----------- ---------- ---------- -------- --------
Net loss................ $ (9,920) $ (5,568) $ (38,723) $ (19,059) $ (4,684) $ (2,440) $ (665)
=========== ========== =========== ========== ========== ======== ========
Beneficial conversion
feature and in
substance dividend..... -- -- -- (2,700) -- -- --
----------- ---------- ----------- ---------- ---------- -------- --------
Net loss application to
common stockholders.... $ (9,920) $ (5,568) $ (38,723) $ (21,759) $ (4,684) $ (2,440) $ (665)
=========== ========== =========== ========== ========== ======== ========
Basic net loss per
share.................. $ (0.56) $ (1.45) $ (2.74) $ (20.48) $ (4.68) $ (2.44) $ (1.19)
=========== ========== =========== ========== ========== ======== ========
Shares used to compute
basic net loss per
share.................. 17,739,042 3,827,552 14,149,167 1,062,696 1,000,820 999,993 558,908
Balance Sheet Data:
Cash and cash
equivalents........... $ 390 $ 43,302 $ 9,047 $ 15,340 $ 19,042 $ 4,948 $ 114
Working capital........ 10,277 61,753 25,023 18,323 18,308 4,568 (10)
Total assets........... 30,662 70,978 42,495 25,222 20,489 5,423 323
Total liabilities and
deferred revenue...... 5,480 4,132 7,546 3,343 1,473 586 251
Total redeemable
convertible preferred
stock, warrants, and
stockholders' equity
(deficit)............. 30,662 70,978 34,949 21,879 19,015 4,837 92
</TABLE>

18
<PAGE>

MORE INFORMATION ABOUT GARDEN.COM

General

Garden.com has operated an online destination integrating gardening and
gardening-related commerce, content and community. Primarily through its
flagship Web site, www.garden.com, Garden.com has provided consumers with an
intuitive, easy-to-use environment through which they can access a wide
variety of gardening information and resources, purchase a broad selection of
products, receive specific gardening advice and other personalized services
and interact with an online gardening community. During the quarter ended
September 30, 2000, the Company launched its TRELLIS technology services
division and formed Green Cheetah, Inc., to pursue software development
activities.

On November 15, 2000, Garden.com announced that it would begin a phased
shut-down of its retail operations and the sale of its consumer business
assets, including product inventory, URLs, content, photo library, its popular
online gardening tools such as Landscape Planner and Plant Finder, as well as
other intellectual property. Garden.com also announced that it would continue
to evaluate strategic alternatives for its technology assets. Garden.com has
substantially completed a "going-out-of-business sale" of its product
inventory. On December 1, 2000, Garden.com shut-down its web site and ceased
the operation of its commerce business. Since that time, Garden.com has
solicited bids for the sale of various of its assets. Pursuant to the proposed
Plan of Liquidation, Garden.com intends to sell all of its assets, including
its consumer business assets and its technology assets.

Employees

As of December 15, 2000, the Company employed 47 full-time equivalent
individuals. The Company anticipates that it will continue to experience
difficulties in retaining its employees during the process of liquidating the
Company's business. None of the Company's employees is represented by a labor
union.

Properties

The Company's headquarters are located in Austin, Texas at 3301 Steck
Avenue, Austin, Texas 78757. The Company also maintains an office in Des
Moines, Iowa, where it had operated its publishing office and maintained test
gardens. The Company leases all of its facilities, with the Austin lease
comprising approximately 32,500 square feet of office and warehouse space and
the Iowa lease comprising approximately 1,500 square feet of office space. The
Company will seek to renegotiate these leases as part of the process of
liquidating the Company's business.

Market for the Common Stock

The Common Stock is traded on the Nasdaq National Market under the symbol
"GDEN." The Company has received delisting notices from the Nasdaq Stock
Market due to its failure to maintain a minimum bid price of its Common Stock
of at least $1.00 per share and its failure to maintain a minimum market value
of public float of at least $5.0 million. The Company expects that it will be
unable to satisfy the requirements for continued listing of its Common Stock
on the Nasdaq National Market. The following table sets forth the high and low
closing sale prices for the Common Stock as reported by the Nasdaq National
Market for the periods indicated.

<TABLE>
<CAPTION>
Year Ended June 30, 2000
Quarter High Low
------- ------- -------
<S> <C> <C>
First (September 16, 1999-September 30, 1999)............... $20.813 $14.969
Second...................................................... $19.000 $ 8.500
Third....................................................... $10.500 $ 6.750
Fourth...................................................... $ 8.500 $ 2.375

<CAPTION>
Year Ending June 30, 2001
Quarter High Low
------- ------- -------
<S> <C> <C>
First....................................................... $ 2.938 $ 0.906
Second (through December 13, 2000).......................... $ 0.719 $ 0.031
</TABLE>

At December 5, 2000, there were approximately 191 holders of record of
Common Stock. The Company has not paid any cash dividends on its Common Stock.

19
<PAGE>

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

The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Financial
Statements and the related notes. This discussion contains forward-looking
statements based upon current expectations that involve risks and
uncertainties, such as the Company's plans, objectives, expectations and
intentions. The Company's actual results and the timing of certain events
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors. See "Cautionary Note on Forward-
Looking Statements."

On November 15, 2000, the Company announced that it would begin a phased
shut-down of its retail operations and the sale of its consumer business
assets, including product inventory, URLs, content, photo library, its popular
online gardening tools such as Landscape Planner and Plant Finder, as well as
other intellectual property. Garden.com also announced that it would continue
to evaluate strategic alternatives for its technology assets. Garden.com has
substantially completed a "going-out-of-business sale" of its product
inventory. On December 1, 2000, Garden.com shut down its website and ceased
the operation of its commerce business. Pursuant to the Plan of Liquidation,
Garden.com intends to sell all of its assets, including its consumer business
assets and its technology assets. As a result of these developments, the
Company does not believe that the historical financial information in this
Proxy Statement provides a meaningful indication of the Company's future
financial condition or results of operations. The Company can make no
assurance that it will be able to complete the process of winding down its
operations in a manner that generates meaningful cash, or any cash, for
stockholders. See "Plan of Liquidation and Dissolution - Risks Related to
Dissolution" above.

Results of Operations

Comparison of Three Months Ended September 30, 2000 and September 30, 1999

Product Revenues

<TABLE>
<CAPTION>
Quarter Ended
September 30,
-------------
2000 1999 % Change
------ ------ --------
(In
Thousands)
<S> <C> <C> <C>
Product revenues...................................... $2,209 $1,159 91%
</TABLE>

Product revenues consist of product sales to customers and charges to
customers for shipping. Revenues are recorded net of promotional discounts and
coupons. Product returns are recorded as a reduction of revenues. Product
revenues increased 91% to $2.2 million, or 85% of total revenues, for the
quarter ended September 30, 2000 from $1.2 million, or 82% of total revenues,
for the quarter ended September 30, 1999. Product revenues increased primarily
as a result of the 163% growth in the Company's customer base, which the
Company believes was primarily influenced by increased marketing activities,
expanded product offerings and enhancements to the features and functionally
of the garden.com Web site.

Advertising Revenues

<TABLE>
<CAPTION>
Quarter Ended
September 30,
---------------
2000 1999 % Change
------- ------- --------
(In Thousands)
<S> <C> <C> <C>
Advertising revenues................................ $ 393 $ 253 55%
</TABLE>

Advertising revenues increased 55% to $393,000, or 15% of total revenues,
for the quarter ended September 30, 2000 from $253,000, or 18% of total
revenues, for the quarter ended September 30, 1999. Advertising revenues
increased primarily due to a 34% increase in page views on the Company's Web
site to 32.0 million for the quarter ended September 30, 2000 from 23.9
million for the quarter ended September 30, 1999.

20
<PAGE>

Gross Profit

<TABLE>
<CAPTION>
Quarter Ended
September 30,
----------------
2000 1999 % Change
------- ------- --------
(In Thousands)
<S> <C> <C> <C>
Gross profit...................................... $ 759 $ 319 138%
Gross margin...................................... 29% 23%
</TABLE>

Gross profit consists of total revenues minus cost of total revenues. Cost
of total revenues consists primarily of the cost of products sold to
customers, shipping and handling costs for product sales, and advertising
sales commissions paid to the Company's internal advertising sales department.
Gross profit increased to $759,000 for the quarter ended September 30, 2000
from $319,000 for the quarter ended September 30, 1999. Gross margin increased
to 29% of total revenues for the quarter ended September 30, 2000 from 23% of
total revenues for the quarter ended September 30, 1999. The increase in gross
profit in absolute dollars is due in part to the Company's overall increased
total revenues. Gross margin percentage increased primarily due to ongoing
negotiations with suppliers that raised contractual gross margins and a
reduction in shipping and handling charges as a percentage of total revenues.
During the quarter ending December 31, 2000, the Company initiated a "going
out of business sale" on selected products using promotional discounts that
should negatively affect gross margins.

Marketing and Sales

<TABLE>
<CAPTION>
Quarter Ended
September 30,
--------------
2000 1999 % Change
------ ------ --------
(In
Thousands)
<S> <C> <C> <C>
Marketing and sales................................. $3,841 $2,699 42%
Percentage of total revenues........................ 148% 191%
</TABLE>

Marketing and sales expenses consist primarily of advertising and
promotional expenditures, payroll and related expenses for personnel engaged
in marketing, Customer Solutions, advertising sales and distribution
activities and distribution expenses. Marketing and sales expenses increased
to $3.8 million, or 148% of total revenues, for the quarter ended
September 30, 2000 from $2.7 million, or 191% of total revenues, for the
quarter ended September 30, 1999. Marketing and sales expenses increased in
absolute dollars primarily due to an increase in the Company's advertising and
promotional expenditures, and increases in payroll costs associated with its
marketing and Customer Solutions departments. Marketing and sales expenses
decreased as a percentage of revenue due to the increase in total revenues.

Technology, Content and Product Development

<TABLE>
<CAPTION>
Quarter Ended
September 30,
----------------
2000 1999 % Change
------- ------- --------
(In Thousands)
<S> <C> <C> <C>
Technology, content and product development...... $ 1,944 $ 1,408 38%
Percentage of total revenues..................... 75% 100%
</TABLE>

Technology, content and product development expenses consist of payroll and
related expenses for personnel involved in creating and publishing content,
product merchandising, and Web site development. During the quarter ended
September 30, 2000 technology, content and product development expenses also
included certain costs related to the Company's software division, TRELLIS.
Technology, content and product development expenses increased to $1.9
million, or 75% of total revenues, for the quarter ended September 30, 2000
from $1.4 million, or 100% of total revenues, for the quarter ended September
30, 1999. The increase in technology, content and product development expenses
in absolute dollars is primarily due to an increase in payroll and related
costs used for hiring additional personnel as well as associated costs related
to enhancing the

21
<PAGE>

products and features, editorial content and functionality of the Company's
Web site and branded catalogs. As a percent of total revenues, technology,
content and product development expenses decreased due to the increase in
total revenues during the period.

General and Administrative

<TABLE>
<CAPTION>
Quarter Ended
September 30,
----------------
2000 1999 % Change
------- ------- --------
(In Thousands)
<S> <C> <C> <C>
General and administrative........................ $ 1,629 $ 1,308 25%
Percentage of total revenues...................... 63% 93%
</TABLE>

General and administrative expenses consist of payroll and related expenses
for general corporate functions, including supplier operations support,
finance, facilities expenses, and professional services expenses. General and
administrative expenses increased to $1.6 million, or 63% of revenues, for the
quarter ended September 30, 2000 from $1.3 million, or 93% of revenues, for
the quarter ended September 30,1999. The increase in general and
administrative expenses in absolute dollars is primarily due to an increase in
payroll and related costs used for hiring additional personnel as well as
associated expenses necessary to support the growth of the Company's
operations. As a percent of total revenues, general and administrative
expenses decreased due to the increase in total revenues during the period.

Depreciation and Amortization

<TABLE>
<CAPTION>
Quarter Ended
September 30,
----------------
2000 1999 % Change
------- ------- --------
(In Thousands)
<S> <C> <C> <C>
Depreciation and amortization..................... $ 838 $ 347 142%
Percentage of total revenues...................... 32% 25%
</TABLE>

Depreciation of property and equipment and amortization of intangible other
assets are based on the useful lives of the assets or terms of the license
agreements, generally three to seven years, and is computed using the
straight-line method. Depreciation and amortization expenses increased to
$838,000, or 32% of total revenues, for the quarter ended September 30, 2000
from $347,000, or 25% of total revenues, for the quarter ended September 30,
1999. The increase in depreciation and amortization expense is primarily due
to the increase in property and equipment, including computer equipment,
software, and database servers.

Amortization of Deferred Compensation

<TABLE>
<CAPTION>
Quarter Ended
September 30,
---------------
2000 1999 % Change
------- ------- --------
(In Thousands)
<S> <C> <C> <C>
Amortization of deferred compensation............... $151 $374 (60)%
</TABLE>

Deferred stock compensation is amortized to expense over the vesting periods
of the applicable stock options. These amounts represent the difference
between the exercise price of stock option grants and the deemed fair value of
the Company's common stock at the time of such grants. Amortization of
deferred compensation expense decreased to $151,000 for the quarter ended
September 30, 2000 from $374,000 for the quarter ended September 30, 1999.
Amortization of deferred compensation expense for each of the next three
fiscal years is expected to be as follows:

<TABLE>
<CAPTION>
Year ended Amount in thousands
---------- -------------------
<S> <C>
June 30, 2001............................................ $345
June 30, 2002............................................ 238
June 30, 2003............................................ 9
</TABLE>

22
<PAGE>

Interest Income and Expense

<TABLE>
<CAPTION>
Quarter Ended
September 30,
---------------
2000 1999 % Change
------- ------- --------
(In Thousands)
<S> <C> <C> <C>
Interest income..................................... $ 302 $ 252 20%
Interest expense.................................... $ 0 $ 3 --
</TABLE>

Interest income increased for the quarter ended September 30, 2000 due to
three full months of interest income on the remaining proceeds of the
Company's initial public offering. Interest expense declined as the Company
paid down all of its outstanding debt.

Income Taxes

The Company has not generated any taxable income to date and therefore has
not paid any federal income taxes since inception. Utilization of the
Company's net operating loss carryforwards, which begin to expire in 2011, may
be subject to certain limitations under Section 382 of the Internal Revenue
Code of 1986, as amended. The Company has provided a full valuation allowance
on the deferred tax asset, consisting primarily of net operating loss
carryforwards, because of uncertainty regarding its realizability.

Comparison of Fiscal Years Ended June 30, 2000 and June 30, 1999

Revenues

Products. Product revenues increased 174% to $13.6 million, or 87% of total
revenues, for the fiscal year ended June 30, 2000 from $5.0 million, or 92% of
total revenues, for the fiscal year ended June 30, 1999. Product revenues
increased primarily as a result of the 180% growth in the Company's customer
base, which the Company believes was primarily influenced by increased
marketing activities, expanded product offerings and enhancements to the
features and functionally of the garden.com Web site.

Advertising. Advertising revenues increased 338% to $1.9 million, or 13% of
total revenues, for the fiscal year ended June 30, 2000 from $442,000, or 8%
of total revenues, for the fiscal year ended June 30, 1999. Advertising
revenues increased primarily due to the focus of an internal advertising sales
department established in February 1999, and a 76% increase in page views on
the Web sites to 170.4 million for the fiscal year ended June 30, 2000 from
96.9 million for the fiscal year ended June 30, 1999.

Gross Profit

Gross profit increased to $3.9 million for the fiscal year ended June 30,
2000 from $854,000 for the fiscal year ended June 30, 1999. Gross margin
increased to 25% of total revenues for the fiscal year ended June 30, 2000
from 16% of total revenues for the fiscal year ended June 30, 1999. The
increase in gross profit in absolute dollars is due in part to the Company's
overall increased total revenues. Gross margin percentage increased primarily
due to an increase in higher margin advertising revenues, product management
negotiating with suppliers that raised contractual gross margins, and the
elimination of a one-time promotional activity, which totaled $79,000 in the
fiscal year ended June 30, 1999.

Operating Expenses

Marketing and Sales. Marketing and sales expenses increased to $26.7
million, or 172% of total revenues, for the fiscal year ended June 30, 2000
from $13.3 million, or 247% of total revenues, for the fiscal year ended June
30, 1999. Marketing and sales expenses increased in absolute dollars primarily
due to an increase in the Company's advertising and promotional expenditures,
and increases in payroll costs associated with its marketing and Customer
Solutions departments. Marketing and sales expenses decreased as a percentage
of revenue due to the significant increase in total revenues.

23
<PAGE>

Technology, Content and Product Development. Technology, content and product
development expenses increased to $6.9 million, or 45% of total revenues, for
the fiscal year ended June 30, 2000 from $3.2 million, or 59% of total
revenues, for the fiscal year ended June 30, 1999. The increase in technology,
content and product development expenses in absolute dollars is primarily due
to an increase in payroll and related costs used for hiring additional
personnel as well as associated costs related to enhancing the products and
features, editorial content and functionality of the Company's Web site. As a
percent of total revenues, technology, content and product development
expenses decreased due to the increase in total revenues during the period.

General and Administrative. General and administrative expenses increased to
$7.1 million, or 45% of revenues, for the fiscal year ended June 30, 2000 from
$2.9 million, or 55% of revenues, for the fiscal year ended June 30, 1999. The
increase in general and administrative expenses in absolute dollars is
primarily due to an increase in payroll and related costs used for hiring
additional personnel as well as associated expenses necessary to support the
growth of the Company's operations. As a percent of total revenues, general
and administrative expenses decreased due to the increase in total revenues
during the period.

Depreciation and Amortization. Depreciation and amortization expenses
increased to $2.1 million, or 14% of total revenues, for the fiscal year ended
June 30, 2000 from $610,000, or 11% of total revenues, for the fiscal year
ended June 30, 1999. The increase in depreciation and amortization expense is
primarily due to the increase in property and equipment to support the growth
of the Company, including computer equipment, software, database servers, and
build out of new office space.

Amortization of Deferred Compensation. Amortization of deferred compensation
expense increased to $1.1 million for the fiscal year ended June 30, 2000 from
$674,000 for the fiscal year ended June 30, 1999.

Restructuring and other activities. In June 2000, the Company's management
initiated a restructuring effort that resulted in the Company incurring a
restructuring charge of $888,000. This charge includes asset write-offs on
discontinued Company initiatives, including prepaid costs for a landscaping
product test, severance related to an internal restructuring and a note
receivable from a European based internet gardening company.

Other Income and Expense

Other income and expense increased to $2.1 million for the fiscal year ended
June 30, 2000 from $784,000 for the fiscal year ended June 30, 1999 due to
nine full months of interest income on the proceeds of the Company's initial
public offering.

Comparison of Fiscal Years Ended June 30, 1999 and June 30, 1998

Revenues

Products. Product revenues increased 286% to $5.0 million, or 92% of total
revenues, for the fiscal year ended June 30, 1999 from $1.3 million, or 96% of
total revenues, for the fiscal year ended June 30, 1998. Product revenues
increased primarily as a result of the 293% growth in the Company's customer
base, which the Company believes was primarily influenced by increased
marketing activities, expanded product offerings and enhancements to the
features and functionality of the garden.com Web site.

Advertising. Advertising revenues increased 689% to $442,000, or 8% of total
revenues, for the fiscal year ended June 30, 1999 from $56,000, or 4% of total
revenues, for the fiscal year ended June 30, 1998. Advertising revenues
increased primarily due to a 163% increase in page views on the Web sites to
96.9 million for the fiscal year ended June 30, 1999 from 36.9 million for the
fiscal year ended June 30, 1998.

Gross Profit

Gross profit increased to $854,000 for the fiscal year ended June 30, 1999
from $231,000 for the fiscal year ended June 30, 1998. Gross margin decreased
to 16% of total revenues for the fiscal year ended June 30, 1999 from 17% of
total revenues for the fiscal year ended June 30, 1998 due primarily to a one-
time promotional

24
<PAGE>

activity in the latter period designed to attract first-time customers, which
was partially offset by an increase in higher margin advertising revenues.
This one-time promotional activity decreased gross profit by $79,000 for the
fiscal year ended June 30, 1999.

Operating Expenses

Marketing and Sales. Marketing and sales expenses increased to $13.3
million, or 247% of total revenues, for the fiscal year ended June 30, 1999
from $2.4 million, or 180% of total revenues, for the fiscal year ended June
30, 1998. Marketing and sales expenses increased primarily due to increases in
expenses related to advertising to promote the Company's brand and to acquire
new customers as well as increases in payroll and related costs used to hire
additional marketing, sales, and Customer Solutions personnel.

Technology, Content and Product Development. Technology, content and product
development expenses increased to $3.2 million, or 59% of total revenues, for
the fiscal year ended June 30, 1999 from $1.2 million, or 89% of total
revenues, for the fiscal year ended June 30, 1998. The increase in technology,
content and product development expenses in absolute dollars is primarily due
to an increase in payroll and related costs used for hiring additional
personnel as well as associated costs related to enhancing the products and
features, editorial content and functionality of the Company's Web site. As a
percent of total revenues, content and product development expenses decreased
due to the increase in total revenues during the period.

General and Administrative. General and administrative expenses increased to
$2.9 million, or 55% of revenues, for the fiscal year ended June 30, 1999 from
$1.2 million, or 91% of revenues, for the fiscal year ended June 30, 1998. The
increase in general and administrative expenses in absolute dollars is
primarily due to an increase in payroll and related costs used for hiring
additional personnel as well as associated expenses necessary to support the
growth of the Company's operations. As a percent of total revenues, general
and administrative expenses decreased due to the increase in total revenues
during the period.

Depreciation and Amortization. Depreciation and amortization expenses
increased to $610,000, or 11% of total revenues, for the fiscal year ended
June 30, 1999 from $219,000, or 16% of total revenues, for the fiscal year
ended June 30, 1998. The increase in depreciation and amortization expense in
absolute dollars is primarily due to the increase in property and equipment to
support the growth of the Company, including computer equipment, software,
database servers, and build out of new office space.

Amortization of Deferred Compensation. In the fiscal years ended June 30,
1999 and 1998, the Company recorded total deferred stock compensation of
$2,739,000 and $314,000, respectively, in connection with stock options
granted during the period. Such amounts resulted in expenses of $674,000 and
$73,000 for the fiscal years ended June 30, 1999 and 1998.

Other Income and Expense

Other income increased to $784,000 for the fiscal year ended June 30, 1999
from $193,000 for the fiscal year ended June 30, 1998 as a result of interest
earned on the net proceeds from the sale of the Company's preferred stock in
June 1998, April 1999 and May 1999.

Liquidity and Capital Resources

Since inception, the Company has financed its operations primarily through
private placements of preferred stock, its initial public offering and, to a
lesser extent, from revenues generated by operations. As of September 30,
2000, the Company had approximately $390,000 in cash and cash equivalents and
$12.0 million in short-term investments.

Net cash used in operating activities increased to $9.5 million for the
quarter ended September 30, 2000 from $5.5 million for the quarter ended
September 30, 1999. The increase in net cash used in operating activities can
be substantially attributed to the increased net loss.

25
<PAGE>

Net cash provided by investing activities of $843,000 for the quarter ended
September 30, 2000 resulted primarily from the sale of investment securities
which was partially offset by the purchase of property and computer equipment.
Net cash used in investing activities of $16.7 million for the quarter ended
September 30, 1999 resulted primarily from the purchase of securities for
investment purposes and from the purchase of property and computer equipment.

Net cash used in financing activities of $19,000 for the quarter ended
September 30, 2000 resulted primarily from the repayment of the Company's
outstanding debt obligations. Net cash provided by financing activities of
$50.1 million for the quarter ended September 30, 1999 resulted primarily from
net proceeds from the issuance of common stock in the Company's initial public
offering.

Net cash used in operating activities increased to $32.8 million for the
fiscal year ended June 30, 2000 from $18.5 million for the fiscal year ended
June 30, 1999. The increase in net cash used in operating activities can be
substantially attributed to the increased net loss.

Net cash used in investing activities increased to $23.8 million for the
fiscal year ended June 30, 2000 from $6.3 million for the fiscal year ended
June 30, 1999. The increase in net cash used in investing activities resulted
primarily from the purchase of securities for investment purposes and from the
purchase of property and computer equipment. Cash available for investment
purposes increased substantially during the fiscal year ended June 30, 2000 as
a result of the proceeds from the issuance of common stock in the Company's
initial public offering.

Net cash provided by financing activities increased to $50.3 million for the
fiscal year ended June 30, 2000 from $21.1 million for the fiscal year ended
June 30, 1999. The increase in net cash provided by financing activities
resulted primarily from net proceeds from the issuance of common stock in the
Company's initial public offering.

On November 15, 2000, the Company announced that it would begin the phased
shut-down of its retail operations and the sale of its consumer business
assets. The Company believes that its current cash and marketable securities
and investments balances will be sufficient to proceed with this phased shut-
down through December 31, 2000. The Company also announced that it would
continue to evaluate strategic alternatives for its technology assets,
including TRELLIS and Green Cheetah. The Company plans to liquidate all of its
assets, including its technology assets, pursuant to the Plan of Liquidation.

26
<PAGE>

Selected Quarterly Results of Operations

The following table sets forth selected unaudited statement of income data
for the nine quarters ended September 30, 2000, both in dollar amounts and as
a percentage of total revenues. This data should be read in conjunction with
the financial statements and related notes included elsewhere in this Proxy
Statement.

<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------------------------------------
Sept. 30, June 30, March 31, Dec. 31, Sep. 30, June 30, March 31, Dec. 31, Sep. 30,
2000 2000 2000 1999 1999 1999 1999 1998 1998
--------- -------- --------- -------- -------- -------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Products............... $ 2,209 $ 6,489 $ 2,600 $ 3,317 $ 1,159 $ 2,637 $ 856 $ 1,125 $ 333
Advertising............ 393 838 556 291 253 247 83 87 25
-------- -------- -------- ------- ------- ------- ------- ------- -------
Total revenues......... 2,602 7,327 3,156 3,608 1,412 2,884 939 1,212 358
-------- -------- -------- ------- ------- ------- ------- ------- -------
Cost of revenues:
Products............... 1,796 5,651 2,109 2,609 1,049 2,446 763 898 359
Advertising............ 47 49 90 21 44 20 8 32 13
-------- -------- -------- ------- ------- ------- ------- ------- -------
Total cost of
revenues.............. 1,843 5,700 2,199 2,630 1,093 2,466 771 930 372
-------- -------- -------- ------- ------- ------- ------- ------- -------
Gross profit............ 759 1,627 957 978 319 418 168 282 (14)
Operating expenses:
Marketing and sales.... 3,841 10,616 8,435 4,904 2,699 6,239 3,686 1,246 2,133
Technology, content and
product development... 1,944 2,095 1,768 1,648 1,408 1,001 928 599 640
General and
administrative........ 1,629 2,075 2,002 1,667 1,308 1,061 803 572 504
Depreciation and
amortization.......... 838 719 577 464 347 233 142 124 112
Amortization of
deferred
compensation.......... 151 214 250 298 374 370 117 82 105
Restructuring and other
activities............ -- 888 -- -- -- -- -- -- --
Discontinued marketing
activities and
severance costs....... 2,578 -- -- -- -- -- -- -- --
-------- -------- -------- ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 10,981 16,607 13,032 8,981 6,136 8,904 5,676 2,623 3,494
-------- -------- -------- ------- ------- ------- ------- ------- -------
Operating loss.......... (10,222) (14,980) (12,075) (8,003) (5,817) (8,486) (5,508) (2,341) (3,508)
Other income and
expense................ 302 475 636 791 249 220 124 192 248
-------- -------- -------- ------- ------- ------- ------- ------- -------
Net loss................ $ (9,920) $(14,505) $(11,439) $(7,212) $(5,568) $(8,266) $(5,384) $(2,149) $(3,260)
======== ======== ======== ======= ======= ======= ======= ======= =======
</TABLE>

27
<PAGE>

<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------------------------
Sept. 30, June 30, March 31, Dec. 31, Sep. 30, June 30, March 31, Dec. 31, Sep. 30,
2000 2000 2000 1999 1999 1999 1999 1998 1998
--------- -------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Products............... 85% 89% 82% 92% 82% 91% 91% 93% 93%
Advertising............ 15 11 18 8 18 9 9 7 7
---- ---- ---- ---- ---- ---- ---- ---- ----
Total revenues......... 100 100 100 100 100 100 100 100 100
---- ---- ---- ---- ---- ---- ---- ---- ----
Cost of revenues:
Products............... 69 77 67 72 74 85 81 74 100
Advertising............ 2 1 3 1 3 1 1 3 4
---- ---- ---- ---- ---- ---- ---- ---- ----
Total cost of
revenues.............. 71 78 70 73 77 86 82 77 104
---- ---- ---- ---- ---- ---- ---- ---- ----
Gross profit............ 29 22 30 27 23 14 18 23 (4)
Operating expenses:
Marketing and sales.... 147 145 267 136 191 216 392 103 596
Technology, content and
product development... 75 28 56 46 100 35 99 50 179
General and
administrative........ 63 28 63 46 93 37 86 47 141
Depreciation and
amortization.......... 32 10 18 13 25 8 15 10 31
Amortization of
deferred
compensation.......... 6 3 8 8 26 13 12 6 29
Restructuring and other
activities............ -- 12 -- -- -- -- -- -- --
Discontinued marketing
activities and
severance costs....... 99 -- -- -- -- -- -- -- --
---- ---- ---- ---- ---- ---- ---- ---- ----
Total operating
expenses.............. 422 226 412 249 435 309 604 216 976
---- ---- ---- ---- ---- ---- ---- ---- ----
Operating loss.......... (393) (204) (382) (222) (412) (295) (586) (193) (980)
Other income and
expense................ 12 6 20 22 18 8 13 16 69
---- ---- ---- ---- ---- ---- ---- ---- ----
Net loss................ (381)% (198)% (362)% (200)% (394)% (287)% (573)% (177)% (911)%
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>

28
<PAGE>

SECURITY OWNERSHIP

The following table sets forth information regarding the beneficial
ownership of shares of Common Stock as of November 30, 2000 by (i) each
director and named executive officer (as defined below), (ii) all directors
and executive officers as a group, and (iii) each person or other entity known
by the Company to beneficially own more than 5% of the outstanding Common
Stock.

The Company has determined beneficial ownership in accordance with the rules
of the Securities and Exchange Commission. Unless otherwise indicated, the
persons and entities included in the table have sole voting and investment
power with respect to all shares beneficially owned, subject to community
property laws where applicable. Shares of Common Stock subject to options or
warrants that are either currently exercisable or exercisable within 60 days
of November 30, 2000 are deemed to be outstanding and to be beneficially owned
by the option or warrant holder for the purpose of computing the percentage
ownership of the option or warrant holder. However, these shares are not
treated as outstanding for the purpose of computing the percentage ownership
of any other person.

<TABLE>
<CAPTION>
Total Number
of Shares
Beneficially Percent
Name of Beneficial Owner Owned of Class
------------------------ ------------ --------
<S> <C> <C>
Douglas J. Stern.................. 2,690,154 14.9
Entities affiliated with The E.W.
Scripps Company (1)
Steven J. Dietz................... 1,600,998 9.0
Entities affiliated with Global
Retail Partners, L.P. (2)
John D. Thornton.................. 1,452,611 8.2
Entities affiliated with Austin
Ventures (3)
Gerald R. Gallagher............... 1,127,127 6.3
Entities affiliated with Oak
Investment Partners (4)
BT&T Focus 4 Fund Public Limited
Company and BT&T
Telekommunikations Und Technologie
AG (5)........................... 1,347,000 7.6
Entities affiliated with Patricof
& Co. Ventures, Inc. (6)......... 909,090 5.1
Pequot Capital Management, Inc.
(7).............................. 1,261,277 7.1
Clifford A. Sharples (8).......... 314,136 1.7
James N. O'Neill (9).............. 304,718 1.7
Lisa W.A. Sharples (10).............. 314,136 1.7
Andrew R. Martin (11)............. 207,474 1.2
Joel P. Toner (12)................ 17,068 *
All directors and executive
officers as a group (13 persons)
(13)............................. 8,141,929 44.2
</TABLE>
--------
* Represents beneficial ownership of less than 1%.

(1) Represents (i) 1,990,854 shares held of record by Scripps Ventures, LLC,
including 275,862 shares issuable upon exercise of outstanding warrants,
and (ii) 699,300 shares held of record by Scripps Howard Broadcasting
Company d/b/a Home & Garden Television, Inc. Mr. Stern disclaims
beneficial ownership of these shares. The address for Mr. Stern and each
of these entities is 200 Madison Avenue, New York, New York 10016.

(2) Represents (i) 1,025,834 shares held of record by Global Retail
Partners, L.P., (ii) 306,677 shares held of record by DLJ Diversified
Partners, L.P., (iii) 113,519 shares held of record by DLJ Diversified
Partners-A, L.P., (iv) 66,687 shares held of record by GRP Partners,
L.P., (v) 70,626 shares held of record by Global Retail Partners
Funding, Inc., and (vi) 17,655 shares held of record by DLJ ESC II, L.P.
Mr. Dietz is a Principal of Global Retail Partners, L.P. Each of the
foregoing entities is an affiliate of Global Retail Partners, L.P.,
whose parent company is AXA Financial Inc. Mr. Dietz disclaims
beneficial ownership of these shares except to the extent of his
pecuniary interest in such shares. The address for Mr. Dietz and each of
these entities is 2121 Avenue of the Stars, Suite 1630, Los Angeles,
California 90067. The address for AXA Financial Inc. is 1290 Avenue of
the Americas, New York, New York 10104.

29
<PAGE>

(3) Represents (i) 468,886 shares held of record by Austin Ventures IV-A,
L.P., including 7,420 shares issuable upon exercise of outstanding
warrants, and (ii) 983,725 shares held of record by Austin Ventures IV-
B, L.P., including 15,568 shares issuable upon exercise of warrants.
Mr. Thornton has shared voting and investment power over all of these
shares, and he disclaims beneficial ownership of these shares except to
the extent of his pecuniary interest in such shares. The address for
Mr. Thornton and each of these entities is 1300 Norwood Tower, 114 West
Seventh Street, Austin, Texas 78701.

(4) Represents (i) 1,099,515 shares held of record by Oak Investment
Partners VII, Limited Partnership, including 134,552 shares issuable
upon exercise of outstanding warrants, and (ii) 27,612 shares held of
record by Oak VII Affiliates Fund, Limited Partnership, including
3,379 shares issuable upon exercise of outstanding warrants.
Mr. Gallagher has shared voting and investment power over all of these
shares, and he disclaims beneficial ownership of these shares except to
the extent of his pecuniary interest in such shares. The address for
Mr. Gallagher and each of these entities is 4550 Norwest Center,
90 South Seventh Street, Minneapolis, Minnesota 55402.

(5) BT&T Focus 4 Fund Public Limited Company, Grand Canal House, 1 Upper
Grand Canal Street, Dublin 4, Ireland, and BT&T Telekommunikations Und
Technologie AG, Roetelistrasse, Bufour Park 16, St. Gallen, Switzerland
9000, filed a Schedule 13G dated August 3, 2000, reporting that as of
August 3, 2000 it was the beneficial owner of 1,347,000 shares of Common
Stock with shared voting and investment power as to all of such shares.

(6) Patricof & Co. Ventures, Inc. and related entities (collectively,
"Patricof"), 445 Park Avenue, 11th Floor, New York, New York 10022,
filed a Schedule 13G dated February 4, 2000, reporting that as of
February 4, 2000 it was the beneficial owner of 909,090 shares of Common
Stock. The shares of Common Stock beneficially owned by Patricof include
(i) 746,181 shares held of record by APA Excelsior V, L.P., with sole
voting and investment power as to all of such shares,
(ii) 153,846 shares held of record by The P/A Fund III, L.P., with sole
voting and investment power as to all of such shares, and
(iii) 9,063 shares held of record by Patricof Private Investment Club
II, L.P., with sole voting and investment power as to all of such
shares. Alan Patricof may be deemed to have sole voting and investment
power as to all of the shares held by Patricof, and he disclaims
beneficial ownership of such shares.

(7) Pequot Capital Management, Inc., 500 Nyala Farm Road, Westport,
Connecticut 06880, filed a Schedule 13G dated February 11, 2000,
reporting that as of February 11, 2000 it was the beneficial owner of
1,261,277 shares of Common Stock, with sole voting and investment power
as to all of such shares.

(8) Includes 39,220 shares subject to exercise of stock options held by Mr.
Sharples. Excludes (i) 274,916 shares held of record by Mr. Sharples'
spouse and (ii) 39,220 shares subject to exercise of stock options held
by Mr. Sharples' spouse.

(9) Includes 39,252 shares subject to exercise of stock options.

(10) Includes 39,220 shares subject to exercise of stock options held by
Ms. Sharples. Excludes (i) 274,916 shares held of record by
Ms. Sharples' spouse and (ii) 39,220 shares subject to exercise of stock
options held by Ms. Sharples' spouse.

(11) Includes 8,068 shares subject to exercise of stock options.

(12) Includes 16,068 shares subject to exercise of stock options.

(13) Includes 233,135 shares subject to exercise of stock options and
436,781 shares issuable upon exercise of outstanding warrants.

30
<PAGE>

ELECTION OF DIRECTORS

The Board of Directors of the Company is divided into three classes, with
the term of office of each class ending in successive years. Two directors are
to be elected at the annual meeting, each to serve for a term of three years
expiring in 2003, and five directors will continue to serve for the terms
designated in the following schedule. As indicated below, the individuals
nominated by the Board of Directors are both incumbent directors. The Company
anticipates that both nominees listed in this Proxy Statement will be
candidates when the election is held. However, if for any reason either
nominee is not a candidate at that time, proxies will be voted for a
substitute nominee designated by the Company (except where a proxy withholds
authority with respect to the election of directors).

<TABLE>
<CAPTION>
Director
Name, Principal Occupation for Past Five Years and Directorships Age Since
---------------------------------------------------------------- --- --------
<S> <C> <C>
Nominees for election at the Annual Meeting (Class of 2003):
GERALD R. GALLAGHER 59 1997
Mr. Gallagher has served as a general partner of Oak Investment
Partners, a venture capital investment firm, since 1987.
LISA W.A. SHARPLES 34 1995
Ms. Sharples is a founder of the Company and has served as its
Chief Merchandising and Marketing Officer since August 1998 and
served as its Vice President of Marketing from December 1995 to
August 1998. Prior to founding the Company, she served as Director
of Marketing for pcOrder.com, Inc., an online computer merchant,
from May 1995 to August 1995. From October 1993 to May 1995, Ms.
Sharples was employed at Silicon Graphics, Inc., a computer
workstation company, as a marketing manager for the Channel
Development Group. Ms. Sharples is the wife of Clifford A.
Sharples.

Incumbent Directors (Class of 2001):
STEVEN J. DIETZ 37 1998
Mr. Dietz is a principal of Global Retail Partners, L.P., a
venture capital investment firm, which he joined when it was
established in 1996. Prior to 1996, Mr. Dietz was an officer in
the investment banking division of the Donaldson, Lufkin &
Jenrette Securities Company focusing on the retail industry.
JAMES N. O'NEILL 38 1995
Mr. O'Neill is a founder of the Company and has served as its
Chief Operating Officer since April 1998, and served as its Vice
President of Operations and Chief Financial Officer from December
1995 to August 1998. Prior to founding the Company, Mr. O'Neill
was employed as a marketing manager by Trilogy Software, Inc., an
enterprise software company, from May 1995 to August 1995. From
June 1993 to May 1995, Mr. O'Neill served as an internal
consultant for top management at W.W. Grainger, Inc., a nationwide
distributor of maintenance, repair and operations products.
JOHN D. THORNTON 35 1995
Mr. Thornton is a general partner of Austin Ventures, a venture
capital investment firm, which he joined in 1991. Mr. Thornton
currently serves on the Board of Directors of Vignette Company,
Metasolv Software, Inc. and Mission Critical Software, Inc., which
are all independent computer software companies.

Incumbent Directors (Class of 2002):
CLIFFORD A. SHARPLES 36 1995
Mr. Sharples is a founder of the Company and has served as Chief
Executive Officer and President of the Company since December
1995. Prior to founding the Company, he served as Director of
Business Development for pcOrder.com, Inc., an online computer
merchant, from May 1995 to August 1995. From December 1994 to
April 1995, Mr. Sharples worked as a consultant at Enterprise
Integration Technologies, a research and development company
specializing in electronic commerce over the Internet. Mr.
Sharples is the husband of Lisa W.A. Sharples.
</TABLE>

31
<PAGE>

<TABLE>
<CAPTION>
Director
Name, Principal Occupation for Past Five Years and Directorships Age Since
---------------------------------------------------------------- --- --------
<S> <C> <C>
DOUGLAS R. STERN 51 1997
Mr. Stern has served as President and Chief Executive Officer of
Scripps Ventures, the venture capital operations of The E.W.
Scripps Company, since June 1996. Mr. Stern has also served as
President and Chief Executive Officer of United Media, a licensing
and newspaper syndication company that is wholly owned by The E.W.
Scripps Company, since August 1993.
</TABLE>

Directors' Meetings and Committees

The Board of Directors has an Audit Committee and a Compensation Committee.
The Board of Directors held eight meetings during fiscal 2000, and all
directors attended at least 75% of the meetings of the Board and the
committees thereof of which they were a member.

The Board's Audit Committee is comprised of Messrs. Dietz and Thornton.
Among other functions, the Audit Committee makes recommendations to the Board
of Directors regarding the selection of independent auditors, reviews the
results and scope of the audit and other services provided by the Company's
independent auditors, reviews the Company's balance sheet, statement of
operations and cash flows and reviews and evaluates its internal control
functions. The Audit Committee met three times during fiscal 2000.

The Board's Compensation Committee is comprised of Messrs. Gallagher and
Stern. The Compensation Committee reviews and approves the compensation and
benefits for the executive officers of the Company, administers the Company's
Stock Option Plan and its 1999 Employee Stock Purchase Plan and makes
recommendations to the Board of Directors regarding such matters. The
Compensation Committee met one time during fiscal 2000.

Report of the Audit Committee

The Audit Committee is comprised of two members of the Company's Board of
Directors. Each member of the Audit Committee is independent as defined in
Rule 4200(a)(15) for the listing standards of the Nasdaq National Market. The
duties and responsibilities of the Audit Committee are set forth in the Audit
Committee Charter, which the Board of Directors adopted on January 5, 2000. A
copy of the Audit Committee Charter is attached as Annex B to this Proxy
Statement. The Audit Committee, among other things, recommends to the Board of
Directors (i) that the audited financial statements be included in the
Company's Annual Report on Form 10-K, and (ii) the selection of independent
auditors to audit the books and records of the Company.

The Audit Committee has:

. reviewed and discussed the Company's audited financial statements for
the fiscal year ended June 30, 2000, with the Company's management and
with the Company's independent auditors;

. discussed with the Company's independent auditors the matters required
to be discussed by SAS 61 (Codification for Statements on Auditing
Standards); and

. received and discussed the written disclosures and the letter from the
Company's independent auditors required by Independence Standards Board
Statement No. 1 (Independence discussions with Audit Committees).

Based on such review and discussions with management and the independent
auditors, the Audit Committee recommended that the audited financial
statements be included in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 2000, for filing with the Securities and Exchange
Commission.

AUDIT COMMITTEE:

Steven J. Dietz
John D. Thornton

32
<PAGE>

Compensation of Directors

Directors of the Company receive no compensation for services as members of
either the Board of Directors or committees thereof. Members of the Board of
Directors are eligible to receive discretionary option grants and stock
issuances under the Stock Option Plan.

Executive Officers

The following table sets forth, as of November 30, 2000, the name, age,
current position and principal occupation and employment during the past five
years of the executive officers of the Company who are not directors:

<TABLE>
<CAPTION>
Name Age Current Position Other Positions
---- --- -------------------------- --------------------------------------
<C> <C> <S> <C>
Andrew R. Martin 37 Chief Technology Officer Prior to joining the Company in
since March 1996. January 1996, from April 1994 to
December 1995, Dr. Martin was a chief
programmer in the DCE Client/Server
division of the Trilogy Software,
Inc., an enterprise software company.
Douglas A. Jimerson 49 Vice President of Prior to April 1996, Mr. Jimerson
Publishing and Editor-in- worked for over 19 years with Meredith
Chief since April 1996. Company, most recently as Editor-in-
Chief of Home Garden, a national
gardening publication, and prior to
Home Garden, as Executive Garden
Editor of Better Homes and Gardens
from 1977 to 1995.
Joel P. Toner 43 Vice President of Business Prior to joining the Company, from
Development since 1988 to September 1999, Mr. Toner
September 1999. served as Group Publisher of Primedia
Inc., a publishing company.
Jana D. Wilson 35 Chief Financial Officer of Ms. Wilson served as the Company's
the Company since August Controller from February 1998 to
1998. August 1998. Prior to joining the
Company, from March 1994 to December
1997, Ms. Wilson served as Controller
of Gadzooks, Inc., a specialty
retailer of casual apparel for
teenagers.
Bradley J. Clark 35 Vice President of Mr. Clark served as the Company's
Enterprise Development Supply Chain Manager from September
since February 1999. 1998 to February 1999. Prior to
joining the Company, from February
1998 to September 1998, Mr. Clark
served as Pre-Sales Software
Consultant to i2 Technologies, a
consultant to electronic businesses.
From August 1996 to February 1998, Mr.
Clark served as Consulting Manager to
Trilogy Software, Inc., an enterprise
software company. Mr. Clark served as
Software Consultant to Cap Gemini
Sogeti, an enterprise software
company, from June 1993 to August
1996.
</TABLE>

33
<PAGE>

<TABLE>
<CAPTION>
Name Age Current Position Other Positions
---- --- -------------------------- --------------------------------------
<S> <C> <C> <C>
Dionn M. Schaffner 29 Vice President of Prior to joining the Company, Ms.
Marketing since February Shaffner served as Director of
1999. Operations for Comlink Information
Systems, Inc., a business management
software development company, from
September 1997 to February 1999. From
August 1996 to September 1997, Ms.
Shaffner served as a Senior Consultant
of Deloitte & Touche Consulting Group.
</TABLE>

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who own more than 10% of a registered class of the Company's equity
securities, to file with the Securities and Exchange Commission (the
"Commission") initial reports of beneficial ownership on Form 3 and reports of
changes in beneficial ownership of the Company's equity securities on Form 4
or 5. The rules promulgated by the Commission under section 16(a) of the
Exchange Act require those persons to furnish the Company with copies of all
reports filed with the Commission pursuant to section 16(a). Based solely upon
a review of such forms actually furnished to the Company, and written
representations of certain of the Company's directors and executive officers
that no forms were required to be filed, all directors, executive officers and
10% stockholders have filed with the Commission on a timely basis all reports
required to be filed under section 16(a) of the Exchange Act, except Mr. Toner
reported on a June 2000 Form 5 report a purchase that occurred in September
1999 and Mr. Martin reported on a June 2000 Form 5 report stock option
exercises that occurred in October 1999, December 1999 and January 2000.

34
<PAGE>

Performance Graph

The chart below shows a comparison of the cumulative return since September
16, 1999 had $100 been invested in each of the Common Stock, the Nasdaq
Composite Index (all issuers), and a peer group constructed by the Company
comprised of the following companies: 1-800-FLOWERS.COM, Inc., Amazon.com,
Inc., Drugstore.com, Inc., eToys, Inc., Egghead.com, Inc., Homestore.com,
Inc., Peapod, Inc., priceline.com Incorporated, barnesandnoble.com inc., and
eBay Inc. (the "Peer Group").

CUMULATIVE TOTAL RETURN COMPARISON*

The Company versus Published Indices (Nasdaq Composite Index and the Peer
Group)

[PERFORMANCE GRAPH]

9/16/99 6/30/00
------- -------
Garden.com, Inc.**...... 100 20
Nasdaq Composite Index.. 100 141
The Peer Group.......... 100 55
* Total return assumes reinvestment of dividends.
** The initial public offering price of the Common Stock on September 16, 1999
was 412.00 and the closing price on June 30, 2000 was $2.375.

Compensation Committee Report On Executive Compensation

The Company's Compensation Committee, which is comprised of two members of
the Board of Directors, is responsible for considering and approving
compensation arrangements for the Company's senior management, including
executive officers. The objectives of the Compensation Committee in
establishing compensation arrangements for senior management are to: (i)
attract and retain key executives who are important to the continued success
of the Company; and (ii) provide strong financial incentives, at reasonable
cost to the stockholders, for senior management to enhance stockholder value.

The primary components of the Company's executive compensation program are
(i) base salary and (ii) stock options.

Base Salaries. The base salaries of certain of the Company's executive
officers have been set by their respective employment agreements. During 2000,
each such executive officer received the approximately the minimum base salary
set forth in their respective employment agreements.

Although the Company's employment agreements with Clifford A. Sharples,
James N. O'Neill and Lisa W.A. Sharples provide for the payment of periodic
bonuses, the Company did not pay any bonuses to these executive officers
during fiscal 2000. The Company did pay a signing bonus of $60,000 to Joel P.
Toner during fiscal 2000 pursuant to Mr. Toner's employment agreement.

35
<PAGE>

Stock Option Plan. The Stock Option Plan authorizes the Compensation
Committee to grant stock options to officers and other key employees. In
December 1999, the Compensation Committee granted options to purchase Common
Stock to the named executive officers as shown in the Summary Compensation
Table.

Compensation of the Chief Executive Officer. During fiscal 2000, Mr.
Sharples received approximately the minimum base salary as provided in his
employment agreement. With respect to the Stock Option Plan, Mr. Sharples'
awards for fiscal 2000 were determined in the same manner as for all other
participants of the Stock Option Plan.

COMPENSATION COMMITTEE:

Gerald R. Gallagher
Douglas R. Stern

Executive Compensation

Summary Compensation Information. The following table sets forth certain
information for the years indicated below concerning compensation paid to,
earned by or awarded to the Company's Chief Executive Officer and the four
other most highly compensated executive officers in fiscal year 2000
(collectively, the "named executive officers").

Summary Compensation Table

<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
-------------------- ------------
Securities
Name and Principal Underlying All Other
Position Fiscal Year Salary ($) Bonus ($) Options (#) Compensation ($)
------------------ ----------- ---------- --------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Clifford A. Sharples.... 2000 130,100 -- 250 --
Chief Executive Officer
and President 1999 113,670 -- 68,200 --
James N. O'Neill........ 2000 130,100 -- 250 --
Chief Operating Officer 1999 113,670 -- 68,200 --
Lisa W.A. Sharples...... 2000 130,100 -- 250 --
Chief Merchandising and
Marketing Officer 1999 113,670 -- 68,200 12,432(2)
Andrew R. Martin........ 2000 182,600 -- 25,250 156,110(3)
Chief Technology
Officer 1999 143,000 -- 40,200 68,150(3)
Joel P. Toner........... 2000 143,857 60,000(1) 250 --
Vice President of
Business Development
</TABLE>
--------
(1) Represents compensation received as a signing bonus.
(2) Represents payments for tax preparation.
(3) Represents compensation upon the exercise of a nonstatutory stock option.

36
<PAGE>

Option Grants. The following table provides certain information regarding
stock options granted to the named executive officers in fiscal year 2000.

Option/SAR Grants in Last Fiscal Year

<TABLE>
<CAPTION>
Potential
Realizable Value at
Assumed Annual
Rates of Stock
Price Appreciation
for Option Term ($)
Individual Grants (4)
---------------------------------------- -------------------
Percent of
Number of Total
Securities Options/SARs
Underling Granted to Exercise
Options/SARs Employees in Price
Name Granted (#) Fiscal Year ($/Sh) Expiration Date 5% 10%
---- ------------ ------------ -------- ------------------ -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Clifford A. Sharples.... 250 (1) * 12.38 December 20, 2009 $ 1,946 $ 4,933
James N. O'Neill........ 250 (1) * 12.38 December 20, 2009 1,946 4,933
Lisa W.A. Sharples...... 250 (1) * 12.38 December 20, 2009 1,946 4,933
Andrew R. Martin........ 250 (1) * 12.38 December 20, 2009 1,946 4,933
25,000 (2) 2.2 6.81 February 15, 2010 107,069 271,335
Joel P. Toner........... 250 (1) * 12.38 December 20, 2009 1,946 4,933
80,000 (3) 7.1 12.00 September 14, 2009 603,739 1,529,993
</TABLE>
--------
(1) 25% of the option vests on December 20, 2000 and an additional 2.083%
vests monthly for the 36 months thereafter.
(2) 20% of the option vests on February 15 of each year from 2001 to 2005.
(3) 20% of the option vests on September 14 of each year from 2000 to 2004.
(4) The dollar amounts under these columns are the result of theoretical
calculations at 5% and 10% rates set by the Commission, and therefore are
not intended to forecast possible future appreciation, if any, in the
Common Stock.

Fiscal Year-End Option Values. The following table provides certain
information regarding options held by the named executive officers at June 30,
2000.

Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values

<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-
Options/SARs at Fiscal the-Money Options/SARs at
Year-End (#) Fiscal Year End ($)(2)
Shares Acquired Value ------------------------- -------------------------
Name on Exercise (#) Realized ($)(1) Exercisable/Unexercisable Exercisable/Unexercisable
---- --------------- --------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Clifford A. Sharples.... -- -- 27,528/70,842 39,292/67,867
James N. O'Neill........ -- -- 27,560/70,890 39,362/67,971
Lisa W.A. Sharples...... -- -- 27,528/70,842 39,292/67,867
Andrew R. Martin........ 26,120 275,693 8,000/88,850 --/56,739
Joel P. Toner........... -- -- --/80,250 --/--
</TABLE>
--------
(1) Value realized is equal to the fair market value of the purchased shares
on the date of exercise, less the exercise price paid for such shares.
(2) Calculated based on closing sale price of $2.375 per share on June 30,
2000.

37
<PAGE>

Employment Agreements

On July 12, 1999, the Company entered into separate employment agreements
with Clifford A. Sharples, James N. O'Neill and Lisa W.A. Sharples. Each of
these employment agreements has a term of three years and each provides for a
base salary of $130,000 per year. Each of Messrs. Sharples and O'Neill and Ms.
Sharples currently earn a base salary of $190,000 per year. The employment
agreements also provide that Messrs. Sharples and O'Neill and Ms. Sharples are
eligible to participate in a cash bonus program and in any other employee
benefit programs for which other senior executives of the Company are
generally eligible. Under the employment agreements, the Company may terminate
the executive officer's employment upon the executive officer's death or
disability or if the Board of Directors determines that termination is in the
Company's best interest. Each executive officer may resign at any time. If the
Company terminates employment without cause, or if there is a constructive
termination, the executive officer is entitled to receive payment of his or
her base salary and to continue to receive other employee benefits for 12
months from the date of termination. If employment is terminated for any other
reason, the executive officer is not entitled to receive any base salary or
other benefits for periods after the termination date. If the Company
experiences a change of control at any time more than six months after the
date of the employment agreement, all options held by Messrs. Sharples or
O'Neill or by Ms. Sharples will immediately vest. Each of Clifford A.
Sharples, James N. O'Neill and Lisa W.A. Sharples has also entered into a
nondisclosure agreement under which each executive officer has agreed not to
compete with the Company during employment and for a period of two years
following termination of employment and has agreed to maintain the
confidentiality of the Company's proprietary information and trade secrets.

On March 1, 1996, the Company entered into an employment agreement with
Andrew R. Martin. Mr. Martin currently earns a base salary of $185,000 per
year. This employment agreement may be terminated by either party for any
reason with 30 days' prior written notice and provides for a base salary of
$100,000 per year. The employment agreement also provides that Mr. Martin is
eligible to receive an annual cash bonus of $20,000 and other benefits as are
generally made available to the Company's executive-level employees. Pursuant
to the employment agreement, Mr. Martin has agreed not to compete with the
Company during employment and for a period of two years following termination
of employment and has agreed to maintain the confidentiality of the Company's
proprietary information and trade secrets.

On September 14, 1999, the Company entered into an employment agreement with
Joel P. Toner. Mr. Toner currently earns a base salary of $220,000 per year.
The employment agreement may be terminated by either party for any reason with
30 days' prior written notice and provides for a base salary of $200,000 per
year. The employment agreement also provides that Mr. Toner is eligible to
receive other benefits as are generally made available to the Company's
employees. Under the employment agreement, the Company may terminate
Mr. Toner's employment upon Mr. Toner's death or disability or for cause. Mr.
Toner may resign at any time. If the Company terminates Mr. Toner's employment
without cause, or if there is a constructive termination, Mr. Toner is
entitled to receive payment of his base salary and to continue to receive
other employee benefits for up to six months from the date of termination. If
employment is terminated for any other reason, Mr. Toner is not entitled to
receive any base salary or other benefits for periods after the termination
date. If the Company experiences a change of control at any time more than six
months after the date of the employment agreement, all options held be Mr.
Toner will immediately vest. Pursuant to the employment agreement, Mr. Toner
has agreed not to compete with the Company during employment and for a period
of two years following termination of employment and has agreed not to
maintain the confidentiality of the Company's proprietary information and
trade secrets.

Asset Liquidation Incentive Programs

The Company has implemented two separate bonus programs to provide incentive
to its employees to maximize the value of the Company's assets through the
process of winding down its business.

The Asset Liquidation Incentive Program creates a bonus pool available to
employees who have responsibility in connection with selling the Company's
assets and settling the Company's commitments. Under this bonus program, 15%
of all amounts received by the Company from asset sales in excess of $2.3
million in the aggregate will be put into the bonus pool to be distributed
among eligible employees.

38
<PAGE>

The second bonus program applies to sales of the technology assets relating
to the Company's TRELLIS division. Under this program, if the TRELLIS assets
are sold to certain purchasers, Bradley J. Clark, the Company's Vice President
of Enterprise Development, will be entitled to receive a bonus equal to (a)
the greater of 10% of the purchase price for the TRELLIS assets or the
severance payment to which Mr. Clark is entitled under the Company's severance
policy if the purchase price for such assets is less than $1.0 million, or (b)
12% of the purchase price for the TRELLIS assets if such purchase price is
$1.0 million or more. Any bonus received by Mr. Clark pursuant to this program
would be in lieu of any bonus he may be entitled to under the Asset
Liquidation Incentive Program. The Company has also implemented a bonus pool
for other personnel involved in selling the TRELLIS assets equal to 5% of the
purchase price of the TRELLIS assets. Such bonus is payable only if the
purchase price for the TRELLIS assets exceeds $1.0 million and the employee
remains with the acquiring company for at least 90 days.

Certain Relationships and Related Transactions

The E.W. Scripps Company, through its wholly-owned subsidiaries, Scripps
Ventures LLC and Scripps Howard Broadcasting Company d/b/a Home & Garden
Television ("HGTV"), beneficially owns 14.9% of the outstanding Common Stock
as of November 30, 2000. Douglas R. Stern, a director of the Company, is the
President and Chief Executive Officer of United Media, a newspaper syndication
company and wholly-owned subsidiary of The E.W. Scripps Company.

On May 24, 1999, 699,300 shares of the Company's Series E Preferred Stock
were purchased by HGTV for a total purchase price of $5,000,000, or $7.15 per
share. Approximately $1,500,000 of the purchase price was paid in the form of
an advertising credit, of which the Company has used approximately $1,243,000
as of June 30, 2000.

Kenneth Sharples, the brother of Clifford A. Sharples and brother-in-law of
Lisa W.A. Sharples, executive officers and directors of the Company, has
provided legal services to the Company. The Company incurred expenses of
$61,752 during the Company's fiscal year ended June 30, 2000 for these legal
services.

Green Cheetah, Inc. ("Green Cheetah") was formed in the first quarter of
fiscal 2001 to pursue software development opportunities. Green Cheetah is
currently proceeding with its first software application project, which
involves developing computer software designed to enhance database
performance. The Company owns 80% of the outstanding common stock of Green
Cheetah. Green Cheetah issued restricted stock to the following officers
and/or directors of the Company: Andrew R. Martin, Chief Technology Officer of
the Company, was issued 10% of Green Cheetah's outstanding common stock;
Clifford A. Sharples, Chief Executive Officer, President and a director of the
Company, was issued 3.33% of Green Cheetah's outstanding common stock; Lisa
W.A. Sharples, Chief Merchandising and Marketing Officer and a director of the
Company, was issued 3.33% of Green Cheetah's outstanding common stock; and
James N. O'Neill, Chief Operating Officer and a director of the Company, was
issued 3.34% of Green Cheetah's outstanding common stock. In the first quarter
of fiscal 2001, Green Cheetah borrowed $300,000 from the Company pursuant to a
demand promissory note, and in the second quarter of fiscal 2001, Green
Cheetah borrowed $300,000 from the Company pursuant to a second demand
promissory note. The demand promissory notes accrue interest at the rate of 8%
per year. The $600,000 borrowed by Green Cheetah was, in turn, paid to Mr.
Martin pursuant to an agreement between Green Cheetah and Mr. Martin in
consideration of his services in developing the FastSQL software for Green
Cheetah. FastSQL is a general purpose performance enhancement system for
database centric, e-business systems, with a particular emphasis on queries
and caching. Green Cheetah has completed limited deployment of its FastSQL
software, and, to date, live deployments of the FastSQL software on limited
parts of Garden.com's e-commerce system have shown material improvements in
the performance of the application. Under Mr. Martin's agreement with Green
Cheetah, he is also entitled to receive 20% of Green Cheetah's revenues
attributable to the license of the FastSQL software to third parties less
expenses relating to such licensing activities up to a maximum payout of $1.0
million.

The Company believes that all the transactions set forth above were made on
terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. Any future transactions, including loans,

39
<PAGE>

between the Company and its officers, directors and principal stockholders and
their affiliates will be approved by a majority of the Board of Directors,
including a majority of the independent and disinterested directors, and will
be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.

RATIFICATION OF APPOINTMENT OF AUDITORS

The Board of Directors, upon recommendation of the Audit Committee, has
selected Ernst & Young LLP to be the Company's auditors for the 2001 fiscal
year. Although this appointment is not required to be submitted to a vote of
stockholders, the Company believes it appropriate as a matter of policy to
request that the stockholders ratify the appointment. If stockholder
ratification is not received, the Board of Directors may reconsider the
appointment. It is expected that a representative of Ernst & Young LLP will be
present at the annual meeting and will have the opportunity to make a
statement if he desires to do so and will be available to respond to
appropriate questions.

The Board recommends a vote in FAVOR of the ratification of Ernst & Young
LLP as independent auditors for the purpose of auditing the financial
statements of the Company for fiscal 2001.

ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K

The Company is required to file an annual report, called a Form 10-K, with
the Commission. A copy of Form 10-K for the fiscal year ended June 30, 2000
will be made available, without charge, to any person entitled to vote at the
annual meeting. Written requests should be directed to Jana D. Wilson,
Secretary, Garden.com, Inc., 3301 Steck Avenue, Austin, Texas 78757.

STOCKHOLDER PROPOSALS

Proposals which stockholders intend to present at the 2001 Annual Meeting of
Stockholders pursuant to Rule 14a-8 under the Exchange Act must be received at
the Company's principal offices in Austin, Texas no later than August 31, 2001
for inclusion in the proxy material for that meeting. Proposals submitted
other than pursuant to Rule 14a-8 will be considered untimely if received
after August 31, 2001 and the Company will not be required to present any such
proposal at the 2001 Annual Meeting of Stockholders. If the Board of Directors
decides to present a proposal despite its untimeliness, the people named in
the proxies solicited by the Board of Directors for the 2001 Annual Meeting of
Stockholders will have the right to exercise discretionary voting power with
respect to such proposal.

OTHER MATTERS

The Directors of the Company know of no other matters to be brought before
the meeting. If any other matters properly come before the meeting, including
any adjournment or adjournments thereof, it is intended that proxies received
in response to this solicitation will be voted on such matters in the
discretion of the person or persons named in the accompanying proxy form.

BY ORDER OF THE BOARD OF DIRECTORS
GARDEN.COM, INC.

Jana D. Wilson,
Secretary

Austin, Texas
December 29, 2000

40
<PAGE>

INDEX TO FINANCIAL STATEMENTS

Unaudited Financial Statements

<TABLE>
<S> <C>
Unaudited Balance Sheets as of September 30, 2000 and June 30, 2000....... F-2
Unaudited Statements of Operations for the Quarters ended September 30,
2000 and 1999............................................................ F-3
Unaudited Statements of Cash Flows for the Quarters ended September 30,
2000 and 1999............................................................ F-4
Notes to Unaudited Financial Statements................................... F-5

Audited Financial Statements

Report of Independent Auditors............................................ F-8
Balance Sheets as of June 30, 2000 and 1999............................... F-9
Statements of Operations for the Years ended June 30, 2000, 1999 and
1998..................................................................... F-11
Statements of Changes in Common Stock and Stockholders' Equity (Deficit)
for the Years ended June 30, 2000, 1999 and 1998......................... F-12
Statements of Cash Flows for the Years ended June 30, 2000, 1999 and
1998..................................................................... F-13
Notes to Financial Statements............................................. F-14
</TABLE>

F-1
<PAGE>

GARDEN.COM, INC.

BALANCE SHEETS
(Dollars in thousands)

<TABLE>
<CAPTION>
September 30, 2000 June 30, 2000
------------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents................... $ 390 $ 9,047
Investments................................. 11,956 18,612
Prepaid advertising......................... 78 1,869
Other prepaid expenses and current assets... 2,140 2,143
Inventory................................... 1,193 898
-------- --------
Total current assets...................... 15,757 32,569
Property and equipment........................ 17,658 11,843
Accumulated depreciation...................... (3,467) (2,697)
-------- --------
Property and equipment, net................... 14,191 9,146
Other assets, net............................. 714 780
-------- --------
Total assets.............................. $ 30,662 $ 42,495
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT):
Current liabilities:
Accounts payable............................ $ 2,300 $ 4,282
Accrued expenses and other liabilities...... 2,796 3,057
Unearned revenue............................ 384 187
Current portion of long-term debt........... -- 20
-------- --------
Total current liabilities................. 5,480 7,546
Stockholders' equity (deficit):
Common stock--$.01 par value; 50,000,000
shares authorized, 17,739,272 shares issued
and outstanding on September 30, 2000; and
17,737,592 shares issued and outstanding on
June 30, 2000.............................. 177 177
Additional paid-in-capital.................. 104,075 104,499
Deferred stock compensation................. (592) (1,169)
Retained deficit............................ (78,478) (68,558)
-------- --------
Total stockholders' equity................ 25,182 34,949
-------- --------
Total liabilities and stockholders'
equity................................... $ 30,662 $ 42,495
======== ========
</TABLE>

See accompanying notes to financial statements.

F-2
<PAGE>

GARDEN.COM, INC.

STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
For the quarter ended
September 30,
------------------------
2000 1999
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
REVENUES
Products............................................ $ 2,209 $ 1,159
Advertising......................................... 393 253
----------- ----------
Total revenues.................................... 2,602 1,412
COST OF REVENUES
Products............................................ 1,796 1,049
Advertising......................................... 47 44
----------- ----------
Total cost of revenues............................ 1,843 1,093
GROSS PROFIT.......................................... 759 319
OPERATING EXPENSES
Marketing and sales................................. 3,841 2,699
Technology, content and product development......... 1,944 1,408
General and administrative.......................... 1,629 1,308
Depreciation and amortization....................... 838 347
Amortization of deferred compensation............... 151 374
Discontinued marketing activities and severance
costs.............................................. 2,578 --
----------- ----------
Total operating expenses.......................... 10,981 6,136
OPERATING LOSS (10,222) (5,817)
Other income and expense............................ 302 249
----------- ----------
NET LOSS $ (9,920) $ (5,568)
=========== ==========
Basic net loss per share............................ $ (0.56) $ (1.45)
=========== ==========
Shares used in computing basic net loss per share... 17,739,042 3,827,552
=========== ==========
</TABLE>

See accompanying notes to financial statements.

F-3
<PAGE>

GARDEN.COM, INC.

STATEMENTS OF CASH FLOWS
(Dollars in thousands)

<TABLE>
<CAPTION>
For the quarter ended
September 30,
-----------------------
2000 1999
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Operating activities:
Net loss.............................................. $(9,920) $ (5,568)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization......................... 838 347
Amortization of deferred compensation................. 151 374
Changes in operating assets and liabilities:
Prepaid advertising................................... 1,791 (541)
Other prepaid expenses and current assets............. 2 (530)
Inventory............................................. (296) (381)
Accounts payable...................................... (1,982) (53)
Accrued expenses and other liabilities................ (260) 648
Unearned revenue...................................... 197 238
------- --------
Net cash used in operating activities................ (9,479) (5,466)
Investing activities:
Proceeds from sale of investments..................... 6,657 --
Purchase of investments............................... -- (14,824)
Purchase of other assets.............................. -- (185)
Purchase of property and equipment.................... (5,816) (1,679)
------- --------
Net cash provided by (used in) investing activities.. 841 (16,688)
Financing activities:
Repayment of long-term debt........................... (20) (44)
Exercise of stock options............................. 1 10
Exercise of warrants.................................. -- 210
Proceeds from issuance of common stock, net of
issuance costs of $1,954............................. -- 49,940
------- --------
Net cash provided by (used in) financing activities.. (19) 50,116
Increase (decrease) in cash and cash equivalents...... (8,657) 27,962
Cash and cash equivalents, beginning of period........ 9,047 15,340
------- --------
Cash and cash equivalents, end of period.............. $ 390 $ 43,302
</TABLE>

See accompanying notes to financial statements.

F-4
<PAGE>

GARDEN.COM, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 1--ACCOUNTING POLICIES UNAUDITED INTERIM FINANCIAL INFORMATION

The financial statements as of September 30, 2000 and 1999 have been
prepared by Garden.com, Inc. (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC"). These
statements are unaudited and, in the opinion of management, include all
adjustments (consisting of normal recurring adjustments and accruals)
necessary to present fairly the results for the periods presented. The balance
sheet at June 30, 2000 has been derived from the audited financial statements
at that date. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such SEC rules and
regulations. Operating results for the quarter ended September 30, 2000 are
not necessarily indicative of the results that may be expected for the fiscal
year ending June 30, 2001. These financial statements should be read in
conjunction with the audited financial statements and the accompanying notes
included in the Company's Form 10-K for the year ended June 30, 2000, filed
with the SEC on October 13, 2000, as amended on October 30, 2000.

Certain prior-period balances have been reclassified to conform to the
current-period presentation.

Use Of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates, and such
differences could be material to the financial statements.

Comprehensive Loss

The Company has adopted SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for the reporting and display of comprehensive
loss and its components in the financial statements. The Company does not have
any components of comprehensive income or loss.

Risks And Uncertainties

On October 26, 2000, the Company entered into a mutual termination agreement
with a supplier whose products represented approximately 12% of the Company's
product revenue during the quarter ended September 30, 2000. Two other
suppliers' products represented in excess of 10% of the Company's product
revenue during the quarter ended September 30, 2000, equaling 19% and 20%
respectively.

Recent Accounting Pronouncements

On March 31, 2000 the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation," (the "Interpretation"). The Interpretation provides guidance
related to the implementation of APB No. 25. The Interpretation is to be
applied prospectively to all new awards, modifications to outstanding awards
and changes in employee status on or after July 1, 2000. For changes made
after December 15, 1998 to awards that affect exercise prices of the awards,
the Company must prospectively account for the impact of those changes.
Management does not believe the adoption of the Interpretation will have a
material impact on the Company's financial condition or results of operations.

F-5
<PAGE>

In June 1999, SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities, Deferral of Effective Date of FASB Statement No. 133," was
issued which requires that Statement No. 133 be adopted in the Company's
fiscal year 2001. Management does not anticipate that the adoption of
Statement No. 133 will have a material effect on the results of operations or
financial position because the Company's does not currently engage in or plan
to engage in derivative or hedging activities.

NOTE 2--DISCONTINUED MARKETING ACTIVITIES AND SEVERANCE COSTS

On September 28, 2000, the Company announced a corporate restructuring (the
"Restructuring Plan") with the intent of lowering ongoing operating expenses
and reducing future capital requirements. The Restructuring Plan resulted in
an expense charge of $2.6 million for the quarter ended September 30, 2000.
Pursuant to the Restructuring Plan, the Company reduced its workforce on
September 28, 2000 by 93 employees. In addition, the Company terminated or
materially amended multiple marketing initiatives, including the Company's
relationships with iVillage, Excite and PRIMEDIA, resulting in both write-offs
of prepaid assets and cash payments to third parties to discontinue certain
contractual obligations.

NOTE 3--BUSINESS CONDITIONS AND FUNDING ACTIVITIES

Simultaneous with the announcement of its Restructuring Plan on September
28, 2000, the Company also announced that it had engaged the investment bank
of Robertson Stephens to aid the Company in evaluating strategic alternatives
and to assist the Company with ongoing fund-raising efforts.

Although the Company has been attempting to raise additional equity
financing since the quarter ended June 30, 2000, the Company has not been able
to obtain financing as of November 15, 2000. On November 15, 2000, the Company
announced that it will begin a phased shut-down of its retail operations and
sale of its consumer business assets. See "Note 6--Subsequent Events."

In addition, the Company has received a report from its independent auditors
for its fiscal year ended June 30, 2000 containing an explanatory paragraph
that describes the uncertainty regarding the Company's ability to continue as
a going concern due to the Company's historical negative cash flow and
because, as of the date they rendered their opinion, the Company did not have
access to sufficient committed capital to meet its projected operating needs
for at least the next 12 months.

NOTE 4--COMMITMENTS AND CONTINGENCIES

Legal Proceedings

From time to time, the Company is subject to legal proceedings and claims in
the ordinary course of business, including employment related claims and
claims of alleged infringement of trademarks, copyrights and other
intellectual property rights. The Company currently is not aware of any such
legal proceedings or claims that it believes will have, individually or in the
aggregate, a material adverse effect on its business, prospects, financial
condition and operating results.

F-6
<PAGE>

NOTE 5--STOCKHOLDERS' EQUITY

On September 21, 1999, the Company completed its initial public offering of
4,650,000 shares of its common stock, which also included 550,000 shares sold
by the Company pursuant to the underwriters' overallotment option. Net
proceeds to the Company aggregated $49.9 million. As of the closing date of
the offering, all of the redeemable convertible preferred stock outstanding
was converted into an aggregate of 11,637,422 shares of common stock.

In August 1999, the Company's Board of Directors declared a stock split of
four shares for every five shares of Common Stock then outstanding. The stock
split was effective September 15, 1999, the date the Company's Form S-1
Registration Statement was declared effective. Accordingly, the accompanying
financial statements and footnotes have been restated to reflect the stock
split. The par value of the shares of common stock to be issued in connection
with the stock split was credited to common stock and a like amount charged to
additional paid-in capital.

Basic Net Loss Per Share

Basic net loss per share is computed using the weighted average number of
common shares outstanding. Shares associated with stock options are not
included because they are antidilutive. The shares of redeemable convertible
preferred stock automatically converted into common stock effective upon the
closing of the Company's initial public offering are included in the
calculation of weighted average number of shares as of that date.

NOTE 6--SUBSEQUENT EVENTS

In October 2000, Green Cheetah, Inc., the Company's 80% owned subsidiary,
filed two provisional patent applications with the U.S. Patent and Trademark
Office. The inventions covered by the patent applications relate to a method
for extending JDBC API calls without extending multiple drivers and a method
for enhancing database performance with a cache array system. In the second
quarter of fiscal 2001, Green Cheetah borrowed $300,000 from the Company
pursuant to a demand promissory note to fund the continued development of such
software.

On November 15, 2000, the Company announced that it will begin a phased
shut-down of its retail operations and the sale of its consumer business
assets, including product inventory, URLs, content, photo library, its popular
online gardening tools such as Landscape Planner and Plant Finder, as well as
other intellectual property. The Company intends to layoff its consumer
business employee base on a phased basis in order to conduct a product
inventory sale. The Company also announced that it will continue to evaluate
strategic alternatives for its technology assets, including TRELLIS and Green
Cheetah.

On December 1, 2000, the Company shut-down its web site and ceased the
operation of its commerce business. Additionally, the Company has initiated
the process of winding down its business and selling its assets, including its
consumer business assets and its technology assets.

F-7
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders Garden.com, Inc.

We have audited the accompanying balance sheets of Garden.com, Inc. as of
June 30, 2000 and 1999, and the related statements of operations,
shareholders' equity (deficit), and cash flows for each of the three years in
the period ended June 30, 2000. 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 auditing standards generally
accepted in the United States. 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 Garden.com, Inc. at June
30, 2000 and 1999, and the results of its operations and its cash flows for
each of the three years in the period ended June 30, 2000, in conformity with
accounting principles generally accepted in the United States.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 1,
the Company has incurred recurring operating losses and negative cash flows
from operations. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. (Management's plans in regard to these
matters are also described in Note 1.) The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability
and classification of assets or the amounts and classification of liabilities
that may result from the outcome of this uncertainty.

/s/ Ernst & Young LLP

July 28, 2000, except
the first three
paragraphs of Note 10
as to which the date is
September 28, 2000, and
the third paragraph of
Note 1 and the fourth
paragraph of Note 10,
as to which the date is
December 1, 2000

Austin, Texas
October 13, 2000

F-8
<PAGE>

GARDEN.COM, INC.

BALANCE SHEETS
JUNE 30, 2000 AND 1999
(in Thousands)

<TABLE>
<CAPTION>
2000 1999
ASSETS ------- -------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................... $ 9,047 $15,340
Investments................................................. 18,612 3,710
Prepaid advertising......................................... 1,869 988
Other prepaid expenses and current assets................... 2,143 1,086
Inventory................................................... 898 522
------- -------
Total current assets......................................... 32,569 21,646
------- -------
PROPERTY AND EQUIPMENT:
Equipment................................................... 660 480
Leasehold improvements...................................... 779 456
Computers and software...................................... 9,537 2,111
Furniture and fixtures...................................... 867 440
------- -------
Total property and equipment................................. 11,843 3,487
------- -------
Accumulated depreciation..................................... (2,697) (828)
------- -------
Property and equipment, net................................. 9,146 2,659
OTHER ASSETS:
Net of accumulated amortization of $333 and $110 as of June
30, 2000 and 1999, respectively............................ 780 917
------- -------
TOTAL ASSETS................................................. $42,495 $25,222
======= =======
</TABLE>

See accompanying notes.

F-9
<PAGE>

GARDEN.COM, INC.

BALANCE SHEETS (CONTINUED)
JUNE 30, 2000 AND 1999
(in Thousands)

<TABLE>
<CAPTION>
2000 1999
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) -------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable.......................................... $ 4,282 $ 2,052
Accrued expenses and other liabilities.................... 3,057 956
Unearned revenue.......................................... 187 188
Current portion of long-term debt......................... 20 127
-------- --------
Total current liabilities.................................. 7,546 3,323
-------- --------
Long-term debt, less current portion....................... -- 20
Redeemable convertible preferred stock.................... -- 48,215
Warrants to purchase redeemable convertible preferred
stock.................................................... -- 24
STOCKHOLDERS' EQUITY (DEFICIT):
Common Stock--$.01 par value: 50,000 authorized, 17,737
and 1,157 actual shares issued and outstanding on June
30, 2000 and 1999, respectively.......................... 177 12
Additional paid-in capital................................ 104,499 5,768
Deferred stock compensation............................... (1,169) (2,305)
Retained deficit.......................................... (68,558) (29,835)
-------- --------
Total stockholders' equity (deficit)....................... 34,949 (26,360)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)....... $ 42,495 $ 25,222
======== ========
</TABLE>

See accompanying notes.

F-10
<PAGE>

GARDEN.COM, INC.

STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 2000, 1999 AND 1998
(in Thousands, except share and per share data)

<TABLE>
<CAPTION>
2000 1999 1998
---------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Products.................................. $ 13,564 $ 4,952 $ 1,283
Advertising............................... 1,938 442 56
---------- --------- ---------
Total revenues.......................... 15,502 5,394 1,339
---------- --------- ---------

COST OF REVENUES:
Products.................................. 11,416 4,466 1,086
Advertising............................... 205 74 22
---------- --------- ---------
Total cost of revenues.................. 11,621 4,540 1,108
---------- --------- ---------
GROSS PROFIT................................ 3,881 854 231
---------- --------- ---------

OPERATING EXPENSES:
Marketing and sales....................... 26,654 13,305 2,411
Technology, content and product
development.............................. 6,918 3,167 1,188
General and administrative................ 7,052 2,941 1,218
Depreciation and amortization............. 2,107 610 219
Amortization of deferred compensation..... 1,136 674 73
Restructuring and other activities........ 888 -- --
---------- --------- ---------
Total operating expenses................ 44,755 20,697 5,109
---------- --------- ---------
OPERATING LOSS.............................. (40,874) (19,843) (4,878)

OTHER INCOME (EXPENSE):
Interest income........................... 2,158 804 227
Interest expense.......................... (7) (20) (33)
---------- --------- ---------
Net loss.................................... $ (38,723) $ (19,059) $ (4,684)
========== ========= =========
Less: Beneficial conversion feature and
insubstance dividend....................... -- (2,700) --
---------- --------- ---------
Net loss applicable to common stockholders.. $ (38,723) $ (21,759) $ (4,684)
========== ========= =========
Basic net loss per share.................... $ (2.74) $ (20.48) $ (4.68)
========== ========= =========
Shares used in computing basic net loss per
share...................................... 14,149,167 1,062,696 1,000,820
========== ========= =========
</TABLE>

See accompanying notes.

F-11
<PAGE>

GARDEN.COM, INC.

STATEMENTS OF CHANGES IN COMMON STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
(in Thousands)

<TABLE>
<CAPTION>
Total
Redeemable
Redeemable Convertible Convertible
Preferred Stock Common Stock Preferred
-------------------------- ------------- Additional Deferred Stock and
Par Paid-in Stock Retained Stockholders'
Shares Amount Warrants Shares Value Capital Compensation Deficit Equity
------- ------- -------- ------ ----- ---------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 10,
1997................... 4,158 7,879 23 1,160 12 29 -- (3,106) 4,837
Issuance of Series D
Redeemable Convertible
Preferred Stock and
warrants, net of
issuance costs of
$1,177................. 4,255 18,823 1 -- -- -- -- -- 18,824
Dividends accrued for
Series A, B, C
Preferred Stock........ -- -- -- -- -- -- -- (286) (286)
Conversion of cumulative
dividend to Series D
Redeemable Convertible
Preferred Stock........ 58 273 -- -- -- -- -- -- 273
Repurchase of Common
Stock.................. -- -- -- (160) (2) (26) -- -- (28)
Deferred stock
compensation........... -- -- -- -- -- 313 (313) -- --
Amortization of deferred
compensation........... -- -- -- -- -- -- 72 -- 72
Exercise of stock
options................ -- -- -- 7 0 6 -- -- 6
Net loss................ -- -- -- -- -- -- -- (4,684) (4,684)
------- ------- --- ------ ---- -------- ------- -------- -------
Balance at June 30,
1998................... 8,471 26,975 24 1,007 10 322 (241) (8,076) 19,014
Issuance of Series E
Redeemable Convertible
Preferred Stock, net of
issuance costs of
$1,398................. 3,166 21,240 -- -- -- -- -- -- 21,240
Beneficial conversion
feature and in
substance dividend..... -- -- -- -- -- 2,700 -- (2,700) --
Deferred stock
compensation........... -- -- -- -- -- 2,738 (2,738) -- --
Amortization of deferred
compensation........... -- -- -- -- -- -- 674 -- 674
Exercise of stock
options................ -- -- -- 150 2 8 -- -- 10
Net loss................ -- -- -- -- -- -- -- (19,059) (19,059)
------- ------- --- ------ ---- -------- ------- -------- -------
Balance at June 30,
1999................... 11,637 48,215 24 1,157 12 5,768 (2,305) (29,835) 21,879
======= ======= === ====== ==== ======== ======= ======== =======
Conversion of redeemable
convertible preferred
stock and warrants to
common stock........... (11,637) (48,215) (24) 11,637 116 48,123 -- -- --
Exercise of common stock
warrants............... -- -- -- 69 1 213 -- -- 214
Issuance of common
stock, net of issuance
costs of $2,071........ -- -- -- 4,650 46 49,766 -- -- 49,812
Amortization of deferred
compensation........... -- -- -- -- -- -- 1,136 -- 1,136
Exercise of stock
options................ -- -- -- 88 1 26 -- -- 27
Stock issued to Employee
Stock Purchase Plan.... -- -- -- 116 1 359 -- -- 360
Acquisition of catalog
assets................. -- -- -- 20 0 206 -- -- 206
Common stock options
issued to charitable
organization........... -- -- -- -- -- 38 -- -- 38
Net loss................ -- -- -- -- -- -- -- (38,723) (38,723)
------- ------- --- ------ ---- -------- ------- -------- -------
Balance at June 30,
2000................... -- -- -- 17,737 $177 $104,499 $(1,169) $(68,558) $34,949
======= ======= === ====== ==== ======== ======= ======== =======
</TABLE>

See accompanying notes.

F-12
<PAGE>

GARDEN.COM, INC.

STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2000, 1999 AND 1998
(In Thousands)

<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.......................................... $(38,723) $(19,059) $(4,684)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation..................................... 1,884 517 219
Amortization..................................... 223 93 --
Amortization of deferred stock compensation...... 1,136 674 73
Expense related to non-employee option issuance.. 38 -- --
Changes in operating assets and liabilities:
Prepaid advertising.............................. (881) (610) (374)
Other prepaid expenses and current assets........ (1,057) (1,039) 8
Inventory........................................ (376) (364) (134)
Other assets..................................... 662 (738) (7)
Accounts payable................................. 2,230 1,141 675
Accrued expenses and other liabilities........... 2,101 819 47
Unearned revenue................................. (1) 92 80
-------- -------- -------
Net cash used in operating activities............. (32,764) (18,474) (4,097)
-------- -------- -------
INVESTING ACTIVITIES:
Proceeds from sale of investments................ 31,065 11,083 --
Purchase of investments.......................... (45,967) (14,792) --
Purchase of property and equipment............... (8,349) (2,577) (422)
Purchase of other assets......................... (564) (9) (262)
-------- -------- -------
Net cash used in investing activities............. (23,815) (6,295) (684)
-------- -------- -------
FINANCING ACTIVITIES:
Proceeds from long-term debt..................... -- -- 200
Repayments of long-term debt..................... (127) (182) (115)
Proceeds from issuance of common stock, net of
issuance costs of $2,071........................ 49,812 -- --
Repurchase of common stock....................... -- -- (28)
Proceeds from issuance of Series D Redeemable
Convertible Preferred Stock and warrants, net of
issuance costs of $1,177........................ -- -- 18,824
Proceeds from issuance of Series E Redeemable
Convertible Preferred Stock and warrants, net of
issuance costs of $1,398........................ -- 21,240 --
Exercises of stock options....................... 27 9 6
Proceeds from exercises of warrants.............. 214 -- --
Proceeds from common stock issued to Employee
Stock Purchase Plan 360 -- --
Dividend paid on Series A, B and C Redeemable
Convertible Preferred Stock..................... -- -- (12)
-------- -------- -------
Net cash provided by financing activities......... 50,286 21,067 18,875
-------- -------- -------
Change in cash and cash equivalents............... (6,293) (3,702) 14,094
Cash and cash equivalents, beginning of year...... 15,340 19,042 4,948
-------- -------- -------
Cash and cash equivalents, end of year............ $ 9,047 $ 15,340 $19,042
======== ======== =======
SUPPLEMENTAL DISCLOSURES:
Cash interest paid............................... $ 7 $ 22 $ 31
======== ======== =======
Beneficial conversion and insubstance dividend
(see Note 6).................................... -- $ 2,700 --
</TABLE>

See accompanying notes.

F-13
<PAGE>

GARDEN.COM, INC.

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION

The Company was originally incorporated in Texas on October 2, 1995 as The
Asbury Group, Inc. On November 30, 1995, The Asbury Group, Inc. incorporated a
wholly-owned subsidiary, Garden Escape, Inc., in Delaware. Effective December
11, 1995, The Asbury Group, Inc. was merged into Garden Escape, Inc. in a
transaction accounted for at historical cost. In February 1999, the Company
changed its name to Garden.com, Inc. The Company is an online destination
integrating gardening and gardening-related commerce, content and community.
All of the Company's sales are conducted via its Web sites, garden.com and
virtualgarden.com.

The Company has incurred recurring operating losses and negative cash flows
from operations. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. In regard to these matters, management
announced a corporate restructuring with the intent of lowering ongoing
operating expenses and reducing future capital requirements, reduced its
workforce on September 28, 2000 by 93 employees and terminated or materially
amended multiple marketing initiatives. Additionally, the Company also
announced that it had engaged the investment bank of Robertson Stephens to aid
the Company in evaluating strategic alternatives and to assist the Company
with ongoing fund-raising efforts.

2. SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

Revenue Recognition

Revenues for products and shipping charges are recognized when the products
are shipped to the customer. Substantially all product sales are shipped
directly from various product suppliers to the customer. The Company takes
title to all goods and, accordingly, has the risks and rewards of ownership
for such shipments. Revenues are recorded net of promotional discounts and
coupons. Product returns are recorded as a reduction of revenues. The Company
records unearned revenue for customer orders received and paid for that have
not been shipped.

Advertising revenues consist of sponsorships, banners and print advertising.
Advertising revenues are recognized in proportion to the number of impressions
delivered under each contract or proportionately over the period of time
covered by a contract if impressions are not used. The Company has certain
contracts under which it generates a minimum number of click-throughs and has
historically met these guarantees.

F-14
<PAGE>

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and marketable securities
with original maturities of three months or less. Cash and cash equivalents
are recorded at cost, which approximates fair value due to the short maturity
of these instruments.

Investments

Management determines the appropriate classification of investments at the
time of purchase and reevaluates such designation as of each balance sheet
date. Investments as of June 30, 2000 consisted of high-grade commercial
paper, corporate notes, and government securities, are classified as
available-for-sale, and are reported at cost, which approximates fair market
value, using the specific identification method, as of June 30, 2000. All of
these securities mature within one year.

Inventory

Inventory, which consists of finished goods, is stated at the lower of cost
or market, with cost determined using the average cost method.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation of property and equipment is based on the useful
lives of the assets, generally three to seven years, and is computed using the
straight-line method. Amortization of leasehold improvements is computed on
the straight-line method over estimated useful lives or lease terms if
shorter.

Other Prepaid Assets and Other Assets

Other prepaid assets and other assets include certain prepaid assets, trade
accounts receivable, advertising trade accounts receivable, deposits,
goodwill, and the cost of a web site which are carried at cost less
accumulated amortization. Amortization of the intangible other assets is
computed on the straight-line method over their estimated useful lives of
three to four years.

Long-Lived Assets

The Company reviews for the impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impairment
loss would be recognized when estimated future cash flows expected to result
from the use of the asset and its eventual disposition is less than its
carrying amount. No such impairment losses have been identified by the
Company.

Internal Use Software

In accordance with Statement of Position 98-1 ("SOP 98-1"), "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use" the
Company has capitalized certain internal use software. The Company is
developing a number of new software applications, including a new commerce
platform, and the Company's updated proprietary supplier information system,
TRELLIS. External direct costs of materials and services and payroll related
costs of employees working solely on development of these applications are
capitalized. Capitalized costs will be depreciated when the applications are
placed in service on the straight-line method over a three year estimated
useful life.

Advertising Costs

The cost of advertising is expensed as incurred. For the fiscal years ended
June 30, 2000, 1999 and 1998, the Company incurred advertising expenses of
$18,726,000, $10,763,000 and $1,364,000, respectively.

F-15
<PAGE>

Content Licenses

The Company licenses certain content from third party providers and records
these expenditures as incurred.

Income Taxes

Income taxes are accounted for under Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes." Under SFAS No. 109,
deferred tax assets and liabilities are determined based on differences
between financial reporting and tax basis of assets and liabilities, and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.

Accounting for Stock-Based Compensation

The Company has elected to account for stock-based compensation expense
under APB No. 25, "Accounting for Stock Issued to Employees," and make the
required pro forma disclosures for compensation as required by SFAS No. 123.
The Company uses the intrinsic value method in accounting for its stock-based
employee compensation plans.

Net Loss Per Share

Basic net loss per share is computed by dividing net loss available to
common stockholders by the weighted average number of common shares
outstanding during the period. Shares associated with stock options and the
redeemable convertible preferred stock are not included because they are
antidilutive. Effective upon the closing of the Company's initial public
offering on September 21, 1999, all shares of the redeemable convertible
preferred stock automatically converted into Common Stock and are included in
the calculation of weighted average number of shares as of that date.

Comprehensive Loss

Segments

The Company continues to consider its business activities as a single segment.

Risks and Uncertainties

For the year ended June 30, 2000, one supplier's products generated
approximately 12% of the Company's revenue.

Reclassifications

Certain amounts in previously issued financial statements have been
reclassified to conform to the fiscal year 2000 presentation.

Recent Accounting Pronouncements

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101") which addresses certain criteria for revenue recognition. SAB 101,
as amended by SAB 101A and SAB 101B, outlines the criteria that must be used
to recognize revenue and provides guidance for disclosures related to revenue
recognition policies. The adoption of SAB 101 is not expected to have a
material impact on the consolidated financial position or results of
operations.

F-16
<PAGE>

On March 31, 2000 the "Financial Accounting Standards Board" ("FASB") issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation," (the "Interpretation"). The Interpretation provides guidance
related to the implementation of APB No. 25. The Interpretation is to be
applied prospectively to all new awards, modifications to outstanding awards
and changes in employee status on or after July 1, 2000. For changes made
after December 15, 1998 to awards that affect exercise prices of the awards,
the Company must prospectively account for the impact of those changes.
Management does not believe the adoption of the Interpretation will have a
material impact on the Company's financial condition or results of operations.

In June 1999, SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities, Deferral of Effective Date of FASB Statement No. 133," was
issued which requires that Statement No. 133 be adopted in the Company's
fiscal year 2001. Management does not anticipate that the adoption of
Statement No. 133 will have a material effect on the results of operations or
financial position because the Company does not currently engage in or plan to
engage in derivative or hedging activities.

3. LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
June 30,
-----------
2000 1999
---- -----
<S> <C> <C>
Line of credit term note payable to a bank due October 14, 2000,
payable in monthly installments of $7 with interest at the prime
rate plus 1% (8.89% at June 30, 2000), collateralized by the
assets of the Company............................................ $ 20 $ 107
Line of credit term note payable to a bank due December 14, 1999,
payable in monthly installments of $8 with interest at the prime
rate plus 1% (9.04% at June 30, 1999), collateralized by the
assets of the Company............................................ -- 41
Total long-term debt............................................ 20 148
Less current portion............................................ (20) (128)
Long-term debt, net of current portion.......................... $ -- $ 20
</TABLE>

As of June 30, 2000 and 1999, all of the Company's outstanding long-term
debt had a variable interest rate, and accordingly, the Company believes the
carrying value of the long-term debt approximates its fair value. No
additional amounts were available to be drawn under these lines of credit as
of June 30, 2000.

4. INCOME TAXES

As of June 30, 2000, the Company had net operating loss carryforwards of
approximately $67,018,000 and research and development credit carryforwards of
approximately $105,000. The net operating loss carryforwards will begin to
expire in 2011, if not utilized. The research and development credit
carryforwards will begin to expire in 2012, if not utilized.

Utilization of the net operating loss and tax credit carryforwards will be
subject to a substantial annual limitation due to the "change in ownership"
provisions of the Internal Revenue Code of 1986, as amended. The annual
limitation may result in the expiration of net operating losses and tax
credits before utilization.

Deferred income taxes reflect the net tax effects of temporary differences
between carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.

F-17
<PAGE>

Significant components of the Company's deferred tax liabilities and assets
are as follows (in thousands):

<TABLE>
<CAPTION>
June 30, June 30,
2000 1999
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Depreciable assets........................................ $ 691 $ --
-------- -------
Prepaid expenses and other................................ 806 $ 460
-------- -------
Total deferred tax liabilities............................ 1,497 $ 460
-------- -------
Deferred tax assets:
Depreciable assets........................................ -- 70
-------- -------
Accrued liabilities and other............................. 268 53
-------- -------
Tax carryforwards......................................... 24,901 10,035
-------- -------
Total deferred tax assets................................... 25,169 10,158
-------- -------
Net deferred tax assets..................................... 23,672 9,698
-------- -------
Valuation allowance for net deferred tax assets............. (23,672) (9,698)
-------- -------
Net deferred taxes.......................................... $ -- $ --
======== =======
</TABLE>

The Company has established a valuation allowance equal to the net deferred
tax asset due to uncertainties regarding the realization of deferred tax
assets based on the Company's lack of earnings history. The valuation
allowance increased by approximately $13,974,000 during the year ended June
30, 2000. Approximately $154,000 of the valuation allowance for deferred tax
assets relates to benefits for stock option deductions, which when realized,
will be allocated directly to contributed capital.

The Company's provision (benefit) for income taxes differs from the expected
tax expense (benefit) amount computed by applying the statutory federal income
tax rate of 34% to income before income taxes as a result of the following:

<TABLE>
<CAPTION>
Fiscal year ended
June 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Federal statutory rate.................................... (34.0)% (34.0)%
State taxes, net of federal benefit....................... (3.0) (3.0)
Change in valuation allowance............................. 36.1 36.0
Other..................................................... 0.9 1.0
-------- --------
Effective tax rate 0.0% 0.0%
======== ========
</TABLE>

5. COMMITMENTS

Future minimum payments under all operating leases as of June 30, 2000, are as
follows:

<TABLE>
<CAPTION>
Fiscal year ended
June 30,
-----------------
<S> <C>
2001.......................................................... $269,516
2002.......................................................... 232,641
2003.......................................................... 7,560
--------
Total....................................................... $509,717
========
</TABLE>

F-18
<PAGE>

Rent expense for the three fiscal years ended June 30, 2000, 1999 and 1998
was approximately $280,000 (offset by sublease income of $108,000), $195,000
and $114,000, respectively. Future minimum rental income from non-cancelable
subleases consists of approximately $41,000 for the year ended June 30, 2001.

In addition, the Company has entered into strategic relationships with
several Internet portals, including arrangements with iVillage and Excite. The
agreements with iVillage and Excite call for Garden.com to provide and sponsor
gardening content on the respective Web sites. Under terms of these agreements
the Company is required to make certain installment payments, which are
expensed as advertising expense as incurred.

Garden.com and Administaff Company Inc. are parties to a co-employment
agreement, as amended July 1, 1997, pursuant to which Administaff administers
some of the benefits plans of Garden.com. This arrangement is terminable by
either party upon 30 days prior written notice.

6. CAPITAL STRUCTURE

Redeemable Convertible Preferred Stock

Upon the close of the Company's initial public offering on September 21,
1999 all shares of redeemable convertible preferred stock were converted to
common stock. The five series of redeemable convertible preferred stock
designated as of June 30, 1999, were as follows:

<TABLE>
<CAPTION>
Shares
Issued
Par Shares and Consideration per Share
Value Authorized Converted Received in Issuance
----- ---------- ---------- -----------------------
<S> <C> <C> <C> <C>
Redeemable convertible
preferred stock
Series A................ $0.01 750,000 599,998 $1.25 cash
Series B................ 0.01 1,430,000 1,144,000 $1.75 cash
Series C................ 0.01 4,444,138 2,413,791 $2.18 cash
Series D................ 0.01 5,482,330 4,313,514 $4.70 cash
Series E................ 0.01 4,402,731 3,166,094 $7.15 cash and services
---------- ----------
16,509,199 11,637,397
========== ==========
</TABLE>

In connection with the issuance of Series B Redeemable Convertible Preferred
Stock, the Company issued 160,000 shares of common stock to certain holders of
the Series B Redeemable Convertible Preferred Stock. The agreement under which
they were issued stipulated that the Company could repurchase the common
shares from the holders at the issuance price ($1.75) if the Company completed
a qualified financing or sale prior to August 31, 1998. As the Company met
this requirement, the shares were repurchased.

Beginning on January 1, 1998, the Series A, B, and C Redeemable Convertible
Preferred Stock accrued annual dividends equal to 8% of the original purchase
price paid per share. In connection with the Series D financing, the
stockholders elected to terminate their right to receive future cumulative
dividends. Through a noncash financing transaction, $285,893 of accrued
dividends, approximately $0.05 per share, were converted into 58,211 shares of
Series D Preferred Stock based on the accrued amount through June 5, 1998. In
addition, cash dividends of $12,304 were paid based on the accrued amount from
June 5, 1998 through June 11, 1998, the date of the Series D issuance.

The 699,300 shares of Series E Preferred Stock that were sold to a related
party were accounted for as having a beneficial conversion feature which was
deemed to approximate $2.7 million. This amount was accounted for as an
increase in additional paid in capital and an insubstance dividend to the
related preferred shareholders.

F-19
<PAGE>

Warrants

In connection with the prior issuances of redeemable convertible preferred
stock, the Company at various times issued warrants to purchase shares of
redeemable convertible preferred stock exercisable at prices equal to the
respective series' per share price. The warrants transferred to common stock
rights upon the close of the Company's initial public offering. Of the
warrants, rights to 29,370 and 39,774 shares were exercised during fiscal year
2000 at $7.15 and $2.18 per share, respectively. The Company has reserved
515,323 shares of Common Stock for issuance upon conversion of the remaining
warrants. Of the remaining common stock rights, 442,983 with an exercise price
of $2.18 expire on May 7, 2002 and 72,340 with an exercise price of $4.70
expire on December 31, 2002.

Stock Options

The Company has a stock option plan whereby options for the purchase of
shares of the Company's common stock may be granted to its employees. During
fiscal year ended June 30, 2000, the maximum number of options that may be
granted through the plan was increased from 1,360,000 to 2,500,000 effective
September 1999 and from 2,500,000 to 3,400,000 effective May 2000. The Company
has reserved 3,400,000 shares of common stock for issuance upon conversion of
the options as of June 30, 2000. The shares of common stock reserved for
issuance under the stock option plan automatically increase each year on the
first day of the Company's fiscal year beginning July 2000 in an amount equal
to the lesser of (i) 1,200,000 shares, (ii) 5% of the outstanding shares of
common stock on such date, and (iii) any lesser number of shares determined by
the Board of Directors.

The following represents a summary of the Company's stock option activity,
and related information:

<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Number of Price Per Exercise Fair
Shares Share Price Value
--------- -------------- -------- --------
<S> <C> <C> <C> <C>
Outstanding at June 30, 1997....... 343,600 0.01 to 0.11 0.08
Granted below fair value.......... 211,600 0.01 to 0.94 0.25 1.69
Exercised......................... (6,560) 0.01 to 0.21 0.06
Canceled.......................... (18,640) 0.01 to 0.21 0.13
--------- -------------- -----
Outstanding at June 30, 1998....... 530,000 0.01 to 0.94 0.15
Granted below fair value.......... 797,200 0.94 to 12.50 4.71 8.04
Exercised......................... (150,200) 0.01 to 0.94 0.06
Canceled.......................... (19,120) 0.01 to 7.15 1.63
--------- -------------- -----
Outstanding at June 30, 1999....... 1,157,880 $0.01 to 12.50 $3.26
========= ============== =====
Granted........................... 1,130,000 2.63 to 18.88 8.71 $4.78
Exercised......................... (87,894) 0.01 to 3.75 0.33
Canceled.......................... (213,410) 0.01 to 13.00 6.95
--------- -------------- -----
Outstanding at June 30, 2000....... 1,986,576 $0.01 to 18.88 $6.04
========= ============== =====
</TABLE>

The Company recorded deferred compensation for the fiscal years ended June
30, 2000 and 1999 of $0 and $2,738,777, respectively. The amount recorded
represents the difference between the option price and the deemed fair value
of the Company's Common Stock for shares subject to options granted. The
amortization of deferred compensation will be charged to operations over the
vesting period of the options, which is typically five years. Total
amortization recognized was $1,174,218, $673,990 and $72,730 for the fiscal
years ended June 30, 2000, 1999 and 1998, respectively.

F-20
<PAGE>

The following table summarizes outstanding options at June 30, 2000 by price
range:

<TABLE>
<CAPTION>
Outstanding Exercisable
-------------------------------------------------------------------- ----------------------------------
Weighted-Average
Number of Range of Weighted-Average Remaining Contractual Weighted-Average
Options Exercise Price Exercise Price Life of Options in Years Number of Options Exercise Price
--------- -------------- ---------------- ------------------------ ----------------- ----------------
<S> <C> <C> <C> <C> <C>
110,120 $ 0.01 to 0.01 $ 0.01 6.1 70,680 $ 0.01
159,360 0.18 to 0.21 0.21 7.5 39,240 0.21
237,120 0.94 to 0.94 0.94 8.3 39,435 0.94
153,796 2.63 to 3.88 3.34 9.4 14,666 3.75
121,300 4.00 to 6.00 5.26 6.4 50,000 6.00
906,130 6.13 to 9.13 7.43 9.3 75,080 7.12
288,250 9.53 to 14.13 12.25 9.3 1,840 12.50
10,500 16.00 to 18.88 16.50 9.3 -- --
--------- --------------- ------ --- ------- ------
1,986,576 $ 0.01 to 18.88 $ 5.96 8.7 290,941 $ 3.30
========= =============== ====== === ======= ======
</TABLE>

Pro forma information regarding net income (loss) per share is required by
Statement No. 123, which also requires that the information be determined as
if the Company has accounted for its employee stock options granted subsequent
to June 30, 1995 under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using a minimum value
option pricing model with the following weighted-average assumptions for
fiscal year 1999 and 1998: weighted-average risk free interest rate was 5.5%,
a dividend yield of 0%, a volatility factor of the expected market price of
the Company's common stock of near zero, and a weighted-average expected life
of the option of five years. For fiscal year 2000 the Black-Scholes method was
used with the following assumptions: weighted-average risk free interest rate
of 6.21%, a dividend yield of 0%, a volatility factor of .90 and a weighted-
average expected life of four years.

Had compensation cost for the Company's stock option plan been determined
consistent with the fair value method as required by SFAS 123, the Company's
net loss and net loss per share would have been $(39.9) million and $(2.82)
per share, respectively.

For pro forma disclosure purposes, the estimated fair value of the Company's
employee stock options is treated as if amortized to expense over the options'
vesting period, therefore the effects of applying SFAS 123 for pro forma
disclosures are not necessarily indicative of future amounts.

7. NET LOSS PER SHARE

The following table sets forth the computation of basic net loss per share
for the periods indicated:

<TABLE>
<CAPTION>
Fiscal Year Ended, June 30,
--------------------------------------------------
2000 1999 1998
---------------- --------------- ---------------
(In thousands except share and per share data)
<S> <C> <C> <C>
Numerator:
Net loss.................. $ (38,723) $ (19,059) $ (4,684)
Less: Beneficial
conversion feature and
in-substance dividend... -- (2,700) --
---------------- --------------- ---------------
Net loss applicable to
common shareholders....... $ (38,723) $ (21,759) $ (4,684)
================ =============== ===============
Denominator:
Weighted average shares... 14,149,167 1,062,696 1,152,468
Less: contingently
issuable shares-issued
with Series B Preferred
Stock and subject to
repurchase.............. -- -- (151,648)
---------------- --------------- ---------------
Denominator for basic
calculation............... 14,149,167 1,062,696 1,000,820
================ =============== ===============
Net loss per share
Basic..................... $ (2.74) $ (20.48) $ (4.68)
================ =============== ===============
</TABLE>

F-21
<PAGE>

8. RELATED PARTIES

The Company incurred expenses of $61,752, $32,343 and $27,552 for the fiscal
years ended June 30, 2000, 1999 and 1998, respectively, for legal services to
Kenneth Sharples, the brother of the Company's President. These expenses were
primarily for intellectual property legal issues. In addition, at various
dates prior to the fiscal year ended June 30, 1999 the Company issued to
Kenneth Sharples options to purchase 6,400 shares of common stock at a
weighted-average purchase price of $0.93 per share.

The E.W. Scripps Company, through its wholly owned subsidiaries, Scripps
Ventures LLC and Scripps Howard Broadcasting Company d/b/a Home & Garden
Television ("HGTV"), beneficially owns 13.6% of the outstanding common stock
as of August 31, 2000 of Garden.com. Douglas R. Stern, a director of
Garden.com, is the President and Chief Executive Officer of United Media, a
newspaper syndication company and wholly-owned subsidiary of The E.W. Scripps
Company.

Beginning in March 1998, the Company conducted a national marketing program
with United Media. The agreement with United Media was terminated during the
fiscal year ended June 30, 2000.

The Company made payments of approximately $2,500, $130,000 and $75,000 to
affiliates of The E.W. Scripps Company during the fiscal years ended June 30,
2000, 1999 and 1998, respectively for services related to marketing and sales
expenses and the third-party syndication of the Company's content offerings.

The Company maintains test gardens in Des Moines, Iowa on property owned by
Douglas A. Jimerson, Vice President of Publishing and Editor-in-Chief. The
Company pays for the plants grown in the gardens and for the maintenance of
the gardens. Other than these maintenance expenses, the Company does not pay
Mr. Jimerson rent for the use of the gardens.

9. RESTRUCTURING AND OTHER ACTIVITIES

On January 21, 2000 the Company acquired from a third party all owned
assets, including inventory, related to the production of a catalog. The
assets were purchased through both cash payments and the issuance of common
stock. The excess of the purchase price over inventory value was attributed to
goodwill.

In June 2000, the Company's management initiated a restructuring effort that
resulted in the Company incurring a restructuring charge of $888,000. This
charge includes asset write-offs on discontinued Company initiatives,
including prepaid costs for a landscaping product test, severance related to
an internal restructuring and a note receivable from a European based internet
gardening company.

10. SUBSEQUENT EVENTS

On July 21, 2000 the Company issued an employee stock grant of 1.4 million
shares as approved by the Company's Board of Directors. The options have an
exercise price equal to the closing price for the Company's publicly traded
common shares on the date of the option grant, or $1.75 per share. The options
have a vesting period of four years beginning on the date of the option grant.

On September 28, 2000, the Company announced a corporate restructuring (the
"Restructuring Plan") with the intent of lowering ongoing operating expenses
and reducing future capital requirements. It is expected that the
Restructuring Plan will cost the Company between $2.5 million and $2.8
million. Pursuant to the Restructuring Plan, the Company reduced its workforce
on September 28, 2000 by 93 employees. In addition,

F-22
<PAGE>

the Company terminated or materially amended multiple marketing initiatives,
including the Company's relationships with iVillage, Excite and PRIMEDIA,
resulting in both write-offs of prepaid assets and cash payments to third
parties to discontinue certain contractual obligations.

Simultaneous with its announcement of the Restructuring Plan, the Company
also announced that it had engaged the investment bank of Robertson Stephens
to aid the Company in evaluating strategic alternatives and to assist the
Company with ongoing fund-raising efforts.

F-23
<PAGE>

ANNEX A

GARDEN.COM, INC.

PLAN OF LIQUIDATION AND DISSOLUTION

1. This Plan of Liquidation and Dissolution (the "Plan") of Garden.com, Inc.,
a Delaware corporation (the "Company" or the "Corporation"), has been
approved by the Company's Board of Directors for purposes of submitting it
to the stockholders for approval and the Board of Directors has directed
that the Plan be submitted to the stockholders of the Company for their
approval. The Plan shall be subject to the approval of the holders of a
majority of the outstanding shares of common stock of the Company, $0.01
par value per share (the "Common Stock), entitled to vote thereon.

2. Upon adoption of the Plan by the stockholders, the Board of Directors of
the Company shall have the authority to cause a certificate of dissolution
(the "Certificate of Dissolution") to be filed with the Office of the
Secretary of State of the State of Delaware in accordance with Section
275(d) of the Delaware General Corporation Law at such time as the Board of
Directors shall determine in its sole discretion . At such time thereafter
as the Board of Directors of the Company shall determine, in its sole
discretion, the Company shall (i) provide notice of dissolution as required
by Section 280 of the Delaware General Corporation Law (the "Notice of
Dissolution"), (ii) cause any documentation required by federal or state
tax authorities to be obtained, prepared, executed and filed, and (iii) as
required by Section 280 of the Delaware General Corporation Law, after the
filing of the Certificate of Dissolution and the provision of notice to the
Company's known creditors, provide notice of the filing of the Certificate
of Dissolution by publishing such notice (A) at least once a week for two
(2) consecutive weeks in a newspaper of general circulation in the
applicable jurisdiction, and (B) at least once in all editions of a daily
newspaper with a national circulation.

3. Notwithstanding the authorization of this Plan by the holders of the Common
Stock, the Board of Directors may abandon the proposed dissolution of the
Company pursuant to this Plan at any time in its sole discretion without
any further action by the stockholders of the Company.

4. On or after the date of filing the Certificate of Dissolution with the
Office of the Secretary of State of the State of Delaware (the "Effective
Date"), the Company shall be voluntarily liquidated and dissolved and there
shall be distributed to or for the benefit of the stockholders, within
three (3) years of the Effective Date and in accordance with the further
provisions hereof, in complete cancellation of all issued and outstanding
shares of Common Stock, all of the Company's assets, tangible and
intangible, and all of its property, real, personal and mixed.

5. The appropriate officers of the Company shall take such actions on such
terms as the Board of Directors determines to be necessary or appropriate
in order to marshal the assets of the Company and convert the same, in
whole or in parts, into such form as may be conveniently distributed to the
stockholders.

6. After provision for all debts and other reserves as may be deemed necessary
or appropriate by the Board of Directors, the appropriate officers of the
Company shall distribute, by means of one or more distributions, all of the
assets of the Company to the stockholders and in connection therewith, such
officers shall execute all checks, instruments, notices and any and all
other documents necessary to effectuate such distribution.

7. Subject to section 6 hereof, the final distribution contemplated by section
6 hereof shall be in complete liquidation of the Company and in complete
redemption and cancellation of all shares of Common Stock issued and
outstanding, and all certificates representing such issued and outstanding
shares of Common Stock shall thereupon be cancelled. The Board of Directors
shall make such provisions as it deems appropriate regarding the
cancellation, in connection with the making of distributions hereunder, of
certificates representing the shares of Common Stock (or certificates
representing interests in the Liquidating Trust as provided in section 8
hereof) outstanding.

A-1
<PAGE>

8. In the event that it should not be feasible, in the opinion of the Board of
Directors, for the Company to pay, or adequately provide for, all debts and
liabilities of the Company (including costs and expenses incurred and
anticipated to be incurred in connection with the liquidation of the
Company) at the time the final liquidating distribution is made pursuant to
section 6 hereof, or the latest applicable date to avoid payment by the
Company of federal income taxes, or the Board of Directors shall determine
that it is not advisable to distribute at such time any of the property
then held by or for the account of the Company because such property is not
reasonably susceptible of distribution to stockholders or otherwise, the
Company shall transfer and assign, at such time as is determined by the
Board of Directors, to a liquidating trust as designated by the Board of
Directors (the "Liquidating Trust") sufficient cash and property to pay, or
adequately provide for, all such debts and liabilities and such other
property as it shall have determined is appropriate. Upon such transfer and
assignment, certificates for shares of Common Stock will be deemed to
represent certificates for interests in the Liquidating Trust. The
Liquidating Trust shall be constituted pursuant to a Liquidating Trust
Agreement in such form as the Board of Directors may approve, it being
intended that the transfer and assignment to the Liquidating Trust pursuant
hereto and the distribution to stockholders of the beneficial interest
therein shall constitute a part of the final liquidating distribution by
the Company to the stockholders of their pro rata interest in the remaining
amount of cash and other property held by or for the account of the
Company. From and after the date of the Company's transfer of cash and
property to the Liquidating Trust, the Company shall have no interest of
any character in and to any such cash and property and all of such cash and
property shall thereafter be held by the Liquidating Trust solely for the
benefit of and ultimate distribution to the stockholders, subject to any
unsatisfied debts, liabilities and expenses.

9. The Board of Directors of the Company, or the trustees of the Liquidating
Trust, and such officers of the Company as the Board of Directors may
direct, are hereby authorized to interpret the provisions of this Plan and
are hereby authorized and directed to take such further actions, to execute
such agreements, conveyances, assignments, transfers, certificates and
other documents, as may in their judgment be necessary or desirable in
order to wind up expeditiously the affairs of the Company and complete the
liquidation thereof, including without limitation, (i) the execution of any
contracts, deeds, assignments or other instruments necessary or appropriate
to sell or otherwise dispose of, any and all property of the Company
whether real or personal, tangible or intangible, (ii) the appointment of
other persons to carry out any aspect of this Plan, (iii) the temporary
investment of funds in such medium as the Board of Directors may deem
appropriate and (iv) the modification of this Plan as may be necessary to
implement this Plan. The Board of Directors may authorize such variations
from or amendments to the provisions of the Plan as may be necessary or
appropriate to effectuate the complete liquidation, dissolution and
termination of existence of the Company, and the distribution of its assets
to the stockholders in accordance with the laws of the State of Delaware.
The death, resignation or other disability of any Director or officer of
the Company shall not impair the authority of the surviving or remaining
Directors or officers of the Company (or any person appointed as
substitutes therefor) to exercise any of the powers provided for in this
Plan. Upon such death, resignation or other disability, the surviving or
remaining Directors shall have the authority to fill the vacancy or
vacancies so created, but the failure to fill such vacancy or vacancies
shall not impair the authority of the surviving or remaining Directors or
officers to exercise any of the powers provided for in this Plan.

10. Without limiting the authority of the Board of Directors to authorize the
payment of the Company's expenses, the Board of Directors is authorized,
empowered and directed to pay any and all fees, costs and expenses
incurred by the Company in connection with the Plan and the sale of assets
and liquidating distributions contemplated hereunder, including, without
limitation, general and administrative expenses, compensation and other
ongoing operating expenses, severance compensation expenses and all legal,
accounting, printing, appraisal, brokerage, agency and other fees, costs
and expenses of persons rendering services to the Company.

A-2
<PAGE>

11. After the Effective Date, the Company shall not engage in any business
activities, except to the extent necessary for preserving the value of the
Company's assets, winding-up its business and affairs, discharging and
paying all Company liabilities and distributing Company assets in
accordance with the Plan.

12. After adoption of the Plan by the stockholders, the stockholders shall
have no right to approve or disapprove the terms of the sale of any
Company assets.

13. The Board of Directors, the officers of the Company or a liquidation
administrator shall pay, or shall make adequate provision for payment of,
all known liabilities of the Company which are attributable to the Company
or its personal or real property or other assets and which are not assumed
by any buyer thereof. After the time period for response to the Notice of
Dissolution has elapsed, the Board of Directors or the officers of the
Company (or a liquidation administrator), at the direction of the Board of
Directors, shall establish a reserve account for all claims which are
contingent, conditional or unmatured claims known to the Company, and all
claims which are known to the Company but for which the identity of the
claimant is unknown. The Board of Directors may in its discretion also
reserve from distribution cash or other assets of the Company in such
additional amount as the Board of Directors determines to be reasonably
necessary for payment of unknown, unascertained liabilities or expenses of
the Company (all such amounts reserved are collectively referred to as the
"Contingency Reserve").

14. If any distribution to a stockholder cannot be made, whether because the
stockholder cannot be located, has not surrendered its certificates
evidencing its shares of Common Stock as required hereunder or for any
other reason, the distribution to which such stockholder is entitled shall
(unless transferred to a Liquidating Trust established pursuant hereto) be
transferred at such time as the final liquidating distribution is made by
the Company to and deposited with the state official authorized by the
laws of the State of Delaware to receive the proceeds of such
distribution; such transfer shall comply in all respects with the laws of
the State of Delaware and the Delaware General Corporation Law. The
proceeds of such distribution shall thereafter be held solely for the
benefit of and for ultimate distribution to such stockholder as the sole
equitable owner thereof and shall escheat to the State of Delaware or be
treated as abandoned property in accordance with the laws of the State of
Delaware. In no event shall the proceeds of any such distribution revert
to or become the property of the Company.

15. The directors, officers and employees of the Corporation shall be entitled
to all indemnification rights provided to such persons pursuant to the
Corporation's Certificate of Incorporation, the Corporation's By-Laws or
any contract, agreement or other commitment between the Corporation and
any such person in connection with this Plan, any transactions
contemplated hereby and any Liquidating Trust formed pursuant hereto.

16. The Board of Directors shall have the power and authority after the
Effective Date to purchase and/or continue and maintain insurance as it
deems necessary to cover the Company's indemnification obligations,
including insurance which shall remain in effect subsequent to the
dissolution of the Company. The Company's obligation to provide such
indemnification may be satisfied out of the Contingency Reserve or any
Liquidating Trust. All indemnification agreements to which the Company is
a party shall remain in full force and effect after the Effective Date.

A-3
<PAGE>

ANNEX B

CHARTER FOR THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
OF GARDEN.COM, INC.

PURPOSE:

The Audit Committee will make such examinations as are necessary to monitor
the corporate financial reporting and the internal and external audits of
Garden.com, Inc. (the "Company"), to provide to the Board of Directors the
results of its examinations and recommendations derived therefrom, to outline
the Board improvements made, or to be made, in internal accounting controls,
to nominate independent auditors, to monitor the independence of the
independent auditors, and to provide to the Board such additional information
and materials as it may deem necessary to make the Board aware of significant
financial matters that require Board attention.

In addition, the Audit Committee will undertake those specific duties and
responsibilities listed below and such other duties as the Board of Directors
from time to time prescribe.

The function of the Audit Committee is oversight. The management of the
Company is responsible for the preparation, presentation and integrity of the
Company's financial statements. Management is responsible for maintaining
appropriate accounting and financial reporting principles and policies and
internal controls and procedures designed to assure compliance with accounting
standards and applicable laws and regulations. The outside auditors are
responsible for planning and carrying out a proper audit and reviews,
including reviews of the Company's quarterly financial statements prior to the
filing of each quarterly report on Form 10-Q, and other procedures. In
fulfilling their responsibilities under this charter, it is recognized that
members of the Audit Committee are not full-time employees of the Company and
are not, and do not represent themselves to be, accountants or auditors by
profession or experts in the fields of accounting or auditing. As such, it is
not the duty or responsibility of the Audit Committee or its members to
conduct auditing or accounting reviews or procedures, and each member of the
Audit Committee shall be entitled to rely on (a) the integrity of those
persons and organizations within and outside the Company from whom it receives
information and (b) the accuracy of the financial and other information
provided to the Audit Committee by such persons or organizations.

The outside auditors for the Company are ultimately accountable to the Audit
Committee and the Board of Directors. The Board of Directors, with the
assistance of the Audit Committee, has the ultimate authority and
responsibility to select, evaluate and, where appropriate, replace the outside
auditors (or to nominate the outside auditors to be proposed for shareholder
approval in the proxy statement).

MEMBERSHIP:

The Audit Committee will consist of at least three members, each of whom
shall not be an officer of the Company or its subsidiaries, shall not have any
relationship which, in the opinion of the Board of Directors, would interfere
with the exercise of independent judgment in carrying out the responsibilities
of a director and shall otherwise satisfy the applicable membership
requirements under the rules of the Nasdaq Stock Market.

RESPONSIBILITIES:

The responsibilities of the Audit Committee shall include:

1. Reviewing on a continuing basis the adequacy of the Company's system of
internal controls.

2. Reviewing on a continuing basis the activities, organizational structure
and qualifications of the Company's internal audit function.

B-1
<PAGE>

3. Reviewing the independent auditors' proposed audit scope and approach.

4. Conducting a post-audit review of the financial statements and audit
findings, including any significant suggestions for improvements
provided to management by the independent auditors and any serious
difficulties or disputes with management encountered during the course
of the audit.

5. Reviewing the performance of the independent auditors.

6. Recommending the appointment of independent auditors to the Board of
Directors.

7. Reviewing fee arrangements with the independent auditors.

8. Reviewing management's monitoring of compliance with the Company's
Standards of Business Conduct and with the Foreign Corrupt Practices
Act;

9. Reviewing, in conjunction with counsel, any legal matters that could
have a significant impact on the Company's financial statements;

10. Ensuring that the outside auditors prepare and deliver annually a
Statement as to Independence (it being understood that the outside
auditors are responsible for the accuracy and completeness of this
Statement), and discussing with the outside auditors any relationships
or services disclosed in this Statement that may impact the
objectivity and independence of the Company's outside auditors and to
recommend that the Board of Directors take appropriate action in
response to this Statement to satisfy itself of the outside auditors'
independence

11. Providing oversight and review of the Company's asset management
policies, including an annual review of the Company's investment
policies and performance for cash and short-term investments;

12. If necessary, instituting special investigations and, if appropriate,
hiring special counsel or experts to assist;

13. Reviewing related party transactions for potential conflicts of
interest; and

14. Performing other oversight functions as requested by the full Board of
Directors.

15. Reviewing and updating the Audit Committee's charter annually.

16. Instructing the independent accountants that the independent
accountants are ultimately responsible to the Board of Directors and
the Audit Committee.

17. Preparing any report, including any report of the Audit Committee
required by the rules of the Securities and Exchange Commission to be
included in the proxy statement for the Company's annual meeting.

In addition to the above responsibilities, the Audit Committee will
undertake such other duties as the Board of Directors delegates to it, and
will report, at least annually, to the Board regarding the Committee's
examinations and recommendations.

MEETINGS:

The Audit Committee will meet at least once each year. The Audit Committee
may establish its own schedule which it will provide to the Board of Directors
in advance.

The Audit Committee will meet separately with the Chief Executive Officer
and separately with the Chief Financial Officer of the Company at least
annually to review the financial affairs of the Company. The Audit Committee
will meet with the independent auditors of the Company, at such times as it
deems appropriate, to review the independent auditor's examination and
management report.

B-2
<PAGE>

REPORTS:

The Audit Committee will record its summaries of recommendations to the
Board in written form which will be incorporated as a part of the minutes of
the Board of Directors at which those recommendations are presented.

MINUTES:

The Audit Committee will maintain written minutes of its meetings, which
minutes will be filed with the minutes of the meetings of the Board of
Directors.

B-3
<PAGE>

PROXY
GARDEN.COM, INC.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints Clifford A. Sharples, James N. O'Neill and
Jana D. Wilson, or either one of them, each with full power of substitution and
resubstitution, as proxy or proxies of the undersigned to attend the Annual
Meeting of Stockholders of Garden.com, Inc. to be held on January 8, 2001 at
11:00 a.m., local time, at the Company's headquarters located at 3301 Steck
Avenue, Austin, Texas 78757, and at any adjournment thereof, there to vote all
shares of Common Stock which the undersigned would be entitled to vote if
personally present as specified upon the following matters and in their
discretion upon such other matters as may properly come before the meeting.

1. ELECTION OF DIRECTORS (terms expiring at the 2003 Annual Meeting)

[_] FOR all nominees listed below [_] WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees
contrary below) listed below

Nominees: (1) GERALD R. GALLAGHER and (2) LISA W.A. SHARPLES

(INSTRUCTIONS: To withhold authority to vote for any individual nominee, write
the number of the nominee(s) on the space provided below.)

________________________________________________________________________

2. TO APPROVE AND ADOPT THE PLAN OF LIQUIDATION AND DISSOLUTION.

FOR [_] AGAINST [_] ABSTAIN [_]

3. TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS AUDITORS FOR GARDEN.COM,
INC. FOR THE YEAR ENDING JUNE 30, 2001.

FOR [_] AGAINST [_] ABSTAIN [_]

4. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.

(continued on reverse side)
<PAGE>

PROXY NO. NO. OF SHARES

The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Stockholders and accompanying Proxy Statement, ratifies all that said proxies
or their substitutes may lawfully do by virtue hereof, and revokes all former
proxies.

Please sign exactly as your name appears hereon, date and return this
Proxy. UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED TO GRANT AUTHORITY
TO ELECT THE NOMINEES AS DIRECTORS, TO APPROVE AND ADOPT THE PLAN OF LIQUIDATION
AND DISSOLUTION AND TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS AUDITORS.
IF OTHER MATTERS COME BEFORE THE MEETING, THIS PROXY WILL BE VOTED IN ACCORDANCE
WITH THE BEST JUDGMENT OF THE PROXIES APPOINTED.

DATED: ___________________________

__________________________________
(SIGNATURE OF STOCKHOLDER)

__________________________________
(SIGNATURE IF JOINTLY HELD)

If signing as attorney, executor, administrator,
trustee or guardian, please add your full title as
such. If shares are held by two or more persons,
all holders must sign the Proxy.