SHOPNOW COM INC, S-1/A, 1999-07-30

SHOPNOW COM INC
S-1/A, 1999-07-30
COMPUTER PROCESSING & DATA PREPARATION

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 30, 1999

REGISTRATION NO. 333-80981

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 1
TO
FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933
------------------------

SHOPNOW.COM INC.
(Exact name of Registrant as specified in its charter)

<TABLE>
<S> <C> <C>
WASHINGTON 7374 91-1628103
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification Number)
incorporation or organization) Classification Code
Number)
</TABLE>

411 FIRST AVENUE SOUTH
SUITE 200 NORTH
SEATTLE, WASHINGTON 98101
(206) 223-1996
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
--------------------------

DWAYNE M. WALKER
CHIEF EXECUTIVE OFFICER
411 FIRST AVENUE SOUTH
SUITE 200 NORTH
SEATTLE, WASHINGTON 98101
(206) 223-1996
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------

COPIES TO:

JOHN A. FORE STEVEN C. KENNEDY
PATRICK J. SCHULTHEIS JAMES E. NICHOLSON
PAUL W. HARTZEL W. MORGAN BURNS
Wilson Sonsini Goodrich & Rosati GORDON S. WEBER
Professional Corporation Faegre & Benson LLP
5300 Carillon Point 2200 Norwest Center
Kirkland, Washington 98033-7356 90 South Seventh Street
(425) 576-5800 Minneapolis, Minnesota 55402-3901
(612) 336-3000

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

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

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

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

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

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

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(1)(2) FEE(2)
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value per share..... 8,050,000 Shares $12.00 $96,600,000 $26,855(3)
</TABLE>

(1) Includes 1,050,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.

(2) Estimated pursuant to Rule 457(a) solely for the purpose of computing the
amount of the registration fee.

(3) $23,978 previously paid.

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

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

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

SUBJECT TO COMPLETION, DATED , 1999

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE CANNOT
SELL THESE SECURITIES UNTIL THE SECURITIES AND EXCHANGE COMMISSION DECLARES OUR
REGISTRATION STATEMENT EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED.

<PAGE>
PROSPECTUS

7,000,000 Shares

[LOGO]

Common Stock
-------------

This is the initial public offering of ShopNow.com Inc. common stock. We
anticipate that the initial public offering price will be between $10.00 and
$12.00 per share. Application has been made to have our common stock listed on
the Nasdaq National Market under the symbol "SPNW" upon completion of this
offering.

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

<TABLE>
<CAPTION>
PER SHARE TOTAL
---------- ----------
<S> <C> <C>
Public offering price........................................................... $ $
Underwriting discounts and commissions.......................................... $ $
Proceeds, before expenses, to ShopNow........................................... $ $
</TABLE>

The underwriters have a 30-day option to purchase up to 1,050,000 additional
shares of common stock from us to cover over-allotments, if any.

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

INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 7.

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

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.

--------------------
DAIN RAUSCHER WESSELS
a division of Dain Rauscher Incorporated

U.S. BANCORP PIPER JAFFRAY

SOUNDVIEW TECHNOLOGY GROUP

WIT CAPITAL CORPORATION

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

, 1999
<PAGE>
[INSIDE FRONT COVER]

[SHOPNOW LOGO]

THE SHOPNOW NETWORK: CONNECTING SHOPPERS AND MERCHANTS

One of the Internet's fastest growing shopping destinations--ShopNow.com
delivers on its promise: A Better Way to Shop.

[Picture of the ShopNow.com Home Page]

OVER 30,000 MERCHANTS

OVER 1 MILLION PRODUCTS

[LOGOS OF SHOPNOW'S MERCHANT CUSTOMERS]

THE SHOPNOW.COM SHOPPING CATEGORIES

- -Fashion & Apparel -Travel
- -Fashion Accessories -Food & Beverage
- -Personal Care -Cars & Motorcycles
- -Sports & Recreation -Electronics
- -Books & Magazines -Telecommunications
- -Music & Movies -Computers
- -Home & Garden -Computer Services
- -Parenting -Personal Finance
- -Kids -Career
- -Pets -Small & Home Office
- -Flowers & Gifts -Business Services
- -Select Catalogs -General Services
- -Hobbies -Health Services
- -Auction

<PAGE>

[INSIDE FRONT COVER (CONTINUED)]
SHOPNOW PROVIDES MERCHANTS ACCESS TO A
LEADING E-COMMERCE MARKETPLACE

DIRECT MARKETING SERVICES

ONLINE AND TRADITIONAL SALES AND MARKETING

E-COMMERCE TECHNOLOGY PLATFORM

ORDER AND PAYMENT PROCESSING

FRAUD PREVENTION

CUSTOMER ORDER FULFILLMENT AND CALL CENTER

[Picture of a MyShopNow Web Page]

MERCHANTS HAVE MORE CHOICES TO ATTRACT SHOPPERS ON THE SHOPNOW NETWORK

ShopNow drives shoppers to our merchant customers' online stores and offers a
range of marketing options from online direct marketing to advertising,
merchandising and more, all available through the ShopNow Network.

ShopNow offers merchants:

- product offer based e-mail

- banner ads

- sponsorships

- hyperlink advertisements

[Picture of the ShopNow.com Home Page]

[Picture of ShopNow's Merchant Customer's Web Sites Designed and
Maintained by ShopNow.]

[SHOPNOW LOGO]

MYSHOPNOW.COM ENABLES EACH SHOPPER TO CREATE A PERSONALIZED SHOPPING SITE

MyShopNow store owners can choose to receive through their personalized
MyShopNow stores, complimentary--

- access to third-party content--including news, sports scores, weather
reports, horoscopes, greeting cards and stock quotes

- incentives to shop at their MyShopNow personal store

[Picture of an Online Shopper Browsing the ShopNow.com Web Site]

[Picture of Products Sold on ShopNow.com]

<PAGE>
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. This prospectus is not an offer to sell, nor is
it seeking an offer to buy, these securities in any state where the offer or
sale is not permitted. The information in this prospectus is complete and
accurate as of the date on the front cover, but the information may have changed
since that date.

"ShopNow," "TechWave" and "Internet Mall" are trademarks registered to
ShopNow, and we have applied for trademark registration for each of the
following additional marks: "ShopNow.com," "MyShopNow.com" and "CommerceTrust."
This prospectus also contains trademarks of companies other than ShopNow.
------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 4
Risk Factors................................... 7
Use of Proceeds................................ 19
Dividend Policy................................ 19
Capitalization................................. 20
Dilution....................................... 21
Selected Pro Forma Combined Financial Data..... 22
Selected Consolidated Financial Data........... 23
Management's Discussion and Analysis Of
Financial Condition and Results of
Operations................................... 24
Business....................................... 37
Management..................................... 51

Related Transactions with Executive Officers,
Directors and 5% Shareholders................ 59
Principal Shareholders......................... 61
Description of Capital Stock................... 62
Shares Eligible For Future Sale................ 65
Underwriting................................... 68
Legal Matters.................................. 69
Experts........................................ 70
Change in Independent Public Accountants....... 70
Where You Can Find More Information............ 70
Index to Consolidated Financial Statements..... F-1
</TABLE>

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

3
<PAGE>
PROSPECTUS SUMMARY

THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. BEFORE MAKING AN INVESTMENT DECISION YOU SHOULD READ THE ENTIRE
PROSPECTUS, INCLUDING THE CONSOLIDATED FINANCIAL STATEMENTS, THE UNAUDITED PRO
FORMA COMBINED FINANCIAL INFORMATION AND RELATED NOTES. THE TERMS "WE" AND
"SHOPNOW" MEAN SHOPNOW.COM INC. AND ITS SUBSIDIARIES. EXCEPT AS OTHERWISE
STATED, ALL INFORMATION PRESENTED IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION.

SHOPNOW.COM INC.

ShopNow provides shoppers and merchants with a leading online marketplace
and a wide variety of e-commerce and direct marketing services. The ShopNow
Network, our online marketplace, is comprised of ShopNow.com, MyShopNow.com and
the individual Web sites of our merchant customers. ShopNow.com aggregates more
than 1 million products and services from more than 30,000 merchants at one Web
site that can be rapidly searched by category, merchant or product.
MyShopNow.com enables shoppers to create personalized online stores by selecting
the types of products and services offered to them. Since August 1998, more than
1.5 million MyShopNow personal stores have been created. In June 1999, the
ShopNow Network attracted more than 2 million visits. We believe that our online
marketplace focused principally on shopping will continue to attract an
increasing number of Internet users who are interested in purchasing products
and services on the Web. As the number of shoppers on the ShopNow Network
increases, we believe that we will attract additional merchant customers by
providing them with the opportunity to increase online transaction volume.

Our e-commerce and direct marketing services enable merchants to market and
sell their products and services online. Our e-commerce services range from a
listing on ShopNow.com to the design, creation and maintenance of an online
store complete with back-end support services, such as payment and order
processing, fraud prevention and customer order fulfillment. Our direct
marketing services enable merchants to cost-effectively promote their brands,
products, services and e-commerce presence through traditional and online direct
marketing methods. We intend to increase our use of the demographic and shopper
preference data that we collect to provide more focused direct marketing
services.

The market for our products and services is rapidly increasing as the
explosive growth of the Internet has given shoppers and merchants the
opportunity to conduct an increasing amount of commerce online. According to
International Data Corporation, transactions on the Internet are expected to
increase from approximately $32 billion in 1998 to approximately $426 billion in
2002, with the number of worldwide users that have bought products and services
online rising from approximately 28 million to approximately 128 million during
the same period.

The opportunity presented by the rapid growth in e-commerce is creating
numerous challenges for shoppers and merchants as they attempt to buy and sell
goods and services in an online environment. Shoppers are being inundated with
buying opportunities and merchants are seeking to develop and maintain effective
e-commerce offerings and attract online shoppers. ShopNow meets these challenges
by connecting shoppers and merchants through our online marketplace, while
providing merchants with e-commerce and direct marketing services that enhance
their ability to market and sell their products and services online.

Merchants using our online marketplace, as well as those using our
e-commerce and direct marketing solutions, represent businesses of all sizes
from a wide variety of industries, including retailers, catalog companies,
manufacturers and individuals. Some of our customers are Corel, eBay, Hallmark,
Macy's, OfficeMax, Qwest Communications and Sony.

We have also entered into key business relationships with a number of
companies, including Chase Manhattan Bank, About.com, 24/7 Media, Qwest
Communications, HNC Software and the ZERON Group, among others. We believe these
relationships will enable us to expand our product and service offerings,
attract additional visitors to the ShopNow Network, increase the number of
MyShopNow personal stores, enhance our technology and establish additional
sources of revenue.

4
<PAGE>
ShopNow was incorporated in Washington in January 1994. Our executive
offices are located at 411 First Avenue South, Suite 200 North, Seattle,
Washington 98101; our telephone number is (206) 223-1996; and our main Web site
is located at http://www.shopnow.com. Information contained on our Web sites is
not part of this prospectus.

RISK FACTORS

This offering involves a high degree of risk. Since our inception in January
1994, we have incurred significant losses, and as of June 30, 1999, we had an
accumulated deficit of $55.6 million. We expect our operating losses and
negative cash flow to continue for the foreseeable future. In June 1999, we
ceased operation of our BuySoftware.com business, which had provided a majority
of our revenues for the period from January 1, 1998 through June 30, 1999, in
order to focus on the expansion of the ShopNow Network and the execution of our
overall strategy. We face intense competition from other providers of online
shopping services and e-commerce and direct marketing services. You should
carefully consider these risks and uncertainties as well as those other risks
and uncertainties described in "Risk Factors" beginning on page 7 of this
prospectus before deciding whether to invest in shares of our common stock.

THE OFFERING

<TABLE>
<S> <C>
Common stock offered.............. 7,000,000 shares
Common stock to be outstanding
after this offering............. 33,254,706 shares
Use of proceeds................... For working capital and general corporate purposes,
potential acquisitions and repayment of indebtedness.
See "Use of Proceeds."
Proposed Nasdaq National Market
symbol.......................... SPNW
</TABLE>

The number of shares of common stock to be outstanding after this offering
is based on shares outstanding as of June 30, 1999 and 2,100,000 shares of
common stock issuable upon the conversion of the Series I convertible preferred
stock CB Capital Investors, L.P., an affiliate of Chase Manhattan Bank, received
on July 19, 1999. This calculation includes 18,094,563 shares of common stock to
be issued upon the automatic conversion of all other outstanding shares of our
preferred stock and the exercise and automatic conversion of all warrants to
purchase our Series C convertible preferred stock upon completion of this
offering. This calculation excludes:

- 7,976,451 shares of common stock issuable upon the exercise of options
under our stock option plan consisting of:

- 5,162,108 shares of common stock underlying options outstanding at a
weighted average exercise price of $3.68 per share, of which
1,114,237 were exercisable as of June 30, 1999;

- 2,814,343 shares of common stock underlying options available for
future grants;

- 2,000,000 shares of common stock issuable under our employee stock
purchase plan;

- 1,739,470 shares of common stock issuable upon exercise of stock options
outstanding outside of our stock option plan at a weighted average
exercise price of $1.51 per share, of which 892,853 were exercisable as of
June 30, 1999;

- 4,234,618 shares of common stock issuable upon exercise of warrants
outstanding to purchase common stock at a weighted average exercise price
of $5.85 per share; and

- the shares of common stock that may be issued if the Lovett Miller 1997
Fund elects to convert into common stock the $1.0 million promissory note
that we issued to the Lovett Miller 1997 Fund as partial consideration for
its shares of capital stock of GO Software upon completion of this
offering, such number of shares would be equal to the quotient of $1.0
million divided by the per share initial public offering price.

5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
JANUARY 20, PRO FORMA
1994 PRO FORMA SIX MONTHS SIX MONTHS
(INCEPTION) TO YEAR ENDED DECEMBER 31, YEAR ENDED ENDED ENDED
DECEMBER 31, --------------------------------- DECEMBER 31, JUNE 30, JUNE 30,
1994 1995 1996 1997 1998 1998(1) 1999 1999(1)
-------------- ------ ------ ------- -------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues:
Transactions and
merchandising............. $ -- $ -- $ -- $ 69 $ 4,211 $ 1,801 $11,630 $ 2,611
Merchant services........... 279 727 993 535 2,943 7,249 4,352 4,176
------ ------ ------ ------- -------- ------------ ------------ ------------
Total revenues............ 279 727 993 604 7,154 9,050 15,982 6,787
------ ------ ------ ------- -------- ------------ ------------ ------------
Cost of revenues:
Transactions and
merchandising............. -- -- -- 159 4,493 221 12,177 1,069
Merchant services........... 127 323 430 356 1,356 4,063 2,506 2,469
------ ------ ------ ------- -------- ------------ ------------ ------------
Total cost of revenues.... 127 323 430 515 5,849 4,284 14,683 3,538
------ ------ ------ ------- -------- ------------ ------------ ------------
Gross profit............ 152 404 563 89 1,305 4,766 1,299 3,249
Total operating expenses...... 332 510 1,323 4,691 26,221 30,219 27,288 26,823
------ ------ ------ ------- -------- ------------ ------------ ------------
Loss from operations.... (180) (106) (760) (4,602) (24,916) (25,453) (25,989) (23,574)
Other income (expense), net... (1) (7) (50) (164) 171 91 (245) (283)
------ ------ ------ ------- -------- ------------ ------------ ------------
Net loss................ $ (181) $ (113) $ (810) $(4,766) $(24,745) $(25,362) $(26,234) $(23,857)
------ ------ ------ ------- -------- ------------ ------------ ------------
------ ------ ------ ------- -------- ------------ ------------ ------------
Basic and diluted net loss per
share......................... $(0.11) $(0.06) $(0.40) $ (1.83) $ (7.01) $ (5.50)
------ ------ ------ ------- -------- ------------
------ ------ ------ ------- -------- ------------
Basic and diluted pro forma net
loss per share(2)............. $ (1.71) $ (1.14)
------------ ------------
------------ ------------
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1999
---------------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA(3) ADJUSTED(4)
--------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA (IN THOUSANDS):
Cash and short-term investments............................................. $ 6,474 $ 25,374 $ 96,234
Working capital............................................................. (8,766) 10,134 80,994
Total assets................................................................ 64,250 83,150 154,010
Total liabilities........................................................... 27,514 27,514 27,514
Total shareholders' equity.................................................. 36,736 55,636 126,496
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1999 JUNE 30, 1999
------------------- --------------- -------------
<S> <C> <C> <C>
OTHER DATA:
Number of MyShopNow personal stores....................................... 149,000 1,313,000 1,500,000
Number of merchants on the ShopNow Network................................ 13,000 19,000 30,500
Monthly visits to the ShopNow Network..................................... 250,000 1,571,000 2,100,000
</TABLE>

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

(1) We acquired The Internet Mall in August 1998, Media Assets in September 1998
and GO Software in June 1999. In addition, in June 1999, we ceased operation
of our BuySoftware.com business. The pro forma statement of operations data
reflects consolidation of the results of operations as if the acquisitions
had occurred on January 1, 1998 and we ceased operation of BuySoftware.com
on the same date. The pro forma information should be read in conjunction
with the Management's Discussion and Analysis of Financial Condition and
Results of Operations and the Unaudited Pro Forma Combined Financial
Information and related Notes appearing elsewhere in this prospectus.

(2) See Note 1 to the Consolidated Financial Statements and Note 2(e) to the
Unaudited Pro Forma Combined Financial Information appearing elsewhere in
this prospectus for a description of the method used to compute basic and
diluted pro forma net loss per share.

(3) The pro forma consolidated balance sheet data gives effect to the receipt of
$18.9 million in proceeds from the closing of the sale of Series I
convertible preferred stock to CB Capital Investors, L.P., an affiliate of
Chase Manhattan Bank, in July 1999.

(4) The pro forma as adjusted balance sheet data gives effect to the sale of the
7,000,000 shares of common stock that we are offering under this prospectus
at an assumed initial public offering price of $11.00 per share and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by us.

6
<PAGE>
RISK FACTORS

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE RISKS DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE
DECIDING WHETHER TO INVEST IN OUR COMMON STOCK. WHILE WE HAVE ATTEMPTED TO
IDENTIFY ALL RISKS THAT ARE MATERIAL TO OUR BUSINESS, ADDITIONAL RISKS THAT WE
HAVE NOT YET IDENTIFIED OR THAT WE CURRENTLY THINK ARE IMMATERIAL MAY ALSO
IMPAIR OUR BUSINESS OPERATIONS. THE TRADING PRICE OF OUR COMMON STOCK COULD
DECLINE DUE TO ANY OF THESE RISKS, IN WHICH CASE YOU COULD LOSE ALL OR PART OF
YOUR INVESTMENT. IN ASSESSING THESE RISKS, YOU SHOULD ALSO REFER TO THE OTHER
INFORMATION IN THIS PROSPECTUS, INCLUDING THE CONSOLIDATED FINANCIAL STATEMENTS,
THE UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION AND RELATED NOTES.

RISKS RELATED TO OUR BUSINESS

BECAUSE WE HAVE A LIMITED OPERATING HISTORY, IT IS DIFFICULT TO EVALUATE OUR
BUSINESS AND PROSPECTS

ShopNow was incorporated in January 1994, and operated initially as a
computer services company. In 1996, we changed the focus of our business to
providing e-commerce and direct marketing services. In August 1998, we launched
ShopNow.com, our shopping destination Web site. During 1998 and the first six
months of 1999, we derived 62.3% and 62.1% of our revenues from retail sales of
computer products through our BuySoftware.com online retail store. In June 1999,
we ceased operation of our BuySoftware.com business. Accordingly, we have a
limited operating history for you to consider in evaluating our business and
prospects. When making your investment decision, you should consider the risks,
expenses and difficulties that we may encounter as a young company in a rapidly
evolving market.

OUR FUTURE REVENUES ARE UNPREDICTABLE AND WE EXPECT OUR OPERATING RESULTS TO
FLUCTUATE FROM PERIOD TO PERIOD

It is difficult for us to accurately forecast our revenues in any given
period. Our revenues could fall short of our expectations if we experience
declines in shopper traffic or purchases, or if the number of merchants to whom
we provide services decreases. We have limited experience in financial planning
for our business on which to base our planned operating expenses. If our
revenues in a particular period fall short of our expectations, we will likely
be unable to quickly adjust our spending in order to compensate for that revenue
shortfall.

Our operating results are likely to fluctuate substantially from period to
period as a result of a number of factors, many of which are beyond our control.
These factors include:

- the amount and timing of operating costs and expenditures relating to
expansion of our operations;

- the announcement or introduction of new or enhanced products or services
by our competitors;

- the mix of products and services that we sell; and

- the pricing policies of our competitors.

Period-to-period comparisons of our operating results are not a good
indication of our future performance. It is likely that our operating results in
some quarters will not meet the expectations of stock market analysts and
investors.

WE HAVE A HISTORY OF LOSSES AND WE EXPECT FUTURE LOSSES

We incurred net losses of $24.7 million for the year ended December 31, 1998
and $26.2 million for the six-month period ended June 30, 1999. At June 30,
1999, we had an accumulated deficit of $55.6 million. Although our revenues have
grown significantly in recent quarters, in June 1999 we ceased operation of our
BuySoftware.com business, from which we derived 62.3% of our revenues in 1998
and 62.1% of our revenues in the first six months of 1999. As a result, we may
not be able to

7
<PAGE>

sustain our recent revenue growth rates or obtain sufficient revenues to achieve
profitability. If we do achieve profitability, we may not be able to sustain or
increase profitability in the future.

We have historically invested heavily in sales and marketing, technology
infrastructure and research and development and expect to do so in the future.
As a result, we must generate significant revenues to achieve and maintain
profitability. We expect that our sales and marketing expenses, research and
development expenses and general and administrative expenses will continue to
increase in absolute dollars and may increase as percentages of revenues. In
addition, we may incur substantial expenses in connection with future
acquisitions.

OUR BUSINESS MODEL IS UNPROVEN AND CHANGING

Our business model consists of providing shoppers and merchants with an
online marketplace and e-commerce and direct marketing services. This business
model has only been applied to the Internet since the mid-1990's, is unproven
and will need to continue to develop. Accordingly, our business model may not be
successful, and we may need to change it. Our ability to generate sufficient
revenues to achieve profitability will depend, in large part, on our ability to
successfully market our e-commerce and direct marketing services to merchants
that may not be convinced of the need for an online presence or may be reluctant
to rely upon third parties to develop and manage their e-commerce offerings and
direct marketing efforts.

OUR FUTURE GROWTH WILL DEPEND ON OUR ABILITY TO MAKE ADDITIONAL ACQUISITIONS

Our success depends on our ability to continually enhance and expand our
online marketplace and our e-commerce and direct marketing services in response
to changing technologies, customer demands and competitive pressures.
Consequently, we have acquired complementary technologies or businesses in the
past, and intend to do so in the future. If we are unable to identify suitable
acquisition targets, or are unable to successfully complete acquisitions, our
ability to increase the size of operations will be reduced.

ACQUISITIONS INVOLVE A NUMBER OF RISKS

Acquisitions that we make may involve numerous risks, including:

- diverting management's attention from other business concerns;

- being unable to maintain uniform standards, controls, procedures and
policies;

- entering markets in which we have no direct prior experience; and

- evaluating new services and technologies.

In addition, in order to finance any acquisitions, we might need to raise
additional funds through public or private financings. In such event, we could
be forced to obtain equity or debt financing on terms that are not favorable to
us and that may result in dilution to our shareholders.

Future acquisitions may involve the assumption of contingent liabilities or
large one-time write-offs and amortization expenses related to goodwill and
other intangible assets. Any of these factors would adversely affect our results
of operations.

If we are unable to accurately assess and effectively integrate any newly
acquired businesses or technologies, our business would suffer. In this regard,
in June 1998 we acquired e-Warehouse and CyberTrust. These companies had
developed certain payment processing technologies that we planned to utilize as
part of our e-commerce and direct marketing services. However, we are not
currently utilizing the acquired technology, and we have determined that the
technology has no alternative future use or value to us. Because we are not
utilizing the acquired technology, we wrote-off substantially all of the $5.4
million aggregate purchase price for e-Warehouse and CyberTrust in 1998. The
separate historical financial information for the acquisition of e-Warehouse and
CyberTrust required to be

8
<PAGE>

presented by Rule 3-05 of the Securities and Exchange Commission's Regulation
S-X or the pro forma financial information under Article 11 of Regulation S-X is
not provided elsewhere in this prospectus, as the financial information is not
considered meaningful after the write-off. We may be unable to successfully
integrate other businesses, technologies or personnel that we acquire in the
future.

OUR SUCCESS DEPENDS UPON ACHIEVING ADEQUATE MARKET SHARE TO INCREASE OUR
REVENUES AND BECOME PROFITABLE

Our success is dependent upon achieving significant market acceptance of our
online marketplace and our e-commerce and direct marketing solutions by
merchants and shoppers. Our products and services have achieved only limited
market acceptance to date. Our ShopNow.com Web site aggregates products and
services from more than 30,000 merchants, but we must continue to attract new
merchants in order to increase our attractiveness to consumers.

Our ability to attract merchants as customers will depend in large part upon
our success in attracting shoppers to our online marketplace. If we are unable
to attract substantial shopper traffic to our online marketplace, or if such
shoppers do not purchase products online in substantial volume, we may be unable
to attract merchants.

IF WE DO NOT INCREASE BRAND AWARENESS OUR SALES MAY SUFFER

Due in part to the emerging nature of the markets for an online marketplace
and e-commerce and direct marketing solutions and the substantial resources
available to many of our competitors, our opportunity to achieve and maintain a
significant market share may be limited. Developing and maintaining awareness of
the ShopNow brand name is critical to achieving widespread acceptance of our
online marketplace and our e-commerce and direct marketing solutions. We
launched our ShopNow.com shopping Web site in August 1998. The importance of
brand recognition will increase as competition in our market increases.
Successfully promoting and positioning the ShopNow brand will depend largely on
the effectiveness of our marketing efforts and our ability to develop reliable
and useful products at competitive prices. If our planned marketing efforts are
ineffective, we may need to increase our financial commitment to creating and
maintaining brand awareness among shoppers and merchants.

WE FACE SIGNIFICANT COMPETITION

The market for Internet products and services is intensely competitive. The
number of companies offering e-commerce and online direct marketing services, as
well as shopping destination Web sites and merchant and product Web site
directories and search services is large and increasing at a rapid rate. These
companies compete with us for e-commerce merchants, shoppers, e-commerce
transactions, advertisers and other sources of online revenue. We also compete
with Web development firms, systems integrators, Internet service providers and
traditional media companies that may offer alternatives to one or more
components of our e-commerce and direct marketing solutions. We expect
competition to intensify in the future. Barriers to entry in our market are not
significant, and current and new competitors may be able to launch new Web sites
at a relatively low cost. Accordingly, we believe that our success will depend
heavily upon achieving significant market acceptance before our competitors and
potential competitors introduce competing services.

We compete directly for e-commerce merchants, shoppers, advertisers and
other affiliates with numerous Internet and non-Internet businesses, including:

- providers of e-commerce and online direct marketing services, such as
Go2Net, Xoom and DoubleClick;

- providers of e-commerce outsourcing services, such as Digital River, USWeb
and CyberSource;

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<PAGE>
- providers of Web directories and search and information services, all of
whom offer online shopping, including America Online, Microsoft, Yahoo!,
Excite, Lycos and Infoseek;

- online shopping destination Web sites, such as iMall and Shopping.com;

- Internet service providers, Web development firms and systems integrators,
as well as companies offering products that address specific aspects of
e-commerce, such as payment and transaction processing and security; and

- conventional merchants and retailers that offer goods and services
directly over the Web.

We expect that other companies, including media companies and conventional
retailers that to date have not had a substantial commercial presence on the
Internet, will offer services that directly compete with us.

Many of our current and potential competitors are likely to enjoy
substantial competitive advantages compared to our company, including:

- the ability to offer a wider array of e-commerce and direct marketing
services;

- larger customer or user bases;

- greater name recognition and larger marketing budgets and resources;

- substantially greater financial, technical and other resources;

- the ability to offer additional content and other personalization
features; and

- larger production and technical staffs.

In addition, as the use of the Internet and other online services increases,
larger, well-established and well-financed entities may continue to acquire,
invest in or form joint ventures with providers of e-commerce and direct
marketing solutions, and existing providers of e-commerce and direct marketing
solutions may continue to consolidate. Providers of Internet browsers and other
Internet products and services who are affiliated with providers of Web
directories and information services that compete with our Web sites may more
tightly integrate these affiliated offerings into their browsers or other
products or services. Any of these trends would increase the competition we
face.

To be competitive, we must respond promptly and effectively to the
challenges of technological change, evolving standards and our competitors'
innovations by continuing to enhance our products and services, as well as our
sales and marketing channels. Increased competition could result in a decrease
in shopper traffic on our Web sites, fewer merchants listed in our directories,
the obsolescence of the technology underlying our e-commerce and direct
marketing services, a loss of our market share and a reduction in the prices or
margins of our products and services.

IF WE FAIL TO MAINTAIN OUR KEY BUSINESS RELATIONSHIPS AND ENTER INTO NEW
RELATIONSHIPS OUR BUSINESS WILL SUFFER

An important element of our strategy involves entering into key business
relationships with other companies. These contractual relationships typically
involve joint marketing, promotional arrangements and distribution. For example,
we have entered into relationships with Chase Manhattan Bank, About.com, 24/7
Media, Qwest Communications, HNC Software and the ZERON Group. Although these
relationships are a key factor in our strategy, in that they provide us
important marketing and distribution arrangements and access to new products and
services, the parties with whom we contract may not view their relationships
with us as significant to their own business. Our key business arrangements
generally do not establish minimum performance requirements but instead rely on
contractual best efforts obligations of the parties with whom we contract. In
addition, most of these relationships may be terminated by either party with
little notice. If our key business relationships are discontinued for any
reason, or if we are unsuccessful in entering into new relationships in the
future, our business and results of operations may be adversely affected.

10
<PAGE>

IF WE FAIL TO EFFECTIVELY MANAGE THE RAPID GROWTH OF OUR OPERATIONS OUR BUSINESS
WILL SUFFER

Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We are increasing the scope of our operations domestically
and internationally, and we have recently increased our headcount substantially.
From December 31, 1997 to June 30, 1999, our total number of employees increased
from less than 50 to 305. This growth has placed and will continue to place a
significant strain on our management systems, infrastructure and resources. We
will need to continue to improve our financial and managerial controls and
reporting systems and procedures, and will need to continue to expand, train and
manage our workforce worldwide. Furthermore, we expect that we will be required
to manage an increasing number of relationships with various customers and other
third parties. Any failure to expand any of the foregoing areas efficiently and
effectively could cause our business to suffer.

WE DEPEND ON OUR KEY MANAGEMENT PERSONNEL FOR SUCCESSFUL OPERATION OF OUR
BUSINESS

Our success depends on the skills, experience and performance of our senior
management and certain other key personnel. Such key personnel include Dwayne
Walker, our President and Chief Executive Officer, Jeffrey Haggin, the head of
our direct marketing and creative services business, and Dr. Ganapathy Krishnan,
our Chief Technology Officer. Only Messrs. Walker and Haggin have an employment
agreement with ShopNow. Many of our executive officers have joined us within the
past three years. If we do not quickly and efficiently integrate these new
personnel into our management and culture, our business could suffer. Our
business could also suffer if we do not successfully retain our key personnel.

WE MUST HIRE ADDITIONAL PERSONNEL TO EXPAND OUR OPERATIONS

Our future success depends on our ability to identify, hire, train, retain
and motivate highly skilled executive, technical, managerial, sales and
marketing and business development personnel. We intend to hire a significant
number of personnel during the next year, and as of July 27, 1999 we had
openings for 42 job positions. Competition for qualified personnel is intense,
particularly in the technology and Internet markets. If we fail to successfully
attract, assimilate and retain a sufficient number of qualified executive,
technical, managerial, sales and marketing, business development and
administrative personnel, our ability to manage and expand our business could
suffer.

OUR ABILITY TO DEVELOP AND INTEGRATE E-COMMERCE AND DIRECT MARKETING
TECHNOLOGIES IS SUBJECT TO UNCERTAINTIES

We have limited experience delivering our products and services. Our online
marketplace and e-commerce and direct marketing services require us to integrate
complex computer hardware and software components. If we do not successfully
integrate these components, the performance of the ShopNow Network and the
ability of our network to accommodate a large number of merchants and consumers
would suffer. We need to maintain an adequate testing and technical support
infrastructure to ensure the successful introduction of products and services.
Our business also depends on our ability to manage our online systems, which
entails maintaining communications lines, coordinating customer order
fulfillment and call center operations, and managing order processing and
warehousing systems. Because we only launched the ShopNow.com site in August
1998, we have limited experience in each of these areas. Technical problems in
any of these areas could cause our systems to fail.

OUR COMPUTER SYSTEMS MAY BE VULNERABLE TO SYSTEM FAILURES

Our success depends, in part, on the performance, reliability and
availability of our online marketplace and the technology supporting our
e-commerce and online direct marketing services. Our revenues depend, in large
part, on the number of shoppers and merchants that access our our online
marketplace and use our e-commerce and direct marketing services. Substantially
all of our computer

11
<PAGE>

and communications hardware is located at leased facilities in Seattle,
Washington and Weehawken, New Jersey. Our systems and operations are vulnerable
to damage or interruption from fire, flood, power loss, telecommunications
failure, break-in, earthquake and similar events. Because we presently do not
have fully redundant systems or a formal disaster recovery plan, a systems
failure could adversely affect our business. Our computer systems are vulnerable
to computer viruses, physical or electronic break-ins and similar disruptions,
which may lead to interruptions, delays, loss of data or inability to process
online transactions for our merchant customers.

OUR BUSINESS MAY BE HARMED BY FAILURES OF OUR SOFTWARE AND SYSTEMS

We have developed custom software for our network servers and have licensed
additional software from third parties. This software may contain undetected
errors, defects or bugs. Although we have not suffered significant harm from any
errors or defects to date, we may discover significant errors or defects in the
future that we may or may not be able to fix.

WE MAY NEED TO EXPAND AND UPGRADE OUR SYSTEMS

We must expand and upgrade our technology, transaction-processing systems
and network infrastructure if the volume of traffic on our Web sites or our
merchant customers' Web sites increases substantially. We could experience
periodic temporary capacity constraints, which may cause unanticipated system
disruptions, slower response times and lower levels of customer service. We may
be unable to accurately project the rate or timing of increases, if any, in the
use of our Web sites or expand and upgrade our systems and infrastructure to
accommodate these increases in a timely manner. Any inability to do so could
harm our business by causing our customers to be unhappy with our services.

OUR INTERNATIONAL OPERATIONS INVOLVE RISKS

Our e-commerce and direct marketing solutions are available to merchants and
shoppers worldwide. We also plan to make our online marketplace available to
shoppers and merchants on a global basis. In the six months ended June 30, 1999,
international sales constituted 2.6% of total revenue. We are subject to the
normal risks of doing business internationally. These risks include:

- difficulties in managing operations due to distance, language and cultural
differences, including issues associated with establishing management
system infrastructures in individual markets;

- unexpected changes in regulatory requirements;

- export and import restrictions;

- tariffs and trade barriers and limitations on fund transfers;

- difficulties in staffing and managing foreign operations;

- longer payment cycles and problems in collecting accounts receivable;

- potential adverse tax consequences;

- exchange rate fluctuations, as we do not currently hedge our foreign
currency exposures; and

- other legal and political risks.

In addition, we are subject to risks specific to Internet-based companies in
foreign markets. These risks include:

- delays in the development of the Internet as a commerce medium in
international markets;

- restrictions on the export of encryption technology; and

- increased risk of piracy and limits on our ability to enforce our
intellectual property rights.

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<PAGE>

We intend to begin developing a Japanese-language online marketplace in the
second half of 1999. In recent periods, the Japanese economy has been in a
recession. If the Japanese economy does not recover, our efforts to develop a
Japanese-language online marketplace could be impaired.

WE MAY REQUIRE ADDITIONAL FUNDING TO SUCCESSFULLY OPERATE AND GROW OUR BUSINESS

Although we believe that, following this offering, our cash reserves,
including the proceeds of this offering, and cash flows from operations will be
adequate to fund our operations for at least the next twelve months, such
resources may be inadequate. Consequently, we may require additional funds
during or after such period. Additional financing may not be available on
favorable terms or at all. If we raise additional funds by selling stock, the
percentage ownership of our then current shareholders will be reduced. If we
cannot raise adequate funds to satisfy our capital requirements, we may have to
limit our operations significantly. Our future capital requirements depend upon
many factors, including, but not limited to:

- the rate at which we expand our sales and marketing operations; and our
product and service offerings;

- the extent to which we develop and upgrade our technology and data network
infrastructure; and

- the occurrence, timing, size and success of acquisitions.

WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY
RIGHTS

We regard our intellectual property rights as critical to our success, and
we rely on trademark and copyright law, trade secret protection and
confidentiality and, or license agreements with our employees, customers and
others to protect our proprietary rights. Despite our precautions, unauthorized
third parties might copy certain portions of our software or reverse engineer
and use information that we regard as proprietary. We currently have four
patents pending in the United States Patent and Trademark Office covering
different aspects of our product architecture and technology. However, we do not
currently own any issued patents and there is no assurance that any pending or
future patent applications will be granted, that any existing or future patents
will not be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide us with a competitive advantage. The laws of some
foreign countries do not protect proprietary rights to the same extent as do the
laws of the United States, and our means of protecting our proprietary rights
abroad may not be adequate. Any misappropriation of our proprietary information
by third parties could adversely affect our business by enabling third parties
to compete more effectively with us.

OUR TECHNOLOGY MAY INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS

Although we have not received notice of any alleged infringement by us, we
cannot be certain that our technology does not infringe issued patents or other
intellectual property rights of others. In addition, because patent applications
in the United States are not publicly disclosed until the patent is issued,
applications may have been filed which relate to our software. We may be subject
to legal proceedings and claims from time to time in the ordinary course of our
business, including claims of alleged infringement of the trademarks and other
intellectual property rights of third parties. Intellectual property litigation
is expensive and time-consuming, and could divert our management's attention
away from running our business.

PROBLEMS RELATED TO THE YEAR 2000 ISSUE COULD ADVERSELY AFFECT OUR BUSINESS

Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. As a result, software that
records only the last two digits of the

13
<PAGE>

calendar year may not be able to distinguish whether "00" means 1900 or 2000.
This may result in software failures or the creation of erroneous results.

We rely on proprietary as well as third-party software in the operation of
our business. Our proprietary software, as well as the third-party software on
which we rely, is used in complex network environments, including the Internet,
and directly and indirectly interacts with our customers' hardware and software
systems. Despite preliminary investigation and testing by us and our customers,
our proprietary software, the third-party software on which we rely, and the
underlying systems and protocols may contain errors or defects associated with
Year 2000 date functions. We are unable to predict to what extent our business
may be affected if such software or the systems that operate in conjunction with
the software, including the Internet, experience a material Year 2000 failure.
Known or unknown errors or defects that affect the operation of software that we
use could result in delays or losses of revenue, interruptions of Internet
communications, cancellations of contracts by our customers, diversions of our
development resources, damage to our reputation, increased service and warranty
costs and litigation costs.

Year 2000 failures of our merchant customers' internal systems may affect
their ability to purchase our products and services. If a significant number of
our current or potential future customers experience Year 2000 failures, our
business could suffer.

Because of the publicity surrounding the Year 2000 issue, consumers may
delay purchasing goods and services online in the last few months of 1999. If
this occurs, our revenues could suffer.

If the performance of our proprietary software is adversely affected by Year
2000 defects in hardware or software with which it interacts, our merchant
customers or their end users may mistakenly believe that such defects occurred
in our proprietary software. These customers and end users could react by
demanding extensive technical support from us or by filing suit against us,
either of which would cause a significant diversion of our management and
financial resources.

RISKS RELATED TO OUR INDUSTRY

OUR SUCCESS DEPENDS ON CONTINUED INCREASES IN THE USE OF THE INTERNET AS A
COMMERCIAL MEDIUM

Sales of consumer goods using the Internet currently do not represent a
significant portion of overall sales of consumer goods. We depend on the growing
use and acceptance of the Internet as an effective medium of commerce by
merchants and shoppers. Rapid growth in the use of and interest in the Internet
and other online services is a recent development. No one can be certain that
acceptance and use of the Internet and other online services will continue to
develop or that a sufficiently broad base of merchants and shoppers will adopt
and continue to use the Internet and other online services as a medium of
commerce.

The Internet may fail as a commercial marketplace for a number of reasons,
including potentially inadequate development of the necessary network
infrastructure or delayed development of enabling technologies, including
security technology and performance improvements. For example, if technologies
such as software that stops advertising from appearing on a Web user's computer
screen gain wide acceptance, the attractiveness of the Internet to advertisers
would be diminished, which could harm our business.

RAPID TECHNOLOGICAL CHANGE COULD NEGATIVELY AFFECT OUR BUSINESS

Rapidly changing technology, evolving industry standards, evolving customer
demands and frequent new product and service introductions characterize our
market. Our market's early stage of development exacerbates the effect of such
change. Our future success will depend in significant part on our ability to
improve the performance, content and reliability of our services in response to
both the evolving demands of the market and competitive product offerings. Our
efforts in these areas may not be successful. If a large number of our
affiliates adopts new Internet technologies or standards, we

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<PAGE>

may need to incur substantial expenditures modifying or adapting our e-commerce
and direct marketing services.

THE SECURITY PROVIDED BY OUR E-COMMERCE SERVICES COULD BE BREACHED

A fundamental requirement for e-commerce is the secure transmission of
confidential information over the Internet. Third parties may attempt to breach
the security provided by our e-commerce services or the security of our merchant
customers' internal systems. If they are successful, they could obtain
confidential information about shoppers using the ShopNow Network, including
their passwords, financial account information, credit card numbers or other
personal information. We may be liable to our merchant customers or shoppers for
any such breach in security. Even if we are not held liable, a security breach
could harm our reputation, and the mere perception of security risks, whether or
not valid, could inhibit market acceptance of our services. Despite our
implementation of security measures, our software is vulnerable to computer
viruses, electronic break-ins and similar disruptions, which could lead to
interruptions, delays or loss of data. We may be required to expend significant
capital and other resources to license encryption or other technologies to
protect against security breaches or to alleviate problems caused by such
breaches. In addition, our merchant customers might decide to stop using our
e-commerce services if their shoppers experience security breaches.

WE RELY ON THE INTERNET INFRASTRUCTURE PROVIDED BY OTHERS TO OPERATE OUR
BUSINESS

Our success depends, in large part, on other companies maintaining the
Internet infrastructure. In particular, we rely on other companies to maintain a
reliable network backbone that provides adequate speed, data capacity and
security and to develop products that enable reliable Internet access and
services. If the Internet continues to experience significant growth in the
number of users, frequency of use and amount of data transmitted, the Internet
infrastructure may be unable to support the demands placed on it, and the
Internet's performance or reliability may suffer as a result of this continued
growth. Any degradation of Internet performance or reliability could decrease
shopper traffic and cause advertisers to reduce their Internet expenditures.

FUTURE GOVERNMENTAL REGULATION AND PRIVACY CONCERNS COULD ADVERSELY AFFECT OUR
BUSINESS

We are not currently subject to direct regulation by any government agency,
other than regulations applicable to businesses generally, and there are
currently few laws or regulations directly applicable to access to or commerce
on the Internet. However, due to the increasing popularity and use of the
Internet, a number of legislative and regulatory proposals are under
consideration by federal, state, local and foreign governmental organizations,
and it is possible that a number of laws or regulations may be adopted with
respect to the Internet relating to such issues as user privacy, taxation,
infringement, pricing, quality of products and services and intellectual
property ownership. The adoption of any laws or regulations that have the effect
of imposing additional costs, liabilities or restrictions relating to the use of
the Internet by businesses or consumers could decrease the growth in the use of
the Internet, which could in turn decrease the demand for our e-commerce and
direct marketing services, increase our cost of doing business, or otherwise
have a material adverse effect on our business. Moreover, the applicability to
the Internet of existing laws governing issues such as property ownership,
copyright, trademark, trade secret, obscenity, libel and personal privacy is
uncertain and developing. Any new legislation or regulation, or application or
interpretation of existing laws, could have a material adverse effect on our
business.

The Federal Communications Commission is currently reviewing its regulatory
positions on the privacy protection given to data transmissions over
telecommunications networks and could seek to impose some form of
telecommunications carrier regulation on telecommunications functions of
information services. State public utility commissions generally have declined
to regulate information services, although the public service commissions of
some states continue to review potential regulation of such services. Future
regulation or regulatory changes regarding data privacy could have an adverse

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<PAGE>

effect on our business by requiring us to incur substantial additional expenses
in order to comply with such regulation.

A number of proposals have been made at the federal, state and local level
that would impose additional taxes on the sale of goods and services over the
Internet and certain states have taken measures to tax Internet-related
activities. Foreign countries also may tax Internet transactions. The taxation
of Internet-related activities could have the effect of imposing additional
costs on companies, such as ShopNow, that conduct business over the Internet.
This, in turn, could lead to increased prices for consumers, which could result
in decreased demand for online shopping.

WE COULD FACE LIABILITY FOR MATERIAL TRANSMITTED OVER THE INTERNET BY OTHERS

Because material may be downloaded from Web sites hosted by us and
subsequently distributed to others, there is a potential that claims will be
made against us for negligence, copyright or trademark infringement or other
theories based on the nature and content of such material. Negligence and
product liability claims also potentially may be made against us due to our role
in facilitating the purchase of certain products, such as firearms. Although we
carry general liability insurance, our insurance may not cover claims of these
types, or may not be adequate to indemnify us against such liability. Any
imposition of liability, and in particular liability that is not covered by our
insurance or is in excess of our insurance coverage, could have a material
adverse effect on our reputation and our operating results, or could result in
the imposition of criminal penalties on us.

WE DO NOT CURRENTLY COLLECT SALES TAX FROM ALL TRANSACTIONS

We do not currently collect sales or other similar taxes in respect to
shipments of goods into states other than Washington and California. However,
one or more states or foreign countries may seek to impose sales tax collection
obligations on out-of-state or foreign companies engaging in e-commerce. In
addition, any new operation in states outside Washington and California could
subject shipments into such states to state or foreign sales taxes. A successful
assertion by one or more states or any foreign country that we should collect
sales or other similar taxes on the sale of merchandise could result in
liability for penalties as well as substantially higher expenses incurred by our
business.

RISKS RELATED TO THIS OFFERING

PROVISIONS OF OUR CHARTER DOCUMENTS AND WASHINGTON LAW COULD DISCOURAGE OUR
ACQUISITION BY A THIRD PARTY

Certain provisions of our articles of incorporation and bylaws and
Washington law could make it more difficult for a third party to acquire
ShopNow, even if doing so would be beneficial to our shareholders.

Our articles of incorporation and bylaws provide for the establishment of a
classified board of directors, eliminating the ability of shareholders to call
special meetings, the lack of cumulative voting for directors and procedures for
advance notification of shareholder proposals. The presence of a classified
board and the elimination of cumulative voting may make it more difficult for an
acquiror to replace our board of directors. Further, the elimination of
cumulative voting substantially reduces the ability of minority shareholders to
obtain representation on the board of directors.

Upon completion of this offering, our board of directors will have the
authority to issue up to 5,000,000 shares of preferred stock and to determine
the price, rights, preferences, privileges and restrictions, including voting
rights, of those shares without any further vote or action by our shareholders.
The issuance of preferred stock, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could, among other things,
have the effect of delaying, deferring or preventing a change of control of
ShopNow and may adversely affect the market price of

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<PAGE>
the common stock and the voting and other rights of the holders of common stock.
We have no present plans to issue shares of preferred stock.

Washington law imposes restrictions on some transactions between a
corporation and certain significant shareholders. Chapter 23B.19 of the
Washington Business Corporation Act prohibits a "target corporation," with some
exceptions, from engaging in certain significant business transactions with an
"acquiring person," which is defined as a person or group of persons that
beneficially owns 10% or more of the voting securities of the target
corporation, for a period of five years after such acquisition, unless the
transaction or acquisition of shares is approved by a majority of the members of
the target corporation's board of directors prior to the acquisition. Such
prohibited transactions include, among other things:

- a merger or consolidation with, disposition of assets to, or issuance or
redemption of stock to or from the acquiring person;

- termination of 5% or more of the employees of the target corporation as a
result of the acquiring person's acquisition of 10% or more of the shares;
or

- allowing the acquiring person to receive any disproportionate benefit as a
shareholder.

After the five-year period, a "significant business transaction" may occur,
as long as it complies with certain "fair price" provisions of the statute. A
corporation may not opt out of this statute. This provision may have the effect
of delaying, deterring or preventing a change in control of ShopNow.

The foregoing provisions of our charter documents and Washington law could
have the effect of making it more difficult or more expensive for a third party
to acquire, or could discourage a third party from attempting to acquire,
control of ShopNow. These provisions may therefore have the effect of limiting
the price that investors might be willing to pay in the future for our common
stock. For a more complete discussion of these provisions, see "Description of
Capital Stock."

OUR MANAGEMENT HAS BROAD DISCRETION OVER HOW WE USE THE PROCEEDS OF THIS
OFFERING

Our management has broad discretion over the use of a substantial portion of
the proceeds of this offering. Accordingly, it is possible that our management
may allocate the proceeds differently than investors in this offering would have
desired, or that we will fail to maximize our return on such proceeds.

OUR STOCK PRICE MAY BE VOLATILE

The stock market in general, and the stock prices of Internet-related
companies in particular, have recently experienced extreme volatility, which has
often been unrelated to the operating performance of any particular company or
companies. Our stock price could be subject to wide fluctuations in response to
factors such as the following:

- actual or anticipated variations in quarterly results of operations;

- the addition or loss of merchants and consumer traffic;

- announcements of technological innovations, new products or services by us
or our competitors;

- changes in financial estimates or recommendations by securities analysts;

- conditions or trends in the Internet and e-commerce and direct marketing
industries;

- changes in the market valuations of other Internet, online service or
software companies;

- our announcements of significant acquisitions, strategic relationships,
joint ventures or capital commitments;

- additions or departures of key personnel;

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<PAGE>
- sales of our common stock;

- general market conditions; and

- other events or factors, many of which are beyond our control.

These broad market and industry factors may materially and adversely affect
our stock price, regardless of our operating performance. The trading prices of
the stocks of many technology companies are at or near historical highs and
reflect price to earnings ratios substantially above historical levels. These
trading prices and price-to earnings ratios may not be sustained.

In the past, securities class action litigation has often been brought
against companies following periods of volatility in their stock prices. We may
in the future be the target of similar litigation. Securities litigation could
result in substantial costs and divert our management's time and resources,
which could cause our business to suffer.

FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE

After this offering, a total of 33,254,706 shares of our common stock will
be outstanding. All the shares sold in this offering will be freely tradable.
The remaining shares of our common stock outstanding after this offering will
become available for public sale as follows:

<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
OUTSTANDING AFTER
DATE OF AVAILABILITY FOR SALE NUMBER OF SHARES OFFERING
- -------------------------------------------------------------------------- ----------------- ---------------------
<S> <C> <C>
90 days after the date of this prospectus................................. 95,475 0.3%
At various times after 180 days from the date of this prospectus upon
expiration of lockup agreements......................................... 26,159,231 78.7%
</TABLE>

Many of the shares not currently available for sale are subject to vesting
restrictions and the holding period, volume and other restrictions of Rule 144
under the Securities Act of 1933. These restrictions have the effect of
staggering the dates on which the shares become available for sale and the
number of shares that become available for sale. If our shareholders sell a
substantial number of these shares in the public market during a short period of
time, our stock price could decline significantly.

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<PAGE>

USE OF PROCEEDS

We estimate that the net proceeds to us from the sale of the 7,000,000
shares of common stock offered by us will be approximately $70.9 million, at an
assumed initial public offering price of $11.00 per share, and after deducting
the estimated underwriting discounts and commissions and estimated offering
expenses payable by us. If the underwriters' over-allotment option is exercised
in full, we estimate that our net proceeds from this offering will be $81.6
million.

We intend to use the net proceeds from this offering as follows:

- Approximately $4.2 million of the net proceeds will be used to repay our
outstanding indebtedness to Transamerica Business Credit Corporation. The
indebtedness to be repaid consists of $4.0 million in principal remaining
on a bridge note bearing interest at the rate of 12.0% per annum. The
bridge note is due upon the earlier of December 1, 1999, or the date on
which we receive more than $10.0 million in aggregate proceeds from the
issuance of debt or equity securities.

- Approximately $1.0 million of the net proceeds will be used to redeem a
$1.0 million promissory note that we issued to the Lovett Miller 1997
Fund, a shareholder of GO Software, when we acquired GO Software in June
1999, if the Lovett Miller 1997 Fund elects not to convert the outstanding
principal amount of the note into common stock upon the closing of this
offering. The promissory note bears interest at the rate of 10.0% per
annum and is due upon the effectiveness of the registration statement
relating to this offering.

- The remainder of these net proceeds will be used for working capital and
general corporate purposes.

In addition, we may use a portion of the net proceeds to acquire or invest in
complementary businesses, products and technologies. From time to time, in the
ordinary course of business, we expect to evaluate potential acquisitions of
such businesses, products or technologies. As a result, we will have broad
discretion in the way we use net proceeds.

Pending use of the net proceeds of this offering, we intend to invest the
net proceeds in interest-bearing, investment-grade securities.

DIVIDEND POLICY

We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future. In addition, our existing line of credit and revolving
credit facility with a commercial lender prohibits the payment of dividends.

19
<PAGE>
CAPITALIZATION

The following table sets forth our capitalization as of June 30, 1999 on an
actual basis, on a pro forma basis to include the issuance of 2,100,000 shares
of Series I convertible preferred stock that CB Capital Investors, L.P., an
affiliate of Chase Manhattan Bank, received on July 19, 1999, and on a pro forma
as adjusted basis to give effect to the automatic conversion of all outstanding
shares of our preferred stock, the exercise and automatic conversion of all
warrants to purchase our Series C convertible preferred stock into 20,194,563
shares of common stock upon completion of this offering, the sale of 7,000,000
shares of common stock at an assumed initial offering price of $11.00 per share
and the application of the estimated net proceeds from the sale of those shares
including the repayment of $5.2 million of debt obligations.

<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Long-term obligations, including current
portion......................................... $ 15,891 15,8$91 10,6$91
Shareholders' equity:
Convertible preferred stock; $0.01 par value;
authorized 20,000,000 actual, 30,000,000 pro
forma and 5,000,000 pro forma as adjusted;
issued and outstanding 17,927,516 actual,
20,027,516 pro forma and none pro forma as
adjusted........................................ 72,510 89,222 --
Common stock; $0.01 par value; authorized
40,000,000 actual, 60,000,000 pro forma and
200,000,000 pro forma as adjusted; issued and
outstanding 6,060,143 actual and pro forma and
33,254,706 pro forma as adjusted................ 21,839 21,839 181,921
Common stock warrants............................. 5,705 7,893 7,893
Deferred compensation............................. (3,213) (3,213) (3,213)
Unrealized loss on investments.................... (4,508) (4,508) (4,508)
Accumulated deficit............................... (55,597) (55,597) (55,597)
-------- ----------- -----------
Total shareholders' equity........................ 36,736 55,636 126,496
-------- ----------- -----------
Total capitalization.............................. $ 52,627 71,5$27 137,$187
-------- ----------- -----------
-------- ----------- -----------
</TABLE>

This table excludes the following shares:

- 7,976,451 shares of common stock issuable upon the exercise of options
under our stock option plan consisting of:

- 5,162,108 shares of common stock underlying options outstanding at a
weighted average exercise price of $3.68 per share, of which 1,114,237
were exercisable as of June 30, 1999;

- 2,814,343 shares of common stock underlying options available for future
grants;

- 2,000,000 shares of common stock issuable under our employee stock
purchase plan;

- 4,234,618 shares of common stock issuable upon exercise of warrants
outstanding to purchase common stock at a weighted average exercise price
of $5.85 per share; and

- the shares of common stock that may be issued if the Lovett Miller 1997
Fund elects to convert into common stock the $1.0 million promissory note
that we issued to the Lovett Miller 1997 Fund as partial consideration for
its shares of capital stock of GO Software upon completion of this
offering, such number of shares would be equal to the quotient of
$1,000,000 divided by the per share initial public offering price.

Our board of directors and shareholders have approved an amendment to our
articles of incorporation, effective upon the closing of this offering, to
increase the number of authorized shares of common stock to 200,000,000 and to
decrease the number of authorized shares of preferred stock to 5,000,000.

20
<PAGE>
DILUTION

If you invest in our common stock, your interest will be immediately diluted
to the extent of the difference between the public offering price per share of
our common stock and the pro forma net tangible book value per share of common
stock after this offering. Our pro forma net tangible book value as of June 30,
1999 was $54.3 million or $2.07 per share of common stock. Pro forma net
tangible book value per share is determined by dividing the difference between
our total assets excluding goodwill and total liabilities by the pro forma
number of outstanding shares of common stock. Total assets also includes the
$18.9 million in proceeds received from the issuance of Series I convertible
preferred stock to an affiliate of Chase Manhattan Bank in July 1999. After
giving effect to the receipt of the estimated net proceeds from the sale by
ShopNow of the 7,000,000 shares of common stock that we are offering hereby, at
an assumed initial public offering price of $11.00 per share and after deducting
the estimated underwriting discounts and commissions and estimated offering
expenses payable by us, our pro forma net tangible book value as of June 30,
1999, would have been $130.3 million or approximately $3.92 per share. This
represents an immediate increase in pro forma net tangible book value of $1.85
per share to existing shareholders and an immediate dilution in pro forma net
tangible book value of $7.08 per share to new investors purchasing shares of
common stock in this offering. The following table illustrates this dilution on
a per share basis:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............................. $ 11.00
Pro forma net tangible book value per share as of June 30, 1999............ $ 2.07
Increase per share attributable to new investors........................... 1.85
---------
Pro forma net tangible book value per share after the offering............... 3.92
---------
Dilution per share to new investors.......................................... $ 7.08
---------
---------
</TABLE>

The following table summarizes as of June 30, 1999, the differences between
the number of shares of common stock purchased from ShopNow, the total
consideration paid, and the average price per share paid by existing
shareholders and by investors purchasing shares of common stock in this
offering, before deducting the estimated underwriting discounts and commissions
and estimated offering expenses payable by us, at an assumed initial public
offering price of $11.00 per share.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- --------------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
------------ ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders....................... 26,254,706 79.0% $ 111,060,865 59.1% $ 4.23
New investors............................... 7,000,000 21.0 77,000,000 40.9 11.00
------------ ----- -------------- -----------
Total..................................... 33,254,706 100.0% $ 188,060,865 $ 100.0%
------------ ----- -------------- -----------
------------ ----- -------------- -----------
</TABLE>

The foregoing discussion and table are based upon the number of shares of
common stock outstanding as of June 30, 1999, and gives effect to the automatic
conversion of all outstanding shares of our preferred stock, including the
2,100,000 shares of Series I preferred stock received by an affiliate of Chase
Manhattan Bank in July 1999, and the exercise and automatic conversion of all
warrants to purchase our Series C convertible preferred stock into shares of
common stock. This calculation excludes all shares of common stock issuable upon
the exercise of our outstanding stock options and warrants to purchase common
stock, all shares of common stock available for future grants under our stock
option plan, all shares of common stock issuable under our employee stock
purchase plan and the shares of common stock that may be issued if the Lovett
Miller 1997 Fund elects to convert a $1.0 million promissory note, which we
issued as partial consideration for our purchase of its shares of capital stock
of GO Software, elects to convert the note into common stock upon completion of
this offering. To the extent any of these options or warrants are exercised,
there will be further dilution to new public investors. See "Capitalization,"
"Management--Employee Benefit Plans," "Description of Capital Stock" and Note 11
to the Consolidated Financial Statements.

21
<PAGE>
SELECTED PRO FORMA COMBINED FINANCIAL DATA

The following pro forma combined financial data reflects the consolidation
of our results of operations with the results of operations of Media Assets, The
Internet Mall, GO Software and the cessation of our BuySoftware.com business.
The pro forma combined statements of operations data have been prepared as if
each of these acquisitions had been made on January 1, 1998 and BuySoftware.com
had ceased operations on January 1, 1998. The pro forma financial data is
presented for informational purposes only and may not be indicative of the
results of operations had the transactions occurred on January 1, 1998. You
should not rely on the pro forma financial data as being indicative of our
future results of operations. You should read the following pro forma financial
data in conjunction with the Unaudited Pro Forma Combined Financial Information
and the Consolidated Financial Statements and related Notes appearing elsewhere
in this prospectus. We believe that all adjustments necessary to present fairly
such pro forma financial data have been made.

<TABLE>
<CAPTION>
(UNAUDITED)
---------------------------------
PRO FORMA PRO FORMA
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1998 1999
------------ ------------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Transactions and merchandising.............................................. $ 1,801 $ 2,611
Merchant services........................................................... 7,249 4,176
------------ --------
Total revenues............................................................ 9,050 6,787
Cost of revenues:
Transactions and merchandising.............................................. 221 1,069
Merchant services........................................................... 4,063 2,469
------------ --------
Total cost of revenues.................................................... 4,284 3,538
------------ --------
Gross profit............................................................ 4,766 3,249
------------ --------
Operating expenses:
Sales and marketing......................................................... 10,791 15,565
General and administrative.................................................. 4,065 2,558
Research and development.................................................... 3,676 3,106
Amortization of intangible assets........................................... 6,298 3,638
Stock-based Compensation.................................................... 182 1,956
Unusual item--impairment of acquired technology............................. 5,207 --
------------ --------
Total operating expenses.................................................. 30,219 26,823
------------ --------
Loss from operations.................................................... (25,453) (23,574)
Other income (expense), net................................................... 91 (283)
------------ --------
Net loss................................................................ $ (25,362) $ (23,857)
------------ --------
------------ --------
Basic and diluted pro forma net loss per share(1)............................... $ (1.71) $ (1.14)
------------ --------
------------ --------
</TABLE>

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

(1) See Note 1 to the Consolidated Financial Statements and Note 2(e) to the
Unaudited Pro Forma Combined Financial Information appearing elsewhere in
this prospectus for a description of the method used to compute basic and
diluted pro forma net loss per share.

22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The statements of operations data for the years ended December 31, 1996,
1997, and 1998 and for the six months ended June 30, 1999 are derived from our
audited consolidated financial statements appearing elsewhere in this
prospectus. The statements of operations data for the period from January 20,
1994 (inception) to December 31, 1994 and for the year ended December 31, 1995
are derived from audited consolidated financial statements not included in this
prospectus. The pro forma as adjusted balance sheet data give effect to the sale
of the 7,000,000 shares of common stock that we are offering under this
prospectus at an assumed initial public offering price of $11.00 per share and
after deducting estimated underwriting discounts and commissions and estimated
expenses payable by us. We believe that due to the acquisitions in 1998 and in
the first six months of 1999, period-to-period comparisons are not meaningful,
and you should not rely on them as indicative of our future performance. You
should read the following selected consolidated financial data in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and related Notes
appearing elsewhere in this prospectus.

<TABLE>
<CAPTION>
JANUARY 20,
1994 SIX MONTHS
(INCEPTION) TO YEAR ENDED DECEMBER 31, ENDED
DECEMBER 31, ----------------------------------------------- JUNE 30,
1994 1995 1996 1997 1998 1999
-------------- ---------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues:
Transactions and
merchandising................ $ -- $ -- $ -- $ 69 $ 4,211 $ 11,630
Merchant services.............. 279 727 993 535 2,943 4,352
-------------- ---------- ---------- ---------- ----------- ------------
Total revenues............... 279 727 993 604 7,154 15,982
-------------- ---------- ---------- ---------- ----------- ------------
Cost of revenues:
Transactions and
merchandising................ -- -- -- 159 4,493 12,177
Merchant services.............. 127 323 430 356 1,356 2,506
-------------- ---------- ---------- ---------- ----------- ------------
Total cost of revenues....... 127 323 430 515 5,849 14,683
-------------- ---------- ---------- ---------- ----------- ------------
Gross profit............... 152 404 563 89 1,305 1,299
-------------- ---------- ---------- ---------- ----------- ------------
Operating expenses:
Sales and marketing............ 116 163 610 1,201 12,183 18,279
General and administrative..... 216 347 656 918 3,549 2,480
Research and development....... -- -- 25 2,436 4,370 2,934
Amortization of intangible
assets....................... -- -- 32 136 730 1,639
Stock-based compensation....... -- -- -- -- 182 1,956
Unusual item--impairment of
acquired technology.......... -- -- -- -- 5,207 --
-------------- ---------- ---------- ---------- ----------- ------------
Total operating expenses..... 332 510 1,323 4,691 26,221 27,288
-------------- ---------- ---------- ---------- ----------- ------------
Loss from operations....... (180) (106) (760) (4,602) (24,916) (25,989)
Other income (expense), net...... (1) (7) (50) (164) 171 (245)
-------------- ---------- ---------- ---------- ----------- ------------
Net loss................... $ (181) $ (113) $ (810) $ (4,766) $ (24,745) $ (26,234)
-------------- ---------- ---------- ---------- ----------- ------------
-------------- ---------- ---------- ---------- ----------- ------------
Basic and diluted net loss per
share(1)......................... $ (0.11) $ (0.06) $ (0.40) $ (1.83) $ (7.01) $ (5.50)
-------------- ---------- ---------- ---------- ----------- ------------
-------------- ---------- ---------- ---------- ----------- ------------
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1999
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
------- ------------ --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA (IN
THOUSANDS):
Cash and short-term investments....... $ 6,474 $25,374 $ 96,234
Working capital....................... (8,766) 10,134 80,994
Total assets.......................... 64,250 83,150 154,010
Total liabilities..................... 27,514 27,514 27,514
Total shareholders' equity............ 36,736 55,636 126,496
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1999 JUNE 30, 1999
----------------- -------------- -------------
<S> <C> <C> <C>
OTHER DATA:
Number of MyShopNow personal stores... 149,000 1,313,000 1,500,000
Number of merchants on the ShopNow
Network............................. 13,000 19,000 30,500
Monthly visits to the ShopNow
Network............................. 250,000 1,571,000 2,100,000
</TABLE>

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

(1) See Note 1 to the Consolidated Financial Statements for a description of the
method used to compute basic and diluted net loss per share.

(2) The pro forma consolidated balance sheet data gives effect to the receipt of
$18.9 million in proceeds from the closing of the sale of Series I
convertible preferred stock to CB Capital Investors, L.P., an affiliate of
Chase Manhattan Bank, in July 1999.

(3) The pro forma as adjusted balance sheet data gives effect to the sale of the
7,000,000 shares of common stock that we are offering under this prospectus
at an assumed initial public offering price of $11.00 per share and after
deducting estimated underwriting discounts and commissions and estimated
expenses payable by us.

23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH
OUR SELECTED CONSOLIDATED FINANCIAL DATA, OUR SELECTED PRO FORMA CONSOLIDATED
FINANCIAL DATA, OUR UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION AND
OUR CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN
THIS PROSPECTUS. THE FOLLOWING DISCUSSION AND CERTAIN OTHER PARTS OF THIS
PROSPECTUS CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE KNOWN AND UNKNOWN
RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF OUR PLANS, OBJECTIVES,
EXPECTATIONS AND INTENTIONS. WORDS SUCH AS "MAY," "COULD," "WOULD," "EXPECT,"
"ANTICIPATE," "INTEND," "PLAN," "BELIEVE," "ESTIMATE," AND VARIATIONS OF SUCH
WORDS AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING
STATEMENTS. YOU SHOULD NOT PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS, WHICH ARE BASED ON OUR CURRENT EXPECTATIONS AND PROJECTIONS ABOUT
FUTURE EVENTS, ARE NOT GUARANTEES OF FUTURE PERFORMANCE, ARE SUBJECT TO RISKS,
UNCERTAINTIES AND ASSUMPTIONS (INCLUDING THOSE DESCRIBED IN "RISK FACTORS") AND
APPLY ONLY AS OF THE DATE OF THIS PROSPECTUS. OUR ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS. FACTORS
THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED
TO, THOSE DISCUSSED BELOW AND IN THE SECTION ENTITLED "RISK FACTORS," AS WELL AS
THOSE DISCUSSED ELSEWHERE HEREIN. SEE "FORWARD-LOOKING STATEMENTS."

OVERVIEW

ShopNow was incorporated in January 1994 and initially operated as a
computer services company. In 1996, we changed the focus of our business to
providing e-commerce and direct marketing services. In August 1998, we launched
ShopNow.com, our shopping destination Web site. In April 1999, we changed our
name from TechWave Inc. to ShopNow.com Inc.

As part of the evolution of our business we have conducted a series of
acquisitions. In January 1997, we acquired Web Solutions and Intelligent
Software Solutions for a purchase price of $341,000. These companies had
electronic delivery systems that we incorporated into our e-commerce products
and service offerings. These delivery systems allow our merchants to sell
certain products, such as software, directly to shoppers as an electronic file
transfer to the shopper rather than shipping the physical product. In order to
accelerate expansion of our online marketplace and e-commerce and direct
marketing services, we acquired The Internet Mall in August 1998 for $2.6
million and Media Assets in September 1998 for $3.3 million. The Internet Mall
operated a shopping aggregation Web site and provided us with technology and
merchant relationships to assist in the development of our online marketplace.
The acquisition of Media Assets, a direct marketing company, provided us with
direct marketing expertise enabling us to offer expanded direct marketing and
e-commerce services to our merchant customers. In June 1998, we acquired
e-Warehouse and CyberTrust, providers of payment processing technology, for $5.4
million. The technology that we acquired in these acquisitions is not currently
being used by us, and we have determined that it has no alternative future use
or value to our

24
<PAGE>

business. As a result, we have written off substantially all of the $5.4 million
aggregate purchase price for the e-Warehouse and CyberTrust acquisitions. The
separate historical financial information for the acquisition of e-Warehouse and
CyberTrust required to be presented by Rule 3-05 of the Securities and Exchange
Commission's Regulation S-X or the pro forma financial information under Article
11 of Regulation S-X is not provided elsewhere in this prospectus as the
financial information is not considered meaningful after the write-off. In June
1999, we completed the acquisitions of GO Software for $15.4 million and
CardSecure for $3.5 million. GO Software is a provider of e-commerce payment
processing technology and has existing relationships with more than 10,000
online merchants. CardSecure, a former subsidiary of 24/7 Media, is a developer
of e-commerce-enabled Web sites and will enhance the e-commerce technologies and
services that we offer.

In May 1997, we launched BuySoftware.com, an online computer products store.
We generated $4.5 million of revenues through BuySoftware.com in 1998 and $9.9
million of revenues during the first six months of 1999. We ceased operation of
our BuySoftware.com business in June 1999 because it competed directly with some
of our merchant customers, making them less likely to purchase our other
e-commerce and direct marketing services. The online retail market for computer
products is intensely competitive and has lower margins than our e-commerce
services. Ceasing operation of our BuySoftware.com business will allow us to
focus our financial resources and personnel on the development and expansion of
the ShopNow Network and our e-commerce and direct marketing services rather than
diverting a portion of our limited resources to operating the BuySoftware.com
retail business. Because we continue to be involved in certain retailing
activities, ceasing operation of our BuySoftware.com business did not meet the
criteria for discontinued operations under Accounting Principles Board No. 30
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." Accordingly, the results of our BuySoftware.com
business remain in the results of continuing operations for ShopNow through June
1999.

We enter into agreements with other businesses to expand our product and
service offerings, attract additional visitors to the ShopNow Network, increase
the number of MyShopNow personal stores, enhance our technology, and establish
additional sources of revenue. To date, we have entered into key business
relationships with a number of companies, including Chase Manhattan Bank,
About.com, 24/7 Media, Qwest Communications, HNC Software and the ZERON Group,
among others.

In July 1999, Chase Manhattan Bank, through one of its affiliates, completed
an $18.9 million equity investment in ShopNow and entered into an agreement with
ShopNow to launch an Internet shopping site on which ShopNow and Chase will be
featured. Pursuant to this agreement, Chase will pay ShopNow a licensing fee to
use the technology underlying the site. As part of the agreement, Chase will be
a preferred provider of financial services for ShopNow.com and the exclusive
marketer of credit cards featuring the ShopNow brand. The agreement provides
that each party will share in the revenues of the other party based on the
amount of business generated through this relationship. As part of the
agreement, we will participate equally with Chase in a cooperative marketing
fund to promote the services being offered under this agreement.

In July 1999, we entered into a five-year agreement with About.com, a
leading Internet network of commerce communities. Pursuant to our agreement with
About.com and in exchange for a fee, we will have a shopping section on
About.com as its exclusive provider of directory shopping services. This
shopping section will give us access to all visitors to the About.com network.
According to Media Metrix, there were approximately 6.8 million visitors to
About.com in June 1999.

In April 1999, 24/7 Media made a $30.1 million equity investment in ShopNow
and entered into a cross promotion agreement with us. Under the agreement, 24/7
Media promotes our e-commerce and direct marketing services to its networks of
over 2,500 affiliated websites in exchange for our promotion

25
<PAGE>

of 24/7 Media's advertising, representation and e-mail management services to
our merchant customers. For example, if 24/7 Media has a client who would
benefit from our e-commerce services, 24/7 Media will refer that client to us.
If we have a merchant who would benefit from the advertising services offered by
24/7 Media, we will refer that merchant to 24/7 Media. This agreement positions
ShopNow as 24/7 Media's exclusive e-commerce service provider and entitles each
party to share in the revenues of the other party based on the amount of
business generated through this relationship. We do not include a link from our
site to 24/7 Media's Web site nor do we advertise 24/7 Media on our site. We are
the only e-commerce provider that 24/7 Media can use to provide e-commerce
services to their clients, and 24/7 Media is the only third party authorized to
sell advertising on our Web site. We also jointly brand 24/7 Media's Click2Buy
transactional banner service with the ShopNow name and receive fees for
processing all Click2Buy transactions. Click2Buy is the process whereby a
shopper can click on a banner advertisement from within a specific Web site and
purchase the product or service in the banner advertisement without having to
leave the Web site where the shopper originally saw the banner advertisement. We
process the transactions through Click2Buy the same as we do the transactions
through our Web site.

In April 1999, we entered into a distribution and marketing agreement with
Qwest Communications, a leading telecommunications provider. Our agreement with
Qwest permits us to offer Qwest's communications services to shoppers on the
ShopNow Network. Through the agreement we receive a fixed quarterly payment for
24 months and, in addition, we will also receive a percentage of the revenues
earned by Qwest from Qwest services sold through our Web sites.

In May 1999, HNC Software made a $3.0 million equity investment in ShopNow.
In addition, pursuant to our strategic alliance and consortium membership
agreements with HNC, HNC will provide us with a number of e-commerce products at
preferential prices, which we can offer to our merchant customers. These
services include targeted marketing, fraud detection and customer support
software. Integration of these products with our technology platform will allow
us to provide our merchant customers with better tools to manage their customer
relationships. In exchange for a license to use HNC's technology, ShopNow agreed
to pay a set-up fee, a monthly fee for the use of HNC's software, a service fee
equal to the greater of a minimum monthly fee or a transaction fee based upon
the number of transactions processed by HNC's software.

In March 1999, the ZERON Group made a $3.0 million equity investment in
ShopNow, and in April 1999, it made an additional $2.0 million equity
investment. Under our agreement, the ZERON Group is assisting us on contractual,
best-efforts basis in establishing alliances with major companies in Japan as we
seek to develop an international presence in that region. We believe that Japan
offers tremendous growth opportunities for us and allows us the opportunity to
aggressively move into other markets in Asia and throughout the world.

We generate revenues primarily from transactions, merchandising and merchant
services. Revenues from transactions are generated from the purchase of products
and services from merchants on the ShopNow Network in those cases where ShopNow
processes the transaction. For example, we generally receive transaction fees
that are a fixed fee amount, a set percentage of the sales of a merchant's
products sold through our site or a portion of the gross margin received by the
merchant on the products sold through our site. We may be paid to build and host
a merchant's Web site and then receive a transaction fee on all sales that are
processed through that site. In certain cases we sell products directly to the
consumer and generate revenues equal to the selling price of the product. We
anticipate having some continuing involvement in retailing in order to attract
customers to our site. Revenues are recognized when the product has been shipped
or the service has been delivered to the customer. Merchandising revenues are
generated from sponsorships, other types of merchandising programs and
advertising sold to merchants on ShopNow.com and MyShopNow.com. We offer various
levels of sponsorship at different prices to merchants. We also sell shopper
delivery programs to merchants, where for a fixed fee we commit to deliver a
certain level of shopping traffic to a

26
<PAGE>

merchant's site. Merchandising revenues also include the sale of advertising on
ShopNow.com sites for banners, Web site hyperlinks and listings. Merchandising
agreements allow merchants to pay for specific positions on our Web sites,
including our home page or specific product category pages. Merchandising
revenues are recognized as services are delivered to the merchant. Merchandising
agreements typically run for a period of one to four months, except for listing
agreements which may run for up to twelve months. Revenues from our merchant
services include fees for development and maintenance of e-commerce stores that
give merchants the ability to engage in online transactions, as well as fees
paid for direct marketing services. Revenues from merchant services are
recognized on a percentage of completion basis. We extend credit and bear the
full credit risk with respect to sales of merchandising and merchant services.
Reserves for potential credit losses are reviewed on an account by account
basis.

Cost of transactions and merchandising revenues includes the cost to us of
all products and services we sell through our Web sites, the cost of processing
transactions, including bank credit card fees and shipping costs, the portion of
the cost of our Internet telecommunications connections that is directly
attributable to traffic on our Web sites, and the direct labor costs incurred in
maintaining and enhancing our network infrastructure. In addition, any shopping
traffic that we purchase from a third party to fulfill our obligations under our
shopper delivery programs are included as a cost of transactions and
merchandising revenues. Cost of merchant services revenues includes all direct
labor costs incurred in connection with these services, as well as fees charged
by third-party vendors that have directly contributed to the design, development
and implementation of our merchant services.

Sales and marketing expenses consist primarily of salaries and commissions
and costs associated with marketing programs such as advertising and public
relations. General and administrative expenses consist primarily of salaries and
other personnel-related costs for executive, financial, human resources,
information services and other administrative personnel, as well as legal,
accounting and insurance costs. Research and development expenses consist
primarily of salaries and related costs associated with the development of new
products and services, the enhancement of existing products and services, and
the performance of quality assurance and documentation activities. Amortization
of intangible assets resulting from acquisitions is primarily related to the
amortization of customer lists, domain names, acquired technology and goodwill.
Stock-based compensation expense is related to the amortization of deferred
compensation resulting from stock option grants to employees with an option
exercise price below the estimated fair market value of our common stock as of
the date of grant. Our impairment of acquired technology relates to our
determination that the technology acquired in the e-Warehouse and CyberTrust
acquisitions has no future use or value to us.

We incurred net losses of $810,000 for the year ended December 31, 1996,
$4.8 million for the year ended December 31, 1997 and $24.7 million for the year
ended December 31, 1998. We also incurred net losses of $26.2 million for the
six months ended June 30, 1999, and had an accumulated deficit of $55.6 million
as of June 30, 1999. We expect operating losses and negative cash flow to
continue for the foreseeable future. We anticipate our losses will increase
significantly from current levels, as we expect to incur additional costs and
expenses related to brand development, marketing and other promotional
activities, deferred compensation expense, amortization of intangibles resulting
from acquisitions, the expansion of our operations, the continued development of
the ShopNow Network, increasing investment in the systems that we use to process
customers' orders and payments, the expansion of our product and service
offerings and development of key business relationships.

RESULTS OF OPERATIONS

COMPARISON OF THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 1998

REVENUES

Revenues for the six-month period ended June 30, 1999 were $16.0 million
compared to $1.1 million for the six-month period ended June 30, 1998, an
increase of $14.9 million. The increase in

27
<PAGE>

revenues was due primarily to increased product sales from the BuySoftware.com
business and from revenues generated by Media Assets, which we acquired in
September 1998. The BuySoftware.com portion of revenues for the six-month period
ended June 30, 1999 were $9.9 million compared to $930,000 for the six-month
period ended 1998, an increase of $9.0 million, or 60.6% of the total increase
in revenues for the period.

TRANSACTIONS AND MERCHANDISING. The transactions and merchandising portion
of revenues for the six-month period ended June 30, 1999 was $11.6 million
compared to $743,000 for the six-month period ended June 30, 1998, an increase
of $10.9 million, or 73.3% of the total increase in revenues. The increase in
our transactions and merchandising revenues was due primarily to increased
product sales from the BuySoftware.com business. Ceasing the operation of this
business will initially result in a significant decrease in our transactions and
merchandising revenues.

MERCHANT SERVICES. The merchant services portion of revenues for the
six-month period ended June 30, 1999 was $4.4 million compared to $396,000 for
the six-month period ended June 30, 1998, an increase of $4.0 million, or 26.7%
of the total increase in revenues. The increase in our merchant services
revenues was due primarily to revenues generated from Media Assets, which we
acquired in September 1998.

COST OF REVENUES

The cost of revenues for the six-month period ended June 30, 1999 was $14.7
million compared to $1.2 million for the six-month period ended June 30, 1998,
an increase of $13.5 million. The increase in our cost of revenues was due
primarily to increased product sales from the BuySoftware.com business and cost
of revenues of Media Assets, which we acquired in September 1999. The
BuySoftware.com portion of cost of revenues for the six-month period ended June
30, 1999 was $11.2 million compared to $1.1 million for the six-month period
ended June 30, 1998, an increase of $10.1 million, or 74.8% of the total
increase in the cost of revenues.

TRANSACTIONS AND MERCHANDISING. The transactions and merchandising portion
of cost of revenues for the six-month period ended June 30, 1999 was $12.2
million compared to $1.1 million for the six-month period ended June 30, 1998,
an increase of $11.1 million, or 82.4% of the total increase in cost of
revenues. The increase in our transactions and merchandising cost of revenues
was due primarily to increased product sales from the BuySoftware.com business.
Ceasing the operation of this business will initially result in a significant
decrease in our cost of transactions and merchandising revenues.

MERCHANT SERVICES. The merchant services portion of cost of revenues for
the six-month period ended June 30, 1999 was $2.5 million compared to $127,000
for the six-month period ended June 30, 1998, an increase of $2.4 million, or
17.6% of the total increase in cost of revenues. The increase in our merchant
services cost of revenues was due primarily to cost of revenues incurred by
Media Assets subsequent to acquisition.

OPERATING EXPENSES

SALES AND MARKETING. Sales and marketing expenses for the six-month period
ended June 30, 1999 were $18.3 million compared to $4.5 million for the
six-month period ended June 30, 1998, an increase of $13.8 million. The increase
was due primarily to increased spending as a result of our launch and expansion
of the ShopNow Network in 1998, including additional personnel and nation-wide
print and radio ads. We expect to increase our sales and marketing expenses in
1999 through both online and traditional advertising to promote the ShopNow
Network.

GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
six-month period ended June 30, 1999 were $2.5 million compared to $1.4 million
for the six-month period ended June 30, 1998, an increase of $1.1 million. The
increase was due primarily to an increase in personnel from

28
<PAGE>
internal growth and acquisitions. We anticipate continued growth in our general
and administrative expenses in 1999.

RESEARCH AND DEVELOPMENT. Research and development expenses for the
six-month period ended June 30, 1999 were $2.9 million compared to $1.4 million
for the six-month period ended June 30, 1998, an increase of $1.5 million. The
increase was due primarily to the development and enhancement of our technology
platform, as well as to an increase in technology personnel. These employees
focus on developing our technology platform as well as building the overall
infrastructure that supports the ShopNow Network. We anticipate continued growth
in our research and development expenses in 1999.

AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets
expense for the six-month period ended June 30, 1999 was $1.6 million compared
to $118,000 for the same period ended June 30, 1998, an increase of $1.5
million. The increase was due primarily to the increase in intangible assets and
related amortization expenses from business acquisitions completed during the
second half of 1998, including Media Assets and The Internet Mall. The
acquisitions of GO Software and CardSecure, as well as possible future business
acquisitions, will result in a significant increase in amortization of
intangible assets expense.

STOCK-BASED COMPENSATION. Stock-based compensation expense for the
six-month period ended June 30, 1999 was $2.0 million compared to $2,000 for the
six-month period ended June 30, 1998, an increase of $2.0 million. The expense
is related to employee stock option grants with option exercise prices below the
estimated fair market value of our common stock as of the date of grant. The
amount of deferred compensation resulting from these grants is generally
amortized over a three-year period as stock-based compensation expense. In May
1999, we granted stock options to certain employees who joined ShopNow as part
of our acquisition of Media Assets. These grants resulted in a one-time stock-
based compensation expense of $830,000 during the second quarter of 1999.

OTHER INCOME (EXPENSE), NET

Other expense, net for the six-month period ended June 30, 1999 was
$245,000, compared to other income, net of $109,000 for the six-month period
ended June 30, 1998, a decrease of $354,000. The decrease was due primarily to
an increase in our debt obligations during the six-month period ended June 30,
1999, which resulted in an increase in interest expense. Other income (expense),
net consists primarily of interest income on cash and cash equivalents and
interest expense on our debt.

COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997

REVENUES

Revenues for the year ended December 31, 1998 were $7.2 million compared to
$604,000 for the year ended December 31, 1997, an increase of $6.6 million. The
increase in revenues was due primarily to increased product sales from the
BuySoftware.com business and revenues generated by Media Assets, which we
acquired in September 1998. The BuySoftware.com portion of revenues for the year
ended December 31, 1998 was $4.5 million compared to $69,000 for the year ended
December 31, 1998, an increase of $4.4 million, or 67.0% of the total increase
in revenues for the period.

TRANSACTIONS AND MERCHANDISING. The transactions and merchandising portion
of revenues for the year ended December 31, 1998 was $4.2 million compared to
$69,000 for the year ended December 31, 1997, an increase of $4.1 million, or
63.2% of the total increase in revenues. The increase in our transactions and
merchandising revenues was due primarily to increased product sales from the
BuySoftware.com business.

MERCHANT SERVICES. The merchant services portion of revenues for the year
ended December 31, 1998 was $2.9 million compared to $535,000 for the year ended
December 31, 1997, an increase of

29
<PAGE>

$2.4 million, or 36.8% of the total increase in revenues. The increase in our
merchant services revenues was due primarily to revenues generated from Media
Assets, which we acquired in September 1998. Revenues in 1997 were generated
from our previous business of providing computer services to clients, which was
completely phased out in early 1998. These computer services consisted primarily
of providing computer training, consulting and Web site design to businesses.

COST OF REVENUES

The cost of revenues for the year ended December 31, 1998 was $5.8 million
compared to $515,000 for the year ended December 31, 1997, an increase of $5.3
million. The increase in our cost of revenues was due primarily to increased
product sales from the BuySoftware.com business and cost of revenues incurred by
Media Assets, which we acquired in September 1998. The BuySoftware.com portion
of cost of revenues for the year ended December 31, 1998 was $4.4 million
compared to $124,000 for the year ended December 31, 1997, an increase of $4.3
million, or 81.2% of the total increase in cost of revenues.

TRANSACTIONS AND MERCHANDISING. The transactions and merchandising portion
of cost of revenues for the year ended December 31, 1998 was $4.5 million
compared to $159,000 for the year ended December 31, 1997, an increase of $4.3
million, or 81.3% of the total increase in cost of revenues. The increase in our
transactions and merchandising cost of revenues was due primarily to increased
product sales from the BuySoftware.com business.

MERCHANT SERVICES. The merchant services portion of cost of revenues for
the year ended December 31, 1998 was $1.4 million compared to $356,000 for the
year ended December 31, 1997, an increase of $1.0 million, or 18.7% of the total
increase in cost of revenues. The increase in our merchant services cost of
revenues was due primarily to cost of revenues incurred by Media Assets, which
we acquired in September 1998. Cost of revenues for 1997 were comprised solely
of direct labor and related costs to provide computer services to clients.

OPERATING EXPENSES

SALES AND MARKETING. Sales and marketing expenses for the year ended
December 31, 1998 were $12.2 million compared to $1.2 million for the year ended
December 31, 1997, an increase of $11.0 million. The increase was due primarily
to increased spending as a result of the development and expansion of the
ShopNow Network. Substantially all of the selling expenses incurred in 1997 were
in support of our previous computer services business, which was completely
phased out in early 1998.

GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
year ended December 31, 1998 were $3.5 million compared to $918,000 for the year
ended December 31, 1997, an increase of $2.6 million. The increase was due
primarily to an increase in personnel from internal growth and acquisitions.

RESEARCH AND DEVELOPMENT. Research and development expenses for the year
ended December 31, 1998 were $4.4 million compared to $2.4 million for the year
ended December 31, 1997, an increase of $2.0 million. The increase was due
primarily to the development of our technology platform and an increase in our
technology personnel as well as building the overall infrastructure that
supports the ShopNow Network.

AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets
expense for the year ended December 31, 1998 was $730,000 compared to $136,000
for the year ended December 31, 1997, an increase of $594,000. The acquisition
of Media Assets and The Internet Mall resulted in $387,000 of this increase. The
remainder of this increase resulted from other purchases of intangible assets
including domain names and customer lists.

30
<PAGE>

STOCK-BASED COMPENSATION. Stock-based compensation expense for the year
ended December 31, 1998 was $182,000 compared to no expense for the same period
ended December 31, 1997, an increase of $182,000. The expenses are related to
employee stock option grants with option exercise prices below the estimated
fair market value of our common stock as of the date of grant. The amount of
deferred compensation resulting from these grants is generally amortized over a
three-year period as stock-based compensation expense.

UNUSUAL ITEM - IMPAIRMENT OF ACQUIRED TECHNOLOGY. In June 1998, we acquired
e-Warehouse and CyberTrust with the intent of integrating the acquired
technologies with our own e-commerce product offerings. The amount we paid for
these acquisitions was $5.4 million. We are presently not utilizing the acquired
technologies and have determined that they have no alternative future use or
value to us as our technology platform provides superior functionality. As a
result, we wrote-off $5.2 million of the purchase price during the fourth
quarter of 1998.

OTHER INCOME (EXPENSE), NET

Other income, net for the year ended December 31, 1998 was $171,000,
compared to $164,000 of other expense, net for the year ended December 31, 1997,
an increase of $335,000. The increase was due primarily to increased interest
income earned by our increased cash reserves as a result of our financing
activities during 1998 as compared to 1997.

COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996

REVENUES

Revenues for the year ended December 31, 1997 were $604,000 compared to
$993,000 for the year ended December 31, 1996, a decrease of $389,000. The
overall decrease was due primarily to the phase out of our computer services
business that began in late 1997.

TRANSACTIONS AND MERCHANDISING. The transactions and merchandising portion
of revenues for the year ended December 31, 1997 was $69,000 compared to no
revenues for the year ended December 31, 1996. All of transactions and
merchandising revenues were attributable to the BuySoftware.com business.

MERCHANT SERVICES. The merchant services portion of revenues for the year
ended December 31, 1997 was $535,000 compared to $993,000 for the year ended
December 31, 1996, a decrease of $458,000 or 117.7% of the total decrease in
revenues. All of merchant services were related to providing computer services
to businesses.

COST OF REVENUES

The cost of revenues for the year ended December 31, 1997 was $515,000
compared to $430,000 for the year ended December 31, 1996, an increase of
$85,000. The overall increase in cost of revenues was due to the cost of
developing the BuySoftware.com business, partially offset by the phase out of
our computer services business.

TRANSACTIONS AND MERCHANDISING. The transactions and merchandising portion
of cost of revenues for the year ended December 31, 1997 was $159,000 compared
to no cost of revenues for the year ended December 31, 1996, an increase of
$159,000, or 187.1% of the total increase in cost of revenues. All of
transactions and merchandising cost of revenues were attributable to the
BuySoftware.com business, which initially incurred higher cost of revenues as
the business was being developed.

MERCHANT SERVICES. The merchant services portion of cost of revenues for
the year ended December 31, 1997 was $356,000 compared to $430,000 for the year
ended December 31, 1996, a decrease of $74,000. The decrease was due primarily
to decreased direct labor and other costs incurred

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<PAGE>
in delivering our previous business of providing computer services to clients.
All of merchant services were related to providing computer services to
businesses.

OPERATING EXPENSES

SALES AND MARKETING. Sales and marketing expenses for the year ended
December 31, 1997 were $1.2 million compared to $610,000 for the year ended
December 31, 1996, an increase of $591,000. The increase was due primarily to
increased spending as a result of development and expansion of our e-commerce
and direct marketing business. In the year ended December 31, 1997, $644,000 of
the sales and marketing expenses were in support of our previous computer
services business compared to $610,000 of such expenses in the year ended
December 31, 1996.

GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
year ended December 31, 1997 were $918,000 compared to $656,000 for the year
ended December 31, 1996, an increase of $262,000. The increase was due primarily
to an increase in employees to support our growth and transition to an
e-commerce and direct marketing business.

RESEARCH AND DEVELOPMENT. Research and development expenses for the year
ended December 31, 1997 were $2.4 million compared to $25,000 for the year ended
December 31, 1996, an increase of $2.4 million. The increase was entirely due to
the development of our technology platform, which began in 1997 to support our
growth and transition to an e-commerce and direct marketing business.

AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets
expense for the year ended December 31, 1997 was $136,000 compared to $32,000
for the year ended December 31, 1996, an increase of $104,000. The increase was
due primarily to various acquisitions of Web domain names during 1997, resulting
in an increase in amortization of intangible assets expense recorded from these
transactions.

OTHER (INCOME) EXPENSE, NET.

Other expense, net for the year ended December 31, 1997 was $164,000
compared to $50,000 for the year ended December 31, 1996, an increase of
$114,000. The increase was due primarily to increased interest expense from our
various financing activities by means of notes payable and lines of credit with
commercial banks.

NET OPERATING LOSS CARRYFORWARDS

As of June 30, 1999, we had net operating loss carryforwards of
approximately $47.0 million. If not used, the net operating loss carryforwards
will expire at various dates beginning in 2012. The Tax Reform Act of 1986
imposes restrictions on the use of net operating losses and tax credits in the
event that there has been an "ownership change" of a corporation since the
periods in which the net operating losses were incurred. Our ability to use net
operating losses incurred prior to April 1998 is limited to approximately $3.0
million per year due to sales of convertible preferred stock to third parties
that have resulted in an "ownership change." The ownership change related to the
sale of Series D and Series E convertible preferred stock. We have provided a
full valuation allowance on our deferred tax assets because of the uncertainty
regarding their realization. Our accounting for deferred taxes involves the
evaluation of a number of factors concerning the realizability of our deferred
tax assets. In concluding that a full valuation allowance was required,
management considered such factors as our history of operating losses, potential
future losses and the nature of our deferred tax assets. See Note 10 to the
Consolidated Financial Statements appearing elsewhere in this prospectus.

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<PAGE>
SELECTED CONSOLIDATED PRO FORMA QUARTERLY FINANCIAL DATA

The following table sets forth selected consolidated quarterly financial
data on a pro forma basis for 1998 and the first two quarters of 1999. The
financial data presented below excludes our BuySoftware.com business for all
periods presented and includes the operations of Media Assets, The Internet Mall
and GO Software as if we had acquired them on January 1, 1998. Because our
business has changed significantly due to these acquisitions and ceasing the
operation of the BuySoftware.com business discussed previously, we believe that
the pro forma information provides a better reflection of our existing business
than the historical data provided elsewhere in this prospectus. All data is
unaudited, has been prepared on the same basis as the audited financial
statements and, in the opinion of management, includes all adjustments,
consisting only of normal recurring adjustments, considered necessary for a full
presentation of such information when read in conjunction with the financial
statements and accompanying notes appearing elsewhere in this prospectus.

<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1998 1998 1998 1998 1999
----------- ----------- ------------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Transactions and merchandising........................ $ 336 $ 411 $ 417 $ 637 $ 775
Merchant services..................................... 1,092 1,975 2,283 1,899 1,729
----------- ----------- ------------- ------------ -----------
Total revenues...................................... 1,428 2,386 2,700 2,536 2,504
----------- ----------- ------------- ------------ -----------
Cost of revenues:
Transactions and merchandising........................ 21 27 36 137 325
Merchant services..................................... 656 1,133 1,289 985 952
----------- ----------- ------------- ------------ -----------
Total cost of revenues.............................. 677 1,160 1,325 1,122 1,277
----------- ----------- ------------- ------------ -----------
Gross profit...................................... 751 1,226 1,375 1,414 1,227
----------- ----------- ------------- ------------ -----------
Operating expenses:
Sales and marketing................................... 1,272 3,129 2,653 3,737 4,453
General and administrative............................ 667 1,090 1,133 1,175 1,264
Research and development.............................. 375 847 1,282 1,172 1,679
Amortization of intangible assets..................... 1,568 1,571 1,570 1,589 1,758
Stock-based compensation.............................. -- 2 35 145 132
Unusual item--impairment of acquired technology....... -- -- -- 5,207 --
----------- ----------- ------------- ------------ -----------
Total operating expenses............................ 3,882 6,639 6,673 13,025 9,286
----------- ----------- ------------- ------------ -----------
Loss from operations.............................. (3,131) (5,413) (5,298) (11,611) (8,059)
Other income (expense), net............................. (10) 67 57 (23) (3)
----------- ----------- ------------- ------------ -----------
Net loss.......................................... $ (3,141) $ (5,346) $ (5,241) $ (11,634) $ (8,062)
----------- ----------- ------------- ------------ -----------
----------- ----------- ------------- ------------ -----------

JUNE 30,
1999
---------

<S> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Transactions and merchandising........................ $ 1,836
Merchant services..................................... 2,447
---------
Total revenues...................................... 4,283
---------
Cost of revenues:
Transactions and merchandising........................ 744
Merchant services..................................... 1,517
---------
Total cost of revenues.............................. 2,261
---------
Gross profit...................................... 2,022
---------
Operating expenses:
Sales and marketing................................... 11,112
General and administrative............................ 1,294
Research and development.............................. 1,427
Amortization of intangible assets..................... 1,880
Stock-based compensation.............................. 1,824
Unusual item--impairment of acquired technology....... --
---------
Total operating expenses............................ 17,537
---------
Loss from operations.............................. (15,515)
Other income (expense), net............................. (280)
---------
Net loss.......................................... $ (15,795)
---------
---------
</TABLE>

The growth in total revenues for the quarter ended June 30, 1999 is
attributable to increasing amounts of transactions and merchandising revenues
from the expansion of our ShopNow Network, as well as increased revenues from
merchant services, derived primarily from Media Assets. When we acquired Media
Assets in September 1998 and launched the ShopNow Web site in August 1998, we
shifted our focus from generating revenues from merchant services to generating
revenues from transactions and merchandising. As a result, revenues from
transactions and merchandising increased significantly from the quarter ended
September 30, 1998, while revenues from merchant services decreased in
subsequent quarters. We anticipate that transactions and merchandising revenues
will continue to increase at a faster rate than revenues from merchant services.
Although we have experienced recent growth in revenues from our current
operations, the number of MyShopNow personal stores, visitors to ShopNow.com and
the number of merchants on the ShopNow Network, these historical growth rates
are not sustainable and are not indicative of future growth rates that we may
achieve. We believe that period-to-period comparisons of our operating results
are not meaningful and that you should not rely on the performance of any period
as an indication of future performance.

33
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have experienced net losses and negative cash flows from
operations, and as of
June 30, 1999 had an accumulated deficit of $55.6 million. We have financed our
activities largely through issuances of common stock and preferred stock, from
the issuance of short-term and long-term obligations and from capital leasing
transactions for certain of our fixed asset purchases. Through June 30, 1999,
our aggregate net proceeds have been $49.7 million from issuing equity
securities and $20.0 million from issuing debt securities. Since June 30, 1999,
we have raised an additional $18.9 million in cash from the sale of convertible
preferred stock. As of June 30, 1999, we had $6.5 million in cash and short-term
investments.

Net cash used in operating activities was $18.8 million for the six-month
period ended June 30, 1999, compared to net cash used in operating activities of
$6.3 million for the same period of 1998. The increase was due primarily to the
increase in our net loss for the six-month period ended June 30, 1999, of $26.2
million compared to $7.3 million for the same six-month period ended 1998.

Net cash used in investing activities was $10.1 million for the six-month
period ended June 30, 1999, compared to net cash used in investing activities of
$6.6 million for the same period of 1998. The increase was due primarily to the
increase in purchases of property and equipment of $5.3 million for the
six-month period ended June 30, 1999, compared to $1.8 million for the six-month
period ended June 30, 1998.

Net cash provided by financing activities was $25.3 million for the
six-month period ended June 30, 1999, compared to net cash provided by financing
activities of $20.2 million for the six-month period ended June 30, 1998. The
increase was due primarily to proceeds from the issuance of debt of $11.6
million during the six-month period ended June 30, 1999, compared to proceeds
from the issuance of debt of $38,000 during the six-month period ended June 30,
1998, partially offset by the decrease in the amount of net proceeds from
issuances of convertible preferred stock from $14.4 million during the six-month
period ended June 30, 1999 to $22.0 million during the six-month period ended
June 30, 1998.

In March 1999, the Company entered into a loan and security agreement with
Transamerica Business Credit Corporation for a term loan and line of credit. In
May 1999, the agreement was amended and restated allowing the Company to borrow
up to $8.5 million at any one time, consisting of a $3.5 million term loan, $4.0
million bridge loan and a line of credit of up to $2.5 million, initially capped
at $1.0 million until the bridge loan is repaid. The line of credit bears
interest at the Transamerica Business Credit Corporation's base rate plus 2%, is
secured by substantially all of the assets of the Company and expires on March
31, 2000. The term loan bears interest at 12%, is secured by substantially all
of the assets of the Company and matures in March 2002. The bridge loan bears
interest at 12% and is due upon the earlier of November 15, 1999 or the closing
of a debt or equity financing by the Company surpassing $10.0 million. At June
30, 1999 the Company also had a total of $1.6 million outstanding on two
promissory notes issued in business acquisitions. One of the notes, in the
amount of $1.0 million, bearing an interest rate of 10%, is due June 15, 2000 or
the effective date of an initial public offering of our common stock, at which
time the note is convertible into shares of common stock. The other note is to
be paid off in quarterly installments of $112,500 through October 1, 2000.

Our capital requirements depend on numerous factors, including the rate of
expansion of the ShopNow Network, the investments we make in our technology
platform, the number of acquisitions, if any, that are completed and the
composition of the consideration between cash and stock for those acquisitions
and the resources we devote to expansion of our sales, marketing and branding
programs. We have also entered into various agreements that require us to make
advertising and marketing expenditures of $6.0 million annually through 2001. We
believe that existing cash balances and cash generated from operations, together
with the net proceeds from this offering, will be sufficient to meet

34
<PAGE>

our anticipated cash needs for working capital and capital expenditures for the
next 12 months. There can be no assurance that the assumed levels of revenues
and expenses underlying our anticipated cash needs will prove to be accurate. We
may seek to sell additional equity or debt securities or obtain additional debt
financing in the future if we determine additional cash should be obtained. The
sale of additional equity or convertible debt securities could result in
additional dilution to our shareholders. There can be no assurance that
financing will be available in amounts or on terms acceptable to us, or even
available at all.

RECENT ACCOUNTING PRONOUNCEMENTS

In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE." Statement of Position 98-1 is effective
for financial statements for years beginning after December 15, 1998. Statement
of Position 98-1 provides guidance over accounting for computer software
developed or obtained for internal use including the requirement to capitalize
specified costs and amortization of such costs. The implementation of Statement
of Position 98-1 did not have a material impact on our financial position or
operating results.

In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "REPORTING ON THE COSTS OF START-UP ACTIVITIES."
Statement of Position 98-5, which is effective for fiscal years beginning after
December 15, 1998, provides guidance on the financial reporting of start-up
costs and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. As we have expensed these costs
historically, the implementation of Statement of Position 98-5 did not have a
material effect on our financial condition or operating results.

SEASONALITY

We believe that retail transactions and advertising sales in traditional
media, such as television and radio, generally are lower in the first and third
calendar quarters of each year. In addition, Internet usage typically declines
during the summer and certain holiday periods. If our market makes the
transition from an emerging to a more developed market, seasonal and cyclical
patterns may develop in our industry and in the usage of, and transactions on,
our Web sites and those of our merchant customers. Seasonal and cyclical
patterns in online transactions and advertising would affect our revenues. Those
patterns may also develop on our Web sites. Given the early stage of the
development of the Internet and our company, however, we cannot predict to what
extent, if at all, our operations will prove to be seasonal.

IMPACT OF THE YEAR 2000 COMPUTER PROBLEM

OVERVIEW. Many currently installed computer systems and software products
are coded to accept only two digit entries in the date code field. As a result,
software that records only the last two digits of the calendar year may not be
able to distinguish whether "00" means 1900 or 2000. This may result in system
failures, delays or miscalculations.

STATE OF READINESS. We rely on proprietary, as well as third-party,
software in the operation of our business. Year 2000 testing of our proprietary
software is part of our on-going, internal quality assurance testing. To date,
we have tested our core proprietary software to determine whether it is Year
2000 compliant. Because our user interface software frequently changes we do not
test each revision to determine if it is Year 2000 compliant. By September 1999,
we expect to have incorporated Year 2000 compliance testing into our user
interface development process. For our third-party software, we have obtained
Year 2000 compliance certificates from the companies from which we license
software that is critical to the day-to-day operation of our business. We intend
to contact our remaining third-

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party software suppliers by August 15, 1999 to obtain Year 2000 compliance
statements with respect to the software that we license from such companies.
With respect to the companies from which we obtain critical outsourcing
services, or with which we have key business relationships, we attempt to obtain
warranties that such software is Year 2000 compliant. We have received such
warranties from the companies from which we obtain critical outsourcing services
and with which we have key business relationships.

COSTS. To date, we have incurred less than $200,000 in third-party expenses
as a result of our Year 2000 compliance efforts, which include an on-going
review of our systems by an outside consulting company. If the review uncovers
any Year 2000 problem related to our internal systems, we could incur
substantial costs to remedy the problem. For example, we might have to purchase
additional hardware or software and we could incur additional administrative
costs. The exact costs would depend upon the scope of the problem. The actual
occurrence of a Year 2000 problem could result in delays or losses of revenue,
interruptions of Internet communications, cancellations of contracts by our
customers, diversions of our development resources, damage to our reputation,
increased service and warranty costs and litigation costs.

WORST-CASE SCENARIO. We believe that our worst-case scenario would involve
an unanticipated defect in one or more of our critical hardware or software
systems or those of a critical outsourcing or business partner, resulting in an
inability to maintain and operate our Web sites or process transactions
generated by our Web sites. Such a defect would interrupt our business and
expose us to breach of contract and other claims against us by our customers,
merchants and business affiliates.

RISKS. We are not currently aware of any internal Year 2000 compliance
problem that could reasonably be expected to have a material adverse effect on
our business, operating results or financial condition, without taking into
account our Year 2000 remediation efforts. However, we may discover
unanticipated Year 2000 compliance problems in our computer infrastructure that
will require substantial revisions or replacements. In addition, third-party
software, hardware, or services incorporated into our material systems or other
systems upon which we rely may need to be revised or replaced, which could be
time consuming and expensive.

The computer systems of governmental agencies, utility companies, Internet
access companies, third-party service providers and others outside of our
control may not be Year 2000 compliant. The failure by such entities to achieve
timely Year 2000 compliance could result in a systemic failure beyond our
control, such as prolonged Internet, telecommunications, or electrical failures.
This could prevent shoppers and merchants from accessing our systems, which
could harm our business, operating results, and financial condition. In
addition, the computer systems of the merchants who are part of the ShopNow
Network may not be Year 2000 compliant. The failure by such entities to achieve
timely Year 2000 compliance could prevent shoppers from consummating
transactions through the ShopNow Network, which could harm our business,
operating results and financial condition.

CONTINGENCY PLAN. Because we regularly deploy new software, we believe that
we must regularly test our software and other systems for Year 2000 problems. To
conduct this testing, we have assembled a Year 2000 compliance team, headed by
personnel from our quality assurance department. The compliance team has begun a
phased approach to attempt to mitigate the possible effects of Year 2000 issues.
As part of this initiative, the compliance team periodically implements code
reviews to attempt to identify and isolate Year 2000 issues. Beginning in
September 1999, we will conduct monthly Year 2000 testing by physically setting
the date forward on our computer systems to the year 2000. On December 31, 1999,
we plan to have personnel monitor our systems and software for Year 2000 issues,
which our compliance team will then address.

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BUSINESS

OVERVIEW

INDUSTRY BACKGROUND

RAPID GROWTH OF THE INTERNET AND E-COMMERCE

The Internet has grown in less than a decade from a limited research tool
into a global network consisting of millions of computers and users. The
Internet is an increasingly significant medium for communication, information
and commerce. International Data Corporation, or IDC, estimates that at the end
of 1998 there were over 51 million Web users in the United States and over 97
million Web users worldwide and that by the end of 2002 the number of Web users
will increase to over 135 million in the United States and to over 319 million
worldwide.

The rapid growth of the Internet has given both shoppers and merchants the
opportunity to conduct an increasing amount of commerce online. We believe that
online shopping offers numerous advantages to both shoppers and merchants.
Shoppers receive increased selection, access to competitive prices, and the
convenience of being able to shop on the Web at any time from a single location.
The Internet enables merchants to reach a global audience and operate with
limited infrastructure, reduced overhead and greater economies of scale. By
facilitating access to information, the Internet enables merchants to give
shoppers more detailed product information while affording merchants the
opportunity to obtain detailed information about the shoppers purchasing their
products. These advantages are resulting in a dramatic increase in the amount of
commerce conducted over the Internet and the number of merchants advertising and
selling goods and services online. According to IDC, worldwide transactions on
the Internet are expected to increase from approximately $32 billion in 1998 to
approximately $426 billion in 2002, with the number of users that have bought
products and services online rising from approximately 28 million to
approximately 128 million worldwide during the same period.

CHALLENGES FACING ONLINE SHOPPERS

The advantages of online shopping over traditional shopping and the popular
acceptance of early online merchants are making an online presence essential for
many traditional merchants. The resulting

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increase in merchants selling products and services online has led to rapid
growth in the number of e-commerce opportunities for shoppers. This rapid growth
is creating a number of challenges for shoppers as they seek to realize the
potential benefits of shopping online, which in turn increases the market for
services that assist shoppers in evaluating online buying opportunities and
making online purchases.

PROLIFERATION OF BUYING OPPORTUNITIES. The rapid growth of e-commerce is
inundating shoppers with new buying opportunities. The relatively modest cost of
setting up a Web site enables merchants of all types, including traditional and
online retailers, manufacturers, catalog companies and individual sellers, to
offer their products directly to online shoppers. As these merchants attempt to
create online visibility, shoppers are being exposed to an increasing number of
Web site addresses and buying opportunities through both online and traditional
marketing methods. The confusion caused by these marketing efforts, the number
of new merchants and the limited e-commerce experience of many shoppers often
makes it difficult for shoppers to screen the available information and locate
the online merchants best suited to their needs.

ABSENCE OF AN ONLINE MARKETPLACE. Shoppers have few solutions to help them
rapidly evaluate the large number of merchants and products marketed on the
Internet in an organized fashion. The Internet search engines offered by
providers of Web directories, also known as portal sites, such as Yahoo! and
Lycos do not cater principally to online shoppers and often generate hundreds of
irrelevant search results because they search based on content, regardless of
whether the content is e-commerce related. As a result, unless a shopper knows a
merchant's specific Web site address, the shopper may have difficulty locating a
specific product or service on the Internet. In addition, these portal sites
limit the space available for shopping-related advertising and direct marketing
promotions that bring appealing e-commerce opportunities to shoppers' attention.
As a result, shoppers need an online marketplace that focuses on e-commerce and
helps shoppers rapidly evaluate merchants and products marketed on the Internet.

IMPEDIMENTS TO ONLINE TRANSACTIONS. Despite the recent growth in
e-commerce, many shoppers have limited experience buying goods and services over
the Internet. Many Web sites lack user-friendly e-commerce interfaces, which can
frustrate or deter shoppers from making online purchases. The lack of uniformity
in Web site design also hinders the efficiency of online shopping. Many shoppers
lack the technical expertise necessary to determine whether the online security
measures that a merchant employs are satisfactory. Consequently, shoppers may be
reluctant to transact business online due to concerns that they will not receive
their merchandise or that their confidential information will be obtained by an
unauthorized person.

CHALLENGES FACING ONLINE MERCHANTS

Merchants increasingly are determining that they need an online presence to
take advantage of the rapid growth and benefits of e-commerce. The emergence of
e-commerce as a viable means for transacting business represents a paradigm
shift for merchants who can now offer their products twenty-four hours a day to
shoppers anywhere in the world with limited infrastructure. Despite the rapid
growth in e-commerce, many merchants are facing a number of challenges in
attempting to capitalize on the opportunities presented by conducting business
on the Internet.

RESOURCES REQUIRED TO IMPLEMENT AN EFFECTIVE E-COMMERCE
CAPABILITY. Merchants of all sizes must invest a significant amount of capital
and technical resources to develop and maintain an effective e-commerce
presence, which typically includes multiple components such as transaction
processing, online security measures and fulfillment. To maximize effectiveness,
these components must be seamlessly integrated through the use of appropriate
technology and implemented in a timely manner. In addition, the rapidly evolving
nature of e-commerce technology necessitates timely upgrades and significant
continuing investment in highly-skilled technical personnel in order to maintain
an advanced e-commerce solution. Merchants who choose to develop and maintain an
e-commerce presence

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internally typically must divert valuable technical personnel away from other
important tasks. Even those merchants who decide to outsource the development
and maintenance of their e-commerce capability through multiple vendors
typically must devote significant technical expertise to integrate the various
components and interact with the vendors.

VISIBILITY TO SHOPPERS. Due to the growing importance of e-commerce,
merchants need an effective means to communicate with a targeted online audience
for their products and services in a manner that maximizes their brand
recognition. Even traditional merchants with established brands need to create
visibility online to distinguish themselves from the significant number of
sellers marketing products and services over the Internet. Achieving widespread
brand identity in a market where shoppers are being inundated with
Internet-related advertising requires a comprehensive direct marketing strategy
that focuses on attracting the appropriate online shoppers. These direct
marketing efforts often include both online methods, such as banner and other
hyperlink advertisements and e-mail communications, as well as traditional
methods, such as direct mail. To maximize the effectiveness of these direct
marketing efforts, creative services that can effectively position a merchant's
business and its products and services must be employed.

ACQUISITION AND RETENTION OF CUSTOMERS. Even those merchants who have
substantial brand identity among online shoppers often have difficulty
converting their visibility into online purchases, as many merchants lack the
knowledge and expertise needed to sell products and services remotely. Online
advertising is currently concentrated on portal Web sites, which limits its
effectiveness because many portal site visitors are interested in obtaining
information, not shopping. As a result, the traffic that these advertisements
generate on a merchant's Web site may not result in a high rate of purchases.
Similarly, traditional advertising methods may not offer a cost-effective means
for acquiring potential online shoppers. Merchants need cost-effective
strategies to reach concentrated groups of Internet users and to convert these
users into purchasers. In order to retain these customers, merchants must also
continually improve the process for purchasing products and services through
their Web sites while providing secure, easy-to-use e-commerce interfaces.

NEED OF SHOPPERS AND MERCHANTS FOR AN EFFECTIVE E-COMMERCE SOLUTION

To take advantage of the opportunities presented by e-commerce, both
shoppers and merchants need an effective solution that addresses the challenges
of buying and selling products and services online. A solution that enables
merchants to easily develop and maintain an effective online presence will allow
more merchants to transact business online, thereby increasing the variety of
products and services offered over the Internet. An increase in the variety of
products and services marketed online will attract more shoppers online,
increasing the pool of potential customers for e-commerce enabled merchants.

THE SHOPNOW SOLUTION

We provide shoppers and merchants with a leading online marketplace and a
wide variety of e-commerce and direct marketing services. The ShopNow Network,
our online marketplace, is comprised of ShopNow.com, MyShopNow.com and the Web
sites of our merchant customers. ShopNow.com, our shopping destination Web site,
aggregates more than 1 million products from more than 30,000 merchants of all
types. MyShopNow.com enables shoppers to create a personalized shopping
experience by allowing them to select the types of products and services offered
to them. The Web sites of our merchant customers are connected by hyperlink to
ShopNow.com to complete our online marketplace. To assist our merchant customers
in marketing and selling their products and services online, we provide a broad
range of e-commerce, direct marketing and creative services. Our direct
marketing and creative services use both traditional and online methods to drive
shoppers to merchants' Web sites and increase purchases, while our e-commerce
services enable our merchant customers to develop and maintain advanced,
cost-effective e-commerce offerings.

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BENEFITS FOR SHOPPERS

We provide shoppers with a leading online marketplace that enables them to
evaluate buying opportunities in an organized fashion, alleviating the need to
sift through often irrelevant search results. The ShopNow Network provides
shoppers with multiple ways to search our merchant database in a user-friendly
format. This enables shoppers to rapidly locate merchants that fit their needs
and evaluate product and service offerings from numerous merchants based on the
criteria that are important to them. Because ShopNow.com is focused principally
on shopping, we can highlight new products and services and high-value offers
for our shoppers. The personalization capabilities of MyShopNow.com enable
shoppers to create a unique online shopping experience that is tailored to their
specific interests.

BENEFITS FOR MERCHANTS

We offer merchants a leading online marketplace and a wide variety of
e-commerce and direct marketing services that enable them to quickly develop and
maintain their desired e-commerce presence. We enable merchants to avoid the
significant resource drain caused by developing and maintaining end-to-end
e-commerce systems internally or outsourcing to multiple vendors. Because we
regularly re-evaluate and update our e-commerce services, our merchant customers
can easily keep pace with rapidly evolving e-commerce technology. The ShopNow
Network allows merchants to market their products in an online marketplace where
shoppers congregate for the specific purpose of making purchases. Our direct
marketing services enhance the value of our online marketplace for our merchant
customers by providing them with a wide range of online and traditional
marketing methods to increase their brand awareness and drive shoppers to their
Web sites to make online purchases. Our ability to collect detailed demographic
and shopper preference data enables us to offer targeted direct marketing
services to our merchants. Our online marketplace, together with our e-commerce
and direct marketing services, allow merchants to capitalize on the benefits of
e-commerce in a manner that is tailored to their specific needs.

STRATEGY

Our objective is to create the leading online marketplace while providing a
wide variety of e-commerce and direct marketing services to shoppers and
merchants. Key strategies to achieve this objective include:

INCREASE MARKET AWARENESS AND BRAND RECOGNITION

We will continue to promote the ShopNow brand as synonymous with online
shopping. To accelerate the acceptance and penetration of our brand among
shoppers and merchants, we will continue to advertise the ShopNow brand through
both online and traditional channels. Online efforts include placing banner and
other hyperlink advertisements on portal and other destination Web sites. To
reach a mass audience, we will continue to conduct national advertising
campaigns in traditional media such as radio and newspapers. We will also expand
our efforts to promote the ShopNow brand to merchants through trade publication
advertisements, direct mail and promotional activities, trade shows, media
events and our Web sites.

EXPAND THE SHOPNOW NETWORK

We intend to aggressively expand the ShopNow Network through the following
strategies:

- INCREASE PRODUCTS AND SERVICES. We will aggressively recruit new merchants
to our online marketplace to expand the range of shopping choices on the
ShopNow Network. To increase the services available to shoppers on the
ShopNow Network, we intend to offer additional third-party content
features, which currently include stock quotes, weather reports,
horoscopes and greeting cards. We will continue to enhance the services
available to our merchant customers by

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developing and acquiring new technologies and by entering into new, and
expanding existing, business relationships. We will add features to
maintain the component-based nature of our services so that merchants of
all sizes can implement an e-commerce presence tailored to their specific
needs.

- EXPAND INTERNATIONALLY. We will seek to leverage the anticipated
international growth in e-commerce to expand the ShopNow Network and
generate additional revenue. We plan to commence our international
expansion with the development of a Japanese online marketplace in the
second half of 1999. We intend to accelerate our international expansion
by entering into strategic alliances with foreign businesses. We also
intend to register our Web sites on international search engines, seek
relationships with foreign portal Web sites and develop foreign language
user interfaces. We believe that these features will enable foreign
shoppers to more easily access our Web sites, expanding the market for our
merchant customers' products and services and significantly increasing the
number of shoppers on the ShopNow Network.

- DEVELOP LOCAL NETWORKS. We intend to develop localized versions of the
ShopNow Network in order to enhance the attractiveness of our network to
both shoppers and merchants in selected markets. By aggregating merchants
located within a specific geographic area, we will allow shoppers to do
business with their local merchants at a single site. Localization will
provide merchants with the opportunity to increase transactions through
advertising and merchandising programs focused on local markets.

INCREASE TRANSACTIONS ON THE SHOPNOW NETWORK

We intend to increase transactions on the ShopNow Network by further
personalizing our services for shoppers and leveraging our direct marketing
capabilities as follows:

- ENHANCE PERSONALIZATION. We intend to aggressively promote the
personalization features of the ShopNow Network, which permit us to target
product and service offerings based on the indicated preferences of
individual shoppers. By increasing the personalization features of our
network, we will be able to improve the shopping experience for our
shoppers while enhancing our data collection capabilities. To increase
shoppers' acceptance of our MyShopNow personal store concept, we offer
shoppers incentives, such as cash-back bonuses, on purchases made through
their MyShopNow personal stores. We plan to continue to enhance the
personalization features of MyShopNow.com by providing access to
additional content and other services.

- LEVERAGE DIRECT MARKETING SERVICES. We will continue to offer our merchant
customers a wide variety of online and traditional direct marketing
services to increase transactions on the ShopNow Network. Our direct
marketing services enable our merchant customers to acquire and retain
shoppers in a more targeted manner. In order to maximize the number of
transactions on the ShopNow Network, we will refine our direct marketing
services by continuing to use the data that we collect from shoppers on
our network while striving to increase the quality and amount of this
data. We will attempt to use our creative services to develop direct
marketing materials that focus our merchant customers' direct marketing
efforts by attracting shoppers interested in purchasing a particular
merchant's products and services. We believe that using our creative
services in this way will result in increased shopper traffic and online
purchases for our merchant customers who utilize these services.

EXPAND SERVICES TO MERCHANT CUSTOMERS

We intend to increase sales to our merchant customers by aggressively
marketing additional features of our suite of e-commerce and direct marketing
services to them. We believe that we will generate incremental revenue from our
merchant customers by regularly updating our technology and services in order to
provide our merchants with advanced e-commerce services. In addition, we believe
that as we demonstrate both the effectiveness of the ShopNow Network and our
ability to collect

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detailed information regarding online shoppers, our merchant customers will take
increasing advantage of our extensive direct marketing and creative services.

PURSUE ACQUISITIONS AND LEVERAGE KEY BUSINESS RELATIONSHIPS

To date, we have entered into a number of acquisitions and key business
relationships in order to expand our range of products and services for shoppers
and merchants, generate additional visitors to the ShopNow Network, increase the
number of MyShopNow personal stores, enhance our technology and establish
additional sources of revenue. We believe that our key business relationships
will help us to offer advanced e-commerce services by giving us access to
technology developed by the parties to these relationships. We also believe that
these relationships will assist us in expanding into new domestic and
international markets by providing us with access to expertise and contacts in
these new markets. We believe that our acquisitions and key business
relationships will assist us in rapidly increasing the variety of products and
services offered on the ShopNow Network by giving us access to additional
merchants. We intend to continue making acquisitions and entering into those
types of relationships to enhance the quality of our online marketplace and the
effectiveness of our e-commerce and direct marketing services.

OUR PRODUCTS AND SERVICES

THE SHOPNOW NETWORK

The ShopNow Network is an online marketplace designed to attract shoppers to
a common online location by providing them with attractive shopping
destinations. The ShopNow Network consists of ShopNow.com, our Internet shopping
portal site, MyShopNow.com, our personalized Internet shopping service, and the
Web sites of our merchant customers. We believe that increasing shopper traffic
on the ShopNow Network will cause additional merchants to participate in the
network. As the number of participating merchants grows, ShopNow will have a
larger pool of potential merchant customers to whom we can offer our e-commerce
and direct marketing services.

SHOPNOW.COM. ShopNow.com is an Internet shopping portal site that offers
shoppers a comprehensive shopping destination by aggregating at one Web site
more than 1 million products and services from more than 30,000 merchants,
including retailers, catalog companies, manufacturers and individuals.
ShopNow.com's directory of merchants lists merchants under 27 different product
categories. To reach a specific merchant's Web site, a shopper clicks on the
directory's hyperlink to that site. Shoppers complete transactions at the
merchant's Web site, which we may host and maintain if the merchant chooses to
purchase these services. By driving shoppers to merchants' Web sites,
ShopNow.com enables merchants to conduct e-commerce under their own brand names.
To enable shoppers to conduct a more focused search, ShopNow.com provides an
easy-to-use interface that enables shoppers to search the directory in a number
of ways, including by category, merchant or product.

MYSHOPNOW.COM. MyShopNow.com enables each shopper to easily create a
personalized shopping Web site, based on various shopping themes. Shoppers
indicate their interests to select the types of products and services that they
want offered to them. In addition to the search methods offered by ShopNow.com,
MyShopNow.com offers shoppers an advanced search capability that enables
shoppers to search by price, brand, category and recommendations from our gift
center. Shoppers place orders for products and services using a uniform online
shopping cart regardless of which merchant offers the product. As an added
benefit, shoppers receive cash back or other incentives on purchases that they
make through their MyShopNow personal stores. The MyShopNow personal stores also
provide shoppers with special promotional offers. To encourage shoppers to visit
their MyShopNow personal stores, MyShopNow provides shoppers with complimentary
access to third-party content, including, sports scores, weather reports,
horoscopes, greeting cards and stock quotes. Since we launched the

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MyShopNow personal store concept in September 1998, more than 1.5 million
MyShopNow personal stores have been created.

MERCHANT CUSTOMERS' WEB SITES. The ShopNow Network also includes our
merchant customers' Web sites. These Web sites are connected by hyperlink to
ShopNow.com, and provide shoppers with additional information about our merchant
customers and the ability to purchase products and services.

MERCHANT SERVICES

E-COMMERCE SERVICES. ShopNow offers merchants a wide variety of e-commerce
services, including:

- CUSTOM STORE DEVELOPMENT. We offer our merchant customers custom creative
design and technical development services for their online stores. We
create e-commerce enabled Web sites that can range from the basic to the
highly customized.

- E-COMMERCE HOSTING AND MAINTENANCE. We provide e-commerce hosting and
maintenance services for merchants' online stores. To provide customers
with the performance they require for continuous e-commerce operations, we
use data centers with redundant servers, 24-hour monitoring and support
and high speed Internet connections.

- SECURE PAYMENT AND ORDER PROCESSING. We provide online payment and order
processing services, including customer authentication and authorization,
automated tax and shipping calculations, order tracking and customer
service. Our technology platform supports a variety of payment methods,
including credit cards and purchase orders. For security, we use advanced
encryption methods. To exchange information with shoppers and merchants on
our Web sites, our network servers use software that complies with the
Secure Sockets Layer specification, a leading method for managing the
security of transmissions over a network.

- FRAUD PREVENTION. Our fraud management services use artificial
intelligence programs, a database of historical transactions, and
validation by an authorized financial institution to confirm shoppers'
identities and to assess their credit status. We can adjust the stringency
of the fraud screening process based upon a merchant's requirements and
the nature of the transaction to assist the merchant in maximizing sales
opportunities.

- CUSTOMER ORDER FULFILLMENT AND CALL CENTER MANAGEMENT. We have preferred
supplier agreements with multiple companies that specialize in providing
customer order fullment services, including warehousing, packaging and
distribution, and call center services, including telephone and e-mail
customer support services, for companies that lack such capabilities. Our
preferred supplier agreements allow us to obtain pricing discounts and
other favorable terms from these companies by aggregating several of our
merchant clients' order fulfillment and call center activities under one
contract that we enter into and manage on behalf of our merchant
customers. Consequently, our merchant customers enter into agreements with
us, rather than the third-party customer order fulfillment or call center
service companies. We also have relationships with several vendors whose
warehouses we use to fill orders that we take on behalf of our merchant
customers through our Web sites and to deliver the purchased merchandise
directly to shoppers. We have integrated our payment processing and fraud
prevention systems with those of our preferred suppliers to provide our
merchants with an integrated e-commerce platform.

Our various e-commerce services can be purchased separately, allowing
merchants to select only those particular services that they need. Fee
arrangements are based on the specific service purchased and may be computed on
a project basis, a monthly fee basis, a per transaction basis, or a combination
thereof. For example, custom store development is billed on a project basis,
e-commerce hosting and maintenance are billed at monthly rates and the other
e-commerce described above are billed on a fee per transaction basis.

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We bill for developing a custom Web site on the same basis. We evaluate the
needs of the client, estimate the amount of time, complexity and technology
needed and provide a fee which may include a transaction component. Generally, a
monthly fee is charged for hosting services and is not done on a transactional
basis. For custom Web sites, we charge a transactional fee for each order
placed.

DIRECT MARKETING SERVICES. ShopNow's direct marketing services are designed
to enable merchants to enhance their visibility on the ShopNow Network,
facilitate customer acquisition and retention and increase sales for merchants.
Our direct marketing services include:

- JOINING THE SHOPNOW NETWORK. We offer merchants four listing levels to
position their businesses in our merchant database that shoppers access
through ShopNow.com and their MyShopNow.com personal stores. The listing
programs differ based on length of store description, the number of search
engine keywords that refer to the merchants' products, the order in which
a merchant is listed within a product category and availability of certain
promotional listings. For example, the entry level listing program allows
a merchant to provide a brief description of its products and services, to
select the product category under which it wants to be listed in our
merchant database and to select a few search engine keywords that will
cause the merchant's name to be listed when a shopper uses those keywords
to search the database. Our most prominent listing program allows a
merchant to provide a longer business description, display a logo, obtain
a preferential ranking under a product category and enter more keywords in
our merchant database.

- MERCHANDISING ON THE SHOPNOW NETWORK. We offer a range of merchandising
programs, including sponsorships, advertising, e-mail promotions and
shopper delivery programs. Advertisements can be prominently displayed on
ShopNow.com, MyShopNow.com or on the Web site networks of our marketing
affiliate, 24/7 Media. From these advertisements, shoppers can hyperlink
directly to an advertiser's Web site, thus enabling the advertiser to
directly interact with an interested shopper. Alternatively, merchants can
reach a more focused audience by sponsoring a specific product category.
Our e-mail promotions allow merchants to alert shoppers to special product
offers. We also offer a shopper delivery program that provides merchants
with a specific number of visits by shoppers to the merchants' Web sites
over a given period of time. If we fail to deliver the specified number of
visits a merchant only pays for the number of shoppers that are delivered.

- ONLINE DIRECT MAIL PROMOTIONS. We offer merchants access to our shoppers,
who have voluntarily registered with ShopNow to receive product and
service offers by e-mail, by providing the merchant the opportunity to
have shoppers receive an e-mail that advertises a product or service
offered by the merchant. We create and generate the e-mail promotions. Our
promotions are specifically designed to allow advertisers to integrate
various forms of online advertising and direct marketing to fully exploit
the reach of our e-commerce services.

- CREATIVE SERVICES. We offer merchants a full range of creative services,
including design and advertisement copy services, image management and
production and account management and maintenance. We also provide online
creative services, including Web store design, as well as direct marketing
services using traditional print and broadcast media.

- TRANSACTION REPORTS. For merchants whose online stores we host, we provide
detailed electronic and hard copy reports summarizing the visits to and
the transactions made on their online stores.

The prices for the ShopNow Network's merchant listing services vary based on
the prominence of a merchant's listing on our Websites. Merchandising services
are priced based on one of the following criteria: length of the merchandising
period, cost-per-thousand views or cost per click-through. For example, our
"Featured Store" buttons or textlinks on a specific product category page are
sold in weekly increments, banner ads are sold on a cost-per-thousand views, and
our shopper delivery program is priced based on the number of shoppers that we
pass along from ShopNow.com to a

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<PAGE>

merchant. The fee arrangements for our other direct marketing services, which
typically include minimum monthly payments, are individually negotiated with our
merchant customers and based on the range and extent of customization. For our
e-mail promotions, depending on the nature of the promotion, we may derive a fee
for each transaction generated by the promotion. We generally receive
transaction fees when a MyShopNow store owner purchases products or services
through his or her MyShopNow store. When e-mail promotions are sent to MyShopNow
store owners and they subsequently purchase a product or service through their
MyShopNow store, we are generally entitled to a transaction fee from the
merchant that sponsored the promotion.

CUSTOMERS

The following is a representative list of our customers based on their level
of business with us in 1999 as well as the type of e-commerce or merchant
service provided by us:

Accounting.Net
Baby Centers
Booksamillion.com
Chase Manhattan Bank
Cooking.com
Corel
Eastern Mountain Sports
eBay, Inc.
E-LOAN
Furniture.com
InsWeb
iTurf
BrainPlay.com
Macy's
OfficeMax
Qwest Communications
Reel.com
sixdegrees.com
Totally Wireless
WholeFoods.com
WorldWideSports

KEY BUSINESS RELATIONSHIPS AND ACQUISITIONS

We have entered into a number of key business relationships and acquisitions
in order to expand the range of our products and services for shoppers and
merchants, attract additional shoppers to the ShopNow Network, increase the
number of our merchant customers, increase the number of MyShopNow personal
stores, enhance our technology, establish additional sources of revenue and
facilitate our international expansion. We intend to evaluate acquisition
opportunities and to seek additional similar relationships with third-party
providers of complementary products and services. We believe that alliances will
prove attractive to potential affiliates because they are designed to provide
them with increased shopper traffic, branding flexibility, incremental revenue,
and integration of service offerings.

KEY BUSINESS RELATIONSHIPS

Our key business relationships include:

CHASE MANHATTAN BANK. In July 1999, Chase Manhattan Bank, through one of
its affiliates, completed an $18.9 million equity investment in ShopNow and
entered into an agreement with ShopNow to launch an Internet shopping site on
which ShopNow and Chase will be featured. Pursuant to this agreement, Chase will
pay ShopNow a licensing fee to use the technology underlying the site. As part
of the agreement, Chase will be a preferred provider of financial services for
ShopNow.com and the exclusive marketer of credit cards featuring the ShopNow
brand. The agreement provides that each party will share in the revenues of the
other party based on the amount of business generated through this relationship.
As part of the agreement, we will participate equally with Chase in a
cooperative marketing fund to promote the services being offered under this
agreement.

ABOUT.COM. In July 1999, we entered into a five-year agreement with
About.com, a leading Internet network of commerce communities. Pursuant to our
agreement with About.com, we will have a shopping section on About.com as its
exclusive provider of directory shopping services. This shopping section will
give us access to all visitors to the About.com network. According to Media
Metrix, there were approximately 6.8 million visitors to About.com in June 1999.

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<PAGE>

24/7 MEDIA. In April 1999, 24/7 Media made a $30.1 million equity
investment in ShopNow and entered into a cross promotion agreement with us.
Under the agreement, 24/7 Media promotes our e-commerce and direct marketing
services to its networks of over 2,500 affiliated websites in exchange for our
promotion of 24/7 Media's advertising, representation and e-mail management
services to our merchant customers. For example, if 24/7 Media has a client who
would benefit from our e-commerce services, 24/7 Media will refer that client to
us. If we have a merchant who would benefit from the advertising services
offered by 24/7 Media, we will refer that merchant to 24/7 Media. This agreement
positions ShopNow as 24/7 Media's exclusive e-commerce service provider and
entitles each party to share in the revenues of the other party based on the
amount of business generated through this relationship. We do not include a link
from our site to 24/7 Media's Web site nor do we advertise 24/7 Media on our
site. We are the only e-commerce provider that 24/7 Media can use to provide
e-commerce services to their clients, and 24/7 Media is the only third party
authorized to sell advertising on our Web site. We also jointly brand 24/7
Media's Click2Buy transactional banner service with the ShopNow name and receive
fees for processing all Click2Buy transactions. Click2Buy is the process whereby
a shopper can click on a banner advertisement from within a specific Web site
and purchase the product or service in the banner advertisement without having
to leave the Web site where the shopper originally saw the banner advertisement.
We process the transactions through Click2Buy the same as we do the transactions
through our Web site.

QWEST COMMUNICATIONS. In April 1999, we entered into a distribution and
marketing agreement with Qwest Communications, a leading telecommunications
provider. Our agreement with Qwest permits us to offer Qwest's communications
services to shoppers on the ShopNow Network. Through the agreement we receive a
fixed quarterly payment for 24 months and, in addition, we will also receive a
percentage of the revenues earned by Qwest from Qwest services sold through our
Web sites.

HNC SOFTWARE. In May 1999, HNC Software made a $3.0 million equity
investment in ShopNow. In addition, pursuant to our strategic alliance and
consortium membership agreements with HNC, HNC will provide us with a number of
e-commerce products at preferential prices, which we can offer to our merchant
customers. These services include targeted marketing, fraud detection and
customer support software. Integration of these products with our technology
platform will allow us to provide our merchant customers with better tools to
manage their customer relationships.

ZERON GROUP. In March 1999, the ZERON Group made a $3.0 million equity
investment in ShopNow, and in April 1999, it made an additional $2.0 million
equity investment. Under our agreement, the ZERON Group is assisting us in
establishing alliances with major companies in Japan as we seek to develop an
international presence in that region. We believe that Japan offers tremendous
growth opportunities for us and allows us the opportunity to aggressively move
into other markets in Asia and throughout the world.

Although we view our key business relationships as a important factor in our
overall business strategy, the other parties to these relationships may reassess
their significance at any time. These relationships generally do not establish
minimum performance requirements but instead rely on the contractual best
efforts of the parties. In addition, several of our key business relationships
may be terminated with little notice.

ACQUISITIONS

Key acquisitions include:

WEB SOLUTIONS AND INTELLIGENT SOFTWARE SOLUTIONS. In January 1997, we
acquired Web Solutions and Intelligent Software Solutions. Both Web Solutions
and Intelligent Software were software development companies that had core
transaction processing technologies that we have incorporated into our
e-commerce products.

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<PAGE>
THE INTERNET MALL. In August 1998, we acquired The Internet Mall, an
Internet retailer of consumer products that was doing business as ShopNow, Inc.
The Internet Mall's technology and Web development work served as the basis for
our online shopping destination site, ShopNow.com. We also gained access to The
Internet Mall's base of merchant customers.

MEDIA ASSETS. In September 1998, we acquired Media Assets, a creative
design and direct marketing firm. The acquisition has enabled us to offer our
merchant affiliates direct marketing and creative services. We also gained
access to Media Assets' existing direct marketing clients as potential customers
for our e-commerce services.

GO SOFTWARE. In June 1999, we acquired GO Software, a company primarily
engaged in the business of developing and implementing transaction processing
software for use in e-commerce. GO Software has existing relationships with more
than 10,000 online merchants.

CARDSECURE. In June 1999, we acquired CardSecure, which had been a
subsidiary of 24/7 Media. CardSecure is a developer of e-commerce-enabled Web
sites and will enhance the e-commerce technologies and services that we offer.

SALES AND MARKETING

SALES

Our sales and marketing strategy is designed to increase market awareness of
the ShopNow brand, expand the ShopNow Network, increase transactions on the
ShopNow Network and develop additional revenue opportunities by cross-selling
and up-selling additional e-commerce and direct marketing services to our
existing merchant customers.

We sell our merchant services primarily through our direct sales force. Our
sales and marketing organization mainly targets merchants seeking online direct
marketing services and custom e-commerce services. As of June 30, 1999, our
sales and marketing organization consisted of 42 employees. These employees
currently are located at our headquarters in Seattle, Washington. Consistent
with our strategy to expand internationally and develop local ShopNow Networks,
we intend to increase our sales presence by opening field sales offices, which
will depend on our ability to attract additional qualified sales personnel. In
the second half of 1999, we plan to open a sales office in Japan.

MARKETING

We currently employ a variety of traditional and online marketing programs
and business development and promotional activities as part of our marketing
strategy. We place advertisements on high-profile third-party Web sites and our
own Web sites. We also rely on relationship marketing, including word-of-mouth
advertising by shoppers, indirect promotions by our merchant customers with
links to our Web sites and indirect advertising arising through shoppers' use of
our services. Although we have reduced our reliance on traffic promotion
agreements as awareness of the ShopNow brands has increased, we believe that
relationship marketing will continue to generate a substantial amount of
additional shopper traffic and new merchant affiliates. We intend to introduce a
number of other brand awareness and shopper loyalty programs through our Web
sites.

To augment our online marketing efforts, we have initiated an aggressive
brand promotion campaign using traditional media, including print, radio,
billboard and television advertising. As part of this campaign, we recently
conducted a nationwide advertising campaign by placing advertisements in USA
TODAY and other newspapers. We also rely on public relations activities,
attendance at industry trade shows and direct mail programs to increase merchant
awareness of our products and services and to generate additional sales. We
intend to continue to participate in joint promotions using online and
traditional advertising media.

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TECHNOLOGY AND INFRASTRUCTURE

Our e-commerce and direct marketing services require the development and
deployment of advanced e-commerce technologies and methodologies. Consequently,
we have invested heavily in licensing advanced technologies and in developing a
core set of proprietary technologies. We market these technologies collectively
under our CommerceTrust brand. Our third-party vendors provide relational
databases, such as Oracle and Microsoft SQL server, search technologies, ad
servers, catalog engines and various back-end automation technologies. Our
proprietary technologies include interfaces to customer order fulfillment
systems, payment systems and fraud detection software.

Our software runs on system hardware that is hosted in third-party data
centers located in Seattle, Washington and Weehawken, New Jersey. These data
centers are connected to our headquarters in Seattle, Washington, through high
speed networks. These data centers, as well as the system hardware located at
our headquarters, are connected to back-up generators to maintain uninterrupted
electrical service and to the Internet through multiple Internet service
providers to avoid connectivity problems. Our systems are redundant, and we
maintain multiple clustered high speed routers, multiple clustered load
balancing hardware, multiple Web servers and multiple application and database
servers. Data for our networks is stored on dedicated, high speed and redundant
disk appliances that provide continuous access to the data even if individual
disk drives, computers and power supplies fail. Data is backed up regularly and
is stored off site at the third-party data centers to provide for data recovery
in the event of a disaster. We employ extensive automated and manual monitoring
to maintain a high level of network uptime.

We employ several relational databases for product SKUs, transaction data
and tracking multiple resellers or affiliates. Our databases have been designed
for high levels of performance and scalability. Shopper data is maintained in a
profile database that is used for targeted shopper relationship management. The
software architecture has been designed to accommodate our expected growth over
the next 24 months.

We believe that our future success will depend in part on our ability to
license, develop and maintain advanced e-commerce technologies. Consequently, we
expect to invest heavily in developing new technologies and to continue to make
strategic acquisitions to increase our direct control and ownership of
proprietary technology.

RESEARCH AND DEVELOPMENT

Our research and development efforts are directed towards improving the
design and functionality of our Web sites, improving our network systems and
enhancing the technology underlying and the features of our e-commerce and
online direct marketing services. Research and development expenses were $25,000
in 1996, $2.4 million in 1997, $4.4 million in 1998 and $2.9 million in the
first six months of 1999. As of June 30, 1999, ShopNow employed 68 persons in
research and development.

COMPETITION

A large number of Internet companies compete with us for e-commerce
merchants, shoppers, e-commerce transactions, advertisers, and other sources of
online revenue. We also compete with Web development firms, systems integrators,
Internet service providers and traditional media companies that may offer
alternatives to one or more components of our e-commerce and direct marketing
solutions. We expect competition to intensify in the future. Barriers to entry
in the markets in which we compete are not significant, and current and new
competitors may be able to launch competing products and services at a
relatively low cost.

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<PAGE>
We compete directly for e-commerce merchants, shoppers, advertisers and
other affiliates with numerous Internet and non-Internet businesses, including:

- providers of e-commerce and online direct marketing services, such as
Go2Net, Xoom and DoubleClick;

- providers of e-commerce outsourcing services, such as Digital River, USWeb
and CyberSource;

- providers of Web directories and search and information services, all of
whom offer online shopping, including America Online, Microsoft Network,
Yahoo!, Excite, Lycos and Infoseek;

- online shopping destination Web sites, such as iMall and Shopping.com;

- Internet service providers, Web development firms and systems integrators,
as well as companies who offer products that address specific aspects of
e-commerce, such as payment and transaction processing and security; and

- e-commerce and conventional merchants that provide goods and services
competitive to those available through links on our Web sites.

We expect that other companies, including media companies and traditional
retailers, will offer directly competing services in the future.

We believe that competition in our industry is based primarily on:

- the quality, effectiveness and market acceptance of e-commerce and direct
marketing services;

- brand recognition;

- price;

- the number and breadth of merchants and products and services marketed
online;

- the quality and market acceptance of personalized shopping features and
enhanced content; and

- customer service and satisfaction.

Although our competitive position in our markets is difficult to
characterize due principally to the variety of current and potential competitors
and the emerging nature of the market, we believe that we presently compete
favorably with respect to these factors. However, we believe that our markets
are still evolving, and we cannot assure you that we will compete successfully
in the future. Additionally, many of our competitors are likely to enjoy
substantial competitive advantages compared to our company, including:

- the ability to offer a wider array of e-commerce and direct marketing
services;

- larger customer or user bases;

- greater name recognition and larger marketing budgets and resources;

- substantially greater financial, technical and other resources;

- the ability to offer additional content and other personalization
features; and

- larger production and technical staffs.

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our Web sites may more tightly integrate these affiliated offerings into their
browsers or other products or services. Any of these trends would increase the
competition we face.

PROPRIETARY TECHNOLOGY

Intellectual property is critical to ShopNow's success, and we rely upon
patent, trademark, copyright and trade secret laws in the United States and
other jurisdictions to protect our proprietary rights and intellectual property.
However, patent, trademark, copyright and trade secret protection may not be
available in every country in which our services are distributed or made
available. Our proprietary software, documentation and other written materials
are provided limited protection by international and United States copyright
laws. In addition, we protect our proprietary rights through the use of
confidentiality and/or license agreements with employees, consultants, and
affiliates.

ShopNow currently has four pending United States patent applications. We do
not have any issued patents.

ShopNow has registered the trademark "ShopNow." We have applied for United
States trademark registrations for the marks "ShopNow.com," "MyShopNow.com" and
"CommerceTrust." Certain of these marks are also protected in other
jurisdictions.

The transaction processing and advertisement serving technology we employ
collects and uses data derived from user activity on our Web sites and those of
our merchants customers that we host. This data is intended to be used for
targeted direct marketing and for predicting advertisement performance. Although
we believe that we have the right to use such data, trade secret, copyright or
other protection may not be available for such information or others may claim
rights to such information.

EMPLOYEES

At June 30, 1999, we had 305 employees, including 125 in merchant services,
42 in sales and marketing, 68 in research and development, 34 in operations and
36 in general and administrative functions. We are not subject to any collective
bargaining agreements and believe that our employee relations are good.

FACILITIES AND SYSTEMS

Our principal executive offices are located in Seattle, Washington, where we
lease approximately 57,000 square feet under a lease that expires in August
2001. We also lease space in various geographic locations for sales and direct
marketing personnel and for our servers. We believe that our current facilities
are adequate to meet our needs through the end of 2000, at which time we may
need to lease additional space.

LEGAL PROCEEDINGS

We presently are not subject to any material legal proceedings; however, we
may from time to time become a party to various legal proceedings arising in the
ordinary course of our business.

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information with respect to the
executive officers and directors of ShopNow as of July 27, 1999.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --------- --------------------------------------------------------------------
<S> <C> <C>
Dwayne M. Walker.................... 38 Chairman, President, Chief Executive Officer and Director
Jeffrey B. Haggin................... 39 Executive Vice President
Alan D. Koslow...................... 41 Executive Vice President, Chief Financial Officer, General Counsel
and Secretary
Ganapathy Krishnan, Ph.D............ 38 Executive Vice President and Chief Technology Officer
Othniel D. Palomino................. 36 Executive Vice President, Corporate Development
William D. Pittman.................. 38 Executive Vice President and Chief Technical Architect
Anne-Marie K. Savage................ 35 Executive Vice President, E-Commerce Services
Joe E. Arciniega, Jr................ 40 Chief Operating Officer
Pascal Stolz........................ 37 Vice President of Marketing
Garrett P. Cecchini................. 45 Director
David M. Lonsdale................... 45 Director
Bret R. Maxwell..................... 40 Director
Mark C. McClure..................... 48 Director
John R. Snedegar.................... 50 Director
Mark H. Terbeek..................... 28 Director
</TABLE>

DWAYNE M. WALKER has been our Chairman since March 1996, our President and
Chief Executive Officer since August 1996, and a director since August 1995.
From April 1995 to April 1996, he was President and Chief Executive Officer of
Integra Technologies, a wireless communications company. From September 1989 to
March 1995, he was a Director for Microsoft Windows NT and Networking Products
and a General Manager of Microsoft Corporation, a software company.

JEFFREY B. HAGGIN has been our Executive Vice President since October 1998.
From October 1993 to September 1998, he was the President of Media Assets, a
direct marketing company. Mr. Haggin received a B.A. in Mass Communications from
the University of California at Berkeley.

ALAN D. KOSLOW has been our Executive Vice President, Chief Financial
Officer, General Counsel and Secretary since June 1998. From May 1997 to June
1998, he was of counsel to Graham & James LLP/Riddell Williams P.S., a law firm.
From February 1990 to April 1997, he was an attorney at Foster Pepper &
Shefelman PLLC, a law firm. Mr. Koslow received a B.A. in Economics and
Accounting from Rutgers University and a J.D. from Rutgers Law School. Mr.
Koslow is a certified public accountant.

GANAPATHY KRISHNAN, PH.D. has been our Executive Vice President and Chief
Technology Officer since January 1997. From March 1996 to December 1996, he was
Chief Executive Officer of Web Solutions, an e-commerce software company. From
September 1991 to December 1996, he was Chief Executive Officer of Intelligent
Software Solutions, an e-commerce software company. Dr. Krishnan received a B.S.
in Technology, Chemical Engineering from IIT Madras in India, an M.S. in
Chemical Engineering from the University of Louisville and an M.S. and Ph.D. in
Computer Science from the State University of New York/Buffalo.

OTHNIEL D. PALOMINO has been our Executive Vice President, Corporate
Development since April 1997. From September 1991 to March 1997, he was a Group
Manager for Microsoft. He received a B.S. in Engineering from Princeton
University and an M.B.A. from Stanford University.

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WILLIAM D. PITTMAN has been our Executive Vice President and Chief Technical
Architect since June 1999. From 1993 to June 1999, he was founder and Chief
Technical Officer of GO Software, a developer of e-commerce payment processing
technologies.

ANNE-MARIE K. SAVAGE has been our Executive Vice President, E-Commerce
Services since June 1999. From February 1998 to June 1999, she was our Senior
Vice President, Marketing and Business Development, from March 1997 to February
1998, she was our Vice President of Online Stores, and from April 1996 to March
1997, she was our Director of Marketing. From April 1995 to April 1996, she was
the Director of Marketing with Integra Technologies. From April 1994 to April
1995, she was an independent marketing consultant. Ms. Savage received a B.A. in
Hotel and Restaurant Administration from Washington State University.

JOE E. ARCINIEGA, JR. has been our Chief Operating Officer since November
1998. From July 1996 to November 1998, he was Vice President of Operations for
GT Interactive Software, an entertainment software company. From November 1994
to June 1996, he was Vice President of Operations of Humongous Entertainment, a
children's software company. From September 1994 to October 1994, he was the
Operations Consultant for Humongous Entertainment. From October 1991 to July
1994, he served as Director at the Pritikin Longevity Center, a cardio-health
facility.

PASCAL STOLZ has been our Vice President of Marketing since June 1999. From
January 1996 to February 1999, he was Vice President of Worldwide Marketing for
Cobra Golf, a golf club manufacturer. From October 1994 to January 1996, he was
Vice President of Sales and Marketing, Europe for Cobra Golf. From April 1987 to
October 1994, he was Senior Product Marketing Manager for Taylor Made Golf, a
golf products manufacturer.

GARRETT P. CECCHINI has served as a director since May 1999. Since January
1999, he has been Senior Vice President, E-Commerce for 24/7 Media, an Internet
advertising and direct marketing firm. From February 1998 to December 1998, he
was Senior Vice President of National Sales at 24/7 Media. From February 1997 to
February 1998, he was Vice President, General Manager of Katz Millenium
Marketing. From December 1994 to February 1997, he was co-founder of Goodman
Cecchini Media Design, a Web site development company, and US Cybersites, an
Internet service provider. From 1992 to 1994, he was Vice President, Director of
Sales for Sony Pictures Entertainment's Columbia TriStar Television Division, a
syndicator of television programming. Mr. Cecchini received a B.S. in Accounting
and Marketing from Manhattan College. Mr. Cecchini was elected as one of our
directors pursuant to a provision of our cross promotion agreement with 24/7
Media.

DAVID M. LONSDALE has served as a director since October 1998. Since
December 1998, he has been President and Chief Executive Officer of Uppercase, a
Xerox subsidiary and software development company. From October 1996 to November
1998, he was the Chief Executive Officer and President of Major Connections, a
software distribution company. From March 1995 to September 1996, he was Vice
President of Worldwide Sales at Integrated Micro Products, a computer
manufacturer. From March 1990 to February 1995, he was President of A.C. Nielsen
Software and Systems, a direct marketing software company delivering software
and solutions for direct marketing. He also serves on the board of directors of
Vizicom. Mr. Lonsdale received a B.S. in Physics and a B.S. in Mathematics from
the University of Leeds in England and an M.B.A. from Cornell University.

BRET R. MAXWELL has served as a director since February 1997. Since June
1982, he has been Vice Chairman of First Analysis, a venture capital firm. Mr.
Maxwell received a B.S. in Engineering and an M.B.A. from Northwestern
University. He serves on the board of directors and is a member of the
compensation committee of Dynamic Healthcare Technologies.

MARK C. MCCLURE has served as a director since August 1998. From January
1979 to December 1996, he was President and Chief Executive Officer of Cobra
Golf, a golf club manufacturer.

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JOHN R. SNEDEGAR has served as a director since September 1998. Since April
1999, he has been President and Chief Executive Officer of Micro General, a
telecommunications and commerce service provider. From September 1991 to March
1999, he was the President of United Digital Network, a long distance telephone
company. He serves on the boards of directors of StarBase Corporation, Star
Telecommunications and Micro General.

MARK H. TERBEEK has served as a director since February 1997. Since August
1997, he has been an independent management consultant. From May 1995 to August
1997, he was an Associate for First Analysis Corporation, a venture capital
firm. From September 1993 to May 1995, he was a business analyst at McKinsey &
Co., a management consulting company. He received a B.A. from DePauw University
and an M.B.A. from Stanford University.

BOARD OF DIRECTORS

Our board of directors currently consists of seven authorized members. Upon
the completion of this offering, the terms of office of the board of directors
will be divided into three classes that will be as nearly equal in number as
possible: Class I consists of Messrs. Cecchini, McClure and Terbeek, whose terms
will expire at the annual meeting of shareholders to be held in 2000; Class II
consists of Messrs. Maxwell and Snedegar, whose terms will expire at the annual
meeting of shareholders to be held in 2001; and Class III consists of Messrs.
Lonsdale and Walker, whose terms will expire at the annual meeting of
shareholders to be held in 2002. At each annual meeting of shareholders after
the initial classification, the successors to directors whose terms will then
expire will be elected to serve from the time of election and qualification
until the third annual meeting following election and until their successors
have been duly elected and qualified. Any additional directorships resulting
from an increase in the number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of an equal
number of directors. This classification of the board of directors may have the
effect of delaying or preventing a change of control or management of ShopNow.
See "Risk Factors--Provisions of our charter documents and Washington law could
discourage our acquisition by a third party." Pursuant to our cross promotion
agreement with 24/7 Media, 24/7 Media has the right to designate one nominee to
serve as a director. Each officer serves at the discretion of the board of
directors. There are no family relationships among any of our directors or
executive officers.

BOARD COMMITTEES

We currently have an audit committee and a compensation committee.

The audit committee reviews our financial controls and our accounting, audit
and reporting activities. The audit committee also makes recommendations to our
board of directors regarding the selection of independent auditors, reviews the
results and scope of audit and other services provided by our independent
auditors and reviews the accounting principles and auditing practices and
procedures to be used for the financial statements of ShopNow. Messrs. Lonsdale,
Maxwell and McClure constitute the audit committee.

The compensation committee reviews and recommends to the board of directors
the compensation and benefits for our officers, directors and employees. The
compensation committee also administers our stock option plan and will
administer our employee stock purchase plan upon completion of this offering.
Messrs. Lonsdale, McClure and Snedegar constitute the compensation committee.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During fiscal 1998, Mr. Walker served both as our President and Chief
Executive Officer and as a member of the compensation committee. Currently, no
member of the compensation committee is an officer or employee of ShopNow. No
member of the compensation committee serves as a member of

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the board of directors or compensation committee of any entity that has one or
more executive officers serving as a member of our board of directors or
compensation committee.

DIRECTOR COMPENSATION

Directors currently do not receive any cash compensation from us for their
services as directors or members of committees of our board of directors, but
are reimbursed for their reasonable expenses incurred in attending board of
directors meetings. We are, however, authorized to pay members for attendance at
meetings or a salary in addition to reimbursement for expenses in connection
with attendance at meetings. In the past, we have granted options to purchase
common stock to non-employee members of the board of directors. See "Related
Transactions with Executive Officers, Directors and 5% Shareholders."

EXECUTIVE COMPENSATION

The following table sets forth the compensation awarded to, earned by or
paid for services rendered to ShopNow in all capacities for fiscal 1998 by
ShopNow's Chief Executive Officer and the other executive officers of ShopNow
who earned more than $100,000 during fiscal 1998:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS
- -------------------------------------------------------------------- --------- ---------- --------- -------------
<S> <C> <C> <C> <C>
Dwayne M. Walker ................................................... 1998 $ 182,292 $ 50,000 335,475
Chairman, President and Chief Executive Officer
Ganapathy Krishnan, Ph.D. .......................................... 1998 112,083 13,000 110,475
Executive Vice President and Chief Technology Officer
</TABLE>

OPTION GRANTS. During fiscal 1998, we granted options to purchase a total
of 3,985,029 shares of common stock both outside of and under our stock option
plan to our employees, directors and consultants, including the individuals
listed in the Summary Compensation Table. No stock appreciation rights were
granted during fiscal 1998.

The following table sets forth certain information with respect to stock
options granted to each of the individuals listed in the Summary Compensation
Table in fiscal 1998. In accordance with SEC rules, potential realizable values
for the following table are:

- net of exercise price before taxes;

- based on the assumption that our common stock appreciates at the annual
rate shown, compounded annually, from the date of grant until the
expiration of the term; and

- based on the assumption that the option is exercised at the exercise price
and sold on the last day of its term at the appreciated price.

These numbers are calculated based on SEC requirements and do not reflect
our projection or estimate of future stock price growth. Actual gains, if any,
on stock option exercises will be dependent on the future performance of our
common stock.

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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------- POTENTIAL REALIZABLE
% OF TOTAL FAIR VALUE AT ASSUMED
NUMBER OF OPTIONS MARKET ANNUAL RATES OF
SECURITIES GRANTED TO VALUE ON STOCK APPRECIATION
UNDERLYING EMPLOYEES EXERCISE THE DATE FOR OPTION TERM
OPTIONS IN LAST PRICE OF GRANT EXPIRATION -------------------------------
NAME GRANTED FISCAL YEAR ($/SHARE) ($/SHARE) DATE 0% 5% 10%
- --------------------- ------------- --------------- ----------- ----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dwayne M. Walker..... 25,000 *% $ 2.00 $ 2.00 1/1/07 $ -- $ -- $ 8,949
310,000 7.8 4.00 3.30 8/1/08 -- 426,359 1,413,399
375 * 2.50 3.30 11/30/08 300 1,506 2,953
100 * 4.00 4.00 12/11/08 -- 252 637
Ganapathy Krishnan,
Ph.D............... 10,000 * 2.00 2.00 3/18/00 -- -- --
100,000 2.5 2.00 3.30 6/1/08 -- 125,779 318,748
375 * 2.50 3.30 11/30/08 300 1,506 2,953
100 * 4.00 4.00 12/11/08 -- 252 637
</TABLE>

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

* Less than 1.0% of total options granted to employees in last fiscal year.

FISCAL YEAR-END OPTION VALUES. The individuals named in the Summary
Compensation Table did not exercise any options during fiscal 1998. The
following table presents information about options held by the individuals named
in the Summary Compensation Table and the value of those options as of December
31, 1998. The value of in-the-money options is based on an assumed offering
price of $11.00 per share, net of the option exercise price.

FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1998 AT DECEMBER 31, 1998
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------- ----------- ------------- ------------ -------------
Dwayne M. Walker......................................... 286,934 509,999 $ 3,007,614 $ 4,319,989
Ganapathy Krishnan, Ph.D................................. 14,475 100,000 134,808 900,000
</TABLE>

EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS

ShopNow has entered into a written employment agreement with Mr. Walker
effective as of July 1, 1999. This Agreement may be terminated by either Mr.
Walker or ShopNow at any time, upon written notice to the other. The agreement
provides for an initial annual salary of $400,000 and a yearly bonus of up to
$200,000 based upon the achievement of performance criteria specified by the
compensation committee. Mr. Walker's salary is to be reviewed at the end of each
calendar year by the compensation committee and adjusted at the board's sole
discretion, provided, however, that Mr. Walker's salary may not be adjusted
downward without his consent. Pursuant to the agreement, Mr. Walker will
receive, as of the date of this offering, an option to purchase 500,000 shares
of common stock at an exercise price equal to the initial per share offering
price, which option will vest in four equal semi-annual installments subject to
Mr. Walker's continued employment with ShopNow. After the first year of the
agreement, ShopNow will grant Mr. Walker during each of the next eight quarters
an option to purchase up to 125,000 shares of common stock at an exercise price
equal to the closing price of ShopNow's common stock on the Nasdaq National
Market on the date of grant, which option will vest in four equal semi-annual
installments subject to Mr. Walker's continued employment with ShopNow. Mr.
Walker receives a $400 monthly car allowance and life insurance of $1,000,000.
If Mr. Walker is terminated by ShopNow at any time without cause, or if he
terminates his employment for "good reason" or leaves within six months after a
change of control of ShopNow, ShopNow shall

55
<PAGE>

pay him a lump-sum amount equal to his annual base salary, ShopNow will pay his
salary for a period of 24 months following termination and all options granted
to him under this agreement shall vest. For purposes of the agreement, "good
reason" means and includes the occurrence without Mr. Walker's consent of a
material reduction in his title, authority, status, or responsibilities or our
material breach of the agreement. If Mr. Walker gives 30 days' notice to us of
his desire to terminate his employment for good reason and we fail to cure, he
may terminate his employment and we must pay his salary for a period of 24
months. ShopNow and Mr. Walker are currently negotiating an amendment to the
agreement.

EMPLOYEE BENEFIT PLANS

401(k) PLAN

In November 1996, we established a discretionary 401(k) tax-qualified
employee savings and retirement plan covering all employees who satisfy certain
eligibility requirements relating to minimum age. Pursuant to our 401(k) plan,
eligible employees may elect to reduce their current compensation by up to the
lesser of 15% of their base compensation or the statutorily prescribed annual
limit, currently $10,000, and have the amount of such reduction contributed to
the 401(k) plan. Our 401(k) plan is intended to qualify under Section 401 of the
Internal Revenue Code of 1986, so that contributions, and income earned on the
contributions, are not taxable until withdrawn. The 401(k) plan permits us to
make discretionary contributions based on compensation. To date, we have not
made any contributions to the 401(k) plan.

STOCK OPTION PLAN

In October 1996, we adopted our stock option plan. Our board of directors
amended and restated our stock option plan in June 1999 and, in July 1999, the
amended stock option plan was approved by our shareholders. The amended stock
option plan will be effective upon completion of this offering. The amended
stock option plan provides for the grant to employees of incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986 and for
the grant to employees, directors and consultants of nonstatutory stock options
and stock purchase rights. Unless sooner terminated, the amended stock option
plan will automatically terminate in 2009. A total of 8,000,000 shares of common
stock will be reserved for issuance pursuant to the amended stock option plan.
In addition, the amended stock option plan provides for automatic annual
increases equal to the lesser of 750,000 shares, 3% of the outstanding shares
under the plan on such date, or an amount determined by the board of directors.
As of June 30, 1999, options to purchase 23,549 shares of common stock had been
exercised and options to purchase 5,162,108 shares of common stock were
outstanding under the stock option plan with a weighted-average exercise price
of $3.68.

The amended stock option plan may be administered by the board of directors
or a committee of the board of directors, which committee shall, in the case of
options intended to qualify as "performance-based compensation" within the
meaning of Section 162(m) of the Internal Revenue Code of 1986, consist of two
or more "outside directors" within the meaning of Section 162(m). The board of
directors or the committee has the power to determine the terms of the options
granted, including the exercise price, the number of shares subject to the
option, and the exercisability thereof, and the form of consideration payable
upon such exercise. In addition, the board of directors has the authority to
amend, suspend or terminate the amended stock option plan, provided that no such
action may affect any share of common stock previously issued and sold or any
option previously granted under the amended stock option plan.

Options and stock purchase rights granted under the amended stock option
plan are not generally transferable by the optionee, and each option and stock
purchase right is generally exercisable during the lifetime of the optionee only
by such optionee. Options granted under the amended stock option plan must
generally be exercised within three months following termination of an
optionee's status as

56
<PAGE>

an employee, director or consultant of the company or within 12 months following
termination of an optionee by death or disability, but in no event later than
the expiration of the option's 10 year term. In the case of stock purchase
rights, unless the administrator determines otherwise, a restricted stock
purchase agreement shall grant us a repurchase option exercisable upon the
voluntary or involuntary termination of the purchaser's employment with us for
any reason, including death or disability. The purchase price for shares
repurchased pursuant to a restricted stock purchase agreement shall be the
original price paid by the purchaser and may be paid by cancellation of any
indebtedness of the purchaser to us. The repurchase option shall lapse at a rate
determined by the administrator. The exercise price of all incentive stock
options granted under the amended stock option plan must be at least equal to
the fair market value of the common stock on the date of grant. The exercise
price of nonstatutory stock options granted under the amended stock option plan
is determined by the board of directors or the committee, but with respect to
nonstatutory stock options intended to qualify as "performance-based
compensation" within the meaning of Section 162(m), the exercise price must be
at least equal to the fair market value of the common stock on the date of
grant. The term of all other options granted under the amended stock option plan
may not exceed 10 years.

The amended stock option plan provides that in the event of our merger with
or into another corporation or a sale of all or substantially all of our assets,
each option and stock purchase right will be assumed or substituted for by the
successor corporation. In the event the successor corporation refuses to assume
or substitute for the option or stock purchase right, the optionee shall have
the right to exercise all of the optioned stock, including shares as to which it
would not otherwise be exercisable, for a period of 15 days from the date of
notice from the administrator, after which the option or stock purchase right
will terminate.

1999 EMPLOYEE STOCK PURCHASE PLAN

Our employee stock purchase plan was adopted by the board of directors in
June 1999, and approved by our shareholders in July 1999. The employee stock
purchase plan will be effective upon the completion of this offering. Initially,
a total of 2,000,000 shares of common stock will be reserved for issuance under
the employee stock purchase plan. Additionally, the employee stock purchase plan
provides for an automatic annual increase in the number of shares reserved for
issuance beginning on the first day of our fiscal year 2002 equal to the lesser
of:

- 600,000 shares;

- 2%; or

- an amount determined by the board of directors.

The employee stock purchase plan, which is intended to qualify under Section
423 of the Internal Revenue Code of 1986 will be administered by the board of
directors or by a committee appointed by the board. Our employees, including
officers and employee directors, are eligible to participate in the employee
stock purchase plan if they are employed for at least 20 hours per week and for
more than 5 months in any calendar year. The employee stock purchase plan will
be implemented by consecutive offering periods generally six months in duration.
However, the initial offering period under the employee stock purchase plan will
begin on the effective date of this offering and terminate on or before April
30, 2000. The board of directors may change the timing or duration of the
offering periods.

The employee stock purchase plan permits eligible employees to purchase
shares of common stock through payroll deductions at 85% of the lesser of the
fair market value per share of the common stock on the first day of the offering
period or on the purchase date. Participants generally may not purchase shares
if, immediately after the grant, the participant would own stock or options to
purchase shares of common stock totaling 5% or more of the total combined voting
power of all of ShopNow's capital stock, or more than $25,000 of our capital
stock in any calendar year. In addition, a participant

57
<PAGE>

may not purchase more than 5,000 shares during any offering period. In the event
of a sale of all or substantially all of our assets or the merger of ShopNow
with or into another corporation, the board of directors may accelerate the
exercise date of the current purchase period to a date prior to the change of
control.

DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY

Upon the closing of this offering, our articles of incorporation will limit
the liability of directors to the fullest extent permitted by the Washington
Business Corporation Act as it currently exists or as it may be amended in the
future. Consequently, subject to the Washington Business Corporation Act, no
director shall be personally liable to us or our shareholders for monetary
damages resulting from his or her conduct as a director of ShopNow, except
liability for

- acts or omissions involving intentional misconduct or knowing violations
of law,

- unlawful distributions, or

- transactions from which the director personally receives a benefit in
money, property or services to which the director is not legally entitled.

Any repeal of or modification to our articles of incorporation may not adversely
affect any right or protection of a director of ShopNow who is or was a director
at the time of such repeal or modification.

In addition, upon the closing of this offering, our bylaws will provide that
we will indemnify any individual who was, is or is threatened to be made a party
to or is otherwise involved in any threatened, pending or completed action,
suit, claim or proceeding by reason of the fact that he or she is or was a
director or officer of ShopNow. This right to indemnification will continue as
to an individual who has ceased to be a director or officer. Our bylaws will
provide that we may indemnify our other officers and employees and other agents.
We have obtained and maintain directors' and officers' liability insurance,
under which our directors and officers may be indemnified against liability they
incur for serving in their capabilities as directors and officers.

We understand that the current position of the SEC is that any
indemnification of our directors and officers for liabilities arising under the
Securities Act of 1933 is against public policy and is, therefore,
unenforceable.

We believe that the limitation of liability provision in our articles of
incorporation, the indemnification provisions in our bylaws and our liability
insurance will facilitate our ability to continue to attract and retain
qualified individuals to serve as directors and officers.

58
<PAGE>
RELATED TRANSACTIONS WITH EXECUTIVE OFFICERS, DIRECTORS AND
5% SHAREHOLDERS

In connection with our acquisition of Media Assets in September 1998, Jeff
Haggin, the sole shareholder of Media Assets, joined ShopNow as an executive
officer and he received 600,000 shares of our common stock based upon an
agreed-upon value of $6.00 per share, $300,000 in cash, a convertible promissory
note in the aggregate principal amount of $1,050,000 and options to purchase an
aggregate of 1,120,000 shares of our common stock. These options included an
option to purchase 220,000 shares at an exercise price of $1.00 per share and
performance-based options to purchase 900,000 shares of common stock at an
exercise price of $2.00 per share. The total value of the package Mr. Haggin
received at the time of the acquisition equalled $4,941,500. In May 1999, Mr.
Haggin exchanged his performance-based options for options to purchase 300,000
shares of common stock at an exercise price of $2.00 per share.

In April 1999, we issued to 24/7 Media 4,300,000 shares of Series G
convertible preferred stock at $7.00 per share in exchange for $30.1 million in
consideration, consisting of cash, shares of 24/7 Media common stock and 24/7
Media's majority interest in CardSecure. A portion of the shares of Series G
convertible preferred stock and of the warrants were placed in escrow pending
consummation of our acquisition of CardSecure, which occurred on June 15, 1999.
24/7 Media also received warrants to purchase 860,000 shares of common stock at
$7.00 per share. Upon completion of this offering and assuming 33,254,706 shares
of common stock are outstanding, 24/7 Media will beneficially own 15.2% of our
shares of common stock.

In connection with our acquisition of GO Software in June 1999, William
Pittman joined ShopNow as an executive officer and he received, in exchange for
his shares of capital stock in GO Software, 814,688 shares of our common stock,
$2.0 million in cash, and options to purchase an aggregate of 100,000 shares of
our common stock at an exercise price of $7.00 per share. The total value of the
package Mr. Pittman received at the time of the acquisition equalled $8,517,504.

In June 1999, we entered into a stock purchase agreement with CB Capital
Investors pursuant to which we issued 2,100,000 shares of Series I convertible
preferred stock at $9.00 per share in exchange for $18.9 million in cash. CB
Capital Investors also received warrants to purchase 555,556 shares of common
stock. Upon completion of this offering and assuming 33,254,706 shares of common
stock are outstanding, CB Capital Investors will beneficially own 7.9% of our
shares of common stock.

On various occasions during 1999 and fiscal 1998, we granted the following
options to purchase shares of our common stock to the following executive
officers and directors:

- On January 8, 1998, August 1, 1998, November 30, 1998 and December 11,
1998, we granted Mr. Walker options to purchase 25,000, 310,000, 375 and
100 shares of common stock, respectively, with exercise prices of $2.00,
$4.00, $2.50 and $4.00, respectively;

- On September 15, 1998, September 30, 1998 and December 11, 1998, we
granted Mr. Haggin options to purchase 300,000, 220,000 and 100 shares of
common stock, respectively, with exercise prices of $2.00, $1.00 and
$4.00, respectively;

- On June 8, 1998, November 30, 1998, December 11, 1998 and December 31,
1998, we granted Mr. Koslow options to purchase 150,000, 375, 100 and
40,000 shares of common stock, respectively, with exercise prices of
$1.75, $2.50, $4.00 and $2.00, respectively;

- On March 18, 1998, June 1, 1998, November 30, 1998 and December 11, 1998,
we granted Dr. Krishnan options to purchase 10,000, 100,000, 375 and 100
shares of common stock, respectively, with exercise prices of $2.00,
$2.00, $2.50 and $4.00, respectively;

59
<PAGE>
- On January 1, 1998, November 30, 1998, December 11, 1998 and December 31,
1998, we granted Mr. Palomino options to purchase 10,000, 375, 100 and
30,000 shares of common stock, respectively, with exercise prices of
$2.00, $2.50, $4.00 and $2.00, respectively;

- On January 1, 1998, November 30, 1998, December 11, 1998 and December 31,
1998, we granted Ms. Savage options to purchase 13,000, 375, 100 and
30,000 shares of common stock, respectively, with exercise prices of
$2.00, $2.50, $4.00 and $2.00, respectively;

- On November 16, 1998 and December 11, 1998, we granted Mr. Arciniega
options to purchase 250,000 and 100 shares of common stock, respectively,
with exercise prices of $4.00;

- On both September 30, 1998 and May 3, 1999, we granted Mr. Lonsdale
options to purchase 50,000 shares of common stock with exercise prices of
$4.00 and $7.00, respectively;

- On May 3, 1999, we granted Mr. Maxwell options to purchase 50,000 shares
of common stock with exercise prices of $7.00;

- On both September 30, 1998 and May 3, 1999, we granted Mr. McClure options
to purchase 50,000 shares of common stock with exercise prices of $4.00
and $7.00, respectively;

- On both September 30, 1998 and May 3, 1999, we granted Mr. Snedegar
options to purchase 50,000 shares of common stock with exercise prices of
$4.00 and $7.00, respectively;

- On May 3, 1999, we granted Mr. Terbeek options to purchase 50,000 shares
of common stock with exercise prices of $7.00;

- On May 3, 1999, we granted Mr. Cecchini options to purchase 50,000 shares
of common stock with exercise prices of $7.00; and

- In June 1999, we granted Mr. Walker, Mr. Koslow, Dr. Krishnan, Mr.
Palomino, Ms. Savage and Mr. Arciniega options to purchase 450,000,
110,000, 35,525, 50,000, 122,675 and 50,000 shares of common stock,
respectively, at an exercise price equal to the low point of the filing
range as indicated in our preliminary prospectus for this offering. These
options vest over a two-year period commencing after the closing of this
offering.

We believe that all of these transactions were made on terms as favorable to
us as we would have received from unaffiliated third parties. Any future
transactions between us and our officers, directors and greater than 5%
shareholders and their affiliates will be approved by a majority of the board of
directors, including a majority of our disinterested, non-employee directors.

60
<PAGE>
PRINCIPAL SHAREHOLDERS

The following table sets forth information known to ShopNow with respect to
the beneficial ownership of our common stock as of July 27, 1999 by (i) each
shareholder known by ShopNow to own beneficially more than 5% of its common
stock, (ii) each of the individuals listed on the Summary Compensation Table,
(iii) each director of ShopNow, and (iv) all directors and executive officers as
a group.

The percentage ownership in the table below is based on 26,254,706 shares
outstanding as of July 27, 1999. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission. Shares of
common stock subject to options currently exercisable or exercisable within 60
days of the proposed effective date of the offering are deemed outstanding for
the purpose of computing the percentage ownership of the person holding the
options but are not deemed outstanding for computing the percentage ownership of
any other person. Unless otherwise indicated below, the persons and entities
named in the table have sole voting and sole investment power with respect to
all shares beneficially owned subject to community property laws where
applicable.

The number of shares includes 20,027,516 shares of common stock issuable
upon the automatic conversion of our convertible preferred stock upon
consummation of this offering and the exercise and conversion of all 167,047
warrants to purchase Series C convertible preferred stock. The convertible
preferred stock converts at a ratio of 1 for 1. The percentage of shares
outstanding after the offering assumes the underwriters' over-allotment is not
exercised.

<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF BENEFICIALLY OWNED
SHARES ------------------------
BENEFICIALLY BEFORE THE AFTER THE
NAME OR GROUP OF BENEFICIAL OWNERS(1) OWNED OFFERING OFFERING
- ---------------------------------------------------------- -------------- ----------- -----------
<S> <C> <C> <C>
24/7 Media, Inc.(2)....................................... 5,168,500 19.1% 15.2%
Bret R. Maxwell(3)........................................ 2,924,630.5 11.1 8.8
Mark H. Terbeek(4)........................................ 2,924,630.5 11.1 8.8
CB Capital Investors, L.P.(5)............................. 2,655,556 9.9 7.9
Dwayne M. Walker(6)....................................... 2,411,020.5 9.0 7.2
Environmental Private Equity Fund II, L.P.(7)............. 1,462,315.25 5.6 4.4
The Productivity Fund III, L.P.(8)........................ 1,462,315.25 5.6 4.4
Ganapathy Krishnan, Ph.D.(9).............................. 879,648 3.3 2.7
Mark C. McClure........................................... 127,711 * *
Garrett P. Cecchini....................................... -- -- --
David M. Lonsdale......................................... -- -- --
John R. Snedegar.......................................... -- -- --
All directors and executive officers as a group (15
persons)(10)............................................ 8,778,429 32.0 26.4
</TABLE>

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

* Less than 1% of the outstanding shares of common stock.

(1) The address of 24/7 Media, Inc. and Mr. Cecchini is 1250 Broadway, 28th
Floor, New York, NY 10001. The address of Environmental Private Equity Fund
II, L.P., The Productivity Fund III, L.P. and Messrs. Maxwell and Terbeek is
c/o First Analysis Corporation, The Sears Tower, Suite 950, 223 South Wacker
Drive, Chicago, IL 60606. The address of CB Capital Investors, L.P. is 380
Madison Avenue, 12th Floor, New York, NY 10017. The address of Messrs.
Walker, McClure, Lonsdale and Snedegar is c/o ShopNow.com, 411 First Avenue
South, Suite 200 North, Seattle, Washington 98101.

(2) Includes 860,000 shares issuable pursuant to warrants held by 24/7 Media,
Inc. that are currently exercisable.

61
<PAGE>

(3) Includes 1,462,315.25 shares held by each of the Environmental Private
Equity Fund II, L.P., and The Productivity Fund III, L.P. Mr. Maxwell is
Vice Chairman of First Analysis Corporation, which is the manager of the
funds. Mr. Maxwell disclaims beneficial ownership of all shares held by the
Environmental Private Equity Fund II, L.P. and the Productivity Fund III,
L.P. except to the extent of his pro rata pecuniary interest therein.

(4) Includes 1,462,315.25 shares held by each of the Environmental Private
Equity Fund II, L.P. and The Productivity Fund III, L.P. Mr. Terbeek was
formerly an Associate with First Analysis Corporation, which is the manager
of the funds. Mr. Terbeek disclaims beneficial ownership of all shares held
by the Environmental Private Equity Fund II, L.P. and the Productivity Fund
III, L.P. except to the extent of his pro rata pecuniary interest therein.

(5) Includes 555,556 shares issuable pursuant to a warrant held by CB Capital
Investors, L.P. that is currently exercisable.

(6) Includes 523,600 shares held by Mr. Walker that are currently exercisable or
exercisable within 60 days of July 27, 1999.

(7) Includes 6,250 shares issuable pursuant to a warrant held by the
Environmental Private Equity Fund II, L.P. that is currently exercisable.

(8) Includes 6,250 shares held by The Productivity Fund III, L.P. that is
currently exercisable.

(9) Includes 64,475 shares issuable pursuant to options held by Dr. Krishnan
that are currently exercisable within 60 days of July 27, 1999.

(10) Includes 1,218,143 shares issuable pursuant to options held by the
directors and officers that are currently exercisable or exercisable within
60 days of July 27, 1999. Also includes the 1,462,315.25 shares held by each
of the Environmental Private Equity Fund II, L.P. and The Productivity Fund
III, L.P. referenced in footnotes (3) and (4) above.

DESCRIPTION OF CAPITAL STOCK

Upon completion of this offering, ShopNow's authorized capital stock will
consist of 200,000,000 shares of common stock, $0.01 par value, and 5,000,000
shares of preferred stock, $0.01 par value. The following description of our
capital stock does not purport to be complete and is subject to and qualified in
its entirety by our articles of incorporation and bylaws, which are included as
exhibits to the registration Statement of which this prospectus forms a part,
and by the provisions of applicable Washington law.

COMMON STOCK

As of June 30, 1999, and including the automatic conversion of all
outstanding shares of our preferred stock into common stock and the exercise and
automatic conversion into common stock of all warrants to purchase our Series C
convertible preferred stock upon the completion of this offering, there were
outstanding 24,154,706 shares of common stock held of record by approximately
400 shareholders and options to purchase 8,206,657 shares of common stock.

The holders of common stock are entitled to one vote on each matter
submitted to a vote of the shareholders. Subject to preferences that may apply
to shares of preferred stock outstanding at the time, the holders of outstanding
shares of common stock shall be entitled to receive ratably dividends at such
times and in such amounts as may be determined by the board of directors. In the
event of any dissolution, liquidation or winding up, the holders of common stock
are entitled to share ratably in all of the assets remaining after payment or
provision for payment of the debts and other liabilities and the liquidation
preference of any outstanding shares of preferred stock. The holders of common
stock have no preemptive or subscription rights. There are no conversion rights,
redemption rights, sinking

62
<PAGE>
fund provisions or fixed dividend rights with respect to the common stock. The
holders of common stock are not entitled to cumulative voting at any election of
directors. All outstanding shares of common stock are fully paid and
non-assessable, and the shares of common stock to be issued in the offering will
be fully paid and non-assessable.

PREFERRED STOCK

Upon the consummation of this offering, the outstanding shares of Series A,
Series B, Series C, Series D, Series E, Series F, Series G, Series H and Series
I convertible preferred stock will automatically convert into common stock. Upon
completion of this offering, the board of directors will have authority,
pursuant to our articles of incorporation and without further action by the
shareholders, to issue up to 5,000,000 shares of preferred stock in one or more
series. The board of directors may also determine or alter for each series such
voting powers, designations, preferences, and special rights, qualifications,
limitations or restrictions as permitted by law. The board of directors may
authorize the issuance of preferred stock with voting or conversion rights that
could adversely affect the voting power or other rights of the holders of the
common stock. The issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could, among
other things, have the effect of delaying, deferring or preventing a change in
control of ShopNow and may adversely affect the market price of the common stock
and the voting and other rights of the holders of common stock. There will be no
shares of preferred stock outstanding upon the consummation of this offering,
and we have no current plans to issue any shares of preferred stock.

COMMON STOCK WARRANTS

Upon the closing of this offering, we will have warrants outstanding to
purchase an aggregate of 4,234,618 shares of common stock at exercise prices
ranging from $1.00 to $10.00 per share. These warrants contain anti-dilution
provisions providing for adjustments to the exercise price and the number of
shares of common stock underlying these warrants upon the occurrence of
specified events, including any recapitalization, reclassification, stock
dividend, stock split, stock combination or similar transaction.

Additionally, immediately prior to the closing of this initial public
offering, there were warrants outstanding to purchase 167,047 shares of Series C
preferred stock at an exercise price of $1.50 per share. The right to purchase
shares of Series C preferred stock pursuant to such warrants expires with the
closing of an underwritten public offering pursuant to an effective registration
statement.

OTHER EQUITY-BASED AGREEMENTS

From time to time in connection with the negotiation of material agreements,
we may use equity-based arrangements, including warrants to purchase shares of
common stock, as an incentive for a party with which ShopNow has a business
relationship to enter into an agreement with ShopNow.

REGISTRATION RIGHTS

Upon completion of the offering, the holders of an aggregate of 20,194,563
shares of common stock to be issued upon the automatic conversion of our
preferred stock and the exercise and automatic conversion of the warrants to
purchase our Series C convertible preferred stock, 4,234,618 shares issuable
upon exercise of our outstanding warrants and 6,060,143 shares of outstanding
common stock will be entitled to certain rights with respect to the registration
of such shares under the Securities Act of 1933. Under the terms of our
registration rights agreement, the holders of more than 50% of the registrable
securities issued and issuable may request, by written notice nine months after
the effective date of the first registration statement filed by ShopNow covering
a public offering of its securities, that ShopNow register any registrable
securities specified in the notice in a public offering with a public offering
price of at least $5.00 per share of common stock and the anticipated aggregate
proceeds of which would exceed $4.0 million. Also under the terms of our
registration rights agreement, the holders

63
<PAGE>

of more than 50% of the registrable securities issued and issuable may require
that ShopNow register its shares for public resale on Form S-2, Form S-3 or
similar short-form registration, provided that ShopNow is a registrant entitled
to use such a form and that the value of the securities to be registered is at
least $750,000. ShopNow is not obligated to effect any such short-form
registration at any time more than three years after the initial public offering
or if it has effected one such registration during the immediately preceding
twelve-month period. These registration rights are subject to the right of the
managing underwriter to reduce the number of shares proposed to be registered in
view of market conditions. All expenses in connection with any registration will
be borne by ShopNow. A holder's registration rights will terminate on the
closing of the first company-initiated registered public offering of common
stock, or on such date after such event, if the holder is entitled to
immediately sell all of its shares under Rule 144 of the Securities Act during
any 90-day period and the holders of the registrable stock own less than 1% of
the outstanding common stock.

WASHINGTON ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS

Certain provisions of Washington law and our articles of incorporation and
bylaws could make more difficult the acquisition of ShopNow by means of a tender
offer, a proxy contest or otherwise and the removal of incumbent officers and
directors. These provisions, summarized below, are expected to discourage
certain types of coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of ShopNow to first negotiate with
us. We believe that the benefits of increased protection of our potential
ability to negotiate with the proponent of an unfriendly or unsolicited proposal
to acquire or restructure ShopNow outweigh the disadvantages of discouraging
such proposals because, among other things, negotiation of such proposals could
result in an improvement of their terms.

ELECTION AND REMOVAL OF DIRECTORS. Effective upon the closing of this
offering, our articles of incorporation will provide for the division of our
board of directors into three classes, as nearly as equal in number as possible,
with the directors in each class serving for a three-year term, and one class
being elected each year by our shareholders. The initial term of the Class I
directors expires at our annual meeting of shareholders to be held in 2000; the
initial term of the Class II directors expires at our annual meeting of
shareholders to be held in 2001; and the initial term of the Class III directors
expires at our annual meeting of shareholders to be held in 2002. Thereafter,
the term of each class of directors shall be three years. This system of
electing and removing directors generally makes it more difficult for
shareholders to replace a majority of the members of our board of directors and
may tend to discourage a third party from making a tender offer or otherwise
attempting to gain control of ShopNow and may have the effect of maintaining the
incumbency of our board of directors.

SHAREHOLDER MEETING. Effective upon the completion of this offering, our
bylaws will provide that, except as otherwise required by law or by our articles
of incorporation, special meetings of the shareholders may only be called
pursuant to a resolution adopted by our board of directors, the Chairman of our
board of directors or our President. These provisions of our articles of
incorporation and bylaws could discourage potential acquisition proposals and
could delay or prevent a change of control. Our intent in using these provisions
is to enhance the likelihood of continuity and stability in the composition of
our board of directors and in the policies formulated by them and to discourage
certain types of transactions that may involve an actual or threatened change of
control. These provisions are designed to reduce our vulnerability to an
unsolicited acquisition proposal and to discourage certain tactics that may be
used in proxy fights. However, these provisions could have the effect of
discouraging others from making tender offers for our shares and, as a
consequence, they could inhibit fluctuations in the market price of our shares
that could result from actual or rumored takeover attempts. Such provisions
could have the effect of preventing changes in our management.

REQUIREMENTS FOR ADVANCE NOTIFICATION OF SHAREHOLDER NOMINATIONS AND
PROPOSALS. Effective upon the completion of this offering, our bylaws will
contain advance notice procedures with respect to

64
<PAGE>
shareholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the board of
directors or a committee thereof.

WASHINGTON ANTI-TAKEOVER LAW. Washington law imposes restrictions on some
transactions between a corporation and certain significant shareholders. Chapter
23B.19 of the Washington Business Corporation Act prohibits a "target
corporation," with some exceptions, from engaging in certain significant
business transactions with an "acquiring person," which is defined as a person
or group of persons that beneficially owns 10% or more of the voting securities
of the target corporation, for a period of five years after such acquisition,
unless the transaction or acquisition of shares is approved by a majority of the
members of the target corporation's board of directors prior to the time of such
acquisition. Such prohibited transactions include, among others things:

- a merger or consolidation with, disposition of assets to, or issuance or
redemption of stock to or from the acquiring person;

- termination of 5% or more of the employees of the target corporation as a
result of the acquiring person's acquisition of 10% or more of the shares;
or

- allowing the acquiring person to receive any disproportionate benefit as a
shareholder.

SHAREHOLDER ACTION BY WRITTEN CONSENT. Effective upon the closing of this
Offering, our Amended and Restated Articles of Incorporation permit shareholders
to act by written consent without a meeting only with the written consent of all
shareholders entitled to vote on the subject matter.

ELIMINATION OF CUMULATIVE VOTING. Effective upon the closing of this
Offering, our Amended and Restated Articles of Incorporation and Amended and
Restated Bylaws do not provide for cumulative voting in the election of
directors.

UNDESIGNATED PREFERRED STOCK. The authorization of undesignated preferred
stock makes it possible for the Board of Directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any
attempt to change control of ShopNow. These and other provisions may have the
effect of deferring hostile takeovers or delaying changes in control or
management of ShopNow.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is Continental Stock
Transfer & Trust Company.

NASDAQ NATIONAL MARKET LISTING

We will apply for approval for quotation on the Nasdaq National Market under
the symbol "SPNW" for the shares of common stock we are offering.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has not been any public market for our common
stock, and no prediction can be made as to the effect, if any, that market sales
of shares of common stock or the availability of shares of common stock for sale
will have on the market price of the common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of common stock in the public market,
or the perception that such sales could occur, could adversely affect the market
price of the

65
<PAGE>
common stock and could impair our future ability to raise capital through the
sale of equity securities. See "Risk Factors--Future Sales of Our Common Stock
May Depress Our Stock Price."

Upon the closing of this offering, we will have an aggregate of 33,254,706
shares of common stock outstanding, based upon shares outstanding as of June 30,
1999 and assuming the automatic conversion of all of our outstanding preferred
stock and the exercise and automatic conversion of all warrants to purchase our
Series C convertible preferred stock into an aggregate of 20,194,563 shares of
common stock upon the completion of this offering, no exercise of the
underwriters' over-allotment option, and no exercise of outstanding options or
warrants. Of the outstanding shares, the 7,000,000 shares sold in this offering
will be freely tradable without restriction under the Securities Act of 1933,
except for any shares purchased by "affiliates" of ShopNow as that term is
defined in Rule 144 under the Securities Act of 1933. Of the remaining
26,354,706 shares of common stock held by existing shareholders, 26,259,231
shares will be deemed "restricted securities" as that term is defined in Rule
144. All of these restricted securities will be subject to lock-up agreements
providing that, with certain limited exceptions, the shareholder will not offer,
sell, contract to sell or otherwise dispose of any securities of ShopNow that
are substantially similar to the common stock, including but not limited to any
securities that are convertible into or exchangeable for, or that represent the
right to receive, common stock or any such substantially similar securities
(other than pursuant to employee stock option plans existing on, or upon the
conversion or exchange of convertible or exchangeable securities outstanding as
of, the date of the lock-up agreement) for a period of 180 days after the date
of this prospectus without the prior written consent of Dain Rauscher Wessels, a
division of Dain Rauscher Incorporated. As a result of these lock-up agreements,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701, none of these shares may be sold until 180 days after
the date of this prospectus. At various times after expiration of the lock-up
agreements, these restricted securities will be eligible for sale in the public
market, subject, in some cases, to volume limitations. In addition, as of June
30, 1999, there were outstanding options to purchase 6,901,578 shares of common
stock and warrants to purchase 4,234,618 shares of common stock. All such
options and warrants will be subject to lock-up agreements. Dain Rauscher
Wessels, a division of Dain Rauscher Incorporated, may, in its sole discretion
and at any time without notice, release all or any portion of the securities
subject to lock-up agreements.

In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated), including an affiliate, who has
beneficially owned shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of 1% of the then outstanding
shares of common stock (approximately 332,000 shares immediately after this
offering) or the average weekly trading volume in the common stock during the
four calendar weeks preceding the date on which notice of such sale is filed,
subject to restrictions. In addition, a person who is not deemed to have been an
affiliate at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years would
be entitled to sell such shares under Rule 144(k) without regard to the
requirements described above. To the extent that shares were acquired from an
affiliate, such person's holding period for the purpose of effecting a sale
under Rule 144 commences on the date of transfer from the affiliate.

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

66
<PAGE>
be subject to lock-up agreements and will only become eligible for sale at the
earlier of the expiration of the 180-day lock-up agreements or upon the prior
written consent of Dain Rauscher Wessels, a division of Dain Rauscher
Incorporated.

We intend to file one or more registration statements on Form S-8 under the
Securities Act of 1933 to register all shares of common stock issued or issuable
under our stock plans. We expect to file the registration statement covering
shares offered pursuant to our stock option plan and employee stock purchase
plan within 180 days after the date of this prospectus, thus permitting the
resale of such shares by nonaffiliates in the public market without restriction
under the Securities Act.

Also, beginning nine months after the date of this offering, holders of
24,350,756 shares of common stock and holders of warrants to purchase 4,234,618
shares of common stock will be entitled to certain rights with respect to
registration of such shares for sale in the public market. See "Description of
Capital Stock--Registration Rights." Registration of such shares under the
Securities Act would result in such shares becoming freely tradable without
restriction under the Securities Act (except for shares purchased by affiliates)
immediately upon the effectiveness of such registration to the extent such
shares are not already freely tradeable.

67
<PAGE>
UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting
agreement, the underwriters named below, for whom Dain Rauscher Wessels, a
division of Dain Rauscher Incorporated, U.S. Bancorp Piper Jaffray Inc.,
SoundView Technology Group, Inc. and Wit Capital Corporation are acting as
representatives, have severally but not jointly agreed to purchase from us the
following numbers of shares of common stock listed opposite their names below.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
Dain Rauscher Wessels................................................................................
U.S. Bancorp Piper Jaffray Inc.......................................................................
SoundView Technology Group, Inc......................................................................
Wit Capital Corporation..............................................................................
----------
Total..............................................................................................
----------
----------
</TABLE>

The underwriting agreement provides that the obligations of the underwriters
are subject to certain conditions precedent and that the underwriters will be
obligated to purchase all the shares of common stock offered hereby if any are
purchased, other than those shares covered by the over-allotment option
described below. The underwriting agreement provides that, in the event of a
default by an underwriter, in certain circumstances the purchase commitments of
nondefaulting underwriters may be increased or the underwriting agreement may be
terminated.

We have granted to the underwriters a 30-day option to purchase up to
1,050,000 shares of common stock at the initial public offering price less the
underwriting discounts and commissions. Such option may be exercised only to
cover over-allotments in the sale of shares of common stock.

The underwriters have advised us that they propose to offer the shares to
the public initially at the public offering price set forth on the cover page of
this prospectus and to certain dealers at such price less a concession not in
excess of $ per share. These concessions may be reclaimed by the underwriters
in certain circumstances if a dealer's client purchases and resells shares sold
in the offering within 30 days of the date of this prospectus and the
underwriters are purchasing shares in the open market. The underwriters and such
dealers may reallow a concession of $ per share on sales to certain other
dealers. After the initial public offering, the representatives may change the
public offering price and concession and discount to dealers.

The following table summarizes the per share and total underwriting
discounts and commissions to be paid to the underwriters by ShopNow, without
exercise of the over-allotment option and with exercise of the over-allotment
option. The underwriters' compensation was determined through arms-length
negotiation between the representatives and ShopNow.

<TABLE>
<CAPTION>
WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT
-------------- --------------
<S> <C> <C>
Per share......................................................................... $ $
Total............................................................................. $ $
</TABLE>

We will also pay the total expenses of this offering.

We, our officers and directors, and certain of our shareholders have agreed
that they will not offer, sell, contract to sell, announce an intention to sell,
pledge or otherwise dispose of, directly or indirectly, or file with the
Securities and Exchange Commission a registration statement under the Securities
Act of 1933 relating to any additional shares of common stock or securities
convertible into or exchangeable or exercisable for any shares of common stock
or securities convertible into or exchangeable or exercisable for any of our
shares without the prior written consent of Dain Rauscher

68
<PAGE>

Wessels, a division of Dain Rauscher Incorporated, for a period of 180 days
after the date of this prospectus, except in the case of issuances pursuant to
the exercise of employee stock options outstanding on the date hereof.

The underwriters intend to reserve for sale, at the initial public offering
price, up to shares of common stock for our directors, officers,
employees and business associates. As a result, the number of shares of common
stock available for sale to the general public will be reduced to the extent
such persons purchase the reserved shares. The underwriters will offer to the
general public any reserved shares that are not so purchased, on the same basis
as the other shares to be sold in this offering.

We have agreed to indemnify the underwriters against certain liabilities,
including civil liabilities under the Securities Act and liabilities arising
from breaches of representations and warranties contained in the underwriting
agreement, or to contribute to payments which the underwriters may be required
to make in respect thereof.

Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiation
between the representatives and us. The principal factors to be considered in
determining the public offering price include: the information set forth in this
prospectus and otherwise available to the representatives, the history and the
prospects for the industry in which we compete, the ability of our management,
our prospects for future earnings, the present state of our development and our
current financial condition, the general condition of the securities markets at
the time of this offering, and the recent market prices of, and the demand for,
publicly traded common stock of generally comparable companies.

The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act. Over-allotment involves syndicate sales in
excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the underlying security so long
as the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the securities in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the representatives to reclaim a selling concession from a
syndicate member when the securities originally sold by such syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the securities to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.

A prospectus in electronic format is being made available on a Web site
maintained by Wit Capital. In addition, pursuant to a dealer agreement, all
dealers purchasing shares from Wit Capital in the offering similarly have agreed
to make a prospectus in electronic format available on Web sites maintained by
each of these dealers. Other than the prospectus in electronic format, the
information on these Web sites is not part of this prospectus or the
registration statement of which this prospectus forms a part, has not been
approved or endorsed by us or any underwriter in such capacity and should not be
relied on by prospective investors.

LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon for us
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Kirkland,
Washington and Palo Alto, California. Certain legal matters will be passed upon
for the underwriters by Faegre & Benson LLP, Minneapolis, Minnesota.

69
<PAGE>
EXPERTS

The audited financial statements for ShopNow.com Inc., Media Assets, Inc.,
and The Internet Mall, Inc. and schedule included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.

The audited financial statements for GO Software, Inc. included in this
prospectus have been audited by Ernst & Young LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
reports.

CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS

Our board of directors has selected Arthur Andersen LLP to serve as
independent public accountants. Arthur Andersen LLP has served as our
independent public accountants since August 1998. In August 1998, we dismissed
Ernst & Young LLP as our independent accountants. Ernst & Young's report on the
Company's consolidated financial statements for the two years ended December 31,
1997 does not cover the consolidated financial statements of the Company
included in this prospectus. Ernst & Young's reports on the financial statements
for the years ended December 31, 1996 and 1997 did not contain any adverse
opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principle. The decision to change
independent accountants was approved by the board of directors. During the years
ended December 31, 1996 and 1997 and through August, 1998 there were no
reportable events, as defined in regulations of the Securities and Exchange
Commission, or disagreements with Ernst & Young LLP on any matters of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure. Prior to retaining Arthur Andersen LLP, we had not consulted with
Arthur Andersen LLP regarding accounting principles.

WHERE YOU CAN FIND MORE INFORMATION

We filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act of 1933, that registers the
shares of common stock offered hereby. This prospectus does not contain all the
information set forth in the registration statement and the exhibits and
schedules filed with the registration statement. For more information about us
and the common stock offered hereby, you should review the registration
statement and the exhibits and schedules filed with the registration statement.
Statements contained in this prospectus regarding the contents of any contract
or any other document to which reference is made are not necessarily complete,
and, in each instance, you should review the copy of such contract or other
document filed as an exhibit to the registration statement. A copy of the
registration statement and the exhibits and schedules filed with the
registration statement may be inspected and copied at the following location of
the Securities and Exchange Commission:

PUBLIC REFERENCE ROOM
450 FIFTH STREET, N.W.
WASHINGTON, D.C. 20549.

You may also obtain copies of all or any part of the registration statement
from that office at prescribed rates. Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information on the operation of the
public reference room. The Securities and Exchange Commission maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Securities
and Exchange Commission. The address of the site is http://www.sec.gov.

70
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Unaudited Pro Forma Combined Financial Information
Unaudited Pro Forma Combined Statements of Operations.................................................... F-3
Notes to Unaudited Pro Forma Combined Financial Statements............................................... F-5

ShopNow.com Inc.
Report of Independent Public Accountants................................................................. F-7
Consolidated Balance Sheets.............................................................................. F-8
Consolidated Statements of Operations.................................................................... F-9
Consolidated Statements of Comprehensive Loss............................................................ F-10
Consolidated Statements of Shareholders' Equity (Deficit)................................................ F-11
Consolidated Statements of Cash Flows.................................................................... F-12
Notes to Consolidated Financial Statements............................................................... F-14

Media Assets, Inc.
Report of Independent Public Accountants................................................................. F-32
Balance Sheets........................................................................................... F-33
Statements of Operations................................................................................. F-34
Statements of Shareholder's Equity....................................................................... F-35
Statements of Cash Flows................................................................................. F-36
Notes to Financial Statements............................................................................ F-37

The Internet Mall, Inc.
Report of Independent Public Accountants................................................................. F-41
Balance Sheets........................................................................................... F-42
Statements of Operations................................................................................. F-43
Statements of Shareholders' Equity....................................................................... F-44
Statements of Cash Flows................................................................................. F-45
Notes to Financial Statements............................................................................ F-46

GO Software, Inc.
Report of Independent Auditors........................................................................... F-52
Balance Sheets........................................................................................... F-53
Statements of Operations................................................................................. F-54
Statements of Shareholders' Equity (Deficit)............................................................. F-55
Statements of Cash Flows................................................................................. F-56
Notes to Financial Statements............................................................................ F-57
</TABLE>

F-1
<PAGE>
SHOPNOW.COM INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

The unaudited pro forma combined statement of operations of ShopNow.com Inc.
for the year ended December 31, 1998 and for the six months ended June 30, 1999
gives effect to the acquisitions of Media Assets, Inc., The Internet Mall Inc.
and GO Software, Inc. and the disposition of BuySoftware.com as if they occurred
on January 1, 1998.

Separate historical financial information required under Rule 3-05 of
Regulation S-X or pro forma financial information under Article 11 of Regulation
S-X for the acquisition of e-Warehouse and CyberTrust, Inc. is not provided as
the amounts are not considered meaningful since the Company has written off the
majority of the purchase price due to the impairment of the acquired technology.

The unaudited pro forma combined statements of operations are presented for
informational purposes only and do not purport to represent what the Company's
results of operations for the year ended December 31, 1998 or for the six months
ended June 30, 1999 would actually have been had the acquisitions, in fact,
occurred on January 1, 1998, or the Company's results of operations for any
future period. The unaudited pro forma combined statements of operations should
be read in conjunction with the financial statements and related notes thereto
included elsewhere in this prospectus and the information set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

F-2
<PAGE>

SHOPNOW.COM INC.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 1998

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
(JANUARY 1, 1998 (JANUARY 1, 1998
TO TO
AUGUST 8, 1998) SEPTEMBER 17,
SHOPNOW.COM THE INTERNET MALL, 1998) GO SOFTWARE, PRO FORMA
INC. INC. MEDIA ASSETS, INC. INC. ADJUSTMENTS
--------------- ------------------ ------------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Transactions and
merchandising............. $ 4,211 $ 175 $ -- $1,346 $(3,931)(c)
Merchant services........... 2,943 -- 4,833 -- (527)(c)
--------------- ----- ------ ------ -----------
Total revenues............ 7,154 175 4,833 1,346 (4,458)
--------------- ----- ------ ------ -----------
Cost of revenues:
Transactions and
merchandising............. 4,493 24 -- 55 (4,351)(c)
Merchant services........... 1,356 -- 2,808 -- (101)(c)
--------------- ----- ------ ------ -----------
Total cost of revenues.... 5,849 24 2,808 55 (4,452)
--------------- ----- ------ ------ -----------
Gross profit............ 1,305 151 2,025 1,291 (6)
--------------- ----- ------ ------ -----------
Operating expenses:
Sales and marketing......... 12,183 56 1,365 143 (2,956)(c)
General and
administrative............ 3,549 275 318 1,006 (1,083)(c)
Research and development.... 4,370 114 -- 253 (1,061)(c)
Amortization of intangible
assets.................... 730 -- 1 -- 5,567(a)
Stock-based compensation.... 182 -- -- -- --
Unusual item--impairment of
acquired technology....... 5,207 -- -- -- --
--------------- ----- ------ ------ -----------
Total operating
expenses................ 26,221 445 1,684 1,402 467
--------------- ----- ------ ------ -----------
Income (loss) from
operations.................. (24,916) (294) 341 (111) (473)
Other income (expense), net... 171 (13) 17 41 (125)(b)
--------------- ----- ------ ------ -----------
Loss before provision for
income taxes................ (24,745) (307) 358 (70) (598)
Provision for income taxes.... -- -- -- 17 (17)(d)
--------------- ----- ------ ------ -----------
Net (loss) income....... $ (24,745) $(307) $ 358 $ (53) $ (615)
--------------- ----- ------ ------ -----------
--------------- ----- ------ ------ -----------
Basic and diluted net loss per
share....................... $ (7.01)
---------------
---------------
Weighted average shares
outstanding used to compute
basic and diluted net loss
per share................... 3,532,054
---------------
---------------
Basic and diluted pro forma
net loss per share.......... $ (1.92)
---------------
---------------
Weighted average shares used
to compute basic and diluted
pro forma net loss per
share....................... 12,857,745
---------------
---------------

PRO FORMA
COMBINED
TOTAL
-------------
<S> <C>
Revenues:
Transactions and
merchandising............. $ 1,801
Merchant services........... 7,249
-------------
Total revenues............ 9,050
-------------
Cost of revenues:
Transactions and
merchandising............. 221
Merchant services........... 4,063
-------------
Total cost of revenues.... 4,284
-------------
Gross profit............ 4,766
-------------
Operating expenses:
Sales and marketing......... 10,791
General and
administrative............ 4,065
Research and development.... 3,676
Amortization of intangible
assets.................... 6,298
Stock-based compensation.... 182
Unusual item--impairment of
acquired technology....... 5,207
-------------
Total operating
expenses................ 30,219
-------------
Income (loss) from
operations.................. (25,453)
Other income (expense), net... 91
-------------
Loss before provision for
income taxes................ (25,362)
Provision for income taxes.... --
-------------
Net (loss) income....... $ (25,362)
-------------
-------------
Basic and diluted net loss per
share....................... $ (4.61)
-------------
-------------
Weighted average shares
outstanding used to compute
basic and diluted net loss
per share................... 5,505,881
-------------
-------------
Basic and diluted pro forma
net loss per share.......... $ (1.71)
-------------
-------------
Weighted average shares used
to compute basic and diluted
pro forma net loss per
share....................... 14,842,525
-------------
-------------
</TABLE>

See notes to unaudited pro forma combined financial statements.

F-3
<PAGE>
SHOPNOW.COM INC.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 1999

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
(JANUARY 1, 1999
TO JUNE 15, 1999) PRO FORMA PRO FORMA
SHOPNOW.COM INC. GO SOFTWARE, INC. ADJUSTMENTS COMBINED TOTAL
----------------- ----------------- ----------- --------------
<S> <C> <C> <C> <C>
Revenues:
Transactions and merchandising.............. $ 11,630 $ 728 $ (9,747)(c) $ 2,611
Merchant services........................... 4,352 -- (176)(c) 4,176
----------------- ------ ----------- --------------
Total revenues............................ 15,982 728 (9,923) 6,787
----------------- ------ ----------- --------------
Cost of revenues:
Transactions and merchandising.............. 12,177 45 (11,153)(c) 1,069
Merchant services........................... 2,506 -- (37)(c) 2,469
----------------- ------ ----------- --------------
Total cost of revenues.................... 14,683 45 (11,190) 3,538
----------------- ------ ----------- --------------
Gross profit............................ 1,299 683 1,267 3,249
----------------- ------ ----------- --------------
Operating expenses:
Sales and marketing......................... 18,279 172 (2,886)(c) 15,565
General and administrative.................. 2,480 514 (436)(c) 2,558
Research and development.................... 2,934 182 (10)(c) 3,106
Amortization of intangible assets........... 1,639 -- 1,999(a) 3,638
Stock-based compensation.................... 1,956 -- -- 1,956
Unusual item--impairment of acquired
technology................................ -- -- -- --
----------------- ------ ----------- --------------
Total operating expenses.................. 27,288 868 (1,333) 26,823
----------------- ------ ----------- --------------
Income (loss) from operations (25,989) (185) 2,600 (23,574)
Other income (expense), net................. (245) 12 (50)(b) (283)
----------------- ------ ----------- --------------
Loss before provision for income taxes...... (26,234) (173) 2,550 (23,857)
Provision for income taxes.................. -- 12 (12)(d) --
----------------- ------ ----------- --------------
Net (loss) income....................... (26,234) (161) 2,538 (23,857)
----------------- ------ ----------- --------------
----------------- ------ ----------- --------------
Basic and diluted net loss per share.......... $ (5.50) $ (4.11)
----------------- --------------
----------------- --------------
Weighted average shares outstanding used to
compute basic and diluted net loss per
share....................................... 4,768,405 5,799,028
----------------- --------------
----------------- --------------
Basic and diluted pro forma net loss per
share....................................... $ (1.32) $ (1.14)
----------------- --------------
----------------- --------------
Weighted average shares used to compute basic
and diluted pro forma net loss per share.... 19,868,479 20,899,387
----------------- --------------
----------------- --------------
</TABLE>

See notes to unaudited pro forma combined financial statements.

F-4
<PAGE>
SHOPNOW.COM INC.

NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS

JUNE 30, 1999

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

1. BASIS OF PRESENTATION:

The unaudited pro forma combined statement of operations for the year ended
December 31, 1998 and for the six months ended June 30, 1999 gives effect to the
acquisitions of Media Assets, Inc., The Internet Mall, Inc., and GO Software,
Inc. and the disposition of BuySoftware.com as if these transactions had
occurred January 1, 1998.

The pro forma combined financial statements are presented for illustrative
purposes only and should not be construed to be indicative of the actual
combined results of operations as may exist in the future. The pro forma
adjustments are based on the cash and common stock consideration exchanged by
ShopNow for the fair value of the assets acquired and liabilities assumed.

2. PRO FORMA ADJUSTMENTS:

(a) To record amortization of intangible assets based on the excess purchase
price. As Media Assets, Inc. and The Internet Mall, Inc. were acquired
during 1998 and GO Software was acquired on June 15, 1999, amortization
is based on the actual purchase price allocation and computed for the
period from January 1, 1998 to the respective date of acquisition:

<TABLE>
<S> <C>
Seven months of The Internet Mall, Inc.............................. $ 422
Eight months of Media Assets, Inc................................... 347
Twelve months of GO Software, Inc................................... 4,798
---------
Total 1998 pro forma amortization............................... $ 5,567
---------
---------
Five months of 1999--GO Software, Inc............................... $ 1,999
---------
---------
</TABLE>

All intangible assets are amortized over three years.

(b) To record eight months of interest expense associated with the note
issued as consideration for Media Assets, Inc., totaling $25, and to
record twelve and six months of interest expense associated with the GO
Software, Inc. convertible promissory note totaling $100 and $50,
respectively.

(c) To eliminate the results of operations of BuySoftware.com. Given the
Company's continued involvement in certain retailing activities, the
results of BuySoftware.com will be reflected in continuing operations
through June 30, 1999. The Company ceased operations of BuySoftware.com
in June 1999. However, the Company believes that it is meaningful to
present the disposal as if it had occurred as of January 1, 1998. As
BuySoftware.com was run as a separate business segment, the revenues,
cost of revenues and operating expenses directly attributable to the
business segment were removed.

(d) To eliminate tax benefits recorded by GO Software, Inc., which may not
be realized by the Company.

(e) Basic and diluted net loss per share is computed by dividing net loss by
the weighted average number of shares outstanding during the period
assuming that shares issued for acquisitions were outstanding for the
entire period. Pro forma basic and diluted net loss per share is

F-5
<PAGE>
SHOPNOW.COM INC.

NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1999

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

2. PRO FORMA ADJUSTMENTS: (CONTINUED)
computed based on the weighted average number of shares outstanding
giving effect to shares issued in acquisitions as if they were
outstanding for the entire period and to the conversion of convertible
preferred stock on an as-if converted basis from the original issuance
date.

3.RECONCILIATION OF HISTORICAL WEIGHTED AVERAGE SHARES TO PRO FORMA
WEIGHTED AVERAGE SHARES:

<TABLE>
<CAPTION>
DECEMBER 31, 1998 JUNE 30, 1999
----------------- -------------
<S> <C> <C>
Historical.................................................. 3,532,054 4,768,405
Internet Mall, January 1, 1998 - August 8, 1998............. 426,024 --
Media Assets, January 1, 1998 - September 17, 1998.......... 424,052 --
Go Software, January 1, 1998 - December 31, 1998; January 1,
1999 - June 15, 1999...................................... 1,123,751 1,030,623
----------------- -------------
Pro forma................................................... 5,505,881 5,799,028
----------------- -------------
----------------- -------------
</TABLE>

F-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To ShopNow.com Inc.:

We have audited the accompanying consolidated balance sheets of ShopNow.com
Inc. (a Washington corporation) and subsidiaries as of December 31, 1997 and
1998 and June 30, 1999, and the related consolidated statements of operations,
comprehensive loss, shareholders' equity (deficit) and cash flows for each of
the years in the three year period ended December 31, 1998 and for the six
months ended June 30, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether these 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 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 ShopNow.com Inc. and
subsidiaries as of December 31, 1997 and 1998 and June 30, 1999, and the results
of their operations and their cash flows for each of the years in the three year
period ended December 31, 1998 and for the six months ended June 30, 1999, in
conformity with generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
consolidated financial statements is presented for purpose of complying with the
Securities and Exchange Commission rules and is not a required part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.

/s/ Arthur Andersen LLP

Seattle, Washington,
July 28, 1999

F-7
<PAGE>
SHOPNOW.COM INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30, PRO FORMA
-------------------- --------------- SHAREHOLDERS'
1997 1998 1999 EQUITY AT JUNE 30,
--------- --------- --------------- 1999
-------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 376 $ 9,820 $ 6,241
Short-term investments.................................. -- 179 233
Accounts receivable, net................................ 146 2,266 3,039
Unbilled services....................................... -- 1,448 241
Prepaid expenses and other.............................. 192 709 1,474
--------- --------- ---------------
Total current assets.................................. 714 14,422 11,228
Property and equipment, net............................... 472 4,185 9,627
Intangible assets, net.................................... 582 4,459 21,505
Investment in marketable equity securities................ -- -- 18,818
Other assets, net......................................... 562 717 3,072
--------- --------- ---------------
Total assets.......................................... $ 2,330 $ 23,783 $ 64,250
--------- --------- ---------------
--------- --------- ---------------

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Accounts payable........................................ $ 1,083 $ 3,551 $ 5,556
Accrued liabilities..................................... 502 1,132 3,507
Line of credit.......................................... 200 238 999
Current portion of notes and leases..................... 1,684 1,133 8,371
Customer deposits....................................... -- 2,155 1,196
Deferred revenue........................................ -- 535 365
--------- --------- ---------------
Total current liabilities............................. 3,469 8,744 19,994
Notes and leases payable, less current
portion................................................. 884 1,837 6,170
Put warrant liability..................................... -- -- 1,350
--------- --------- ---------------
Total liabilities..................................... 4,353 10,581 27,514
Commitments (Note 8)
Shareholders' equity (deficit):
Convertible preferred stock, $0.01 par value--
Authorized shares--20,000,000, issued shares--
3,868,896 in 1997, 12,299,896 in 1998, and
17,927,516 in 1999, preference in liquidation of
$79,853 in 1999....................................... 3,403 35,070 72,510 $ --
Common stock, $0.01 par value: Authorized
shares--40,000,000, issued shares--2,763,055 in
1997, 4,602,573 in 1998, and 6,060,143 in 1999........ (808) 6,559 21,839 94,349
Common stock warrants................................... -- 1,866 5,705 5,705
Deferred compensation................................... -- (930) (3,213) (3,213)
Unrealized loss on investments.......................... -- -- (4,508) (4,508)
Accumulated deficit..................................... (4,618) (29,363) (55,597) (55,597)
--------- --------- --------------- --------
Total shareholders' equity (deficit).................. (2,023) 13,202 36,736 $ 36,736
--------- --------- --------------- --------
--------
Total liabilities and shareholders' equity
(deficit)........................................... $ 2,330 $ 23,783 $ 64,250
--------- --------- ---------------
--------- --------- ---------------
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.

F-8
<PAGE>
SHOPNOW.COM INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------------- ----------------------
1996 1997 1998 1998 1999
--------- --------- --------- ----------- ---------
(UNAUDITED)
-----------
<S> <C> <C> <C> <C> <C>
Revenues:
Transactions and merchandising..... $ -- $ 69 $ 4,211 $ 743 $ 11,630
Merchant services.................. 993 535 2,943 396 4,352
--------- --------- --------- ----------- ---------
Total revenues................... 993 604 7,154 1,139 15,982
--------- --------- --------- ----------- ---------
Cost of revenues:
Transactions and merchandising..... -- 159 4,493 1,058 12,177
Merchant services.................. 430 356 1,356 127 2,506
--------- --------- --------- ----------- ---------
Total cost of revenues........... 430 515 5,849 1,185 14,683
--------- --------- --------- ----------- ---------
Gross margin................... 563 89 1,305 (46) 1,299
--------- --------- --------- ----------- ---------
Operating expenses:
Sales and marketing................ 610 1,201 12,183 4,477 18,279
General and administrative......... 656 918 3,549 1,353 2,480
Research and development........... 25 2,436 4,370 1,442 2,934
Amortization of intangible
assets........................... 32 136 730 118 1,639
Stock-based compensation........... -- -- 182 2 1,956
Unusual item--impairment of
acquired technology.............. -- -- 5,207 -- --
--------- --------- --------- ----------- ---------
Total operating expenses......... 1,323 4,691 26,221 7,392 27,288
--------- --------- --------- ----------- ---------
Loss from operations........... (760) (4,602) (24,916) (7,438) (25,989)
Other income (expense), net.......... (50) (164) 171 109 (245)
--------- --------- --------- ----------- ---------
Net loss....................... $ (810) $ (4,766) $ (24,745) $ (7,329) $ (26,234)
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Basic and diluted net loss per
share.............................. $ (0.40) $ (1.83) $ (7.01) $ (2.54) $ (5.50)
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Weighted average shares outstanding
used to compute basic and diluted
net loss per share................. 2,012,285 2,608,398 3,532,054 2,883,883 4,768,405
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Basic and diluted pro forma net loss
per share.......................... $ (1.92) $ (1.32)
--------- ---------
--------- ---------
Weighted average shares outstanding
used to compute basic and diluted
pro forma net loss per share....... 12,857,745 19,868,479
--------- ---------
--------- ---------
</TABLE>

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

F-9
<PAGE>

SHOPNOW.COM INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX MONTHS ENDED
JUNE 30,
-------------------------------- ----------------------------
1996 1997 1998 1999
--------- --------- ---------- 1998 -----------
---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss............................................ $ (810) $ (4,766) $ (24,745) $ (7,329) $ (26,234)

Unrealized loss on investments...................... -- -- -- -- (4,508)
--------- --------- ---------- ------- -----------

Comprehensive loss.................................. $ (810) $ (4,766) $ (24,745) $ (7,329) $ (30,742)
--------- --------- ---------- ------- -----------
--------- --------- ---------- ------- -----------
</TABLE>

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

F-10
<PAGE>
SHOPNOW.COM INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED
STOCK COMMON STOCK
---------------------- --------------------- COMMON STOCK
SHARES AMOUNT SHARES AMOUNT WARRANTS
----------- --------- ---------- --------- -----------------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1995............................. -- $ -- 1,946,684 $ 246 $ --
Issuance of common stock.............................. -- -- 391,429 80 --
Repurchase of common stock............................ -- -- (342,391) (51) --
Net loss.............................................. -- -- -- -- --
----------- --------- ---------- --------- ------
Balances, December 31, 1996............................. -- -- 1,995,722 275 --
Net loss January 1, 1997 through February 25, 1997.... -- -- -- -- --
Conversion from S Corporation to C Corporation........ -- -- -- (1,252) --
Conversion of shareholder notes into Series A
preferred stock..................................... 699,612 350 -- -- --
Issuance of Series B preferred stock.................. 2,334,079 1,800 -- -- --
Issuance of common stock.............................. -- -- 600,000 90 --
Repurchase of common stock............................ -- -- (10,000) (10) --
Conversion of shareholder notes into Series C
preferred stock..................................... 835,205 1,253 -- -- --
Conversion of shareholder notes into common stock..... -- -- 177,333 89 --
Net loss, February 26, 1997 through December 31,
1997................................................ -- -- -- -- --
----------- --------- ---------- --------- ------
Balances, December 31, 1997............................. 3,868,896 3,403 2,763,055 (808) --
Issuance of Series D preferred stock.................. 4,250,000 13,461 -- -- 673
Common stock, options and warrants issued for
businesses acquired................................. -- -- 1,744,692 6,105 --
Issuance of Series E preferred stock and warrants to
acquire common stock................................ 2,125,000 7,672 -- -- 328
Issuance of Series F preferred stock and warrants to
acquire common stock................................ 2,056,000 10,534 -- -- 865
Exercise of common stock options...................... -- -- 32,499 25 --
Issuance of common stock in consideration for
professional services............................... -- -- 62,327 125 --
Issuance of compensatory stock options................ -- -- -- 1,112 --
Compensation attributable to stock options............ -- -- -- -- --
Net loss.............................................. -- -- -- -- --
----------- --------- ---------- --------- ------
Balances, December 31, 1998............................. 12,299,896 35,070 4,602,573 6,559 1,866
Issuance of Series F preferred stock and warrants to
acquire common stock................................ 280,000 1,400 -- -- --
Issuance of Series G preferred stock and warrants to
acquire common stock................................ 5,014,286 33,200 -- -- 1,900
Issuance of Series H preferred stock and warrants to
acquire common stock................................ 333,334 2,840 -- -- 160
Common stock and options issued for businesses
acquired............................................ -- -- 1,366,787 11,496 --
Issuance of warrants in connection with debt
financings.......................................... -- -- -- -- 569
Issuance of warrants and options to business
partners............................................ -- -- -- -- 1,210
Exercise of common stock options...................... -- -- 209,011 123 --
Issuance of common stock in consideration for customer
lists and services.................................. -- -- 11,000 68 --
Repurchase of common stock............................ -- -- (129,228) (46) --
Issuance of compensatory stock options................ -- -- -- 3,639 --
Compensation attributable to stock options............ -- -- -- -- --
Unrealized loss on investments........................ -- -- -- -- --
Net loss.............................................. -- -- -- -- --
----------- --------- ---------- --------- ------
Balances, June 30, 1999................................. 17,927,516 $ 72,510 6,060,143 $ 21,839 $ 5,705
----------- --------- ---------- --------- ------
----------- --------- ---------- --------- ------

ACCUMULATED TOTAL
OTHER SHAREHOLDERS'
DEFERRED COMPREHENSIVE ACCUMULATED EQUITY
COMPENSATION LOSS DEFICIT (DEFICIT)
------------ --------------- ------------- --------------
<S> <C> <C> <C> <C>
Balances, December 31, 1995............................. $ -- $ -- $ (294) $ (48)
Issuance of common stock.............................. -- -- -- 80
Repurchase of common stock............................ -- -- -- (51)
Net loss.............................................. -- -- (810) (810)
------------ ------- ------------- --------------
Balances, December 31, 1996............................. -- -- (1,104) (829)
Net loss January 1, 1997 through February 25, 1997.... -- -- (148) (148)
Conversion from S Corporation to C Corporation........ -- -- 1,252 --
Conversion of shareholder notes into Series A
preferred stock..................................... -- -- -- 350
Issuance of Series B preferred stock.................. -- -- -- 1,800
Issuance of common stock.............................. -- -- -- 90
Repurchase of common stock............................ -- -- -- (10)
Conversion of shareholder notes into Series C
preferred stock..................................... -- -- -- 1,253
Conversion of shareholder notes into common stock..... -- -- -- 89
Net loss, February 26, 1997 through December 31,
1997................................................ -- -- (4,618) (4,618)
------------ ------- ------------- --------------
Balances, December 31, 1997............................. -- -- (4,618) (2,023)
Issuance of Series D preferred stock.................. -- -- -- 14,134
Common stock, options and warrants issued for
businesses acquired................................. -- -- -- 6,105
Issuance of Series E preferred stock and warrants to
acquire common stock................................ -- -- -- 8,000
Issuance of Series F preferred stock and warrants to
acquire common stock................................ -- -- -- 11,399
Exercise of common stock options...................... -- -- -- 25
Issuance of common stock in consideration for
professional services............................... -- -- -- 125
Issuance of compensatory stock options................ (1,112 ) -- -- --
Compensation attributable to stock options............ 182 -- -- 182
Net loss.............................................. -- -- (24,745) (24,745)
------------ ------- ------------- --------------
Balances, December 31, 1998............................. (930 ) -- (29,363) 13,202
Issuance of Series F preferred stock and warrants to
acquire common stock................................ -- -- -- 1,400
Issuance of Series G preferred stock and warrants to
acquire common stock................................ -- -- -- 35,100
Issuance of Series H preferred stock and warrants to
acquire common stock................................ -- -- -- 3,000
Common stock and options issued for businesses
acquired............................................ -- -- -- 11,496
Issuance of warrants in connection with debt
financings.......................................... -- -- -- 569
Issuance of warrants and options to business
partners............................................ -- -- -- 1,210
Exercise of common stock options...................... -- -- -- 123
Issuance of common stock in consideration for customer
lists and services.................................. -- -- -- 68
Repurchase of common stock............................ -- -- -- (46)
Issuance of compensatory stock options................ (3,639 ) -- -- --
Compensation attributable to stock options............ 1,356 -- -- 1,356
Unrealized loss on investments........................ -- (4,508) -- (4,508)
Net loss.............................................. -- -- (26,234) (26,234)
------------ ------- ------------- --------------
Balances, June 30, 1999................................. $ (3,213 ) $ (4,508) $ (55,597) $ 36,736
------------ ------- ------------- --------------
------------ ------- ------------- --------------
</TABLE>

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

F-11
<PAGE>
SHOPNOW.COM INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------- -----------------------
1996 1997 1998 1998 1999
--------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Operating activities:
Net loss............................................ $ (810) $ (4,766) $ (24,745) $ (7,329) $ (26,234)
Adjustments to reconcile net loss to net cash used
in operating activities--
Unusual item--impairment of acquired
technology...................................... -- -- 5,207 -- --
Depreciation and amortization..................... 35 277 1,602 237 2,707
Write down of long-term investments............... -- 34 -- -- --
Amortization of deferred compensation............. -- -- 182 2 1,356
Operating expenses paid in stock and warrants..... -- -- 125 125 1,214
Changes in operating assets and liabilities, net
of effect of businesses acquired:
Accounts receivable............................. (15) (51) 2,107 (578) (756)
Prepaid expenses and other current assets....... (22) (189) (77) (788) (895)
Other assets.................................... -- -- -- -- (325)
Unbilled services and customer deposits, net.... -- -- (3,713) -- 249
Accounts payable................................ 218 831 2,303 1,530 1,869
Accrued liabilities............................. 29 417 521 324 2,295
Deferred revenue................................ -- -- 535 152 (300)
--------- --------- ---------- ----------- ----------
Net cash used in operating activities......... (565) (3,447) (15,953) (6,325) (18,820)
--------- --------- ---------- ----------- ----------
Investing activities:
Purchases of property and equipment................. (31) (481) (2,189) (1,810) (5,262)
Purchase of short-term investments, net............. -- -- (179) (500) (54)
Purchase of domain names............................ -- -- -- -- (149)
Investments in common stock and other assets........ -- (943) (147) (278) (635)
Acquisition of businesses, net of cash acquired..... -- (250) (2,851) (4,000) (3,950)
--------- --------- ---------- ----------- ----------
Net cash used in investing activities......... (31) (1,674) (5,366) (6,588) (10,050)
--------- --------- ---------- ----------- ----------
</TABLE>

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

F-12
<PAGE>
SHOPNOW.COM INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX MONTHS
ENDED JUNE 30,
------------------------------- ----------------------
1996 1997 1998 1998 1999
--------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Financing activities:
Borrowings under bank line of credit........................ $ -- $ 200 $ 38 $ 38 $ 999
Principal payments under bank line of credit................ (1) (78) -- -- (238)
Proceeds from sale of common stock.......................... 80 -- 25 8 123
Common stock repurchased.................................... (51) (10) -- -- (46)
Proceeds from sale of preferred stock and warrants, net of
issuance costs............................................ -- 1,800 33,034 21,957 14,400
Proceeds from convertible subordinated notes................ -- 1,253 -- -- --
Proceeds from long-term debt................................ 603 2,562 3,700 -- 10,632
Payments on long-term debt.................................. (61) (242) (6,034) (1,834) (579)
--------- --------- --------- ----------- ---------
Net cash provided by financing activities............. 570 5,485 30,763 20,169 25,291
--------- --------- --------- ----------- ---------
Net increase (decrease) in cash and cash
equivalents......................................... (26) 364 9,444 7,256 (3,579)
Cash and cash equivalents at beginning of period............ 38 12 376 376 9,820
--------- --------- --------- ----------- ---------
Cash and cash equivalents at end of period.................. $ 12 $ 376 $ 9,820 $ 7,632 $ 6,241
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Supplementary disclosure of cash flow information:
Cash paid during the period for interest.................. $ 50 $ 11 $ 232 $ 52 $ 185
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Non-cash investing and financing activities:
Common stock, options and warrants issued as part of
business and technology acquisitions.................... $ -- $ 90 $ 6,105 $ 1,485 $ 11,560
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Conversion of note payable and convertible subordinated
debt to preferred stock................................. $ -- $ 1,603 $ 500 $ 500 $ --
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Conversion of note payable to common stock................ $ -- $ 89 $ -- $ -- $ --
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Assets acquired under capital leases...................... $ -- $ 125 $ 2,092 $ 1,730 $ 1,378
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
</TABLE>

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

F-13
<PAGE>
SHOPNOW.COM INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 1999

(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)

(IN THOUSANDS EXCEPT SHARE AMOUNTS)

1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

THE COMPANY

ShopNow.com Inc. (the Company), formerly TechWave, Inc., is an electronic
commerce portal that provides a comprehensive shopping solution to both
consumers and merchants. The Company's offerings include customized transaction
and merchandising services through ShopNow.com, retail computer and accessory
sales and electronic software distribution through BuySoftware.com, and a
variety of merchant services, including technology consulting services and
direct marketing and creative design services through Media Assets, Inc., which
was acquired in September 1998.

In June, 1999 the Company ceased operating the BuySoftware.com retailing
business. Given the Company's continued involvement in certain retailing
activities, the results of BuySoftware.com has been reflected in continuing
operations until the date operations ceased, as the disposal did not meet the
criteria for discontinued operations under Accounting Principles Board (APB) No.
30 "Reporting the Results of Operations--Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions".

The Company is subject to the risks and challenges associated with other
companies at a similar stage of development including dependence on key
individuals, successful development and marketing of its products and services,
the continued acceptance of the Internet as a medium for electronic commerce,
competition from substitute products and services and larger companies with
greater financial, technical management and marketing resources. Further, during
the period required to develop commercially viable products, services and
sources of revenues, the Company may require additional funds that may not be
readily available.

UNAUDITED INTERIM FINANCIAL DATA

The unaudited interim financial statements for the six month period ended
June 30, 1998 have been prepared on the same basis as the audited financial
statements and, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the financial information set forth therein, in accordance with generally
accepted accounting principles.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.

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 reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements

F-14
<PAGE>
SHOPNOW.COM INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1999

(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)

(IN THOUSANDS EXCEPT SHARE AMOUNTS)

1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

NET LOSS PER SHARE

In accordance with Statement of Financial Accounting Standards (SFAS) No.
128, "Computation of Earnings Per Share," basic earnings per share is computed
by dividing net loss by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings per share is computed by
dividing net loss by the weighted average number of common and dilutive common
equivalent shares outstanding during the period. Common equivalent shares
consist of the shares of common stock issuable upon the conversion of the
convertible preferred stock (using the if-converted method) and shares issuable
upon the exercise of stock options and warrants (using the treasury stock
method); common equivalent shares are excluded from the calculation if their
effect is antidilutive. The Company has not had any issuances or grants for
nominal consideration as defined under Staff Accounting Bulletin 98. Diluted net
loss per share for all periods shown does not include the effects of the
convertible preferred stock and shares issuable upon the exercise of stock
options and warrants as the effect of their inclusion is antidilutive during
each period.

Pro forma basic and diluted net loss per share is computed based on the
weighted average number of shares of common stock outstanding giving effect to
the conversion of convertible preferred stock outstanding that will
automatically convert upon completion of the Company's initial public offering
(using the if-converted method from the original issuance date). Pro forma
diluted net loss per share excludes the impact of stock options and warrants as
the effect of their inclusion would be antidilutive.

REVENUE RECOGNITION

The Company generates revenues primarily from transactions, merchandising
and merchant services. Revenues from transactions are generated from purchases
of products and services. Merchandising revenues are generated from advertising
and merchandising conducted by merchants on the Company's Web sites. Revenues
are recognized when the product has been shipped or the service has been
delivered to the customer. The Company bears the full credit risk with respect
to these sales. Transactional fees paid by merchants are generally recognized at
the time of sale of a product or service using the Company's transaction
processing system. In these transactions, the merchant bears the full credit
risk, and the Company recognizes a transaction fee upon consummation of the
sale. Merchandising revenues are recognized ratably over the term of the
applicable agreement. Merchandising agreements typically run for a period of one
to four months, except for listing agreements which may run for up to twelve
months.

Merchant services revenues from fixed and unit price contracts are
recognized on the percentage of completion method of accounting, based primarily
on the ratio of contract costs incurred to date to total estimated contract
costs. Anticipated losses on these contracts are recorded when identified. To
date, losses have not been material. Contract costs include all direct labor,
material, subcontract and

F-15
<PAGE>
SHOPNOW.COM INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1999

(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)

(IN THOUSANDS EXCEPT SHARE AMOUNTS)

1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
other direct project costs and certain indirect costs, related to contract
performance. Changes in job performance, job conditions and estimated
profitability, including those arising from contract penalty provisions and
final contract settlements that may result in revision to costs and income, are
recognized in the period in which the revisions are determined.

Fee revenue from ancillary services provided by the merchant services
division is recognized upon completion of the related job by the applicable
third party vendor.

Unbilled services typically represents amounts earned under the Company's
contracts, but not billed due to timing or contract terms, which usually
consider passage of time, achievement of certain milestones or completion of the
project. Where billings exceed revenues earned on contracts, the amounts are
included in the accompanying consolidated balance sheets as customer deposits,
as the amounts typically relate to ancillary services, whereby the Company is
acting in an agency capacity.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.

INTANGIBLE ASSETS

Intangible assets consist primarily of customer lists, domain names,
acquired technology and goodwill related to acquisitions accounted for under the
purchase method of accounting. Amortization of these purchased intangibles is
provided on the straight-line basis over the respective useful lives of the
assets, primarily three years. The Company identifies and records impairment
losses on intangible and other assets when events and circumstances indicate
that such assets might be impaired. The company considers factors such as
significant changes in the regulatory or business climate and projected future
cash flows from the respective asset. Impairment losses are measured as the
amount by which the carrying amount of the asset exceeds the fair value of the
asset (See Note 9). Intangible assets consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Customer lists................................................... $ -- $ 1,978 $ 2,698
Domain names..................................................... -- 1,533 1,691
Acquired technology.............................................. 379 840 18,128
Goodwill and other............................................... 340 1,031 1,658
--------- --------- ---------
719 5,382 24,175
Less--Accumulated amortization................................... (137) (923) (2,670)
--------- --------- ---------
$ 582 $ 4,459 $ 21,505
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-16
<PAGE>
SHOPNOW.COM INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1999

(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)

(IN THOUSANDS EXCEPT SHARE AMOUNTS)

1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
INCOME TAXES

The shareholders of the Company elected to be treated as an S Corporation
under the Internal Revenue Code until February 26, 1997. As a result, taxable
income until that date was included in the taxable income of the individual
shareholders, and no income tax provision was recorded. In addition, in
accordance with Staff Accounting Bulletin Topic 4B, the Company has reclassified
accumulated losses incurred prior to the date of conversion to C Corporation
status from retained earnings to common stock.

The Company terminated its S Corporation status on February 26, 1997
(Termination) and implemented SFAS No. 109, "Accounting for Income Taxes," upon
becoming a taxable entity. Under SFAS No. 109, deferred tax assets and
liabilities are determined based on the differences between financial reporting
and tax bases of assets and liabilities and are measured using the tax rates
that will be in effect when the differences are expected to reverse. Deferred
taxes were not recorded at Termination as the temporary differences between
recognition of income and expense for financial reporting and tax purposes were
not significant.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Assets purchased under capital
leases are recorded at cost (based on the present value of future minimum lease
payments discounted at the contractual interest rates). Depreciation is computed
using the straight-line method over the assets' estimated useful lives of three
to seven years.

STOCK COMPENSATION

The Company has adopted the disclosure only provisions of the SFAS No. 123,
"Accounting for Stock-Based Compensation", whereby it applies APB No. 25,
"Accounting for Stock Issued to Employees" and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the market price of the Company's common stock at the date of grant over
the stock option exercise price.

Options and warrants issued to non-employees are accounted for using the
fair value method of accounting as prescribed by SFAS No. 123, utilizing the
Black-Scholes model and volatility factors for comparable public companies.

RESEARCH AND DEVELOPMENT

Research and development costs are expensed as incurred and consist
primarily of salaries, supplies and contract services.

The Company's accounting policy is to capitalize eligible computer software
development costs upon the establishment of technological feasibility, which the
Company has defined as a completion of a working model. For the years ended
December 31, 1996, 1997 and 1998 and the period ended

F-17
<PAGE>
SHOPNOW.COM INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1999

(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)

(IN THOUSANDS EXCEPT SHARE AMOUNTS)

1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)

June 30, 1999, the amount of eligible costs to be capitalized has not been
significant and accordingly, the Company has charged all software development
costs to research and development in the accompanying consolidated statements of
operations.

ADVERTISING COSTS

The cost of advertising is expensed as incurred. For the years ended
December 31, 1996, 1997 and 1998 and the six month period ended June 30, 1999,
the Company incurred advertising and direct marketing expenses of approximately
$0, $470, $5.7 million and $9.0 million, respectively.

UNAUDITED PRO FORMA SHAREHOLDERS' EQUITY

If the offering contemplated by this prospectus is consummated, all of the
preferred stock outstanding as of the closing date will automatically be
converted into shares of common stock. Unaudited pro forma shareholders' equity
at June 30, 1999, as adjusted for the conversion of preferred stock, is
presented in the accompanying consolidated balance sheet.

RECLASSIFICATIONS

Certain information reported in previous years has been reclassified to
conform to the 1999 presentation.

RECENT ACCOUNTING PRONOUNCEMENTS

In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance over accounting for computer software developed or obtained
for internal use including the requirement to capitalize specified costs and
amortization of such costs. The implementation of SOP 98-1 did not have a
material impact on the company's financial position or results of operations.

In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of Start-Up
Activities." SOP 98-5, which is effective for fiscal years beginning after
December 15, 1998, provides guidance on the financial reporting of start-up
costs and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurrred. The implementation of SOP 98-5
did not have a material impact on the company's financial position or results of
operations.

F-18
<PAGE>
SHOPNOW.COM INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1999

(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)

(IN THOUSANDS EXCEPT SHARE AMOUNTS)

2. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Computer equipment................................. $ 601 $ 3,313 $ 6,030
Furniture and fixtures............................. 14 568 947
Software........................................... 42 759 4,226
Leasehold improvements............................. 2 548 585
--------- --------- ---------
659 5,188 11,788
Less--Accumulated depreciation and amortization.... (187) (1,003) (2,161)
--------- --------- ---------
Property and equipment, net........................ $ 472 $ 4,185 $ 9,627
--------- --------- ---------
--------- --------- ---------
</TABLE>

Property and equipment shown above include assets under capital leases of
approximately $125, $2.2 million and $3.6 million at December 31, 1997 and 1998
and June 30, 1999, with corresponding accumulated amortization of $60 and $270
and 675 at December 31, 1997 and 1998 and June 30, 1999, respectively.

3. ACCOUNTS RECEIVABLE:

Accounts receivable consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
Merchant services contracts....................................... $ -- $ 2,103 $ 1,680
Transaction and merchandising services............................ 169 393 2,136
--------- --------- -----------
169 2,496 3,816
Less--Allowance for doubtful accounts............................. (23) (230) (777)
--------- --------- -----------
$ 146 $ 2,266 $ 3,039
--------- --------- -----------
--------- --------- -----------
</TABLE>

To date, accounts receivable have been derived from revenues earned from
customers located in the United States. The Company performs ongoing credit
evaluations of its customers and generally requires no collateral. The Company
maintains reserves for potential credit losses. At June 30, 1999, one customer
accounted for 21% of the accounts receivable balance.

4. INVESTMENT IN MARKETABLE EQUITY SECURITIES:

As discussed in Note 11, the Company received 466,683 shares of common stock
in 24/7 Media. As of June 30, 1999 the Company holds 476,410 shares. 24/7 Media
is a public company subject to the reporting requirements of the US Securities
and Exchange Commission. The Company classifies the investment as available for
sale and are stated at fair value in accordance with SFAS No. 115 "Accounting
for Certain Investments in Debt and Equity Securities". The statement specifies
that

F-19
<PAGE>
SHOPNOW.COM INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1999

(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)

(IN THOUSANDS EXCEPT SHARE AMOUNTS)

4. INVESTMENT IN MARKETABLE EQUITY SECURITIES: (CONTINUED)

available for sale securities are reported at fair value with changes in
unrealized gains and losses recorded directly to shareholders' equity. Fair
value is based on quoted market prices.

5. ACCRUED LIABILITIES:

Accrued liabilities consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
Accrued compensation and benefits................................. $ 324 $ 576 $ 879
Accrued marketing expenses........................................ -- -- 1,396
Other accrued liabilities......................................... 178 556 1,232
--------- --------- -----------
$ 502 $ 1,132 $ 3,507
--------- --------- -----------
--------- --------- -----------
</TABLE>

6. LINE OF CREDIT:

The Company had a line of credit with a financial institution with a maximum
balance of $300. The line of credit bore interest at prime plus 2% (9.75% at
December 31, 1998), with interest payable monthly. The line of credit expired
and principal balance was paid in February 1999. The line of credit was secured
by substantially all assets of the Company.

In March 1999, the Company entered into a loan and security agreement
(agreement) with a financial institution for a term loan and line of credit. In
May 1999, the agreement was amended allowing the Company to borrow up to $8.5
million at any one time, consisting of a $3.5 million term loan (term loan), a
$4.0 million bridge loan (bridge loan) and a line of credit of up to $2.5
million ($1.0 million until the bridge loan is repaid). The line of credit bears
interest at the financial institution's base rate plus 2%, is secured by
substantially all assets of the Company and expires on March 31, 2000. The term
loan bears interest at 12%, is secured by substantially all assets of the
Company and matures in March 2002. The bridge loan bears interest at 12% and is
due upon the earlier of December 1, 1999 or a debt or equity financing by the
Company surpassing $10.0 million. In conjunction with the agreement, the Company
issued warrants to acquire 72,000 shares of common stock at an exercise price of
$6.25 per share. The warrants are exercisable immediately and expire in March
2006. In May 1999 in connection with the modification, the Company issued
additional warrants to acquire 70,000 shares of common stock at an exercise
price of $7.00 per share. The warrants are exercisable immediately and expire in
June 2006.

F-20
<PAGE>
SHOPNOW.COM INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1999

(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)

(IN THOUSANDS EXCEPT SHARE AMOUNTS)

7. NOTES AND LEASES PAYABLE:

<TABLE>
<CAPTION>
DECEMBER
-------------------- JUNE 30,
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
Subordinated demand notes payable bearing interest at 9%; in January 1998,
principal converted to preferred stock and interest was paid
in cash.......................................................................... $ 500 $ -- $ --
Notes payable bearing interest at 12%, increasing by 1% per year each 30 days, to a
maximum of 18% per year; principal and interest was paid in January 1998......... 1,775 -- --
Convertible note payable to shareholder, interest at applicable short-term federal
rate, quarterly principal and interest payments totaling $113; final payment due
in October 2000. The note is convertible to common stock at $8.00 per share...... -- 859 626
Convertible note payable to shareholder, interest at 10% with principal due upon
effectiveness of an initial public offering...................................... -- -- 1,000
Bridge note payable with interest at 12% due upon the earlier of December 1, 1999
or the date of certain milestones................................................ -- -- 3,794
Term note payable bearing interest at 12%, maturity date March, 2002............... -- -- 3,500
Capital lease obligations and other notes payable, interest, and principal payable
monthly, interest at rates from 6% to 18% with maturity dates between 1999 and
2003............................................................................. 293 2,111 5,621
--------- --------- -----------
2,568 2,970 14,541
Less--current portion.............................................................. (1,684) (1,133) (8,371)
--------- --------- -----------
$ 884 $ 1,837 $ 6,170
--------- --------- -----------
--------- --------- -----------
</TABLE>

In September 1997, the Company issued 9% Subordinated Demand Notes totaling
$500 to each of two shareholders. In January 1998, the principal amount of these
Demand Notes was converted to 125,000 shares of Series D preferred stock and
interest of approximately $13 was paid in cash.

In November 1997, the Company completed a bridge financing with individual
investors and executed Promissory Notes with principal totaling $1,775. The
interest on this principal was 12% per annum, increasing by 1% per year each 30
days to a maximum of 18% per year. In connection with the closing of the
Company's Series D equity placement in January 1998, the $1,775 plus interest of
$61 was paid in full. The placement agent and the holders of the Promissory
Notes also received warrants to purchase 177,500 and 62,125 shares of the
Company's common stock, respectively, at $1.50 per share. The warrants are
exercisable immediately and expire in October 2000.

In October 1998, the Company completed a bridge financing with individual
investors and executed Promissory notes with principal totaling $3.7 million.
The interest on this principal was 13% per year. In connection with the
Company's Series F equity placement in December 1998, the $3,700 plus interest
of $12 was paid in full. The placement agent and the holders of the promissory
notes also received 129,500 and 129,500 warrants, respectively, to purchase a
total of 259,000 shares of the

F-21
<PAGE>
SHOPNOW.COM INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1999

(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)

(IN THOUSANDS EXCEPT SHARE AMOUNTS)

7. NOTES AND LEASES PAYABLE: (CONTINUED)

Company's common stock at $4.00 per share. The warrants are exercisable
immediately and expire in October 2001.

Notes and leases payable mature as follows for the periods ending June 30:

Based on the borrowing rates currently available to the Company for loans
with similar terms and average maturities, the fair market value of long-term
debt approximates the carrying amount at December 31, 1998.

8. COMMITMENTS:

The Company is obligated under capital and operating leases for its
headquarters and various equipment leases. The leases expire through 2004.
Future minimum lease payments under these leases are as follows for the periods
ending June 30:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
2000..................................................................... $ 2,105 $ 702
2001..................................................................... 3,407 583
2002..................................................................... 842 233
2003..................................................................... 232 --
2004..................................................................... 16 --
--------- -----------
6,602 $ 1,518
-----------
-----------
Less--Amounts representing interest...................................... (1,154)
---------
Net present value of minimum lease payments.............................. $ 5,448
---------
---------
</TABLE>

In 1999, the Company issued 62,400 warrants to purchase common stock at
$6.25 per share to two financial institutions in conjunction with certain leases
included above. The warrants are exercisable immediately and expire between June
2004 and April 2006.

Rental expense for the years ended December 31, 1996, 1997 and 1998 and the
six months ended June 30, 1999 was approximately $95, $127, $225 and $511,
respectively.

The Company has commitments under various business agreements to purchase
advertising totalling approximately $5.5 million in 1999, $6.0 million in 2000
and $3.5 million in 2001.

F-22
<PAGE>
SHOPNOW.COM INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1999

(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)

(IN THOUSANDS EXCEPT SHARE AMOUNTS)

9. ACQUISITIONS:

In January 1997, the Company formed a wholly owned subsidiary, TechWave
Acquisition, Inc. (TechWave Acquisition). In January 1997, Web Solutions, Inc.
(Web Solutions) and Intelligent Software Solutions, Inc. (Intelligent Software)
merged with and into TechWave Acquisition in exchange for 600,000 shares of the
Company's common stock valued at $90, a convertible note payable for $250 ($226
in principal and $24 in interest), and $25 in cash, aggregating a total purchase
price of $341. The acquisition was accounted for in accordance with the purchase
method of accounting. The excess purchase price was principally allocated to
acquired technology, which is amortized over a five year life. In November 1997,
the unpaid principal balance of $89 was converted into 177,333 shares of common
stock.

Both Web Solutions and Intelligent Software were software development
companies that had core technologies that were incorporated into the Company's
electronic software distribution products. Additionally, the sole shareholder of
Web Solutions and Intelligent Software became an officer of the Company.

In June 1998, the Company acquired e-Warehouse, Inc. and CyberTrust, Inc.,
wholly owned subsidiaries of a publicly traded Canadian company. The sellers had
developed certain payment processing technologies that the Company had planned
to utilize in their e-commerce offerings. Consideration for these acquisitions
consisted of $4.0 million in cash and 422,710 shares of the Company's common
stock (valued at $3.30 per share), with a total value of approximately $5.4
million. The acquisition was recorded using the purchase method of accounting.
The Company is not utilizing the acquired technology and has determined that it
has no alternative future use or value in the Company's transaction processing
systems, as the Company's technology platform provides the enhanced
functionality needed in the Company's business operations. Due to the impairment
of the acquired technology, the Company has written off all of the excess
purchase price, except for value assigned to domain names, in the accompanying
1998 consolidated statement of operations.

In August 1998, the Company completed its acquisition of The Internet Mall
which was doing business as ShopNow, Inc. (ShopNow). The Internet Mall, Inc.
operated a shopping aggregation Web site and provided the Company with
technology and merchant relationships to assist in the development of an online
shopping destination. In connection with the Merger, the Company issued 719,915
shares of common stock (the Merger Shares), valued at $3.30 per share, and
warrants to purchase common stock for a total purchase price of approximately
$2.6 million. The acquisition was accounted for using the purchase method of
accounting. Of the total excess purchase price of $2.6 million, approximately
$1.5 million was allocated to customer lists and domain names which are
amortized over a three-year life, with the remainder being allocated to acquired
technology, workforce and goodwill, which are amortized over three-year lives.

In September 1998, the Company entered into a purchase and merger agreement
with Media Assets, Inc. (doing business as The Haggin Group). The Haggin Group
is a creative design and direct marketing firm with an office in Mill Valley,
California. The Company paid The Haggin Group consideration including $300 in
cash, a promissory note for $1.0 million, 600,000 shares of the Company's common
stock, valued at $3.30 per share, and options to acquire common stock for a
total

F-23
<PAGE>
SHOPNOW.COM INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1999

(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)

(IN THOUSANDS EXCEPT SHARE AMOUNTS)

9. ACQUISITIONS: (CONTINUED)

purchase price of approximately $3.3 million. The terms of the promissory note
require payments, by the Company, of eight equal quarterly installments of $113
on the first day of each quarter commencing January 1, 1999 (with the exception
of April 1, 1999, which shall be $254) until fully paid on October 1, 2000. The
acquisition was accounted for using the purchase method of accounting. The
excess purchase price of approximately $1.7 million was allocated to customer
lists and domain names and is being amortized over a three-year life.

In June 1999, the Company acquired GO Software, Inc. (GO). GO develops and
markets transaction processing software for personal computers that can function
on a stand-alone basis or can interface with core corporate accounting systems.
The Company paid GO $4.7 million in cash, issued a $1 million promissory note
bearing interest at 10%, and issued 1,123,751 shares of common stock. The
acquisition was accounted for using the purchase method of accounting. Of the
excess purchase price of approximately $14.4 million, $13.8 million was
allocated to acquired technology and $556 was allocated to goodwill, which are
both being amortized over a three-year life. The note bears interest at 10% and
is due on the earlier of June 15, 2000 or upon the effective date of an IPO, at
which time the note is convertible to common stock at the option of the holder
at the IPO price per share.

In addition, as discussed in Note 11, the Company acquired CardSecure, Inc.
(CardSecure) in June 1999 for a purchase price of approximately $3.5 million.
CardSecure is a developer of e-commerce enabled Web sites. The acquisition was
accounted for using the purchase method of accounting. The excess purchase price
of approximately $3.5 million was allocated to acquired technology and is being
amortized over a three year life.

UNAUDITED PRO FORMA COMBINED RESULTS

The following summarizes the unaudited pro forma results of the Company's
operations for the years ended December 31, 1997 and 1998 and six months ended
June 30, 1999, assuming the Media Assets, Inc., and The Internet Mall, Inc.
transactions occurred as of January 1, 1997 and the GO and CardSecure
transactions occurred as of January 1, 1998. Pro forma information for the
e-Warehouse, Inc. and CyberTrust, Inc. transactions is not presented as it is
not considered meaningful. The pro forma results are presented for the purposes
of additional analysis only and do not purport to present the results of
operations that would have occurred for the periods presented or that may occur
in the future.

<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED
DECEMBER 31, SIX MONTHS
--------------------- ENDED
1997 1998 JUNE 30, 1999
--------- ---------- -------------
<S> <C> <C> <C>
Revenues................................................. $ 6,426 $ 13,508 16,710
Net loss before taxes.................................... $ (4,917) $ (24,764) (26,407)
Net loss per share....................................... $ (0.98) $ (4.49) $ (4.55)
</TABLE>

F-24
<PAGE>
SHOPNOW.COM INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1999

(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)

(IN THOUSANDS EXCEPT SHARE AMOUNTS)

10. INCOME TAXES:

The Company did not provide any current or deferred United States federal,
state or foreign income tax provision or benefit for any of the periods
presented because it has experienced operating losses since inception, and has
provided full valuation allowances on deferred tax assets because of uncertainty
regarding their realizability. Deferred taxes consist primarily of net operating
loss carryforwards, offset by deferred tax liabilities resulting from stock
acquisitions.

The difference between the statutory federal tax rate of 34% and the tax
provision of zero recorded by the Company is primarily due to the Company's full
valuation allowance against its deferred tax assets.

At June 30, 1999, the Company had net operating loss carryforwards of
approximately $47.0 million related to U.S. federal, foreign and state
jurisdictions. Utilization of net operating loss carryforwards are subject to
certain limitations under Section 382 of the Internal Revenue Code of 1986, as
amended due to the Series D and E financing transactions. The Company is limited
to approximately $3.0 million per year on net operating losses incurred prior to
April 1998. These carryforwards will begin to expire at various times commencing
in 2012.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred taxes were as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Net operating loss carryforwards.............................. $ 1,300 $ 7,500 16,000
Other......................................................... -- 200 200
--------- --------- ---------
Total deferred assets......................................... 1,300 7,700 16,200
Intangible assets............................................. -- (1,300) (7,311)
Valuation allowance for deferred tax assets................... (1,300) (6,400) (8,889)
--------- --------- ---------
Net deferred taxes............................................ $ -- $ -- --
--------- --------- ---------
--------- --------- ---------
</TABLE>

11. SHAREHOLDERS' EQUITY:

CONVERTIBLE PREFERRED STOCK

The Company has authorized 20,000,000 shares of convertible preferred stock.
Shares of convertible preferred stock may be issued from time to time in one or
more series, with designations, preferences and limitations established by the
Company's board of directors.

F-25
<PAGE>
SHOPNOW.COM INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1999

(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

11. SHAREHOLDERS' EQUITY: (CONTINUED)

As of June 30, 1999, the Company had designated eight series of convertible
preferred stock (Series A through H). Amounts are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
Series A preferred stock: Issued 699,612 shares in 1997, aggregate liquidation
preference $350............................................................... $ 350 $ 350 $ 350
Series B preferred stock: Issued 2,334,079 shares in 1997, aggregate liquidation
preference $1,800............................................................. 1,800 1,800 1,800
Series C preferred stock: Issued 835,205 shares in 1997, aggregate liquidation
preference $1,253............................................................. 1,253 1,253 1,253
Series D preferred stock: Issued 4,250,000 shares in 1998, aggregate liquidation
preference $17,000............................................................ -- 13,461 13,461
Series E preferred stock: Issued 2,125,000 shares in 1998, aggregate liquidation
preference $8,500............................................................. -- 7,672 7,672
Series F preferred stock: Issued 2,056,000 shares in 1998 and 2,336,000 in 1999,
aggregate liquidation preference $12,850...................................... -- 10,534 11,934
Series G preferred stock: Issued 5,014,286 shares in 1999, aggregate liquidation
preference $35,100............................................................ -- -- 33,200
Series H preferred stock: Issued 333,334 shares in 1999, aggregate liquidation
preference $3,000............................................................. -- -- 2,840
---------- ----------- -----------
$ 3,403 $ 35,070 $ 72,510
---------- ----------- -----------
---------- ----------- -----------
</TABLE>

Series A through H preferred stock is convertible into common stock on a
one-for-one basis, at the option of the holder, subject to antidilution
provisions. In the event of an effective registration statement where the total
proceeds exceed $15 million and the minimum price per share is achieved, the
Series A through H preferred stock is automatically converted into common stock.

The Series A through H shareholders have the right to one vote for each
share of common stock into which the stock could be converted. In the event of
liquidation, Series A through H shareholders are entitled to a per-share
distribution in preference to common shareholders equal to the original issue
price. In the event the funds are insufficient to make a complete distribution
to the Series A through H shareholders, then all of the funds available shall be
distributed ratably based on their respective liquidation preferences among the
holders of Series A through H preferred stock.

On February 26, 1997, the Company issued 699,612 shares of convertible
Series A preferred stock (Series A stock) for the cancellation of approximately
$350 of shareholder notes. In February and May of 1997, the Company issued
2,334,079 shares of convertible Series B preferred stock (Series B stock) for
approximately $1.8 million.

In May through July 1997, the Company issued $1.2 million of convertible
subordinated notes. These notes bore interest at an annual rate of 8%. On
October 31, 1997, the outstanding principal under these notes was converted into
835,205 shares of a new series of the Company's preferred stock (Series C
stock). Upon conversion, the holders of the notes also received warrants that
expire on their

F-26
<PAGE>
SHOPNOW.COM INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1999

(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

11. SHAREHOLDERS' EQUITY: (CONTINUED)

sixth anniversary date or the closing of an initial public offering to purchase
167,047 shares of Series C stock exercisable at $1.50 per share.

During the period from January 23 through April 15, 1998, the Company
completed a $25.5 million private equity placement. The Company issued 4.25
million shares of Series D and 2.125 million shares of Series E preferred stock
each at $4.00 per share, for a total of 6.375 million shares. In conjunction
with this sale, the Company issued 637,500 warrants to purchase common stock at
$5.00 per share. The warrants are currently exercisable and expire on their
third anniversary. In addition, the Company issued to the placement agent
625,000 warrants to purchase common stock at $4.40 per share. The warrants are
exercisable immediately and expire on their third anniversary.

During the fourth quarter of 1998 and the first quarter of 1999, the Company
completed a $14.6 million private equity placement. The Company issued 2,336,000
shares of Series F preferred stock at $6.25 per share. In conjunction with this
sale, the Company issued 233,600 warrants to purchase common stock at $7.50 per
share. The warrants are exercisable on the first anniversary of their issuance
and expire on their third anniversary. In addition, the Company issued to the
placement agent 233,600 warrants to purchase common stock at $6.25 per share.
The warrants are exercisable immediately and expire on their third anniversary.

As a condition to the commencement of the Series D private equity placement
described above, the holders of the Series A, Series B, and Series C stock
agreed to an amended and restated Articles of Incorporation that amended and
deleted certain rights of the Series A, Series B, and Series C stock, including
redemption and preferential dividend rights.

In March and April 1999, the Company completed a $5 million private equity
placement. The Company issued 714,286 shares of Series G preferred stock at
$7.00 per share and 35,715 warrants to purchase common stock at $7.50 per share.
The warrants are exercisable immediately and expire on their third anniversary.

In April 1999, the Company entered into a cross promotion agreement and
equity exchange agreement with 24/7 Media. As a part of the equity exchange
agreement, 24/7 Media acquired 4.3 million shares of the Company's Series G
preferred stock at $7.00 per share and 860,000 warrants to acquire common stock
at $7.00 per share in exchange for consideration valued at $30.1 million. The
warrants are exercisable immediately and expire on their third anniversary. The
purchase price consists of three parts: $5.0 million in cash, 466,683 shares of
24/7 Media's common stock, and the right to acquire 24/7 Media's interest in
CardSecure, Inc., a developer of e-commerce enabled Web sites. In June, 1999,
the Company acquired 24/7 Media's interest in CardSecure, Inc. and also acquired
the remaining minority interest from CardSecure's founders and received 9,727
additional shares of 24/7 Media's common stock by issuing 243,036 shares of the
Company's common stock. The total purchase price for CardSecure, Inc. was $3.5
million.

In May 1999, the Company completed a $3 million private equity placement.
The Company issued 333,334 shares of Series H preferred stock at $9.00 per share
and 50,000 warrants to purchase common stock at $9.00 per share. The warrants
are exercisable immediately and expire on their third anniversary.

F-27
<PAGE>
SHOPNOW.COM INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1999

(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

11. SHAREHOLDERS' EQUITY: (CONTINUED)

In July 1999 the Company closed a $18.9 million private equity placement
with a financial institution pursuant to the terms of a stock purchase agreement
which had been entered into on June 17, 1999. The closing of the private equity
placement was subject only to shareholder approval of an amendment to the
Company's Articles of Incorporation and the receipt of Hart-Scott-Rodino Act
approval. The Company issued 2,100,000 shares of Series I preferred stock at
$9.00 per share and 555,556 warrants to purchase common stock at $9.00 per
share. The warrants are exercisable immediately and expire on their third
anniversary. The Series I preferred stock contains substantially the same rights
and preferences as the previous series of preferred stock.

In conjunction with the Series I preferred stock, the Company entered into
an agreement with the financial institution and received $6.1 million in cash,
which represents prepaid licensing fees. This amount will be recognized as
revenue on a straight-line basis over 27 months, which represents the term of
the agreement, beginning in August 1999.

STOCK OPTION PLANS

In October 1996, the Company adopted a combined incentive and nonqualified
stock option plan (the Plan) to provide incentive to employees, directors,
consultants and advisors. The Company reserved 5,000,000 shares of common stock
for issuance under the Plan. During 1999, the Company amended the Plan and
increased the shares reserved for issuance under the Plan to 8,000,000. The
Company has granted rights to purchase 1,739,470 shares to Company executives
outside the Plan.

Options under the Plan, as well as outside the Plan, generally expire 10
years from the date of grant. The Board of Directors determines the terms and
conditions of options granted under the Plan, and outside the Plan, including
the exercise price. Options are generally granted at fair market value on the
date of grant and vest immediately or ratably over three years from the date of
grant.

Under APB No. 25, the Company records compensation expense over the vesting
period for the difference between the exercise price and the deemed fair market
value for financial reporting purposes of stock options granted. In conjunction
with grants made in 1998 and 1999, the Company recorded approximately $183 and
$1,356 as stock compensation expense in the accompanying 1998 and 1999
consolidated statement of operations.

The Company has adopted the disclosure-only provisions of SFAS No. 123. Had
compensation expense been recognized on stock options issued based on the fair
value of the options at the date of

F-28
<PAGE>
SHOPNOW.COM INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1999

(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

11. SHAREHOLDERS' EQUITY: (CONTINUED)

grant and recognized over the vesting period, the Company's net loss would have
been increased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------ ------------
1996 1997 1998 1999
--------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net loss:
As reported........................... $ (810) $ (4,766) $ (24,745) $ (26,234)
Pro forma............................. (810) (4,766) (25,067) (26,635)
Basic and diluted net loss per share:
As reported........................... $ (0.40) $ (1.83) $ (7.01) $ (5.50)
Pro forma............................. (0.40) (1.83) (7.10) (5.58)
</TABLE>

The fair value of each option is estimated using the Black-Scholes option
pricing model that takes into account: (1) the stock price at the grant date,
(2) the exercise price, (3) estimated lives ranging from two to three years, (4)
no dividends, (5) risk-free interest rates ranging from 5.3% to 6.4% and (6)
volatility ranging from 0% through June 18, 1999 to 72.0% subsequent to June 18,
1999. The initial impact on pro forma net loss may not be representative of
compensation expense in future years when the effect of the amortization of
multiple awards would be reflected in results from operations.

A summary of activity related to the option grants inside and outside the
Plan follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------
JUNE 30,
1996 1997 1998 1999
---------------------- ---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- ----------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period........................ -- $ -- 145,500 $ 0.47 1,793,515 $ 0.54 4,333,566 $ 1.91
Granted....................... 155,500 0.47 1,813,482 0.55 3,087,379 2.60 2,945,835 4.86
Exercised..................... -- -- -- -- (27,499) 0.77 (83,383) 0.99
Canceled...................... (10,000) 0.50 (165,467) 0.60 (519,829) 2.28 (294,440) 2.82
--------- --------- --------- ---------
Outstanding at end of period.... 145,500 0.47 1,793,515 0.54 4,333,566 1.91 6,901,578 3.14
--------- --------- --------- ---------
--------- --------- --------- ---------
Exercisable at the end of the
period........................ 20,000 0.25 436,653 0.68 1,681,026 1.06 2,007,090 1.58
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

F-29
<PAGE>
SHOPNOW.COM INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1999

(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

11. SHAREHOLDERS' EQUITY: (CONTINUED)

The following information is provided for options outstanding and
exercisable at June 30, 1999:

<TABLE>
<CAPTION>
OUTSTANDING
--------------------------------------------------
WEIGHTED AVERAGE EXERCISABLE
REMAINING -----------------------------
EXERCISE NUMBER WEIGHTED AVERAGE CONTRACTUAL LIFE NUMBER WEIGHTED AVERAGE
PRICE RANGE OF OPTIONS EXERCISE PRICE (YEARS) OF OPTIONS EXERCISE PRICE
- -------------- ---------- ----------------- ------------------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
$ 0.25 to 0.90 1,474,949 $ 0.48 5.2 1,140,322 $ 0.51
0.91 to 1.80 600,777 1.23 8.9 129,768 1.25
1.81 to 2.70 1,137,448 2.01 8.8 403,653 2.03
2.71 to 3.60 573,948 3.00 9.3 19,532 2.89
3.61 to 4.50 1,778,859 4.00 9.4 209,700 4.00
4.51 to 6.30 123,615 5.01 9.9 2,865 5.33
6.31 to 7.20 1,211,982 7.00 9.9 101,250 7.00
---------- ----------
6,901,578 3.14 8.4 2,007,090 1.58
---------- ----------
---------- ----------
</TABLE>

In addition to the shares noted above, the Company has granted 310,000
options outside of the plan at an exercise price of $4.00 that are contingent on
certain performance criteria being met. Achievement of the performance measures
was not ascertainable at June 30, 1999. Accordingly, no amounts have been
recorded in the accompanying consolidated statement of operations relating to
this option grant. In June 1999, the Company granted 995,079 options to certain
executives. The price and vesting of these options is dependent upon the Company
completing an IPO of its common stock.

WARRANTS AND OPTIONS ISSUED TO MARKETING PARTNERS

On April 29, 1999 pursuant to a distribution and marketing agreement with a
telecommunications company, the Company issued warrants to purchase 100,000
shares of the Company's common stock at $10 per share. The warrants are
exercisable immediately and expire in April 2002. Simultaneously, the Company
entered into a put agreement, which allows the telecommunications company to put
the shares back to the Company for $25 per share during the period from June
2001 to August 2001. The number of shares subject to the put warrant declines
over time as the Company generates revenue under the marketing and distribution
agreement. In accordance with EITF 96-13, the Company has recorded the fair
value of the put warrant in the accompanying consolidated balance sheet as of
June 30, 1999.

On May 19, 1999, the Company entered into a distribution agreement with a
software manufacturer. As part of this agreement, the Company issued warrants to
purchase 100,000 shares of common stock at $9.00 per share, and options to
purchase 300,000 shares of common stock at $4.80 and 200,000 shares of common
stock at an exercise price of $9.00 per share, respectively.

F-30
<PAGE>
SHOPNOW.COM INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1999

(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

11. SHAREHOLDERS' EQUITY: (CONTINUED)

The following shares of common stock were reserved at June 30, 1999:

<TABLE>
<S> <C>
Convertible preferred stock (Series
A-H).................................. 17,927,516
Stock options........................... 7,889,118
Common stock warrants................... 4,067,571
Preferred stock warrants................ 167,047
----------
30,051,252
----------
----------
</TABLE>

12. SEGMENT INFORMATION:

The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," during the first quarter of fiscal 1998.
SFAS No. 131 established standards for reporting information about operating
segments in annual financial statements and requires selected information about
operating segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services and
geographic areas. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision makers, or decision making group, in
deciding how to allocate resources and in assessing performance. The Company's
chief operating decision making group is comprised of the chief executive
officer and various executive vice presidents of the Company. The Company has
identified three distinct reportable segments: Merchant services, transactions
and merchandising and retail product sales through the BuySoftware.com Web site.
While the decision making group evaluates results in a number of different ways,
the line of business management structure is the primary basis for which it
assesses financial performance and allocates resources. The accounting policies
of the line of business operating segments are the same as those described in
the summary of significant accounting policies.

F-31
<PAGE>
SHOPNOW.COM INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1999

(INFORMATION AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS
UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

12. SEGMENT INFORMATION: (CONTINUED)

The following table represents the Company's segment information for the
years ended December 31, 1996, 1997 and 1998, and the six months ended June 30,
1999:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------------- ----------
1996 1997 1998 1999
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues from unaffiliated customers:
Transactions and merchandising (excluding BuySoftware.com)........... $ -- $ 35 $ 280 $ 1,883
Merchant services (excluding BuySoftware.com)........................ 993 500 2,416 4,176
BuySoftware.com...................................................... -- 69 4,458 9,923
--------- --------- ---------- ----------
993 604 7,154 15,982
--------- --------- ---------- ----------

Cost of revenues:
Transactions and merchandising (excluding BuySoftware.com)........... -- 35 142 1,024
Merchant services (excluding BuySoftware.com)........................ 430 356 1,255 2,469
BuySoftware.com...................................................... -- 124 4,452 11,190
--------- --------- ---------- ----------
430 515 5,849 14,683
--------- --------- ---------- ----------

Gross profit:
Transactions and merchandising (excluding BuySoftware.com)........... -- -- 138 859
Merchant services (excluding BuySoftware.com)........................ 563 144 1,161 1,707
BuySoftware.com...................................................... -- (55) 6 (1,267)
--------- --------- ---------- ----------
$ 563 $ 89 $ 1,305 $ 1,299
--------- --------- ---------- ----------
--------- --------- ---------- ----------

Profit Reconciliation:

Gross margin for reportable segments................................. $ 563 $ 89 $ 1,305 $ 1,299
Operating expenses................................................... (1,323) (4,691) (26,221) (27,288)
Other income and expenses............................................ (50) (164) 171 (245)
--------- --------- ---------- ----------
Loss before provision for income taxes............................... $ (810) $ (4,766) $ (24,745) $ (26,234)
--------- --------- ---------- ----------
--------- --------- ---------- ----------
</TABLE>

The Company does not track assets by operating segments. Consequently is it
not practicable to show assets by operating segments.

F-32
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To ShopNow.com Inc.:

We have audited the accompanying balance sheets of Media Assets, Inc. as of
June 30, 1997 and 1998, and the related statements of operations, shareholder's
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Media Assets, Inc. as of
June 30, 1997 and 1998, and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles.

/s/ Arthur Andersen LLP

Seattle, Washington,
March 31, 1999

F-33
<PAGE>
MEDIA ASSETS, INC.

BALANCE SHEETS

(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 17,
-------------------- -------------
1997 1998 1998
--------- --------- -------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS

Current assets:
Cash and cash equivalents.................................................... $ 2 $ 957 $ 1,528
Accounts receivable.......................................................... 864 2,739 4,184
Receivable from shareholder.................................................. 38 123 142
Unbilled services............................................................ 400 456 413
Prepaid expenses and other current assets.................................... 11 8 152
--------- --------- ------
Total current assets....................................................... 1,315 4,283 6,419
Property and equipment, net.................................................... 204 287 271
Other assets................................................................... 21 24 24
--------- --------- ------
Total assets............................................................... $ 1,540 $ 4,594 $ 6,714
--------- --------- ------
--------- --------- ------

LIABILITIES AND SHAREHOLDER'S EQUITY

Current liabilities:
Notes payable, current portion............................................... $ 16 $ 29 $ 35
Accounts payable............................................................. 386 378 121
Accrued wages and related expenses........................................... 132 134 54
Other accrued expenses....................................................... 43 115 494
Customer deposits............................................................ 788 3,219 4,833
Income taxes................................................................. 38 166 --
--------- --------- ------
Total current liabilities.................................................. 1,403 4,041 5,537
--------- --------- ------
Long-term debt, net of current portion......................................... 34 94 78
--------- --------- ------
Commitments (Note 6)
Shareholder's equity:
Common stock, $.01 par value--authorized; 10,000 shares, issued and
outstanding; 2,000 shares at December 31, 1997 and September 17, 1998...... 1 1 1
Retained earnings............................................................ 102 458 1,098
--------- --------- ------
Total shareholder's equity................................................. 103 459 1,099
--------- --------- ------
Total liabilities and shareholder's equity................................. $ 1,540 $ 4,594 $ 6,714
--------- --------- ------
--------- --------- ------
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-34
<PAGE>
MEDIA ASSETS, INC.

STATEMENTS OF OPERATIONS

(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
JANUARY 1, 1998
-------------------- THROUGH
1997 1998 SEPTEMBER 17, 1998
--------- --------- -------------------
<S> <C> <C> <C>
(UNAUDITED)
Revenues................................................................... $ 4,086 $ 5,597 $ 4,833
Costs and expenses:
Costs of revenues........................................................ 2,415 3,112 2,808
Selling, general and administrative...................................... 1,497 1,925 1,684
--------- --------- ------
Total operating expenses............................................... 3,912 5,037 4,492
--------- --------- ------
Operating income..................................................... 174 560 341
Other income, net.......................................................... -- 38 17
--------- --------- ------
Income before provision for income taxes................................... 174 598 358
Provision for income taxes................................................. (72) (242) --
--------- --------- ------
Net income........................................................... $ 102 $ 356 $ 358
--------- --------- ------
--------- --------- ------
</TABLE>

The accompanying notes are an integral part of these statements.

F-35
<PAGE>
MEDIA ASSETS, INC.

STATEMENTS OF SHAREHOLDER'S EQUITY

(IN THOUSANDS EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------------ RETAINED SHAREHOLDER'S
SHARES AMOUNT EARNINGS EQUITY
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balances, June 30, 1996............................................... 2,000 $ 1 $ -- $ 1
Net income.......................................................... -- -- 102 102
----- --- ----------- ------
Balances, June 30, 1997............................................... 2,000 1 102 103
Net income.......................................................... -- -- 356 356
----- --- ----------- ------
Balances, June 30, 1998............................................... 2,000 1 458 459
Net income.......................................................... -- -- 640 640
----- --- ----------- ------
Balance September 17, 1998 (Unaudited)................................ 2,000 $ 1 $ 1,098 $ 1,099
----- --- ----------- ------
----- --- ----------- ------
</TABLE>

The accompanying notes are an integral part of these statements.

F-36
<PAGE>
MEDIA ASSETS, INC.

STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
JANUARY 1,
YEAR ENDED JUNE 30, 1998 THROUGH
-------------------- SEPTEMBER 17,
1997 1998 1998
--------- --------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income.................................................................. $ 102 $ 356 $ 358
Adjustments to reconcile net income to net cash provided by operating
activities--
Depreciation.............................................................. 73 101 120
Changes in assets and liabilities:
Accounts receivable..................................................... (324) (1,960) (2,217)
Unbilled services....................................................... (326) (56) 428
Prepaid expenses and other assets....................................... (12) -- 29
Income taxes............................................................ 38 128 (10)
Accounts payable and accrued expenses................................... 303 66 161
Deposits................................................................ 290 2,431 1,369
--------- --------- -------------
Net cash provided by operating activities............................... 144 1,066 238
--------- --------- -------------
Cash flows from investing activities:
Additions to property and equipment......................................... (102) (184) (16)
--------- --------- -------------
Cash flows from financing activities:
Proceeds on long-term debt.................................................. -- 81 --
Principal repayments of long-term debt...................................... (44) (8) (48)
--------- --------- -------------
Net cash (used in) provided by financing activities..................... (44) 73 (48)
--------- --------- -------------
Net increase (decrease) in cash and cash equivalents.................... (2) 955 174
Cash and cash equivalents, beginning of year.................................. 4 2 1,354
--------- --------- -------------
Cash and cash equivalents, end of year........................................ $ 2 $ 957 $ 1,528
--------- --------- -------------
--------- --------- -------------
Cash paid during the year for:
Interest...................................................................... $ 5 $ 14 $ 11
--------- --------- -------------
--------- --------- -------------
Income taxes.................................................................. $ 38 $ 212 $ 212
--------- --------- -------------
--------- --------- -------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-37
<PAGE>
MEDIA ASSETS, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1998

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

1. ORGANIZATION OF THE COMPANY AND NATURE OF OPERATIONS:

Media Assets, Inc., a California corporation doing business as The Haggin
Group (the Company) provides creative design and direct marketing services to
corporate customers throughout the United States. Additionally, the Company
provides certain ancillary services including color film separations and
printing which are outsourced to vendors.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

UNAUDITED INTERIM FINANCIAL DATA

The unaudited interim financial statements as of September 17, 1998 and for
the period from January 1, 1998 through September 17, 1998 have been prepared on
the same basis as the audited financial statements and, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial information set forth
therein, in accordance with generally accepted accounting principles. The
Company believes that the results of operations for the period from January 1,
1998 through September 17, 1998 are not necessarily indicative of the results to
be expected for any future period.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

REVENUE RECOGNITION

The Company recognizes revenue from its fixed and unit price contracts in
process on the percentage of completion method of accounting, based primarily on
the ratio of contract costs incurred to date to total estimated contract costs.
Anticipated losses on these contracts are recorded when identified. Contract
costs include all direct labor, material, subcontract, other direct project
costs and indirect costs, including depreciation, vehicles, and labor related to
contract performance. Changes in job performance, job conditions and estimated
profitability, including those arising from contract penalty provisions and
final contract settlements that may result in revision to costs and income, are
recognized in the period in which the revisions are determined.

Unbilled services typically represent amounts earned under the Company's
contracts, but not billed due to timing or contract terms, which usually
consider passage of time, achievement of certain milestones or completion of the
project. Where billings exceed revenues earned on contracts, the amounts are
included in the accompanying balance sheets as customer deposits, as the amounts
typically relate to ancillary services, whereby the Company is acting in an
agency capacity.

F-38
<PAGE>
MEDIA ASSETS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1998

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
CASH AND CASH EQUIVALENTS

For purposes of the statement of cash flows, the Company considers any
highly liquid short term investments purchased with an original maturity date of
three months or less to be cash equivalents.

The Company maintains its cash in high credit quality financial institutions
which, at times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash, cash equivalents and
accounts receivable.

To date, accounts receivable have been derived from revenues earned from
customers located in the United States. The Company performs ongoing credit
evaluations of its customers and generally requires no collateral. Historically,
credit losses have been minor and within management's expectations. At June 30,
1998, one customer accounted for 60% of the accounts receivable balance. This
amount was collected subsequent to June 30.

During the year ended June 30, 1998, 1 customer accounted for 12% of the
Company's net revenues.

PROPERTY AND EQUIPMENT

Property and equipment is recorded at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of five to seven years. Leasehold improvements are amortized over
the shorter of the lease term or the estimated useful life.

Maintenance, repairs and minor renewals are expensed as incurred. Major
renewals and betterments which substantially extend the life of the property are
capitalized. When an asset is sold or retired, the cost and related accumulated
depreciation are removed from the balance sheet and the resulting gain or loss
is included in the results of operations.

INCOME TAXES

The Company recognized deferred income tax assets and liabilities for the
expected future income tax consequences, based on enacted tax laws, of temporary
differences between the financial reporting and tax bases of assets, liabilities
and carryforwards. Deferred tax assets are then reduced, if deemed necessary, by
a valuation allowance for the amount of any future benefits which, more likely
than not based on current circumstances, are not expected to be realized.

3. RECEIVABLE FROM SHAREHOLDER:

During 1997 and 1998, the Company made non-interest bearing loans to the
sole shareholder. Subsequent to June 30, 1998, all outstanding amounts were paid
in full.

F-39
<PAGE>
MEDIA ASSETS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1998

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

4. PROPERTY AND EQUIPMENT:

The accompanying balance sheets include the following property and equipment
as of June 30:

<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Computers and office equipment................................................ $ 271 $ 458
Vehicles...................................................................... 65 65
Leasehold improvements........................................................ 67 64
--------- ---------
403 587
Less: Accumulated depreciation and amortization............................... (199) (300)
--------- ---------
Property and equipment--net................................................... $ 204 $ 287
--------- ---------
--------- ---------
</TABLE>

5. DEBT:

Long-term debt is summarized as follows as of June 30:

<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Equipment loan, interest at index rate + 1.5% due October 2002................ $ 8 $ 90
Notes payable, equipment financing, due in equal monthly installments of
principal and interest, interest at 9% to 10%, to maturity in July 2002..... 42 33
--------- ---------
50 123
Less--current portion......................................................... (16) (29)
--------- ---------
Long-term debt--net........................................................... $ 34 $ 94
--------- ---------
--------- ---------
</TABLE>

The aggregate maturities of long-term debt for the years subsequent to June
30, 1998, are as follows:

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, AMOUNT
- ------------------------------------------------------------------------------------- -----------
<S> <C>
1999................................................................................. $ 29
2000................................................................................. 29
2001................................................................................. 29
2002................................................................................. 26
2003................................................................................. 10
-----
$ 123
-----
-----
</TABLE>

Based on the borrowing rates currently available to the Company for loans
with similar terms and average maturities,

6. COMMITMENTS:

The Company leases its facilities under various operating leases expiring in
October 1999.

F-40
<PAGE>
MEDIA ASSETS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1998

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

6. COMMITMENTS: (CONTINUED)

At June 30, 1998, future minimum lease payments under operating leases were
as follows:

7. INCOME TAXES:

The provision for income taxes consisted of the following components:

<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Current:
Federal..................................................................... $ 64 $ 133
State....................................................................... 19 39
--------- ---------
83 172
--------- ---------
Deferred:
Federal..................................................................... (9) 59
State....................................................................... (2) 11
--------- ---------
(11) 70
--------- ---------
Total tax provision........................................................... $ 72 $ 242
--------- ---------
--------- ---------
</TABLE>

The provision for income taxes differs from the amount estimated by applying
the statutory federal income tax rate to income before income taxes as follows:

<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Provision computed at federal statutory rate: 34.0% 34.0%
State taxes, net of federal tax benefit............................... 6.1 6.1
Other items--net...................................................... 1.3 0.4
--------- ---------
Effective tax rate...................................................... 41.4% 40.5%
--------- ---------
--------- ---------
</TABLE>

Deferred tax liabilities at December 31, 1997 and 1998 consist primarily of
cash to accural adjustments as the Company filed its tax returns on a cash
basis.

8. ACQUISITION:

On September 17, 1998, the Company was acquired by ShopNow.com Inc.

F-41
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To ShopNow.com Inc.:

We have audited the accompanying balance sheets of The Internet Mall, Inc.
(a Delaware corporation) as of December 31, 1996 and 1997, and the related
statements of operations, shareholders' equity (deficit) and cash flows for the
period from inception (November 13, 1996) to December 31, 1996 and for the year
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Internet Mall, Inc., as
of December 31, 1996 and 1997, and the results of its operations and its cash
flows for the period from inception (November 13, 1996) to December 31, 1996 and
the year ended December 31, 1997, in conformity with generally accepted
accounting principles.

/s/ Arthur Andersen LLP

Seattle, Washington,
May 27, 1999

F-42
<PAGE>
THE INTERNET MALL, INC.

BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- AUGUST 8,
1996 1997 1998
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS

Current assets:
Cash and cash equivalents.......................................................... $ 155 $ 240 $ 68
Accounts receivable................................................................ -- 57 33
--------- --------- -----------
Total current assets........................................................... 155 297 101
Property and equipment, net of accumulated depreciation of $1 and $8 and $18......... 10 34 39
Intangible assets, net of accumulated amortization of $10, $78 and $117.............. 190 122 83
--------- --------- -----------
Total assets................................................................... $ 355 $ 453 $ 223
--------- --------- -----------
--------- --------- -----------

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Accounts payable and accrued liabilities........................................... $ -- $ 90 $ 112
Deferred revenue................................................................... -- 48 123
Convertible subordinated promissory note........................................... -- 300 300
--------- --------- -----------
Total current liabilities...................................................... -- 438 535
Commitments
Shareholders' equity:
Convertible preferred stock, 6,000,000 shares authorized--
Series B convertible preferred stock, $0.0001 par value, 2,000,000 shares
designated; none, 1,724,867 and 1,724,867 issued and outstanding at 1996, 1997
and 1998, preference in liquidation of $500.................................... -- 490 490
Series A convertible preferred stock, $0.0001 par value, 4,000,000 shares
designated; 4,000,000 issued and outstanding at 1996 and 1997, 1,951,563 in
1998 preference in liquidation of $1,952....................................... 383 383 363
Common stock, $0.0001 par value; 17,000,000 shares authorized; 7,000,000 issued and
outstanding at 1996, 1997 and 1998, net of subscriptions receivable of $57....... 13 13 13
Accumulated deficit................................................................ (41) (871) (1,178)
--------- --------- -----------
Total shareholders' equity (deficit)........................................... 355 15 (312)
--------- --------- -----------
Total liabilities and shareholders' equity (deficit)........................... $ 355 $ 453 $ 223
--------- --------- -----------
--------- --------- -----------
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-43
<PAGE>
THE INTERNET MALL, INC.

STATEMENTS OF OPERATIONS

(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM INCEPTION YEAR ENDED JANUARY 1, 1998
(NOVEMBER 13, 1996) TO DECEMBER 31, TO
DECEMBER 31, 1996 1997 AUGUST 8, 1998
----------------------- ------------- -------------------
<S> <C> <C> <C>
(UNAUDITED)
Revenues................................................. $ -- $ 188 $ 175
----- ------ -----
Operating expenses:
Cost of revenue........................................ -- 30 24
Product development.................................... -- 71 114
Sales and marketing.................................... -- 273 56
General and administrative............................. 41 639 275
----- ------ -----
Total operating expenses........................... 41 1,013 469
----- ------ -----
Operating loss................................... (41) (825) (294)
----- ------ -----
Interest expense......................................... -- 5 13
----- ------ -----
Net loss......................................... $ (41) $ (830) $ (307)
----- ------ -----
----- ------ -----
</TABLE>

The accompanying notes are an integral part of these statements.

F-44
<PAGE>
THE INTERNET MALL, INC.

STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE PERIOD FROM INCEPTION (NOVEMBER 13, 1996) TO DECEMBER 31, 1996
AND FOR THE YEAR ENDED DECEMBER 31, 1997

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
SERIES B SERIES A
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK TOTAL
------------------- ------------------- ------------------ ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT DEFICIT EQUITY
--------- -------- --------- -------- --------- ------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, November 13, 1996............. -- $ -- -- $ -- -- $ -- $ -- $ --
Sale of common stock to founders at
$0.01 per share in November 1996,
net of subscriptions receivable of
$57................................. -- -- -- -- 5,750,000 1 -- 1
Sale of common and preferred stock at
$0.01 and $0.10 per share,
respectively, in exchange for assets
and cash in November 1996, net of
issuance costs of $5................ -- -- 4,000,000 383 1,250,000 12 -- 395
Net loss.............................. -- -- -- -- -- -- (41) (41)
--------- -------- --------- -------- --------- ------- ----------- -----
Balances, December 31, 1996............. -- -- 4,000,000 383 7,000,000 13 (41) 355
Sale of preferred stock at $0.27 and
$0.35 per share in May and August
1997, respectively, net of issuance
costs of $10........................ 1,724,867 490 -- -- -- -- -- 490
Net loss.............................. -- -- -- -- -- -- (830) (830)
--------- -------- --------- -------- --------- ------- ----------- -----
Balances, December 31, 1997............. 1,724,867 490 4,000,000 383 7,000,000 13 (871) 15
Repurchase of preferred stock at $0.01
per share in January and April 1998... -- -- (2,048,437) (20 ) -- -- -- (20)
Net loss................................ -- -- -- -- -- -- (307) (307)
--------- -------- --------- -------- --------- ------- ----------- -----
Balances, August 8, 1998 (Unaudited).... 1,724,867 $ 490 1,951,563 $ 363 7,000,000 $ 13 $ (1,178) $ (312)
--------- -------- --------- -------- --------- ------- ----------- -----
--------- -------- --------- -------- --------- ------- ----------- -----
</TABLE>

The accompanying notes are an integral part of these statements.

F-45
<PAGE>
THE INTERNET MALL, INC.

STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
JANUARY 1, 1998 TO
PERIOD FROM INCEPTION YEAR ENDED AUGUST 8, 1998
(NOVEMBER 13, 1996) TO DECEMBER 31, -------------------
DECEMBER 31, 1996 1997
----------------------- ------------- (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................... $ (41) $ (830) $ (307)
Adjustments to reconcile net loss to net cash used in
operating activities--
Depreciation and amortization........................ 11 76 49
Changes in operating assets and liabilities:
Accounts receivable................................ -- (57) 24
Accounts payable and accrued expenses.............. -- 90 22
Deferred revenue................................... -- 48 75
----- ----- -----
Net cash used in operating activities............ (30) (673) (137)
----- ----- -----
Cash flows used in investing activities:
Purchase of property and equipment..................... (11) (32) (15)
----- ----- -----
Cash flows from financing activities:
Net proceeds from preferred and common stock
issuances............................................ 196 490 --
Repurchase of preferred stock.......................... -- -- (20)
Proceeds from convertible subordinated promissory
note................................................. -- 300 --
----- ----- -----
Net cash (used in) provided by financing
activities..................................... 196 790 (20)
----- ----- -----
(Decrease) increase in cash and cash equivalents......... 155 85 (172)
Cash and cash equivalents, beginning of period........... -- 155 240
----- ----- -----
Cash and cash equivalents, end of period................. $ 155 $ 240 $ 68
----- ----- -----
----- ----- -----
Supplemental disclosures of cash flow information:
Common stock issued to founders in exchange for
promissory notes................................... $ 57 $ -- $ --
----- ----- -----
----- ----- -----
</TABLE>

The accompanying notes are an integral part of these statements.

F-46
<PAGE>
THE INTERNET MALL, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1997

(IN THOUSANDS EXCEPT SHARE AMOUNTS)

1. ORGANIZATION AND NATURE OF OPERATIONS:

The Internet Mall, Inc. (the Company), a Delaware corporation, was
incorporated on November 13, 1996. The Company operated an internet shopping
aggregation Website and provided links to on-line retailers that offer products
and services.

2. SIGNIFICANT ACCOUNTING POLICIES:

UNAUDITED INTERIM FINANCIAL DATA

The unaudited interim financial statements as of August 8, 1998 and for the
period from January 1, 1998 through August 8, 1998 have been prepared on the
same basis as the audited financial statements and, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial information set forth
therein, in accordance with generally accepted accounting principles. The
Company believes that the results of operations for the period from January 1,
1998 through August 8, 1998 are not necessarily indicative of the results to be
expected for any future period.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

REVENUE RECOGNITION

The Company's revenue to date has been primarily derived from banner
advertising. Advertising revenue is recognized in the period the advertising
impressions are delivered.

The Company sells one-year mall listings on its site and recognizes revenue
over the term of the listing. Deferred revenue represents residual amounts from
these listings. In addition, the Company earns transaction fees for sales made
through the site which are recorded in the period of the sale.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid debt instruments with a purchased
maturity of three months or less to be cash equivalents.

PROPERTY AND EQUIPMENT

Property and equipment consists primarily of computer equipment and
furniture and is stated at cost. Depreciation is computed using an accelerated
method over estimated useful lives, which range from five to seven years.

F-47
<PAGE>
THE INTERNET MALL, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997

(IN THOUSANDS EXCEPT SHARE AMOUNTS)

2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PRODUCT DEVELOPMENT

Product development costs are expensed as incurred and consist primarily of
salaries, travel, materials, supplies and contract services.

INCOME TAXES

The Company recognizes deferred income tax assets and liabilities for the
expected future income tax consequences, based on enacted tax laws, of temporary
differences between the financial reporting and tax bases of assets, liabilities
and carryforwards. Deferred tax assets are then reduced, if deemed necessary, by
a valuation allowance for the amount of any future benefits which, more likely
than not based on current circumstances, are not expected to be realized.

INTANGIBLE ASSETS

Intangible assets consist primarily of technology acquired through the
issuance of Series A preferred stock. Intangible assets are being amortized over
a three year life. Amortization expense totaled $11 and $68 in 1996 and 1997.

STOCK COMPENSATION

The Company has adopted the disclosure provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation."
In accordance with the provisions of SFAS No. 123, the Company applies
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations in accounting for its employee stock
benefit plans.

3. INCOME TAXES:

At December 31, 1996 and 1997, a valuation allowance was recognized to
offset the related deferred tax assets due to the uncertainty of realizing the
benefit of the Company's net operating loss carryforward. The need for this
valuation allowance is subject to periodic review. If it is determined in a
future period that it is more likely than not that the tax benefits of the
carryforwards will be realized, the reduction of the valuation allowance will be
recorded as a reduction of the Company's income tax expense.

At 1997, the Company had net operating loss carryforwards of approximately
$780, which expire commencing in 2011. Under current tax law, net operating loss
carryforwards available in any given year may be limited upon the occurrence of
certain events, including significant changes in ownership interests.

The deferred tax assets of approximately $10 and $260 at December 31, 1996
and 1997, respectively, are composed primarily of net operating loss
carryforwards. Because the Company's utilization of these deferred tax assets is
dependent upon future profits that are not assured, a valuation allowance equal
to deferred tax assets has been provided.

F-48
<PAGE>
THE INTERNET MALL, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997

(IN THOUSANDS EXCEPT SHARE AMOUNTS)

4. CONVERTIBLE SUBORDINATED PROMISSORY NOTE:

In October 1997 the Company issued a convertible subordinated promissory
note in the amount of $300. The note bears interest at 7% and was originally due
in April 1998. Subsequent to December 31, 1997, the note due date was extended
to August 1998 and satisfied in connection with the acquisition discussed in
Note 6.

5. SHAREHOLDERS' EQUITY:

COMMON STOCK

In November 1996, common stock was issued to founders for cash of $1 and
promissory notes of $57. The notes accrued interest at 5.87% per year.

CONVERTIBLE PREFERRED STOCK

The Company has authorized 6,000,000 shares of convertible preferred stock
(preferred stock). The board of directors has the authority to establish and
define, in one or more series, the price, rights, preferences and dividends of
authorized but unissued shares of preferred stock.

The shares outstanding at December 31, 1997 are summarized as follows:

SERIES B--The Company designated 2,000,000 shares as Series B Convertible
Stock (Series B), and issued 1,724,867 shares in May and August 1997, at
prices of $0.27 and $0.35 per share.

SERIES A--The Company designated 4,000,000 shares as Series A Convertible
Preferred Stock (Series A). In November 1996, 4,000,000 shares were issued
in conjunction with 1,250,000 shares of common stock in exchange for cash
and technology rights, at a price of $0.10 per share.

The rights and preferences of the preferred stock are as follows:

DIVIDENDS--Holders of preferred stock are entitled to receive annual
dividends of $0.02 per share for Series B and $0.005 per share for Series A,
when and if declared by the board of directors. Such dividends are not
cumulative. As of December 31, 1997, none has been declared.

CONVERSION--Each share of preferred stock is convertible at the option of
the holder into common stock at the conversion price in effect in such date.
Shares also convert upon a vote of the majority of the shareholders of the
respective series. Each share of the preferred stock automatically converts
into common stock upon the closing of an initial public offering that meets
certain conditions.

LIQUIDATION PREFERENCE--The Series B and Series A shares have liquidation
preferences of $0.29 and $0.10 per share, respectively, plus all declared
but unpaid dividends.

If the value of the Company on liquidation is insufficient to pay the entire
preferential amount, distribution should be made as follows: the first $100
of assets shall be distributed to the holders of Series B and any remaining
amount shall be distributed pro rata to preferred shareholders in proportion
to remaining preferential amount the preferred shareholder is entitled to
receive.

F-49
<PAGE>
THE INTERNET MALL, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997

(IN THOUSANDS EXCEPT SHARE AMOUNTS)

5. SHAREHOLDERS' EQUITY: (CONTINUED)
Any assets remaining after the preferential distribution will be paid to
holders of common stock in proportion to shares held by each.

VOTING RIGHTS--Each holder of preferred stock shall be entitled to the
number of votes equal to the number of shares of common stock into which
such shares could be converted, and have voting rights equal to holders of
common stock.

REPURCHASE RIGHT

Certain shares of common stock outstanding at December 31, 1997 were subject
to a repurchase right by the Company at the original sale price of $0.01 per
share. The number of shares the Company may repurchase was established on the
date of sale and is reduced ratably over the 36-month period ending in November
1999. At December 31, 1997, 2,731,249 shares were subject to repurchase rights.

The Company repurchased 1,545,312 and 503,125 shares of common stock at
$0.01 per share in January 1998 and April 1998, pursuant to the repurchase right
discussed above.

STOCK OPTIONS

On November 13, 1996, the Company adopted the 1996 Stock Option Plan (the
Plan). Under the terms of the Plan, stock options may be granted to employees,
directors, officers and consultants at a price determined by the Board. Options
have a term of up to 10 years and vest over a schedule determined by the Board
of Directors, generally four years.

The Plan is accounted for under APB Opinion No. 25, under which no
compensation cost has been recognized. Had compensation cost for this program
been determined consistent with SFAS No. 123, the Company's net loss would have
changed to the pro-forma amounts indicated below:

<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Net loss--as reported......................................................... $ (41) $ (830)
Net loss--pro-forma........................................................... $ (41) $ (831)
</TABLE>

To determine compensation expense under SFAS No. 123 in 1997 and 1996, the
fair value of each grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:

- Risk-free interest rates of 6.0%

- Expected lives of 4 years

- Expected dividend yields of 0%

- Expected volatility of 0%

F-50
<PAGE>
THE INTERNET MALL, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997

(IN THOUSANDS EXCEPT SHARE AMOUNTS)

5. SHAREHOLDERS' EQUITY: (CONTINUED)
Option activity under the Plan was as follows:

<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVAILABLE AVERAGE AVERAGE
FOR FUTURE OUTSTANDING EXERCISE GRANT DATE
GRANT SHARES PRICE FAIR VALUE
---------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balances, November 13, 1996..................................... -- -- $ -- $ --
Authorized.................................................... 1,650,000 -- -- --
Granted....................................................... -- -- -- --
Exercised..................................................... -- -- -- --
Cancelled..................................................... -- -- -- --
---------- ----------- ----- ---
Balances, December 31, 1996..................................... 1,650,000 --
Granted....................................................... (332,557) 332,557 0.05 0.01
Exercised..................................................... -- -- -- --
Cancelled..................................................... 37,500 (37,500) 0.05 --
---------- ----------- ----- ---
Balances, December 31, 1997..................................... 1,354,943 295,057 $ 0.05
---------- ----------- -----
---------- ----------- -----
</TABLE>

The options outstanding at December 31, 1997 have an exercise price of
$0.05, and a weighted average remaining contractual life of nine years. 117,929
options were vested at December 31, 1997 with a weighted average exercise price
of $0.05.

SHARES RESERVED FOR FUTURE ISSUANCE

As of December 31, 1997, the Company had reserved shares of its common stock
for the following purposes:

<TABLE>
<S> <C>
Conversion of outstanding preferred stock:
Series A....................................................... 4,000,000
Series B....................................................... 1,725,867
1996 Stock Option Plan........................................... 1,650,000
---------
7,375,867
---------
---------
</TABLE>

6. COMMITMENTS:

OPERATING LEASES

The Company leases office and computer equipment under operating leases with
expiration dates through May 1999.

F-51
<PAGE>
THE INTERNET MALL, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997

(IN THOUSANDS EXCEPT SHARE AMOUNTS)

6. COMMITMENTS: (CONTINUED)
Minimum lease commitments under noncancellable leases are as follows:

Rent expense under operating leases totaled $6 and $52 for the period from
inception (November 13, 1996) to December 31, 1996 and the year ended December
31, 1997, respectively.

7. ACQUISITION:

On August 6, 1998, the Company was acquired by ShopNow.com Inc.

F-52
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors
GO Software, Inc.

We have audited the accompanying balance sheets of GO Software, Inc. (the
Company) as of December 31, 1998 and 1997, the related statements of operations,
shareholder's equity (deficit), and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
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 GO Software, Inc. at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.

/s/ Ernst & Young LLP

Jacksonville, Florida
June 11, 1999

F-53
<PAGE>
GO SOFTWARE, INC.

BALANCE SHEETS

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 15,
-------------------- -----------
1998 1997 1999
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 766 $ 1,047 $ 640
Accounts receivable, net of allowance of $62 in 1999 (unaudited), $49 in 1998
and $55 in 1997.............................................................. 137 56 236
Refundable income taxes........................................................ 33 -- 33
Inventory...................................................................... 11 5 9
Prepaid expenses and other current assets...................................... 36 13 19
--------- --------- -----------
Total current assets............................................................. 983 1,121 937
Property and equipment, at cost:
Computer equipment............................................................. 106 47 123
Office equipment............................................................... 32 22 35
--------- --------- -----------
138 69 158
Accumulated depreciation....................................................... (50) (20) (68)
--------- --------- -----------
Net property and equipment....................................................... 88 49 90
Capitalized software development costs........................................... 28 -- 28
Deferred income tax asset........................................................ 7 2 20
--------- --------- -----------
Total assets..................................................................... $ 1,106 $ 1,172 $ 1,075
--------- --------- -----------
--------- --------- -----------

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Trade accounts payable and accrued expenses.................................... $ 66 $ 26 $ 88
Income taxes payable........................................................... -- 20 3
Other taxes payable............................................................ 2 5 --
Deferred revenue............................................................... 21 9 128
--------- --------- -----------
Total current liabilities........................................................ 89 60 219
Deferred income tax liability.................................................... 24 17 24
Series A redeemable preferred stock, $1.39167 par value per share, 664,671 and
700,597 shares authorized and outstanding (liquidation value)................ 1,194 1,043 1,293
Shareholders' equity (deficit):
Common stock, no par value, 10,000,000 shares authorized and 1,000,000 shares
outstanding.................................................................. 10 10 10
Paid-in capital................................................................ 211 211 211
Retained earnings (deficit).................................................... (422) (169) (682)
--------- --------- -----------
Total shareholders' equity (deficit)............................................. (201) 52 (461)
--------- --------- -----------
Total liabilities and shareholders' equity....................................... $ 1,106 $ 1,172 $ 1,075
--------- --------- -----------
--------- --------- -----------
</TABLE>

See accompanying notes.

F-54
<PAGE>
GO SOFTWARE, INC.

STATEMENTS OF OPERATIONS

(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31, JANUARY 1, 1999
-------------------- TO
1998 1997 JUNE 15, 1999
--------- --------- ---------------
<S> <C> <C> <C>
(UNAUDITED)
Net revenues.................................................................... $ 1,346 $ 793 $ 728
Cost of goods sold.............................................................. 55 21 45
--------- --------- -----
Gross profit.................................................................... 1,291 772 683
Selling, general and administrative expenses.................................... 1,149 410 686
Research and development........................................................ 253 130 182
--------- --------- -----
Operating (loss) income......................................................... (111) 232 (185)
Interest income................................................................. 41 17 12
--------- --------- -----
(Loss) income before income taxes............................................... (70) 249 (173)
Benefit (provision) for income taxes............................................ 17 (34) 12
--------- --------- -----
Net (loss) income............................................................... $ (53) $ 215 $ (161)
--------- --------- -----
--------- --------- -----
</TABLE>

See accompanying notes.

F-55
<PAGE>
GO SOFTWARE, INC.

STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)

(IN THOUSANDS)

<TABLE>
<CAPTION>
RETAINED
COMMON PAID- IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1996.............................................. $ 10 $ -- $ 62 $ 72
Net income prior to conversion to C Corporation........................... -- -- 141 141
Conversion from S Corporation to C Corporation............................ -- 203 (203) --
Accretion of Series A redeemable preferred stock dividends................ -- -- (68) (68)
Distributions to shareholders............................................. -- -- (175) (175)
Issuance of options....................................................... -- 8 -- 8
Net income................................................................ -- -- 74 74
----- ----- ----- ---------
Balance at December 31, 1997.............................................. 10 211 (169) 52
Net loss.................................................................. -- -- (53) (53)
Accretion of Series A redeemable preferred stock dividends................ -- -- (200) (200)
----- ----- ----- ---------
Balance at December 31, 1998.............................................. 10 211 (422) (201)
Net loss (unaudited)...................................................... -- -- (161) (161)
Accretion of Series A redeemable preferred stock dividends (unaudited).... -- -- (99) (99)
----- ----- ----- ---------
Balance at June 15, 1999 (unaudited)...................................... $ 10 $ 211 $ (682) $ (461)
----- ----- ----- ---------
----- ----- ----- ---------
</TABLE>

See accompanying notes.

F-56
<PAGE>
GO SOFTWARE, INC.

STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31 JANUARY 1,
-------------------- 1999 TO JUNE
1998 1997 15, 1999
--------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income.............................................................. $ (53) $ 215 $ (161)
Adjustments to reconcile net (loss) income to net cash (used in) provided by
operating activities:
Depreciation and amortization................................................ 29 14 18
Issuance of options.......................................................... -- 8 --
Changes in operating assets and liabilities:
Increase in accounts receivable, net....................................... (81) (38) (99)
Increase in refundable income taxes........................................ (33) -- --
Increase (decrease) in inventory........................................... (6) (5) 2
Increase (decrease) in prepaid expenses and other current assets........... (23) (13) 17
Increase (decrease) in deferred income tax liabilities, net................ 2 15 (13)
Increase in deferred revenue............................................... 12 6 107
Increase in accounts payable and accrued expenses.......................... 17 23 22
Increase in income and other taxes payable................................. -- 25 1
--------- --------- -----
Net cash (used in) provided by operating activities............................ (136) 250 (106)

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment............................................ (67) (40) (20)
Capitalized software development costs......................................... (28) -- --
--------- --------- -----
Net cash used in investing activities.......................................... (95) (40) (20)

CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to shareholders.................................................. -- (175) --
Proceeds from issuance of Series A redeemable preferred stock.................. -- 1,000 --
Repurchase of preferred stock.................................................. (50) (25) --
--------- --------- -----
Net cash (used in) provided by financing activities............................ (50) 800 --
--------- --------- -----
Net (decrease) increase in cash and cash equivalents........................... (281) 1,010 (126)
Cash and cash equivalents, beginning of year................................... 1,047 37 766
--------- --------- -----
Cash and cash equivalents, end of year......................................... $ 766 $ 1,047 $ 640
--------- --------- -----
--------- --------- -----
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for taxes............................................ $ 33 $ -- $ --
--------- --------- -----
--------- --------- -----
NONCASH FINANCING ACTIVITIES:
Accretion of Series A redeemable preferred stock............................. $ 200 $ 68 $ 99
--------- --------- -----
--------- --------- -----
</TABLE>

See accompanying notes.

F-57
<PAGE>
GO SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1998

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

1. ORGANIZATION AND NATURE OF BUSINESS

GO Software, Inc. (the Company) was incorporated in Georgia in 1994.
Initially, the sole shareholder, in exchange for his knowledge in the fields of
software development and credit card processing, along with the rights to
certain software products, received 1,000,000 shares of common stock of the
Company after adjustment for the stock dividend (Note 3). The Company develops
and markets transaction processing software for personal computers that can
function on a stand-alone basis or can interface with core corporate accounting
systems. The Company currently sells its products to businesses in the United
States and Canada.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

REVENUE RECOGNITION

The Company licenses software under license agreements that include multiple
elements including software and maintenance and support services. In accordance
with SOP 97-2, license agreement revenues are allocated to the various elements
based on "vendor-specific objective evidence of fair value." Revenues for the
software element are recognized when a license agreement has been signed,
delivery has occurred, the fee is fixed or determinable and collectibility is
probable. Revenues from maintenance agreements are recognized ratably over the
maintenance period.

The Company may bill resellers under which no shipment is made until sales
are made by the reseller to a third-party end user. Revenues from these
arrangements are deferred and recognized upon shipment to the third-party end
user.

INVENTORY

Inventory, consisting of software media, manuals, and related packaging
materials, is stated at the lower of cost, determined on the first-in, first-out
basis, or market.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets, generally
three years.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid short-term investments with
maturities of three months or less when purchased to be cash equivalents.

F-58
<PAGE>
GO SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SOFTWARE DEVELOPMENT COSTS

The Company accounts for software development costs in accordance with
Statement of Financial Accounting Standards (SFAS) No. 86. Costs incurred prior
to establishment of technological feasibility are expensed as incurred. Software
development costs of $28 and $0 were capitalized as of December 31, 1998 and
1997, respectively.

Amortization of capitalized software costs commences when the software is
available for general release to customers. Amortization is based on the
straight-line method over the estimated economic life of the product, which may
range from three to five years. No amortization was recorded in 1998 as none of
the products for which costs were capitalized were available for general release
by the end of the year.

DEFERRED REVENUE

Deferred revenue represents license fees and maintenance and support which
have been sold and payment received but not earned at year end.

During August 1997, the Company changed its income tax status from a
Subchapter S Corporation, which generally does not provide for income taxes at
the corporate level, to a C Corporation, which does provide for income taxes at
the corporate level. Accordingly, as of 1997, the accompanying financial
statements include a provision for income taxes.

INCOME TAXES

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES. SFAS No.
109 requires income taxes to be recognized using the liability method.
Specifically, deferred tax assets and liabilities are determined based on
estimated future tax effects attributable to temporary differences between the
amount of assets and liabilities recognized for financial reporting and income
tax purposes.

CREDIT RISK

The Company extends credit to certain customers, generally resellers.
Exposure to losses on receivables is principally dependent on each customer's
financial condition. The Company monitors its exposure for credit losses and
maintains allowances for anticipated losses.

ADVERTISING AND PROMOTION

All costs associated with advertising and promoting products are expensed
when incurred. Advertising expense was $143 in 1998 and $69 in 1997.

3. SHAREHOLDER'S EQUITY

Effective January 2, 1997, the Company amended its Articles of Incorporation
to increase the number of authorized shares of no par common stock from 10,000
to 10,000,000. In connection with

F-59
<PAGE>
GO SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

3. SHAREHOLDER'S EQUITY (CONTINUED)
the recapitalization, the Company issued a stock dividend of 999 shares of
common stock for every 1 share of common stock outstanding.

4. SERIES A REDEEMABLE PREFERRED STOCK

On August 22, 1997 (the Closing Date), the Company executed an agreement
with certain private investors (the Investors) to issue 718,563 shares of
convertible preferred stock (the Preferred Stock) to the Investors for cash
consideration of $1,000. During 1998 and 1997, the Company acquired and retired
$50 and $25, respectively, of the outstanding preferred stock at the initial
purchase price (par value) plus a 4% return. The Preferred Stock is convertible
initially on a one-to-one basis into shares of common stock. The Preferred Stock
is automatically convertible into common stock upon an initial public offering
of the Company's common stock meeting certain conditions. The Preferred Stock
has certain anti-dilution features, has voting rights for the number of common
shares into which it is convertible, and has certain demand registration rights.
The Investors may put the Preferred Stock back to the Company at the initial
purchase price plus a 20% rate of return, compounded annually and cumulatively
from the Closing Date, beginning one-third on June 30, 2001, one-third on June
30, 2002, and one-third on June 30, 2003. The Preferred Stock has a liquidation
preference equal to the face value of the Preferred Stock plus a return
compounded annually and cumulatively at 20% per year for the first two years and
40% per year thereafter to the earlier of June 30, 2003 or the date the Company
liquidates, dissolves, or winds up its affairs. As of December 31, 1998 and
1997, returns related to the defined redemption price, which are included in
preferred stock on the accompanying balance sheets were $269 and $68,
respectively.

5. EMPLOYEE STOCK OPTION PLAN

Effective January 2, 1997, the Company adopted the 1997 Stock Incentive Plan
(the Plan). Under the terms of the Plan, the Company may grant incentive stock
options, nonqualified stock options, and restricted stock grants to employees
and other key persons, as defined. The total number of shares of common stock
reserved under the Plan is 277,445. Options are exercisable for a maximum of 10
years from the date of grant and must be granted at an exercise price at least
equal to fair value. Options generally vest on a pro rata basis over four years
from the date of grant.

In accordance with APB 25, the Company records no compensation expense for
its stock options when the exercise price equals or exceeds the fair value of
common sock on the date of grant. Pro forma information regarding net income is
required by FASB Statement 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, and has
been determined as if the Company had accounted for its employee stock options
under the fair value method of that Statement. The fair value for the options
were estimated at the date of grant using the minimum value method with the
following weighted-average assumptions for 1998 and 1997: risk-free interest
rate of 5.60%; dividend yield of 0%; and a weighted-average expected life of the
options of 10 years.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The per share
weighted average fair value of options granted

F-60
<PAGE>
GO SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

5. EMPLOYEE STOCK OPTION PLAN (CONTINUED)
during the year ended December 31, 1998 and 1997 was $.61 and $.00,
respectively. The Company's 1998 and 1997 pro forma information follows:

<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(Loss) income before pro forma effect of stock options......................... $ (53) $ 215
Pro forma compensation expense from stock options:
1997 grant................................................................... -- --
1998 grants.................................................................. 19 --
--- ---------
Pro forma net (loss) income.................................................... $ (72) $ 215
--- ---------
--- ---------
</TABLE>

Because options vest over several years and additional option grants are
expected, the effects of these pro forma calculations are not likely to be
representative of similar future calculations.

The following table summarizes option activity for the Company's stock
option plan for the years ended December 31, 1998 and 1997. During 1997, an
employee holding 199,601 options under the Plan resigned from the Company and
forfeited all options held, including vested and unvested options.

<TABLE>
<CAPTION>
WEIGHTED
EXERCISE PRICE AVERAGE
SHARES PER SHARE EXERCISE PRICE
--------- ----------------- ---------------
<S> <C> <C> <C>
Granted.......................................... 208,801 $ .26 to $3.00 $ .38
Exercised........................................ -- -- --
Canceled......................................... 199,601 $ .26 $ .26
---------
Balance, December 31, 1997....................... 9,200 $ 3.00 $ 3.00
Granted.......................................... 215,581 $ 1.39 to $2.00 $ 1.41
Exercised........................................ -- -- --
Canceled......................................... -- -- --
---------
Balance, December 31, 1998....................... 224,781 $ 1.39 to $3.00 $ 1.49
---------
---------
</TABLE>

No options are exercisable at December 31, 1998. Subsequent to December 31,
1998, 39,920 options granted in 1988 were canceled. The pro forma compensation
expense from these options is not included in the pro forma information above.

6. COMMITMENT

LEASE

The Company leases office space under a lease which expired in March 1999
and is continuing on a month-to-month basis. The lease requires 60 days notice
prior to vacating the space. Future lease payments under this lease at December
31, 1998 are approximately $7. Lease expense for 1998 and 1997 was $22 and $12,
respectively.

F-61
<PAGE>
GO SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

7. INCOME TAXES

The provision for income tax (expense) benefit consists of the following:

<TABLE>
<CAPTION>
1998 1997
--------- ----------
<S> <C> <C>
Current:
Federal.............................................................. $ 15 $ (15)
State................................................................ 5 (5)
--------- ----------
20 (20)
Deferred:
Federal.............................................................. (2) (12)
State................................................................ (1) (2)
--------- ----------
(3) (14)
--------- ----------
$ 17 $ (34)
--------- ----------
--------- ----------
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Accrued expenses...................................................... $ 3 $ 2
NOL carryforward...................................................... 4 --
--------- ---------
Total deferred tax assets............................................... 7 2
Deferred tax liabilities:
Capitalized software development costs................................ 7 --
Accelerated depreciation.............................................. 17 17
--------- ---------
Total deferred tax liabilities.......................................... 24 17
--------- ---------
Net deferred tax liabilities............................................ $ 17 $ 15
--------- ---------
--------- ---------
</TABLE>

As of December 31, 1998, the Company has net operating loss carryforwards of
approximately $16, which expire in 2013, if not utilized.

Utilization of the net operating loss may be subject to a substantial annual
limitation due to the ownership change limitations provided by the Internal
Revenue Code of 1986 and similar state provisions. The annual limitation may
result in the expiration of net operating loss before utilization.

F-62
<PAGE>
GO SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

8. SALE OF BUSINESS

During May 1999, the Company signed a letter of intent to sell all
outstanding stock to a third party for total consideration of approximately $15
million. The transaction is expected to be consummated in June 1999.

9. YEAR 2000 (UNAUDITED)

The Year 2000 issue is the result of computer programs and other business
systems being written using two digits rather than four digits to represent the
year. An assessment of the Year 2000 exposure has been made by the Company and
the plans to resolve the related issues are being implemented. Most major
systems have already been updated or replaced with applications that are Year
2000 compliant in the normal course of business. The Company believes it will be
able to achieve Year 2000 compliance by the end of 1999 without incurring
significant additional costs.

The Company has also developed a plan of communication with significant
business partners to ensure that the Company's operations are not disrupted
through these relationships and that the Year 2000 issues are resolved timely.

F-63
<PAGE>
[INSIDE BACK COVER]

CUSTOMER FRIENDLY

A BETTER WAY TO SHOP

We provide shoppers with a convenient, one-stop shopping experience, reducing
the need to sift through often irrelevant search results. MyShopNow.com enables
customers to personalize and further focus their interests and browsing, while
offering a seamless "one-cart" checkout solution in a secure, friendly and
easy-to-navigate shopping environment.

[PICTURE OF A MYSHOPNOW WEB PAGE]
[PICTURE OF A BOY HOLDING A PRODUCT SOLD ON SHOPNOW.COM]

MY FAVORITES

One of ShopNow.com's more popular convenience features, "My Favorites," allows
shoppers to create their own lists of frequently visited merchant stores, as
well as e-mail their favorite stores to friends. With easy-to-use shopping
categories, advanced search engines and helpful tools such as "My Favorites,"
ShopNow.com helps shoppers find what they're looking for fast.

[PICTURE OF AN ONLINE MERCHANT STORE WITH SHOPNOW.COM WEB SITE]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

7,000,000 SHARES

[SHOPNOW LOGO]

COMMON STOCK

--------------
PROSPECTUS
--------------

DAIN RAUSCHER WESSELS
a division of Dain Rauscher Incorporated

U.S. BANCORP PIPER JAFFRAY

SOUNDVIEW TECHNOLOGY GROUP

WIT CAPITAL CORPORATION

Until , 1999 (25 days after the date of this prospectus), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.

, 1999

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by ShopNow.com in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fee.

<TABLE>
<S> <C>
SEC registration fee.............................................. $ 26,855
NASD filing fee................................................... 10,160
Nasdaq National Market listing fee................................ 90,000
Printing and engraving costs...................................... 150,000
Legal fees and expenses........................................... 240,000
Accounting fees and expenses...................................... 200,000
Transfer Agent and Registrar fees................................. 10,000
Miscellaneous expenses............................................ 22,985
---------
Total......................................................... $ 750,000
---------
---------
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Sections 23B.08.500 through 23B.08.600 of the Washington Business
Corporation Act (the "WBCA") authorize a court to award, or a corporation's
board of directors to grant, indemnification to directors and officers on terms
sufficiently broad to permit indemnification under certain circumstances for
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). Section 5 of the registrant's Amended and Restated Bylaws
(Exhibit 3.2 hereto) provides for indemnification of the registrant's directors,
officers, employees and agents to the maximum extent permitted by Washington
law. The directors and officers of the registrant also may be indemnified
against liability they may incur for serving in that capacity pursuant to a
liability insurance policy maintained by the registrant for such purpose.

Section 23B.08.320 of the WBCA authorizes a corporation to limit a
director's liability to the corporation or its shareholders for monetary damages
for acts or omissions as a director, except in certain circumstances involving
intentional misconduct, knowing violations of law or illegal corporate loans or
distributions, or any transaction from which the director personally receives a
benefit in money, property or services to which the director is not legally
entitled. Section 10 of the registrant's Amended and Restated Articles of
Incorporation (Exhibit 3.1 hereto), contains provisions implementing, to the
fullest extent permitted by Washington law, such limitations on a director's
liability to the registrant and its shareholders.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

During the past three years, the Registrant has issued and sold unregistered
securities as set forth below.

1. On September 30, 1996, the Registrant issued 300,000 shares of common stock
to Othniel Palomino at $0.15 per share. These securities have been issued in
a transaction exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933.

2. On January 2, 1997, the Registrant issued to Ganapathy Krishnan a promissory
note in the principal amount of $250,000, which is convertible into 500,000
shares of common stock. These

II-1
<PAGE>

securities have been issued in a transaction exempt from registration under
the Securities Act of 1933 in reliance upon Section 4(2) of the Securities
Act of 1933.

3. On January 2, 1997, pursuant to an Acquisition Agreement among the
Registrant, Web Solutions, Inc. and Intelligent Software Solutions, Inc.,
the Registrant issued to the shareholders of Web Solutions, Inc. and
Intelligent Software Solutions, Inc. 600,000 shares of common stock, valued
at $0.15 per share, and a convertible promissory note in the principal
amount of $225,738. These securities have been issued in a transaction
exempt from registration under the Securities Act of 1933 in reliance upon
Section 4(2) of the Securities Act of 1933.

4. On February 26, 1997, the Registrant issued 699,612 shares of Series A
convertible preferred stock at $0.50 per share, which are currently
convertible into 699,612 shares of common stock, to Dwayne Walker in
exchange for the cancellation of certain promissory notes issued by the
Registrant to Mr. Walker. These securities have been issued in a transaction
exempt from registration under the Securities Act of 1933 in reliance upon
Section 4(2) of the Securities Act of 1933 and Rule 506 of Regulation D
thereunder.

5. On February 26, 1997 and April 30, 1997, the Registrant issued 2,334,079
shares of Series B convertible preferred stock, which are currently
convertible into 2,334,079 shares of common stock, to four accredited
investors at $0.77 per share. These securities have been issued in
transactions exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933 and Rule 506 of
Regulation D thereunder.

6. During the period from May 15, 1997 through July 15, 1997, the Registrant
issued promissory notes in the aggregate principal amount of $1,220,000,
each of which accrued interest at an annual rate of 8% (the "1997 Notes").
These securities have been issued in transactions exempt from registration
under the Securities Act of 1933 in reliance upon Section 4(2) of the
Securities Act of 1933.

7. During the period from October 21, 1997 through November 12, 1997, the
Registrant issued promissory notes in the aggregate principal amount of
$1,775,000. In connection with this transaction, the Registrant issued to
the investors warrants to purchase an aggregate of 62,125 shares of common
stock at an exercise price of $1.50 per share. Additionally, the Registrant
issued to the placement agent, Madison Securities, Inc., warrants to
purchase 177,500 shares of common stock at an exercise price of $1.50 per
share. These securities have been issued in transactions exempt from
registration under the Securities Act of 1933 in reliance upon Section 4(2)
of the Securities Act of 1933 and Rule 506 of Regulation D thereunder.

8. On October 31, 1997, the Registrant issued 835,205 shares of Series C
convertible preferred stock, which are currently convertible into 835,205
shares of common stock, to 14 investors at $1.50 per share in exchange for
the cancellation of the 1997 Notes. In connection with this transaction, the
Registrant issued to the investors warrants to purchase an aggregate of
167,047 shares of Series C convertible preferred stock at an exercise price
of $1.50 per share. These securities have been issued in transactions exempt
from registration under the Securities Act of 1933 in reliance upon Section
4(2) of the Securities Act of 1933 and Rule 506 of Regulation D thereunder.

9. On November 11, 1997, the Registrant issued 177,333 shares of common stock
to Ganapathy and Kalyani Krishnan at $0.50 per share. These securities have
been issued in a transaction exempt from registration under the Securities
Act of 1933 in reliance upon Section 4(2) of the Securities Act of 1933.

10. During the period from January 23, 1998 through April 15, 1998, in a private
placement the Registrant issued, to 163 investors, an aggregate of 4,250,000
shares of Series D convertible preferred stock and warrants to purchase an
aggregate of 425,000 shares of common stock at an exercise price of $5.00
per share and issued, to 111 investors, an aggregate of 2,125,000 shares of

II-2
<PAGE>

Series E convertible preferred stock and warrants to purchase an aggregate
of 212,500 shares of common stock at a exercise price of $5.00 per share. In
connection with this transaction, the Registrant issued to the placement
agent, Madison Securities, Inc., warrants to purchase 625,000 shares of
common stock at an exercise price of $4.40 per share. These securities have
been issued in transactions exempt from registration under the Securities
Act of 1933 in reliance upon Section 4(2) of the Securities Act of 1933 and
Rule 506 of Regulation D thereunder.

11. On January 29, 1998, the Registrant entered into a Stock Purchase Agreement
with Trucost, Inc., pursuant to which the Registrant issued to Trucost, Inc.
a warrant to purchase 10,000 shares of common stock at an exercise price of
$5.00. These securities have been issued in a transaction exempt from
registration under the Securities Act of 1933 in reliance upon Section 4(2)
of the Securities Act of 1933.

12. On March 23, 1998, pursuant to a development and license agreement between
the Registrant and InstallShield Software Corporation, the Registrant issued
62,327 shares of common stock to InstalledShield Software. These securities
have been issued in a transaction exempt from registration under the
Securities Act of 1933 in reliance upon Section 4(2) of the Securities Act
of 1933.

13. On June 8, 1998, pursuant to an Acquisition Agreement among the Registrant
and Saturn Solutions, Inc., the Registrant issued 422,710 shares of common
stock to Saturn Solutions, Inc. and 649 shares of common stock to Robert
Gagnon, in each case, valued at $3.30 per share. These securities have been
issued in transactions exempt from registration under the Securities Act of
1933 in reliance upon Section 4(2) of the Securities Act of 1933.

14. On July 8, 1998, in connection with the purchase of services, the Registrant
issued to The Culligan Group a warrant to purchase 5,000 shares of common
stock at an exercise price of $1.00 per share. These securities have been
issued in a transaction exempt from registration under the Securities Act of
1933 in reliance upon Section 4(2) of the Securities Act of 1933.

15. On August 6, 1998, pursuant to a Merger Agreement among the Registrant and
The Internet Mall, the Registrant issued to the shareholders of the Internet
Mall 666,667 shares of common stock, valued at $6.00 per share. In
connection with this agreement, the Registrant assumed an outstanding
promissory note in the principal amount of $300,000 issued to the NVCC Fund,
and following such transaction the NVCC Fund converted the note plus accrued
interest into 52,915 shares of common stock and warrants to purchase 10,583
shares of common stock at an exercise price of $4.00 per share. These
securities have been issued in transactions exempt from registration under
the Securities Act of 1933 in reliance upon Section 4(2) of the Securities
Act of 1933.

16. On September 17, 1998, pursuant to an Agreement and Plan of Merger between
the Registrant and Media Assets, Inc., the Registrant issued to the sole
shareholder of Media Assets, Inc., Jeff Haggin, 600,000 shares of common
stock, a convertible promissory note in the principal amount of $1,050,000
and options to purchase an aggregate of 1,120,000 shares of common stock at
an exercise price of $2.00 per share. In May 1999, Mr Haggin exchanged
performance-based options to purchase 900,000 shares of common stock for an
option to purchase 300,000 shares of common stock. These securities have
been issued in transactions exempt from registration under the Securities
Act of 1933 in reliance upon Section 4(2) of the Securities Act of 1933.

17. In October 1998, the Registrant completed a Bridge Financing whereby it
issued promissory notes in the aggregate principal amount of $3,700,000 and
warrants to purchase 129,500 shares of common stock at $4.00 per share. In
connection therewith, the Registrant issued to the placement agent, Madison
Securities, Inc., warrants to purchase 129,500 shares of common stock at
$4.00 per share. These securities have been issued in transactions exempt
from registration under the Securities Act of 1933 in reliance upon Section
4(2) of the Securities Act of 1933.

II-3
<PAGE>

18. On October 21, 1998, in connection with the financing of a fixed asset
acquisition, the Registrant issued to Cornerstone Equipment Finance a
warrant to purchase 6,795 shares of common stock at an exercise price of
$6.00 per share. These securities have been issued in a transaction exempt
from registration under the Securities Act of 1933 in reliance upon Section
4(2) of the Securities Act of 1933.

19. During the period from November 24, 1998 through January 19, 1999, the
Registrant issued an aggregate of 2,336,000 shares of Series F convertible
preferred stock to 130 investors at $6.25 per share. In connection with this
transaction, the Registrant issued to the investors warrants to purchase
233,600 shares of common stock at an exercise price of $7.50 per share. In
connection with this transaction, the Registrant issued to the placement
agent, Madison Securities, Inc., warrants to purchase 233,600 shares of
common stock, at an exercise price of $6.25 per share. These securities have
been issued in transactions exempt from registration under the Securities
Act of 1933 in reliance upon Section 4(2) of the Securities Act of 1933.

20. On November 30, 1998, the Registrant issued 10,000 shares of common stock to
Jim Tweeten at $5.00 per share. These securities have been issued in a
transaction exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933.

21. On December 15, 1998, the Registrant issued 5,000 shares of common stock to
Steve McClure at $.50 per share pursuant an option exercise. These
securities have been issued in a transaction exempt from registration under
the Securities Act of 1933 in reliance upon Section 4(2) of the Securities
Act of 1933.

22. On January 10, 1999, in connection with the purchase of services, the
Registrant issued to the Culligan Group a warrant to purchase 3,400 shares
of common stock at an exercise price of $1.00 per share. These securities
have been issued in a transaction exempt from registration under the
Securities Act of 1933 in reliance upon Section 4(2) of the Securities Act
of 1933.

23. On February 3, 1999, pursuant to a licensing agreement between the
Registrant and Interworld Corporation, the Registrant issued to Interworld
Corporation a warrant to purchase 16,000 shares of common stock at an
exercise price of $6.25 per share. These securities have been issued in a
transaction exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933.

24. On February 17, 1999, in connection with the purchase of services, the
Registrant issued to Star Telecommunications, Inc. a warrant to purchase
20,000 shares of common stock at an exercise price of $4.68 per share. These
securities have been issued in a transaction exempt from registration under
the Securities Act of 1933 in reliance upon Section 4(2) of the Securities
Act of 1933.

25. On March 1, 1999, in connection with the purchase of services, the
Registrant issued to Jim Tweeten a warrant to purchase 15,000 shares of
common stock at an exercise price of $6.25 per share. These securities have
been issued in a transaction exempt from registration under the Securities
Act of 1933 in reliance upon Section 4(2) of the Securities Act of 1933.

26. On March 4, 1999, pursuant to a Loan and Security Agreement between the
Registrant and Transamerica Business Credit Corporation, the Registrant
issued to Transamerica Business Credit Corporation warrants to purchase
72,000 shares of common stock at $6.25 per share. These securities have been
issued in a transaction exempt from registration under the Securities Act of
1933 in reliance upon Section 4(2) of the Securities Act of 1933.

27. On March 10, 1999, the Registrant issued 1,000 shares of common stock to
Howard Barokas and Andrew Cullen as a bonus for consulting services
previously rendered to the Registrant. These

II-4
<PAGE>

securities have been issued in transactions exempt from registration under
the Securities Act of 1933 in because no sale occurred for purposes of the
Securities Act of 1933.

28. During March and April 1999, the Registrant issued to the Zeron Group in
exchange for $5,000,000 in cash 714,288 shares of Series G convertible
preferred stock and warrants to purchase 35,715 shares of common stock at an
exercise price of $7.50 per share. These securities have been issued in
transactions exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933.

29. In April 1999, we issued to 24/7 Media 4,300,000 shares of Series G
convertible preferred stock at $7.00 per share in exchange for $30.1 million
in consideration, consisting of cash, shares of 24/7 Media common stock and
24/7 Media's majority interest in CardSecure. A portion of the shares of
Series G convertible preferred stock and of the warrants were placed in
escrow pending consummation of our acquisition of CardSecure, which occurred
on June 15, 1999. 24/7 Media also received warrants to purchase 860,000
shares of common stock at $7.00 per share. These securities have been issued
in transactions exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933.

30. On April 15, 1999, pursuant to an Asset Purchase Agreement between the
Registrant and Discountjewelry.com, the Registrant issued 8,000 shares of
common stock, valued at $6.25 per share, to Mike Kmet, Discountjewelry.com's
sole proprietor. In connection with the Asset Purchase Agreement, the
Registrant also agreed to issue an aggregate of 8,000 additional shares of
common stock over the next eight months. These securities have been issued
in transactions exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933.

31. On April 16, 1999, pursuant to a Master Lease Agreement between the
Registrant and Silicon Valley Bank, the Registrant issued to Silicon Valley
Bank warrants to purchase 40,000 shares of common stock at $6.25 per share.
These securities have been issued in transactions exempt from registration
under the Securities Act of 1933 in reliance upon Section 4(2) of the
Securities Act of 1933.

32. On April 29, 1999, pursuant to a Distribution/Marketing Agreement between
the Registrant and Qwest Communications Corporation, the Registrant issued
to Qwest Communications Corporation warrants to purchase 100,000 shares of
common stock at $10.00 per share. These securities have been issued in a
transaction exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933.

33. On May 18, 1999, the Registrant issued 333,334 shares of Series H preferred
stock to HNC Software Inc. at $9.00 per share. In connection with this
transaction, the Registrant issued to HNC warrants to purchase 50,000 shares
of common stock at an exercise price of $9.00 per share. These securities
have been issued in a transaction exempt from registration under the
Securities Act of 1933 in reliance upon Section 4(2) of the Securities Act
of 1933.

34. On May 19, 1999, pursuant to a Distribution Agreement between the Registrant
and Corel Corporation, the Registrant issued to Corel Corporation warrants
to purchase 100,000 shares of common stock at an exercise price of $9.00 and
options to purchase 300,000 and 200,000 shares of common stock at $4.80 and
$9.00, respectively. These securities have been issued in a transaction
exempt from registration under the Securities Act of 1933 in reliance upon
Section 4(2) of the Securities Act of 1933.

35. In May 1999, pursuant to the First Amendment to Loan and Security Agreement
between the Registrant and Transamerica Business Credit Corporation, the
Registrant issued to each of Transamerica Business Credit Corporation and
Sand Hill Capital LLC a warrant to purchase 35,000 shares of common stock at
an exercise price of $7.00 per share. These securities have been

II-5
<PAGE>

issued in transactions exempt from registration under the Securities Act of
1933 in reliance upon Section 4(2) of the Securities Act of 1933.

36. On June 8, 1999, in connection with the acquisition of CardSecure, Inc., the
Registrant issued, to 3 shareholders of the acquired company, an aggregate
of 243,036 shares of common stock valued at $7.00 per share. These
securities have been issued in transactions exempt from registration under
the Securities Act of 1933 in reliance upon Section 4(2) of the Securities
Act of 1933.

37. On June 15, 1999, pursuant to a Acquisition Agreement between the Registrant
and GO Software, Inc., the Registrant issued to the shareholders of GO
Software, Inc., 1,123,751 shares of common stock and to one of these
shareholders a promissory note in the principal amount of $1,000,000,
convertible at the shareholder's option for common stock at a conversion
price equal to the initial public offering price. These securities have been
issued in transactions exempt from registration under the Securities Act of
1933 in reliance upon Section 4(2) of the Securities Act of 1933.

38. On June 17, 1999, the Registrant entered into the Stock Purchase Agreement
among the Registrant and CB Capital Investors, L.P., to sell 2,100,000
shares of Series I convertible preferred stock and a warrant to purchase
555,556 shares of common stock at an exercise price of $9.00 per share to CB
Capital Investors, L.P. The transaction closed on July 17, 1999. These
securities have been issued in transactions exempt from registration under
the Securities Act of 1933 in reliance upon Section 4(2) of the Securities
Act of 1933.

39. On April 12, 1999, Merrimac Capital Company, LLC and Leasing Technologies
Inc., made a loan commitment to the Registrant pursuant to which the
Registrant agreed to issue to Merrimac Capital Company, LLC a warrant to
purchase 6,400 shares of common stock at an exercise price of $6.25 per
share and to Leasing Technologies Inc. a warrant to purchase 22,400 shares
of common stock at an exercise price of $6.25 per share. These securities
were issued in a transaction exempt from registration under the Securities
Act of 1933 in reliance upon Section 4(2) of the Securities Act of 1933.

40. On April 20, 1999, in exchange for the cancellation of the Registrant's
obligation to pay a lease brokerage fee to Matt Christian and Tim O'Keefe,
the Registrant agreed to issue to Matt Christian a warrant to purchase
13,182 shares of common stock at an exercise price of $9.00 per share and to
Tim O'Keefe a warrant to purchase 3,600 shares of common stock at an
exercise price of $9.00 per share. These securities have been issued in
transactions exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933.

41. Through June 30, 1999, the Registrant granted, pursuant to its stock option
plan and outside of its stock option plan, options to purchase an aggregate
of 9,307,275. The options granted under the stock option plan were issued to
the Registrant's officers, employees and consultants at exercise prices
ranging from $0.25 to $7.00. The options granted outside of the stock option
plan were granted to its employees and officers at prices ranging from $0.25
to $4.00. A significant portion of these options were issued pursuant to the
Registrant's stock option plan. These securities have been issued in
transactions exempt from registration under the Securities Act of 1933 in
reliance upon Rule 701 promulgated under the Securities Act of 1933. Where
Rule 701 has not been available, the securities have been issued in
transactions exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933.

II-6
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ---------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1* Amended and Restated Articles of Incorporation of the Registrant.
3.2** Bylaws of the Registrant.
4.1** Second Amended and Restated Registration Rights Agreement dated as of November
30, 1998.
4.2*** Amendment No. 1 to Second Amended and Restated Registration Rights Agreement
dated as of June 15, 1999.
4.3*** Amendment No. 2 to Second Amended and Restated Registration Rights Agreement
dated as of June 16, 1999.
5.1*** Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1 1999 Employee Stock Purchase Plan and forms of agreement thereunder.
10.2 Amended and Restated 1996 Combined Incentive and Nonqualified Stock Option Plan
and form of agreements thereunder.
10.3+** Electronic Distribution Agreement dated as of May 19, 1999, between Corel
Corporation and the Registrant.
10.4+** Addendum No. 1 Project Agreement to Strategic Alliance Agreement between HNC
Software and the Registrant, dated May 4, 1999.
10.5+** Distributor/Marketing Agreement dated as of April 29, 1999, between Qwest
Communications Corporation and the Registrant.
10.6** Strategic Alliance Agreement dated as of May 4, 1999, between HNC Software Inc.
and the Registrant.
10.7** Consortium Membership Agreement dated as of May 4, 1999, between HNC Software
Inc. and the Registrant.
10.8** Cross Promotion Agreement dated April 5, 1999, between 24/7 Media, Inc. and the
Registrant.
10.9** Loan and Security Agreement dated as of March 4, 1999, between Transamerica
Business Credit Corporation and the Registrant.
10.10** Letter of Intent agreement dated March 24, 1999, between The ZERON Group and
Registrant.
10.11 Employment Agreement effective as of July 1, 1999, between Dwayne M. Walker and
the Registrant.
10.12** Corporate Master Agreement effective as of February 10, 1999, between Vignette
Corporation and the Registrant.
10.13*** Agreement dated July 7, 1999, between About.com, Inc. and the Registrant.
10.14*** Agreement effective as of July 12, 1999, between Chase Manhattan Capital, L.P.
and the Registrant.
21.1 List of Subsidiaries.
23.1 Consent of Ernst & Young, LLP, Independent Accountants.
23.2 Consent of Arthur Andersen LLP, Independent Accountants.
23.3*** Consent of Counsel (see Exhibit 5.1).
24.1** Power of Attorney (see page II-6).
27.1 Financial Data Schedules.
</TABLE>

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

* Incorporated by reference to Exhibit 3.1 to Registrant's Form 8-A filed with
the Securities and Exchange Commission on July 11, 1999 (file number
000-26707)

II-7
<PAGE>

** Previously filed

*** To be filed by amendment.

+ Confidential treatment has been requested for certain portions of this
exhibit pursuant to Rule 406 under the Securities Act of 1933, as amended.
The omitted portions of this agreement have been separately filed with the
Commission. The omitted portions have been separately filed with the
Commission.

(b) FINANCIAL STATEMENT SCHEDULES

SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS.

Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.

ITEM 17. UNDERTAKINGS

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

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

The undersigned Registrant hereby undertakes that:

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

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

II-8
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1993, as amended, the
registrant has duly caused this Amendment No. 1 Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Seattle, State of Washington, on July 30, 1999.

<TABLE>
<S> <C> <C>
SHOPNOW.COM INC.

By /s/ DWAYNE M. WALKER
-----------------------------------------
Dwayne M. Walker, Chairman, President and
Chief Executive Officer
</TABLE>

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities indicated on July 30, 1999:

<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------

<C> <S>
Chairman, Director,
/s/ DWAYNE M. WALKER President and Chief
- ------------------------------ Executive Officer
(Dwayne M. Walker) (Principal Executive
Officer)

Executive Vice President,
/s/ ALAN D. KOSLOW Chief Financial Officer,
- ------------------------------ and General Counsel
(Alan D. Koslow) (Principal Financial and
Accounting Officer)

*
- ------------------------------ Director
(David M. Lonsdale)

*
- ------------------------------ Director
(Bret R. Maxwell)

*
- ------------------------------ Director
(Mark C. McClure)

*
- ------------------------------ Director
(John R. Snedegar)

*
- ------------------------------ Director
(Mark H. Terbeek)
</TABLE>

II-9
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------

<C> <S>
*
- ------------------------------ Director
(Garrett P. Cecchini)
</TABLE>

<TABLE>
<S> <C> <C> <C>
*By: /s/ ALAN D. KOSLOW
-------------------------
(Alan D. Koslow)
ATTORNEY-IN-FACT
</TABLE>

II-10
<PAGE>
SHOPNOW.COM INC.

SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
ACCOUNTS RECEIVABLE ALLOWANCE FOR DOUBTFUL ACCOUNTS
(IN THOUSANDS)

<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS(1) PERIOD
- ---------------------------------------------- ------------------ --------------- ------------- ------------
<S> <C> <C> <C> <C>
Year ended December 31, 1998.................. $ 23 $ 591 $ (384) $ 230
------- ------- ------------- ------------
------- ------- ------------- ------------
Year ended December 31, 1997.................. $ 3 $ 20 $ -- $ 23
------- ------- ------------- ------------
------- ------- ------------- ------------
Year ended December 31, 1996.................. $ 2 $ 3 $ (2) $ 3
------- ------- ------------- ------------
------- ------- ------------- ------------
</TABLE>

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

(1) Write-offs, net of bad debt recovery.
<PAGE>
EXHIBIT INDEX

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

* Incorporated by reference to Exhibit 3.1 to Registrant's Form 8-A filed with
the Securities and Exchange Commission on July 11, 1999 (file number
000-26707)

** Previously filed

*** To be filed by amendment.

<PAGE>
+ Confidential treatment has been requested for certain portions of this
exhibit pursuant to Rule 406 under the Securities Act of 1933, as amended.
The omitted portions of this agreement have been separately filed with the
Commission. The omitted portions have been separately filed with the
Commission.

<PAGE>

_________________ Shares

SHOPNOW.COM INC.

Common Stock
$.01 Par Value Per Share

UNDERWRITING AGREEMENT

,1999

Dain Rauscher Incorporated
U.S. Bancorp Piper Jaffray Inc.
SoundView Technology Group, Inc.
Wit Capital Corporation
As Representatives of the several Underwriters
c/o Dain Rauscher Wessels
Dain Rauscher Plaza
60 South Sixth Street
Minneapolis, Minnesota 55402

Ladies and Gentlemen:

ShopNow.com Inc., a Washington corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell, to the
several Underwriters named in Schedule A hereto (the "Underwriters"), for which
you are acting as representatives (the "Representatives"), ________________
shares (the "Firm Shares") of Common Stock, $.01 par value per share, of the
Company (the "Common Stock"). The Company also proposes, subject to the terms
and conditions stated herein, to sell to the Underwriters, at the Underwriters'
election,________________ additional shares of Common Stock (the "Option
Shares"). The Firm Shares and the Option Shares are herein collectively called
the "Shares."

The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (File No. 333-80981)
and a related preliminary prospectus for the registration of the Shares under
the Securities Act of 1933, as amended (the "Act"). The registration statement,
as amended at the time it was declared effective, including the information (if
any) deemed to be part thereof pursuant to Rule 430A under the Act is herein
referred to as the "Registration Statement." The form of prospectus first filed
by the Company with the Commission pursuant to Rules 424(b) and 430A under the
Act is referred to herein as the "Prospectus." Each preliminary prospectus
included in the Registration

<PAGE>

Statement prior to the time it became effective or filed with the Commission
pursuant to Rule 424(a) under the Act is referred to herein as a "Preliminary
Prospectus." Copies of the Registration Statement, including all exhibits
and schedules thereto, any amendments thereto and all Preliminary
Prospectuses have been delivered to you.

The Company hereby confirms its agreements with respect to the purchase of
the Shares by the Underwriters as follows:

1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

(a) The Company represents and warrants to, and agrees with, each of
the Underwriters that:

(i) The Registration Statement has been declared effective
under the Act, and no post-effective amendment to the Registration Statement has
been filed as of the date of this Agreement. No stop order suspending the
effectiveness of the Registration Statement has been issued and no proceeding
for that purpose has been instituted or threatened by the Commission.

(ii) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, nor, to the best of
the Company's knowledge have proceedings for such purpose been instituted or
threatened, and each Preliminary Prospectus, at the time of its issue date,
conformed in all material respects to the requirements of the Act and the rules
and regulations of the Commission promulgated thereunder (collectively, the
"Regulations"), and did not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, the Company makes no representation or
warranty as to information contained in or omitted from any Preliminary
Prospectus in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of any Underwriter through the
Representatives expressly for use in the preparation thereof.

(iii) The Registration Statement conforms, and the Prospectus
and any amendments or supplements thereto will conform, in all material respects
to the requirements of the Act and Regulations. Neither the Registration
Statement nor any amendment thereto, and neither the Prospectus nor any
supplement thereto, contains or will contain, as the case may be, any untrue
statement of a material fact or omits or will omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; provided,
however, that the Company makes no representation or warranty as to information
contained in or omitted from any Preliminary Prospectus from the Registration
Statement or the Prospectus, or any such amendment or supplement, in reliance
upon, and in conformity with, written information furnished to the Company by or
on behalf of any Underwriter through the Representatives expressly for use in
the preparation thereof.

<PAGE>

(iv) The Company has been duly organized, is validly
existing as a corporation under the laws of its state of incorporation, has
the corporate power and authority to own, lease, license and use its
properties and conduct its business as described in the Prospectus, and is
duly qualified to transact business and is in good standing in all
jurisdictions in which the conduct of its business or its ownership, leasing,
licensing or using of property requires such qualification and the failure so
to qualify would have a material adverse effect on the business, properties,
key personnel, prospects, condition, financial or otherwise, or results of
operations of the Company and its subsidiaries, taken as a whole (a "Material
Adverse Effect").

(v) The Company has no subsidiaries other than as listed on
Exhibit 21 to the Registration Statement (herein referred to as its
"subsidiaries"). Each subsidiary of the Company has been duly incorporated,
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own, lease, license and use its properties and conduct its business as
described in the Prospectus, and is duly qualified to transact business in
all jurisdictions in which the conduct of its business or its ownership,
lease, license or use of property requires such qualification and the failure
so to qualify would have a Material Adverse Effect. Other than the Company's
subsidiaries, the Company does not own, directly or indirectly, any shares of
stock or any other equity or long-term debt securities of any corporation or
have any equity interest in any firm, partnership, joint venture, association
or other entity. All outstanding shares of capital stock of each of the
subsidiaries of the Company have been duly authorized and validly issued, are
fully paid and non-assessable, and are owned, directly or indirectly, by the
Company free and clear of all liens, encumbrances and security interests. No
options, warrants or other rights to purchase, agreements or other
obligations to issue, or other rights to convert any obligations into, shares
of capital stock or ownership interests in any of the subsidiaries of the
Company are outstanding.

(vi) The outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable. All offers and sales by the Company of outstanding shares of
capital stock and other securities of the Company, prior to the date hereof,
were made in compliance with the Act and all applicable state securities or
blue sky laws and were not issued in violation of any preemptive right,
resale right, right of first refusal or similar right. The Shares to be
issued and sold by the Company to the Underwriters pursuant to this Agreement
have been duly authorized and, when issued and paid for as contemplated
herein, will be validly issued, fully paid and nonassessable. Each of the
Underwriters will receive good and marketable title to the Shares purchased
by it, free and clear of any and all liens, encumbrances, pledges, security
interests, charges, claims, equitable interests, restrictions and defects.
Except as otherwise stated in the Prospectus, there are no preemptive rights
or other rights to subscribe for or to purchase, or any restriction upon the
voting or transfer of, any shares of capital stock of the Company pursuant to
the Company's charter, bylaws or any agreement or other instrument to which
the Company is a party or by which the Company is bound. Neither the filing
of the Registration Statement nor the offering or the sale of the Shares as
contemplated by this Agreement gives rise to any rights for, or relating to,
the registration of any shares of capital stock or other securities of the
Company, accept such

<PAGE>

rights which have been validly waived or satisfied. Except as described in
the Prospectus, there are no outstanding options, warrants, agreements or
contracts to purchase or preemptive or other rights to purchase, subscribe
for or acquire from the Company any shares of its capital stock or any
securities or obligations convertible into or exercisable for shares of the
Company's capital stock. The Company has the authorized and outstanding
capital stock as set forth under the heading "Capitalization" in the
Prospectus as of the date set forth therein. The outstanding capital stock of
the Company, including the Shares, conforms, and the Shares to be issued by
the Company to the Underwriters will conform, to the description thereof
contained in the Prospectus.

(vii) The financial statements, together with the related
notes and schedules as set forth in the Registration Statement and
Prospectus, present fairly the consolidated financial position, results of
operations and changes in financial position of the Company and its
subsidiaries on the basis stated in the Registration Statement at the
indicated dates and for the indicated periods. Such financial statements have
been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, and all adjustments
necessary for a fair presentation of results for such periods have been made,
except as otherwise stated therein, and are in accordance with the books and
records of the Company. The summary and selected financial and statistical
data included in the Registration Statement present fairly the information
shown therein on the basis stated in the Registration Statement and have been
compiled on a basis consistent with the financial statements presented
therein. The books, records and accounts of the Company and its subsidiaries
accurately and fairly reflect in all material respects, in reasonable detail,
the transactions in and dispositions of the assets of, and the results of
operations of, the Company and its subsidiaries.

(viii) The Company has provided you with all financial
statements that are available to the officers of the Company since the date
of the most recent financial statements included in the Prospectus.

(ix) There is no action, suit, claim, proceeding or
investigation pending or, to the knowledge of the Company, threatened or
contemplated against the Company or any of its subsidiaries or any of their
respective officers, directors, properties, assets or rights before any court
or administrative or regulatory agency which, if determined adversely to the
Company or any of its subsidiaries, would, individually or in the aggregate,
result in a Material Adverse Effect except as set forth in the Registration
Statement.

(x) The Company has good and marketable title to all
properties and assets reflected in the financial statements hereinabove
described as owned by the Company (or as described in the Prospectus as owned
by the Company), in each case free and clear of all liens, encumbrances,
pledges, security interests, charges, claims, equitable interests,
restrictions and defects, except such as are described in the Prospectus or
do not materially affect the value of such properties and assets and do not
materially interfere with the use made and proposed to be made of such
properties and assets by the Company and its subsidiaries; and any real
property and buildings held under lease by the Company and its subsidiaries
are held by them under valid

<PAGE>

and enforceable leases with such exceptions set forth in the Prospectus or as
are not material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company and its subsidiaries.

(xi) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, as they may be amended or
supplemented, (A) there has not been any material adverse change, or any
development that could reasonably be expected to result in a material adverse
change, in or affecting the condition, financial or otherwise, of the Company
and its subsidiaries, taken as a whole, or the business affairs, management,
financial position, shareholders' equity or results of operations of the
Company and its subsidiaries, taken as a whole, whether or not occurring in
the ordinary course of business, (B) there has not been any transaction not
in the ordinary course of business entered into by the Company or any of its
subsidiaries which is material to the Company and its subsidiaries, taken as
a whole, other than transactions described or contemplated in the
Registration Statement, (C) the Company and its subsidiaries have not
incurred any material liabilities or obligations, direct or indirect or
contingent or non-contingent, which are not in the ordinary course of
business or which could result in a material reduction in the future earnings
of the Company and its subsidiaries, (D) the Company and its subsidiaries
have not sustained any material loss or interference with their respective
businesses or properties from fire, flood, windstorm, accident or other
calamity, whether or not covered by insurance, (E) there has not been any
change in the capital stock of the Company (other than upon the exercise of
options and warrants described in the Registration Statement), or any
material increase in the short-term or long-term debt (including capitalized
lease obligations) of the Company and its subsidiaries, taken as a whole, (F)
there has not been any declaration or payment of any dividends or any
distributions of any kind with respect to the capital stock of the Company,
other than any dividends or distributions described or contemplated in the
Registration Statement, or (G) there has not been any issuance of warrants,
options, convertible securities or other rights to purchase or acquire
capital stock of the Company (other than options granted under the Company's
employee stock option plans referred to in the Prospectus).

(xii) Neither the Company nor any of its subsidiaries is in
violation of, or in default under, its charter or bylaws, or any statute, or
any law, rule, regulation, order, judgment, injunction, decree or
authorization of any court or governmental or administrative agency or body
having jurisdiction over the Company or any of its subsidiaries or any of
their properties, or any indenture, mortgage, deed of trust, loan agreement,
lease, franchise, license or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which the Company or any
of its subsidiaries is bound or to which any property or assets of the
Company or any of its subsidiaries is subject, which violation or default
would have a Material Adverse Effect.

(xiii) The issuance and sale of the Shares by the Company and
the compliance by the Company with all of the provisions of this Agreement
and the consummation of the transactions contemplated herein will not violate
any provision of the charter or bylaws of the Company or any of its
subsidiaries or any statute or any order, judgment, decree, rule,

<PAGE>

regulation or authorization of any court or governmental or administrative
agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties, and will not conflict with, result
in a breach or violation of, or constitute, either by itself or upon notice
or passage of time or both, a default under any indenture, mortgage, deed of
trust, loan agreement, lease, franchise, license or other agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries is bound or to which any
property or assets of the Company or any of its subsidiaries is subject. No
approval, consent, order, authorization, designation, declaration or filing
by or with any court or governmental agency or body is required for the
execution and delivery by the Company of this Agreement and the consummation
of the transactions herein contemplated, except as may be required under the
Act or any state securities or blue sky laws or under the rules and
regulations of the National Association of Securities Dealers, Inc. (the
"NASD"). No further approval or authorization of any securityholder, the
Company's Board of Directors or any duly appointed committee thereof or
others is required for the issuance and sale or transfer of the Shares,
except as may be required by the NASD or under state securities or blue sky
laws.

(xiv) The Company and each of its subsidiaries holds and is
operating in compliance with all licenses, approvals, certificates and
permits from governmental and regulatory authorities, foreign and domestic,
which are necessary or material to the conduct of its business as described
in the Prospectus (except where the failure to so hold or operate in
compliance with such a license, approval, certificate or permit would not
have a Material Adverse Effect) and there are no proceedings pending or, to
the knowledge of the Company, threatened, which may cause any such license,
approval, certificate or permit to be withdrawn, cancelled, suspended or not
renewed.

(xv) The Company has the corporate power and authority to
enter into this Agreement and to authorize, issue and sell the Shares
hereunder as contemplated hereby. This Agreement has been duly and validly
authorized, executed and delivered by the Company.

(xvi) Arthur Andersen LLP and Ernst & Young LLP, which have
expressed their opinions on the audited financial statements included in the
Registration Statement and Prospectus, are independent public accountants as
required by the Act and Regulations.

(xvii) The Company has not taken and will not take, directly
or indirectly, any action designed to, or which has constituted, or which
might reasonably be expected to cause or result in, stabilization or
manipulation of the price of the Common Stock.

(xviii) The Company's Common Stock is registered pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and has been approved for listing upon notice of issuance on
The Nasdaq National Market under the symbol "SPNW."

<PAGE>

(xix) The Company has obtained and delivered to the
Representatives written agreements (the "Lock-Up Agreements"), in form and
substance satisfactory to the Representatives, of each of its officers and
directors AND [OTHER SHAREHOLDERS _______________] that they shall not (A)
offer, pledge, sell, offer to sell, contract to sell, sell any option or
contract to purchase, purchase any option to sell, grant any option right or
warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any of the shares of Common Stock or any securities convertible
into, or exercisable or exchangeable for, Common Stock, or (B) enter into any
swap or other agreement that transfers, in whole or in part, any of the
economic consequences of ownership of the shares of Common Stock or any
securities convertible into, or exercisable or exchangeable for, shares of
Common Stock (whether any such transaction described in clause (A) or (B)
above is to be settled by delivery of the shares of Common Stock or such
other securities, in cash or otherwise), in each case, beneficially owned
(within the meaning of Rule 13d-3 under the Exchange Act) or otherwise
controlled by such officer or director on the date hereof or hereafter
acquired, for a period beginning from the date of execution of this Agreement
and continuing to and including the date 180 days after the date of the
Prospectus (the "Lock-Up Period"); PROVIDED, HOWEVER, that, if such
shareholder is an individual, such shareholder may, without the prior written
consent of Dain Rauscher Wessels on behalf of the Underwriters, transfer
shares of Common Stock or any securities convertible into, or exercisable or
exchangeable for, Common Stock either during his or her lifetime or, on
death, by will or intestacy to members of his or her immediate family or to
trusts exclusively for the benefit of members of his or her immediate family
or in connection with BONA FIDE gifts, PROVIDED that, prior to any such
transfer, such transferee executes an agreement, satisfactory to Dain
Rauscher Wessels, pursuant to which such transferee agrees to receive and
hold such shares subject to the provisions of the Lock-Up Agreement and that
there shall be no further transfer except in accordance with the provisions
of the Lock-Up Agreement. For purposes of this paragraph, "immediate family"
shall mean the spouse, lineal descendant, father, mother, brother or sister
of such shareholder. The restrictions on transfers described in the Lock-Up
Agreements shall not apply to transactions in shares of Common Stock acquired
in open-market transactions after completion of the Offering.

(xx) The Company has not distributed and will not distribute
any prospectus or other offering material in connection with the offering and
sale of the Shares other than any Preliminary Prospectus or the Prospectus or
other materials permitted by the Act to be distributed by the Company.

(xxi) The Company is in compliance with all provisions of
Florida Statutes Section 517.075 (Chapter 92-198, laws of Florida). The
Company does not do any business, directly or indirectly, with the government
of Cuba or with any person or entity located in Cuba.

(xxii) The Company and its subsidiaries have timely filed all
federal, state, local and foreign tax returns or reports required to be
filed, and have paid in full all taxes indicated by said returns or reports
and all assessments received by it or any of them to the extent that such
taxes have become due and payable, except where the Company and its
subsidiaries are

<PAGE>

contesting in good faith such taxes and assessments and there is no tax
deficiency that has been or, to the Company's knowledge, might be asserted
against the Company or any of its subsidiaries which might have a Material
Adverse Effect and all material tax liabilities, whether or not disputed, are
adequately provided for on the books of the Company and its subsidiaries.
Except as set forth in the Registration Statement and the Prospectus, neither
the Company nor any subsidiary has executed or filed with any taxing
authority, foreign or domestic, any agreement extending the period for
assessment or collection of any income taxes or is a party to any pending
action or proceeding by any foreign or domestic governmental agency for
assessment or collection of taxes, and no claims for assessment or collection
of taxes have been asserted against the Company or any of its subsidiaries.

(xxiii) The Company and each of its subsidiaries owns or
possesses adequate licenses or other rights to use all patents, patent
applications, trademarks, service marks, tradenames, trademark registrations,
service mark registrations, copyrights, licenses, inventions, trade secrets,
know-how, technology, Internet domain names (including without limitation
[DESCRIBE FOUR PENDING PATENT APPLICATIONS], the trademarks "ShopNow",
"TechWave", and "Internet Mall", and the domain names shopnow.com,
myshopnow.com, commercetrust.com, haggingroup.com and [LOGOS, DOMAIN NAMES,
ETC?] and other similar rights described in the Prospectus as being owned by
them or any of them or necessary to the conduct their respective businesses.
The Company has no knowledge of any facts which would preclude it from having
rights to its patent applications described in the Prospectus. The business
of the Company and its subsidiaries as now conducted and proposed to be
conducted does not and will not infringe or conflict with in any material
respect any patents, patent applications, trademarks, service marks,
tradenames, trademark registrations, service mark registrations, copyrights,
licenses, inventions, trade secrets, know-how, technology, Internet domain
names or other similar rights of others, and neither the Company nor any of
its subsidiaries has any knowledge of or has received any notice or claim of
conflict with the asserted rights of others with respect any of the foregoing.

(xxiv) The Company is not, and upon completion of the sale of
Shares contemplated hereby will not be, required to register as an
"investment company" under the Investment Company Act of 1940, as amended.

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

(xxvi) Other than as contemplated by this Agreement, neither
the Company nor any of its subsidiaries has incurred any liability for any
finder's or broker's fee or

<PAGE>

agent's commission in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.

(xxvii) The Company and its subsidiaries maintain insurance
with insurers of recognized financial responsibility of the types and in the
amounts generally deemed adequate for their respective businesses and
consistent with insurance coverage maintained by similar companies in similar
businesses, including, but not limited to, insurance covering real and
personal property owned or leased by the Company or its subsidiaries against
theft, damage, destruction, acts of vandalism and all other risks customarily
insured against, all of which insurance is in full force and effect; neither
the Company nor any such subsidiary has been refused any insurance coverage
sought or applied for; and neither the Company nor any such subsidiary has
any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business
at a cost that would not have a Material Adverse Effect.

(xxviii) To the Company's knowledge, no labor disturbance by
the employees of the Company or any of its subsidiaries exists or is
imminent; and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers,
subassemblers, subcontractors or international distributors that might be
expected to result in a material adverse change in the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company and its subsidiaries considered as one enterprise. No collective
bargaining agreement exists with any of the Company's employees and, to the
Company's knowledge, no such agreement is imminent.

(xxix) The Company has not distributed and will not distribute
prior to the later of (A) the Closing Date, or any date on which Option
Shares are to be purchased, as the case may be, and (B) completion of the
distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than any Preliminary Prospectuses, the
Prospectus, the Registration Statement and other materials, if any, permitted
by the Act.

(xxx) Neither the Company nor any of its subsidiaries (nor
any person representing the Company or any of its subsidiaries) has at any
time during the last five (5) years (A) made any payment in violation of the
Foreign Corrupt Practices Act, or (B) made any payment to any federal or
state governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments required or permitted by
the laws of the United States or any jurisdiction thereof.

(xxxi) Except as set forth in the Registration Statement and
Prospectus, (i) the Company and each of its subsidiaries is in compliance
with all rules, laws and regulations relating to the use, treatment, storage
and disposal of toxic substances and protection of health or the environment
("Environmental Laws") which are applicable to its business, except for such
instances of non-compliance as would not individually or in the aggregate
have a Material Adverse Effect, (ii) neither the Company nor any of its
subsidiaries has received notice from any

<PAGE>

governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the
Registration Statement and the Prospectus and is not so disclosed, (iii) to
the knowledge of the Company, neither the Company nor any of its subsidiaries
will be required to make future material capital expenditures to comply with
Environmental Laws and (iv) to the knowledge of the Company, no property
which is owned, leased or occupied by the Company or any of its subsidiaries
has been designated as a Superfund site pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
(42 U.S.C. Section 9601, ET SEQ.), or otherwise designated as a contaminated
site under applicable state or local law.

(xxxii) There are no outstanding loans, advances (except
normal advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of the
officers or directors of the Company or any of the members of the families of
any of them, except as disclosed in the Registration Statement and the
Prospectus.

(b) Any certificate signed by any officer of the Company and
delivered to the Representatives or counsel to the Underwriters shall be
deemed to be a representation and warranty of the Company to each Underwriter
as to the matters covered thereby.

2. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations, warranties and covenants contained herein, and subject to
the terms and conditions herein set forth, the Company agrees to sell to each
Underwriter and each Underwriter agrees, severally and not jointly, to
purchase from the Company, at a price of $_______ per share, the number of
Firm Shares (to be adjusted by you to eliminate fractional shares) determined
by multiplying the aggregate number of Firm Shares by a fraction, the
numerator of which is the aggregate number of Firm Shares to be purchased by
such Underwriter as set forth opposite the name of such Underwriter in
Schedule A hereto and the denominator of which is the aggregate number of
Firm Shares to be purchased by all the Underwriters.

In addition, on the basis of the representations, warranties and
covenants contained herein and subject to the terms and conditions herein set
forth, the Company hereby grants to the several Underwriters an option to
purchase at the Underwriters' election up to the aggregate number of Option
Shares, at the same price per share as set forth for the Firm Shares in the
paragraph above, for the sole purpose of covering over allotments in the sale
of the Firm Shares. The option granted hereby may be exercised in whole or
in part, but only once, and at any time upon written notice given within 30
days after the date of this Agreement, by you, as Representatives of the
several Underwriters, to the Company setting forth the number of Option
Shares as to which the several Underwriters are exercising the option and the
time and date at which certificates are to be delivered. Any such election
to purchase Option Shares shall be made in proportion to the maximum number
of Option Shares to be sold by the Company. If any Option Shares are
purchased, each Underwriter agrees, severally and not jointly, to purchase
that portion of the number of Option Shares as to which such election shall
have been exercised (subject to

<PAGE>

adjustment to eliminate fractional shares) determined by multiplying such
number of Option Shares by a fraction the numerator of which is the maximum
number of Option Shares which such Underwriter is entitled to purchase as set
forth opposite the name of such Underwriter in Schedule A hereto and the
denominator of which is the maximum number of Option Shares which all of the
Underwriters are entitled to purchase hereunder. The time and date at which
certificates for Option Shares are to be delivered shall be determined by the
Representatives but shall not be earlier than two or later than ten full
business days after the exercise of such option, and shall not in any event
be prior to the Closing Date. If the date of exercise of the option is three
or more full days before the Closing Date, the notice of exercise shall set
the Closing Date as the Option Closing Date.

Certificates in definitive form for the Shares to be purchased by each
Underwriter hereunder, and in such denominations and registered in such names
as Dain Rauscher Wessels may request upon at least forty-eight hours' prior
notice to the Company, shall be delivered by or on behalf of the Company to
you for the account of such Underwriter at such time and place as shall
hereafter be designated by the Representatives, against payment by such
Underwriter or on its behalf of the purchase price therefor by certified or
official bank checks, payable to the order of the Company in next day funds.
The time and date of such delivery and payment shall be, with respect to the
Firm Shares, 8:30 a.m., local time, at the offices of Wilson Sonsini Goodrich
& Rosati, 5300 Carillon Point, Kirkland, Washington, on the third (or if the
Shares are priced, as contemplated by Rule 15c6-1(c) under the Exchange Act,
after 4:30 p.m. Eastern time, the fourth) full business day following the
date hereof, or at such other time and date as you and the Company determine
pursuant to Rule 15c6-1(a) under the Exchange Act, such time and date being
herein referred to as the "Closing Date," and, with respect to the Option
Shares, at the time and on the date specified by you in the written notice
given by you of the Underwriters' election to purchase the Option Shares, or
such other time and date as you and the Company may agree upon in writing,
such time and date being referred to herein as the "Option Closing Date."
Such certificates will be made available for checking and packaging at least
twenty-four hours prior to the Closing Date or the Option Closing Date, as
the case may be, at a location as may be designated by you.

3. OFFERING BY UNDERWRITERS. It is understood that the several
Underwriters propose to make a public offering of the Firm Shares as soon as
the Representatives deem it advisable to do so. The Firm Shares are to be
initially offered to the public at the initial public offering price and
terms set forth in the Prospectus. The Representatives may from time to time
thereafter change the public offering price and other selling terms. To the
extent, if at all, that any Option Shares are purchased pursuant to Section 2
hereof, the Underwriters will offer such Option Shares to the public on the
foregoing terms.

4. COVENANTS OF THE COMPANY. The Company covenants and agrees with
the several Underwriters that:

(a) The Company will prepare and timely file with the Commission
under Rule 424(b) under the Act a Prospectus containing information previously
omitted at the time of

<PAGE>

effectiveness of the Registration Statement in reliance on Rule 430A under
the Act, and will not file any amendment to the Registration Statement or
supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy and as to which the
Representatives shall have reasonably objected in writing promptly after
reasonable notice thereof or which is not in compliance with the Act or the
Regulations.

(b) The Company will advise the Representatives promptly of any
request of the Commission for amendment of the Registration Statement or for any
supplement to the Prospectus or for any additional information, or of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus, of the suspension of the
qualification of the Shares for offering or sale in any jurisdiction, or of the
institution or threatening of any proceedings for that purpose, and the Company
will use its best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus or suspending such
qualification and to obtain as soon as possible the lifting thereof, if issued.

(c) The Company will endeavor to qualify the Shares for sale under
the securities laws of such jurisdictions as the Representatives may reasonably
have designated in writing and will, or will cause counsel to, make such
applications, file such documents, and furnish such information as may be
reasonably requested by the Representatives, provided that the Company shall not
be required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction where it is not now so qualified or
required to file such a consent. The Company will, from time to time, prepare
and file such statements, reports and other documents as are or may be required
to continue such qualifications in effect for so long a period as the
Representatives may reasonably request for distribution of the Shares.

(d) The Company will furnish the Underwriters with as many copies of
any Preliminary Prospectus as the Representatives may reasonably request and,
during the period when delivery of a prospectus is required under the Act, the
Company will furnish the Underwriters with as many copies of the Prospectus in
final form, or as thereafter amended or supplemented, as the Representatives
may, from time to time, reasonably request. The Company will deliver to the
Representatives, at or before the Closing Date, three signed copies of the
Registration Statement and all amendments thereto, including all exhibits filed
therewith, and will deliver to the Representatives such number of copies of the
Registration Statement, without exhibits, and of all amendments thereto, as the
Representatives may reasonably request.

(e) If, during the period in which a prospectus is required by law to
be delivered by an Underwriter or dealer, any event shall occur as a result of
which the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances existing at
the time the Prospectus is delivered to a purchaser, not misleading, or if for
any other reason it shall be necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will prepare and file
with the Commission an appropriate amendment to the Registration Statement or
supplement to the Prospectus so that the

<PAGE>

Prospectus as so amended or supplemented will not include an untrue statement
of a material fact or omit to state any material fact necessary in order to
make the statements therein in light of the circumstances existing when it is
so delivered, not misleading, or so that the Prospectus will comply with law.
In case any Underwriter is required to deliver a prospectus in connection
with sales of any Shares at any time nine months or more after the effective
date of the Registration Statement, upon the request of the Representatives
but at the expense of such Underwriter, the Company will prepare and deliver
to such Underwriter as many copies as the Representatives may request of an
amended or supplemented Prospectus complying with Section 10(a)(3) of the Act.

(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
18 months after the effective date of the Registration Statement, an earnings
statement (which need not be audited) in reasonable detail, covering a period of
at least 12 consecutive months beginning after the effective date of the
Registration Statement, which earnings statement shall satisfy the requirements
of Section 11(a) of the Act and Rule 158 thereunder and will advise you in
writing when such statement has been so made available.

(g) During a period of five (5) years after the date hereof, or such
shorter period that the Company remains subject to the periodic reporting
requirements of the Exchange Act, the Company, as soon as practicable after the
end of each respective financial quarter or year, as applicable, will furnish to
its shareholders annual reports (including financial statements audited by
independent certified public accountants) and quarterly summary financial
information, which may be unaudited, and will, upon request, furnish to you and
the other several Underwriters hereunder (i) concurrently with making such
reports available to its shareholders, statements of operations of the Company
for each of the first three quarters in the form made available to the Company's
shareholders; (ii) concurrently with the furnishing thereof to its shareholders,
a balance sheet of the Company as of the end of such fiscal year, together with
statements of operations, of shareholders' equity and of cash flow of the
Company for such fiscal year, accompanied by a copy of the certificate or report
thereon of nationally recognized independent certified public accountants; and
(iii) concurrently with the furnishing of such reports to its shareholders,
copies of all reports (financial or other) mailed to shareholders; and (iv) as
soon as they are available, copies of all reports and financial statements
furnished to or filed with the Commission, any securities exchange or The Nasdaq
National Market by the Company (except for documents for which confidential
treatment is requested).

(h) No offering, sale or other disposition of any Common Stock or
other capital stock of the Company, or warrants, options, convertible
securities or other rights to acquire such Common Stock or other capital
stock (other than (i) pursuant to employee stock option plans, employee stock
purchase plans, outstanding options or on the conversion of convertible
securities outstanding on the date of this Agreement, (ii) in connection with
business acquisitions or (iii) pursuant to offerings exempt from the
registration requirements of the Act, provided that the Company shall not
register the resale of Common Stock or other capital stock of the Company, or
warrants, options, convertible securities or other rights to acquire such

<PAGE>

Common Stock or other capital stock issued or issuable pursuant to such
exempt transaction during the Lock-Up Period; PROVIDED, that any employee
stock options issued pursuant to employee stock option plans during the
Lock-Up Period shall not vest and become exercisable to any extent prior to
the expiration of the Lock-Up Period; and, PROVIDED FURTHER, that any shares
of Common Stock issued to any current officer or director during the Lock-Up
Period pursuant to the exercise of stock options shall bear a restrictive
legend restricting the transfer of such shares during the Lock-Up Period)
will be made from the date of this Agreement until the end of the Lock-Up
Period, directly or indirectly, by the Company otherwise than hereunder or
with the prior written consent of the Representatives.

(i) The Company will apply the net proceeds from the sale of the
Shares to be sold by it hereunder substantially in accordance with the purposes
set forth under "Use of Proceeds" in the Prospectus. The Company will invest
such proceeds pending their use in such a manner that, upon completion of such
investment, the Company will not be an "investment company" as defined in the
Investment Company Act of 1940, as amended.

(j) The Company will use its best efforts to maintain the designation
of the Common Stock on The Nasdaq National Market.

(k) From the date of this Agreement until the termination of the
Lock-Up Period, the Company will not, without the prior written consent of Dain
Rauscher Wessels on behalf of the Underwriters, alter or amend in any manner the
vesting schedule of any option, warrant or other security of the Company or its
subsidiaries.

(l) The Company will maintain a Transfer Agent and, if necessary
under the jurisdiction of incorporation of the Company, a Registrar (which may
be the same entity as the Transfer Agent) for its Common Stock.

5. COSTS AND EXPENSES. Whether or not the transactions contemplated by
this Agreement are consummated, the Company will pay (directly or by
reimbursement) all costs, expenses and fees incident to the performance of the
obligations of the Company under this Agreement, including, without limiting the
generality of the foregoing, the following: accounting fees of the Company; the
fees and disbursements of counsel for the Company, the cost of preparing,
printing and filing of the Registration Statement, Preliminary Prospectuses and
the Prospectus and any amendments and supplements thereto and the printing,
mailing and delivery to the Underwriters and dealers of copies thereof and of
this Agreement, the Agreement Among Underwriters, any Selected Dealers
Agreement, the Underwriters' Selling Memorandum, the Invitation Letter, the
Power of Attorney, the Blue Sky Memorandum and any supplements or amendments
thereto (excluding, except as provided below, fees and expenses of counsel to
the Underwriters); the filing fees of the Commission; the filing fees and
expenses (including legal fees and disbursements of counsel for the
Underwriters) incident to securing any required review by the NASD of the terms
of the sale of the Shares; listing fees, if any, transfer taxes and the
expenses, including the fees and disbursements of counsel for the Underwriters
incurred in connection with the qualification of the Shares under state
securities or blue sky laws; the fees

<PAGE>

and expenses incurred in connection with the listing of the Common Stock on
The Nasdaq National Market; the costs of preparing stock certificates; the
costs and fees of any registrar or transfer agent and all other costs and
expenses incident to the performance of its obligations hereunder which are
not otherwise specifically provided for in this Section 5. In addition, the
Company will pay all travel and lodging expenses incurred by management of
the Company in connection with any informational "road show" meetings held in
connection with the offering and will also pay for the preparation of all
materials used in connection with such meetings. The Company shall not,
however, be required to pay for any of the Underwriters' expenses (other than
those related to qualification of the Shares under state securities or blue
sky laws and those incident to securing any required review by the NASD of
the terms of the sale of the Shares but including, without limitation, the
Underwriter expenses specified in Section 4(e) of this Agreement) except
that, if this Agreement shall not be consummated because the conditions in
Section 6 hereof are not satisfied or because this Agreement is terminated by
the Representatives pursuant to clause (i) of Section 10(a) hereof, or by
reason of any failure, refusal or inability on the part of the Company to
perform any undertaking or satisfy any condition of this Agreement or to
comply with any of the terms hereof on their respective parts to be
performed, unless such failure to satisfy said condition or to comply with
said terms shall be due to the default or omission of any Underwriter, then
the Company shall promptly upon request by the Representatives reimburse the
several Underwriters for all appropriately itemized out-of-pocket accountable
expenses, including fees and disbursements of counsel, reasonably incurred in
connection with investigating, marketing and proposing to market the Shares
or in contemplation of performing their obligations hereunder; but the
Company shall not in any event be liable to any of the several Underwriters
for damages on account of loss of anticipated profits from the sale by them
of the Shares.

6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS. The several
obligations of the Underwriters to purchase the Firm Shares on the Closing Date
and the Option Shares, if any, on the Option Closing Date, are subject to the
condition that all representations and warranties of the Company contained
herein are true and correct, at and as of the Closing Date or the Option Closing
Date, as the case may be, the condition that the Company shall have performed
all of its covenants and obligations hereunder (to the extent performance of
such covenants and obligations are due at such times) and to the following
additional conditions:

(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing by
the Regulations and in accordance with Section 4(a) hereof; no stop order
suspending the effectiveness of the Registration Statement, as amended from time
to time, or any part thereof shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the Commission; and all
requests for additional information on the part of the Commission shall have
been complied with to the reasonable satisfaction of the Representatives.

(b) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, the opinion of Wilson Sonsoni
Goodrich & Rosati,

<PAGE>

Professional Corporation, counsel for the Company, dated the Closing Date or
the Option Closing Date, as the case may be, addressed to the Underwriters,
to the effect that:

(i) The Company has been duly organized and is validly
existing as a corporation under the laws of its state of incorporation, with
corporate power and authority to own, lease, license and use its properties and
conduct its business as described in the Prospectus, and is duly qualified to
transact business and is in good standing in all jurisdictions in which the
conduct of its business or its ownership, lease, license or use of property
requires such qualification and the failure so to qualify would have a Material
Adverse Effect.

(ii) The Company has authorized and outstanding capital stock
as described in the Prospectus as of the date set forth therein. The
outstanding shares of the Company's capital stock have been duly authorized and
validly issued and are fully paid and nonassessable. The form of certificate
for the Shares is in due and proper form and complies with the requirements of
applicable state corporation laws. The Shares have been duly authorized and,
when issued and paid for as contemplated herein, will be validly issued,
delivered, fully paid and nonassessable. No preemptive right, co-sale right,
registration right, right of first refusal or other similar right of
shareholders of the Company, or of holders of warrants, options, convertible
securities or other rights to acquire shares of capital stock of the Company,
exist with respect to any of the Shares or the issue and sale thereof (i)
pursuant to the terms of the Company's charter or bylaws or (ii) to the
knowledge of such counsel, pursuant to the terms of any agreement or instrument
to which the Company is a party or by which the Company is bound. To the
knowledge of such counsel, no rights to register outstanding shares of the
Company's capital stock, or shares issuable upon the exercise of outstanding
warrants, options, convertible securities or other rights to acquire shares of
such capital stock, exist which have not been validly exercised or waived with
respect to the Registration Statement. The capital stock of the Company,
including the Shares, conforms in all material respects as to legal matters to
the description thereof contained in the Prospectus.

(iii) The Registration Statement has become effective under the
Act and, to the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued under the Act and no
proceedings for that purpose have been instituted or are pending or threatened
by the Commission.

(iv) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material respects with
the requirements of the Act and the rules and regulations thereunder (except
that such counsel need express no opinion as to the financial statements and the
notes thereto and related schedules and other financial data included therein or
omitted therefrom).

(v) The statements (A) in the Prospectus under the captions
"Management--Limitation on Director's Liability," "Description of Capital
Stock," and "Shares Eligible for Future Sale" and (B) in the Registration
Statement in Items 14 and 15 insofar as such

<PAGE>

statements constitute a summary of matters of law, are, in all material
respects, accurate summaries and fairly present the information required to
be stated.

(vi) Such counsel does not know of any contracts, agreements,
documents or instruments required to be filed as exhibits to the Registration
Statement or described in the Registration Statement or the Prospectus which are
not so filed or described as required; and insofar as any statements in the
Registration Statement or the Prospectus constitute summaries of any contract,
agreement, document or instrument, such statements are, in all material
respects, accurate summaries and fairly present the information required to be
stated.

(vii) Such counsel knows of no legal or governmental proceeding,
pending or threatened, before any court or administrative body or regulatory
agency, to which the Company or any of its subsidiaries is a party or to which
any of the properties of the Company or any of its subsidiaries is subject that
are required to be described in the Registration Statement or Prospectus and are
not so described, or statutes or regulations that are required to be described
in the Registration Statement or the Prospectus that are not so described as
required.

(viii) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will not
conflict with or result in a violation of or default under the charter or bylaws
of the Company or any of its subsidiaries, or under any statute, permit,
judgment, decree, order, rule or regulation known to such counsel of any court
or governmental agency or body having jurisdiction over the Company or any of
its subsidiaries or any of their properties (other than state securities or blue
sky laws, as to which such counsel need express no opinion) and do not and will
not conflict with or result in a violation of or default (except for such
conflicts, violations or defaults as would not have a Material Adverse Effect)
under any lease, license, contract, indenture, mortgage, loan agreement or other
agreement or other instrument or obligation known to such counsel to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries is bound or to which any property or assets of the Company or
any of its subsidiaries is subject, except such agreements, instruments or
obligations with respect to which valid consents or waivers have been obtained
by the Company.

(ix) To such counsel's knowledge, neither the Company nor any
of its subsidiaries is in violation of, or in default under, its charter or
bylaws, or any statute, or any law, rule, regulation, order, judgment,
injunction, decree or authorization of any court or governmental or
administrative agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties, or any indenture, mortgage, deed of
trust, loan agreement, lease, franchise, license or other agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries is bound or to which any property
or assets of the Company or any of its subsidiaries is subject, which violation
or default would have a Material Adverse Effect.

(x) The Company has the corporate power and authority to enter
into this Agreement and to authorize, issue, sell and deliver the Shares to be
sold by the Company as

<PAGE>

contemplated hereby. This Agreement has been duly and validly authorized,
executed and delivered by the Company.

(xi) No approval, consent, order, authorization,
designation, declaration, qualification or filing by or with any judicial,
regulatory, administrative or other governmental body is necessary in
connection with the execution and delivery of this Agreement and the
consummation of the transactions herein contemplated (other than as may be
required by state securities or blue sky laws, as to which such counsel need
express no opinion) except such as have been obtained or made.

(xii) The Company is not, and immediately upon completion of
the sale of Shares contemplated hereby will not be, required to register as
an "investment company" under the Investment Company Act of 1940, as amended.

(xiii) Although such counsel assumes no responsibility for the
factual accuracy or completeness of the statements contained in the
Registration Statement or the Prospectus, except for those referred to in the
opinion in subsections (ii) and (v) of this Section 6(b) and on the basis of
the procedures undertaken by such counsel (and relying as to materiality to
the extent such counsel deems appropriate upon opinions of officers and other
representatives of the Company), no facts have come to the attention of such
counsel that cause it to believe that the Registration Statement and any
amendments and supplements thereto, at the time they became effective and as
of the Closing Date or the Option Closing Date, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or that the
Prospectus or any further amendment or supplement thereto, at the time it was
transmitted to the Commission for filing pursuant to Rule 424(b) and as of
the Closing Date and the Option Closing Date, included an untrue statement of
a material fact or omitted to state a material fact necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading, except that such counsel need not express any
opinion with respect to the financial statements and supporting schedules and
other financial data included in the Registration Statement and the
Prospectus.

(c) The Representatives shall have received from Faegre & Benson
LLP, counsel for the Underwriters, an opinion dated the Closing Date or the
Option Closing Date, as the case may be, with respect to the incorporation of
the Company, the validity of the Shares, the Registration Statement, the
Prospectus, and other related matters as the Representatives may reasonably
request, and such counsel shall have received such papers and information as
they may reasonably request to enable them to pass upon such matters.

(d) The Representatives shall have received on each of the date
hereof, the Closing Date and the Option Closing Date, as the case may be, a
signed letter, dated as of the date hereof, the Closing Date or the Option
Closing Date, as the case may be, in form and substance reasonably
satisfactory to the Representatives, from Arthur Andersen LLP and Ernst &
Young LLP, to the effect that they are independent public accountants with
respect to the

<PAGE>

Company and its subsidiaries within the meaning of the Act and the related
rules and regulations and containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters with
respect to the financial statements and certain financial information
contained in the Registration Statement and the Prospectus.

(e) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date or the Option Closing Date, as the case may be, there
shall not have been any change or any development involving a prospective
change, in or affecting the general affairs, management, financial position,
shareholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the
effect of which, in your judgment, is material and adverse to the Company and
makes it impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares being delivered at the Closing Date or the Option Closing
Date, as the case may be, on the terms and in the manner contemplated in the
Prospectus.

(f) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, a certificate or certificates of
the chief executive officer and the chief financial officer of the Company to
the effect that, as of the Closing Date or the Option Closing Date, as the case
may be, each of them severally represents as follows:

(i) The Prospectus was filed with the Commission pursuant to
Rule 424(b) within the applicable period prescribed for such filing by the
Regulations and in accordance with Section 4(a) of this Agreement; no stop order
suspending the effectiveness of the Registration Statement has been issued, and
no proceedings for such purpose have been initiated or are, to such officer's
knowledge, threatened by the Commission.

(ii) The representations and warranties of the Company set
forth in Section 1 of this Agreement are true and correct at and as of the
Closing Date or the Option Closing Date, as the case may be, and the Company has
performed all of its obligations under this Agreement to be performed at or
prior to the Closing Date or the Option Closing Date, as the case may be.

(g) The Company shall have furnished to the Representatives such
further certificates and documents as the Representatives may reasonably have
requested.

(h) The Lock-Up Agreements shall have been delivered to the
Representatives prior to the date hereof and are, as of the Closing Date or the
Option Closing Date, as the case may be, in full force and effect.

The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all material
respects reasonably satisfactory to the Representatives and to Faegre & Benson
LLP, counsel for the Underwriters.

<PAGE>

If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company of such termination in writing
or by telegram at or prior to the Closing Date or the Option Closing Date, as
the case may be. In such event, the Company and the Underwriters shall not
be under any obligation to each other (except to the extent provided in
Sections 5 and 7 hereof).

7. INDEMNIFICATION.

(a) The Company agrees to indemnify and hold harmless each
Underwriter, each officer and director thereof, and each person, if any, who
controls any Underwriter within the meaning of the Act, against any losses,
claims, damages or liabilities (including, without limitation, any legal or
other expenses reasonably incurred in connection with defending or
investigating any such action or claim) to which such Underwriter or such
persons may became subject under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus or the Prospectus, including any
amendments or supplements thereto, or (ii) the omission or alleged omission
to state therein a material fact required to be stated therein, or necessary
to make the statements therein not misleading in light of the circumstances
under which they were made, or (iii) any act or failure to act or any alleged
act or failure to act by any Underwriter in connection with, or relating in
any manner to, the Common Stock or the offering contemplated hereby, and
which is included as part of or referred to in any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arising out of or
based upon matters covered by clause (i) or (ii) above, and will reimburse
each Underwriter and each such officer, director and controlling person for
any legal or other expenses reasonably incurred by such Underwriter or such
officer, director or controlling person in connection with investigating or
defending any such action or claim as such expenses are incurred; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon
an untrue statement or alleged untrue statement, or omission or alleged
omission, made in the Registration Statement, any Preliminary Prospectus or
the Prospectus, including any amendments or supplements thereto, in reliance
upon and in conformity with written information furnished to the Company by
any Underwriter through the Representatives specifically for use therein;
provided further, that the Company shall not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission, made in a Preliminary Prospectus, if a copy of the
Prospectus (as then amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) was not sent or given by or
on behalf of the Underwriters to the person asserting such loss, claim,
damage or liability, if required by law so to have been delivered, at or
prior to the written confirmation of the sale of Shares to such person, and
if the Prospectus (as amended or supplemented) would have cured the defect
giving rise to such loss, claim, damage or liability, unless the failure to
so deliver the Prospectus (as amended or supplemented) is the result of
noncompliance by the Company with the first sentence of paragraph 4(d) of
this Agreement.

<PAGE>

(b) Each Underwriter agrees severally and not jointly to indemnify
and hold harmless the Company, each of its directors, each of its officers
who have signed the Registration Statement and each person, if any, who
controls the Company within the meaning of the Act, against any losses,
claims, damages or liabilities to which the Company or any such director,
officer or controlling person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading
in the light of the circumstances under which they were made, and will
reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer or controlling person in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that each Underwriter will be liable in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein.

(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity or contribution may be sought pursuant to this Section 7, such
person (the "indemnified party") shall promptly notify the person against
whom such indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 7(a) or (b) or contribution provided
for in Section 7(d) shall be available with respect to a proceeding to any
party who shall fail to give notice of such proceeding as provided in this
Section 7(c) if the party to whom notice was not given was unaware of the
proceeding to which such notice would have related and was prejudiced by the
failure to give such notice, but the failure to give such notice shall not
relieve the indemnifying party or parties from any liability which it or they
may have to the indemnified party otherwise than on account of the provisions
of Section 7(a) or (b). In case any such proceeding shall be brought against
any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party and shall pay as
incurred the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel at its own expense. Notwithstanding the
foregoing, the indemnifying party shall pay promptly as incurred the
reasonable fees and expenses of the counsel retained by the indemnified party
in the event (i) the indemnifying party and the indemnified party shall have
mutually agreed to the retention of such counsel or (ii) the named parties to
any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and the indemnified party shall
have reasonably concluded that there may be a conflict between the positions
of the

<PAGE>

indemnifying party and the indemnified party in conducting the defense of any
such action or that there may be legal defenses available to it or other
indemnified parties which are different from or additional to those available
to the indemnifying party. It is understood that the indemnifying party
shall not, in connection with any proceeding or related proceedings in the
same jurisdiction, be liable for the fees and expenses of more than one
separate firm at any time for all such indemnified parties. Such firm shall
be designated in writing by the Representatives and shall be reasonably
satisfactory to the Company in the case of parties indemnified pursuant to
Section 7(a) and shall be designated in writing by the Company and shall be
reasonably satisfactory to the Representatives in the case of parties
indemnified pursuant to Section 7(b). The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified
party from and against any loss or liability by reason of such settlement or
judgment.

(d) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
Section 7(a), or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof),
as well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Underwriters agree that
it would not be just and equitable if contributions pursuant to this
Section 7(d) were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this Section 7(d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions or
proceedings in respect thereto) referred to above in this Section 7(d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the

<PAGE>

provisions of this Section 7(d), no Underwriter shall be required to
contribute any amount in excess of the underwriting discounts and commissions
applicable to the Shares purchased by such Underwriter, and no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters' obligations in this
Section 7(d) to contribute are several in proportion to their respective
underwriting obligations and not joint.

(e) The obligations of the Company under this Section 7 shall be in
addition to any liability which the Company may otherwise have, and the
obligations of the Underwriters under this Section 7 shall be in addition to any
liability which the Underwriters may otherwise have.

8. DEFAULT BY UNDERWRITERS. If on the Closing Date or the Option Closing
Date, as the case may be, any Underwriter shall fail to purchase and pay for the
portion of the Shares which such Underwriter has agreed to purchase and pay for
on such date (otherwise than by reason of any default on the part of the
Company), you, as Representatives of the Underwriters, shall use your best
efforts to procure within 36 hours thereafter one or more of the other
Underwriters, or any others, to purchase from the Company such amounts as may be
agreed upon, and upon the terms set forth herein, of the Firm Shares or Option
Shares, as the case may be, which the defaulting Underwriter or Underwriters
failed to purchase. If the aggregate number of Shares that the defaulting
Underwriter or Underwriters agreed to purchase shall not be purchased in
accordance with the preceding sentence, the Company shall have the right, within
36 hours next succeeding the 36-hour period above referred to, to make
arrangements with other underwriters or purchasers satisfactory to you for
purchase of such remaining Shares on the terms herein set forth. If during such
two 36-hour periods you, as Representatives, and the Company shall not have
procured such other Underwriters, or any others, to purchase the Firm Shares or
Option Shares, as the case may be, agreed to be purchased by the defaulting
Underwriter or Underwriters, then (a) if the aggregate number of Shares with
respect to which such default shall occur does not exceed 10% of the Firm Shares
or Option Shares, as the case may be, covered hereby, the other Underwriters
shall be obligated, severally, in proportion to the respective numbers of Firm
Shares or Option Shares, as the case may be, which they are obligated to
purchase hereunder, to purchase the Firm Shares or Option Shares, as the case
may be, which such defaulting Underwriter or Underwriters failed to purchase, or
(b) if the aggregate number of shares of Firm Shares or Option Shares, as the
case may be, with respect to which such default shall occur exceeds 10% of the
Firm Shares or Option Shares, as the case may be, covered hereby, the Company or
you as the Representatives of the Underwriters will have the right, by written
notice given within the next 36-hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the non-defaulting
Underwriters or of the Company except for expenses to be borne by the Company
and the Underwriters as provided in Section 5 hereof and the indemnity and
contribution agreements in Section 7 hereof. In the event of a default by any
Underwriter or Underwriters, as set forth in this Section 8 (and assuming that
this Agreement is not terminated pursuant to the immediately preceding
sentences), the Closing Date or Option Closing Date, as the case may be, may be
postponed for such period, not exceeding seven days, as you, as Representatives,
may determine in order that

<PAGE>

the required changes in the Registration Statement or in the Prospectus or in
any other documents or arrangements may be effected. The term "Underwriter"
includes any person substituted for a defaulting Underwriter. Any action
taken under this Section 8 shall not relieve any defaulting Underwriter from
liability in respect of any default of such Underwriter under this Agreement.

9. NOTICES. All communications hereunder shall be in writing and, except
as otherwise provided herein, will be mailed, delivered or telegraphed and
confirmed as follows: if to the Underwriters, to Dain Rauscher Wessels, Dain
Rauscher Plaza, 60 South Sixth Street, Minneapolis, Minnesota 55402, Attention:
Wade Massad, with copies to Faegre & Benson LLP, 2200 Norwest Center, 90 South
Seventh Street, Minneapolis, Minnesota 55402-3901, Attention: Steven C.
Kennedy, Esq.; if to the Company to ShopNow.com Inc., 411 First Avenue South,
Suite 200 North, Seattle, Washington, 98101, Attention: Dwayne M. Walker, with
copies to Wilson Sonsini Goodrich & Rosati, Professional Corporation, 5300
Carillon Point, Kirkland, Washington 98033-7356, Attention: Patrick J.
Shultheis, Esq.

10. TERMINATION. This Agreement may be terminated by you by notice to the
Company as follows:

(a) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in
the Registration Statement and the Prospectus, any material adverse change in or
affecting the condition, financial or otherwise, of the Company and its
subsidiaries taken as a whole or the business affairs, management, financial
position, shareholders' equity or results of operations of the Company and its
subsidiaries taken as a whole, whether or not arising in the ordinary course of
business, (ii) any outbreak or escalation of hostilities or declaration of war
or national emergency after the date hereof or other national or international
calamity or crisis or change in economic or political conditions if the effect
of such outbreak, escalation, declaration, emergency, calamity, crisis or change
on the financial markets of the United States would, in your judgment, make the
offering or delivery of the Shares impracticable or inadvisable,
(iii) suspension of trading in securities on the New York Stock Exchange or the
American Stock Exchange or limitation on prices (other than limitations on hours
or numbers of days of trading) for securities on either such Exchange, or a halt
or suspension of trading in securities generally which are quoted on The Nasdaq
National Market System, or (iv) declaration of a banking moratorium by either
federal or New York State authorities; or

(b) as provided in Sections 6 and 8 of this Agreement.

This Agreement also may be terminated by you, by notice to the Company, as
to any obligation of the Underwriters to purchase the Option Shares, upon the
occurrence at any time prior to the Option Closing Date of any of the events
described in subparagraph (a) above or as provided in Sections 6 and 8 of this
Agreement.

11. WRITTEN INFORMATION. For all purposes under this Agreement
(including, without limitation, Section 1, Section 2 and Section 7 hereof), the
Company understands and agrees with each of the Underwriters that the following
constitutes the only written information furnished to

<PAGE>

the Company by or through the Representatives specifically for use in
preparation of the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto: (i) the per share "Public
offering price" and per share "Underwriting discounts and commissions" set
forth on the cover page of the Prospectus, and (ii) the information set forth
under the caption "Underwriting" in the Preliminary Prospectus and the
Prospectus.

12. SUCCESSORS. This Agreement has been and is made solely for the
benefit of and shall be binding upon the Underwriters, the Company and their
respective successors and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any right or
obligation hereunder. The term "successors" shall not include any purchaser of
the Shares merely because of such purchase.

13. MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or its directors or officers and (c) delivery of and payment for the
Shares under this Agreement.

Each provision of this Agreement shall be interpreted in such a manner as
to be effective and valid under applicable law, but if any provision of this
Agreement is held to be invalid, illegal or unenforceable under any applicable
law or rule in any jurisdiction, such provision will be ineffective only to the
extent of such invalidity, illegality or unenforceability in such jurisdiction
or any provision hereof in any other jurisdiction.

This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.

This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Minnesota.

<PAGE>

If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.

Very truly yours,

ShopNow.com Inc.

By:______________________________

Name:____________________________

Its:_____________________________

The foregoing Underwriting Agreement
is hereby confirmed and accepted as of
the date first above written.

Dain Rauscher Incorporated
U.S. Bancorp Piper Jaffray Inc.
SoundView Technology Group, Inc.
Wit Capital Corporation
As Representatives of the several Underwriters

By Dain Rauscher Incorporated

By:______________________________

Name:____________________________

Its:_____________________________

<PAGE>

SCHEDULE A

SCHEDULE OF UNDERWRITERS

NUMBER OF FIRM MAXIMUM NUMBER
UNDERWRITER SHARES TO BE OF OPTION SHARES
PURCHASED
<S> <C> <C>
Dain Rauscher Wessels ...................
U.S. Bancorp Piper Jaffray Inc. .........
SoundView Technology Group, Inc. ........
Wit Capital Corporation .................
...................
...................
...................
...................
...................
...................
Total ................................

</TABLE>

<PAGE>
SHOPNOW.COM INC.

1999 EMPLOYEE STOCK PURCHASE PLAN

1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase
Common Stock of the Company through accumulated payroll deductions. It is
the intention of the Company to have the Plan qualify as an "Employee Stock
Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as
amended. The provisions of the Plan, accordingly, shall be construed so as
to extend and limit participation in a manner consistent with the
requirements of that section of the Code.

2. DEFINITIONS.

(a) "BOARD" shall mean the Board of Directors of the Company.

(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.

(d) "COMPANY" shall mean ShopNow.com Inc., a Delaware corporation,
and any Designated Subsidiary of the Company.

(e) "COMPENSATION" shall mean all base straight time gross
earnings and commissions, exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.

(f) "DESIGNATED SUBSIDIARY" shall mean any Subsidiary that has
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.

(g) "EMPLOYEE" shall mean any individual who is an Employee of the
Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any
calendar year. For purposes of the Plan, the employment relationship shall be
treated as continuing intact while the individual is on sick leave or other
leave of absence approved by the Company. Where the period of leave exceeds
90 days and the individual's right to reemployment is not guaranteed either
by statute or by contract, the employment relationship shall be deemed to
have terminated on the 91st day of such leave.

(h) "ENROLLMENT DATE" shall mean the first day of each Offering
Period.

(i) "EXERCISE DATE" shall mean the last day of each Offering
Period.

<PAGE>

(j) "FAIR MARKET VALUE" shall mean, as of any date, the value of
Common Stock determined as follows:

(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system
for the last market trading day on the date of such determination, as
reported in THE WALL STREET JOURNAL or such other source as the Board deems
reliable, or;

(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or
such other source as the Board deems reliable, or;

(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.

(k) "OFFERING PERIOD" shall mean a period of approximately six (6)
months during which an option granted pursuant to the Plan may be exercised,
commencing on the first Trading Day on or after May 1st and terminating on
the last Trading Day in the period ending the following October 31st, or
commencing on the first Trading Day on or after November 1st and terminating
on the last Trading Day in the period ending the following April 30th;
provided, however, that the first Offering Period under the Plan shall
commence with the last Trading Day in the month in which the Securities and
Exchange Commission declares the Company's Registration Statement effective
and ending on the last Trading Day on or before April 30, 2000. The duration
of Offering Periods may be changed pursuant to Section 4 of this Plan.

(l) "PLAN" shall mean this Employee Stock Purchase Plan.

(m) "PURCHASE PRICE" shall mean an amount equal to 85% of the Fair
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower; provided, however, that the Purchase Price
may be adjusted by the Board pursuant to Section 20.

(n) "RESERVES" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and
the number of shares of Common Stock which have been authorized for issuance
under the Plan but not yet placed under option.

(o) "SUBSIDIARY" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.

(p) "TRADING DAY" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.

-2-
<PAGE>

3. ELIGIBILITY.

(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.

(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of the capital stock of the
Company or of any Subsidiary, or (ii) to the extent that his or her rights to
purchase stock under all employee stock purchase plans of the Company and its
subsidiaries accrues at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the fair market value of the shares
at the time such option is granted) for each calendar year in which such
option is outstanding at any time.

4. OFFERING PERIODS. The Plan shall be implemented by consecutive
Offering Periods with a new Offering Period commencing on the first Trading
Day on or after May 1st and November 1st each year, or on such other date as
the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the last Trading Day in the month
in which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or
before April 30, 2000. The Board shall have the power to change the duration
of Offering Periods (including the commencement dates thereof) with respect
to future offerings without stockholder approval if such change is announced
at least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.

5. PARTICIPATION.

(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the
form of Exhibit A to this Plan and filing it with the Company's payroll
office prior to the applicable Enrollment Date.

(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll
in the Offering Period to which such authorization is applicable, unless
sooner terminated by the participant as provided in Section 10 hereof.

6. PAYROLL DEDUCTIONS.

(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay
day during the Offering Period in an amount not exceeding 10 % of the
Compensation which he or she receives on each pay day during the Offering
Period.

-3-
<PAGE>

(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into
such account.

(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate
of his or her payroll deductions during the Offering Period by completing or
filing with the Company a new subscription agreement authorizing a change in
payroll deduction rate. The Board may, in its discretion, limit the number
of participation rate changes during any Offering Period. The change in rate
shall be effective with the first full payroll period following five (5)
business days after the Company's receipt of the new subscription agreement
unless the Company elects to process a given change in participation more
quickly. A participant's subscription agreement shall remain in effect for
successive Offering Periods unless terminated as provided in Section 10
hereof.

(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during an Offering Period. Payroll deductions shall recommence at the
rate provided in such participant's subscription agreement at the beginning
of the first Offering Period which is scheduled to end in the following
calendar year, unless terminated by the participant as provided in Section 10
hereof.

(e) At the time the option is exercised, in whole or in part, or
at the time some or all of the Company's Common Stock issued under the Plan
is disposed of, the participant must make adequate provision for the
Company's federal, state, or other tax withholding obligations, if any, which
arise upon the exercise of the option or the disposition of the Common Stock.
At any time, the Company may, but shall not be obligated to, withhold from
the participant's compensation the amount necessary for the Company to meet
applicable withholding obligations, including any withholding required to
make available to the Company any tax deductions or benefits attributable to
sale or early disposition of Common Stock by the Employee.

7. GRANT OF OPTION. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted
an option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of
the Exercise Date by the applicable Purchase Price; provided that in no event
shall an Employee be permitted to purchase during each Offering Period more
than 5,000 shares (subject to any adjustment pursuant to Section 19), and
provided further that such purchase shall be subject to the limitations set
forth in Sections 3(b), 6(a) and 12 hereof. Exercise of the option shall
occur as provided in Section 8 hereof, unless the participant has withdrawn
pursuant to Section 10 hereof. The Option shall expire on the last day of
the Offering Period.

8. EXERCISE OF OPTION. Unless a participant withdraws from the Plan
as provided in Section 10 hereof, his or her option for the purchase of
shares shall be exercised automatically on the

-4-
<PAGE>

Exercise Date, and the maximum number of full shares subject to option shall
be purchased for such participant at the applicable Purchase Price with the
accumulated payroll deductions in his or her account. No fractional shares
shall be purchased; any payroll deductions accumulated in a participant's
account which are not sufficient to purchase a full share shall be retained
in the participant's account for the subsequent Offering Period, subject to
earlier withdrawal by the participant as provided in Section 10 hereof. Any
other monies left over in a participant's account after the Exercise Date
shall be returned to the participant. During a participant's lifetime, a
participant's option to purchase shares hereunder is exercisable only by him
or her.

9. DELIVERY. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, the shares purchased upon exercise of his
or her option.

10. WITHDRAWAL.

(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to
exercise his or her option under the Plan at any time by giving written
notice to the Company in the form of Exhibit B to this Plan. All of the
participant's payroll deductions credited to his or her account shall be paid
to such participant promptly after receipt of notice of withdrawal and such
participant's option for the Offering Period shall be automatically
terminated, and no further payroll deductions for the purchase of shares
shall be made for such Offering Period. If a participant withdraws from an
Offering Period, payroll deductions shall not resume at the beginning of the
succeeding Offering Period unless the participant delivers to the Company a
new subscription agreement.

(b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar
plan which may hereafter be adopted by the Company or in succeeding Offering
Periods which commence after the termination of the Offering Period from
which the participant withdraws.

11. TERMINATION OF EMPLOYMENT. Upon a participant's ceasing to be an
Employee for any reason, he or she shall be deemed to have elected to
withdraw from the Plan and the payroll deductions credited to such
participant's account during the Offering Period but not yet used to exercise
the option shall be returned to such participant or, in the case of his or
her death, to the person or persons entitled thereto under Section 15 hereof,
and such participant's option shall be automatically terminated. The
preceding sentence notwithstanding, a participant who receives payment in
lieu of notice of termination of employment shall be treated as continuing to
be an Employee for the participant's customary number of hours per week of
employment during the period in which the participant is subject to such
payment in lieu of notice.

12. INTEREST. No interest shall accrue on the payroll deductions of a
participant in the Plan.

-5-
<PAGE>

13. STOCK.

(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 2,000,000 shares, plus an annual increase to be added on the first
day of the Company's fiscal year beginning in 2002 equal to the lesser of (i)
600,000 shares, (ii) 2% of the outstanding shares on such date or (iii) a
lesser amount determined by the Board. If, on a given Exercise Date, the
number of shares with respect to which options are to be exercised exceeds
the number of shares then available under the Plan, the Company shall make a
pro rata allocation of the shares remaining available for purchase in as
uniform a manner as shall be practicable and as it shall determine to be
equitable.

(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.

(c) Shares to be delivered to a participant under the Plan shall
be registered in the name of the participant or in the name of the
participant and his or her spouse.

14. ADMINISTRATION. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full
extent permitted by law, be final and binding upon all parties.

15. DESIGNATION OF BENEFICIARY.

(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required
for such designation to be effective.

(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the
estate of the participant, or if no such executor or administrator has been
appointed (to the knowledge of the Company), the Company, in its discretion,
may deliver such shares and/or cash to the spouse or to any one or more
dependents or relatives of the participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company
may designate.

-6-
<PAGE>

16. TRANSFERABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option
or to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any
such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election to
withdraw funds from an Offering Period in accordance with Section 10 hereof.

17. USE OF FUNDS. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose,
and the Company shall not be obligated to segregate such payroll deductions.

18. REPORTS. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to
participating Employees at least annually, which statements shall set forth
the amounts of payroll deductions, the Purchase Price, the number of shares
purchased and the remaining cash balance, if any.

19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION,
LIQUIDATION, MERGER OR ASSET SALE.

(a) CHANGES IN CAPITALIZATION. Subject to any required action by
the stockholders of the Company, the Reserves, the maximum number of shares
each participant may purchase per Offering Period (pursuant to Section 7), as
well as the price per share and the number of shares of Common Stock covered
by each option under the Plan which has not yet been exercised shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed
to have been Aeffected without receipt of consideration." Such adjustment
shall be made by the Board, whose determination in that respect shall be
final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares of Common Stock subject to an option.

(a) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in
progress shall be shortened by setting a new Exercise Date (the ANew Exercise
Date"), and shall terminate immediately prior to the consummation of such
proposed dissolution or liquidation, unless provided otherwise by the Board.
The New Exercise Date shall be before the date of the Company's proposed
dissolution or liquidation. The Board shall notify each participant in
writing, at least ten (10) business days prior to the New Exercise Date, that
the Exercise Date for the participant's option has been changed to the New
Exercise Date and that the participant's option shall be exercised
automatically on the New Exercise Date, unless prior to such date the
participant has withdrawn from the Offering Period as provided in Section 10
hereof.

-7-
<PAGE>

(c) MERGER OR ASSET SALE. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, each outstanding option shall be
assumed or an equivalent option substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the option, the
Offering Period then in progress shall be shortened by setting a new Exercise
Date (the ANew Exercise Date"). The New Exercise Date shall be before the
date of the Company's proposed sale or merger. The Board shall notify each
participant in writing, at least ten (10) business days prior to the New
Exercise Date, that the Exercise Date for the participant's option has been
changed to the New Exercise Date and that the participant's option shall be
exercised automatically on the New Exercise Date, unless prior to such date
the participant has withdrawn from the Offering Period as provided in Section
10 hereof.

20. AMENDMENT OR TERMINATION.

(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. Except as provided in Section 19
hereof, no such termination can affect options previously granted, provided
that an Offering Period may be terminated by the Board of Directors on any
Exercise Date if the Board determines that the termination of the Offering
Period or the Plan is in the best interests of the Company and its
stockholders. Except as provided in Section 19 and Section 20 hereof, no
amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Section 423 of the Code (or any other applicable law, regulation
or stock exchange rule), the Company shall obtain shareholder approval in
such a manner and to such a degree as required.

(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been Aadversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods,
limit the frequency and/or number of changes in the amount withheld during an
Offering Period, establish the exchange ratio applicable to amounts withheld
in a currency other than U.S. dollars, permit payroll withholding in excess
of the amount designated by a participant in order to adjust for delays or
mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or
accounting and crediting procedures to ensure that amounts applied toward the
purchase of Common Stock for each participant properly correspond with
amounts withheld from the participant's Compensation, and establish such
other limitations or procedures as the Board (or its committee) determines in
its sole discretion advisable which are consistent with the Plan.

(c) In the event the Board determines that the ongoing operation
of the Plan may result in unfavorable financial accounting consequences, the
Board may, in its discretion and, to the extent necessary or desirable,
modify or amend the Plan to reduce or eliminate such accounting consequence
including, but not limited to:

(1) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;

-8-
<PAGE>

(2) shortening any Offering Period so that Offering Period
ends on a new Exercise Date, including an Offering Period underway at the
time of the Board action; and

(3) allocating shares.

Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.

21. NOTICES. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the
location, or by the person, designated by the Company for the receipt thereof.

22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.

As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any
of the aforementioned applicable provisions of law.

23. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten
(10) years unless sooner terminated under Section 20 hereof.

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<PAGE>

EXHIBIT A

SHOPNOW.COM INC.

1999 EMPLOYEE STOCK PURCHASE PLAN

SUBSCRIPTION AGREEMENT

_____ Original Application Enrollment Date: ______
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)

1. _____________________________________ hereby elects to participate in the
ShopNow.com Inc. 1999 Employee Stock Purchase Plan (the AEmployee Stock
Purchase Plan") and subscribes to purchase shares of the Company's Common
Stock in accordance with this Subscription Agreement and the Employee Stock
Purchase Plan.

2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 1 to _____%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)

3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.

4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is subject
to stockholder approval of the Employee Stock Purchase Plan.

5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):
______________________.

6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares), I will be treated
for federal income tax purposes as having received ordinary income at the
time of such disposition in an amount equal to the excess of the fair
market value of the shares at the time such shares were purchased by me
over the price which I paid for the shares. I HEREBY AGREE TO NOTIFY THE
COMPANY IN WRITING WITHIN 30 DAYS AFTER THE DATE OF ANY DISPOSITION

<PAGE>

OF SHARES AND I WILL MAKE ADEQUATE PROVISION FOR FEDERAL, STATE OR OTHER
TAX WITHHOLDING OBLIGATIONS, IF ANY, WHICH ARISE UPON THE DISPOSITION
OF THE COMMON STOCK. The Company may, but will not be obligated to,
withhold from my compensation the amount necessary to meet any
applicable withholding obligation including any withholding necessary to
make available to the Company any tax deductions or benefits
attributable to sale or early disposition of Common Stock by me. If I
dispose of such shares at any time after the expiration of the 2-year
holding period, I understand that I will be treated for federal income
tax purposes as having received income only at the time of such
disposition, and that such income will be taxed as ordinary income only
to the extent of an amount equal to the lesser of (1) the excess of the
fair market value of the shares at the time of such disposition over the
purchase price which I paid for the shares, or (2) 15% of the fair
market value of the shares on the first day of the Offering Period. The
remainder of the gain, if any, recognized on such disposition will be
taxed as capital gain.

7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.

8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:

NAME: (Please print)
--------------------------------------------
(First) (Middle) (Last)

-------------------------- --------------------------------------------
Relationship
--------------------------------------------
(Address)

Employee's Social
Security Number:
--------------------------------------------
Employee's Address:
--------------------------------------------

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

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<PAGE>

I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.

Dated:
---------------- ----------------------------------------------------
Signature of Employee

-----------------------------------------------------
Spouse's Signature (If beneficiary other than spouse)

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<PAGE>

EXHIBIT B

SHOPNOW.COM INC.

1999 EMPLOYEE STOCK PURCHASE PLAN

NOTICE OF WITHDRAWAL

The undersigned participant in the Offering Period of the ShopNow.com
Inc. 1999 Employee Stock Purchase Plan which began on ___________, ______
(the AEnrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to
pay to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to
participate in succeeding Offering Periods only by delivering to the Company
a new Subscription Agreement.

Name and Address of Participant:

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

Signature:

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

Date:
-------------------------------

<PAGE>
SHOPNOW.COM INC.

AMENDED AND RESTATED

1996 COMBINED INCENTIVE AND NONQUALIFIED

STOCK OPTION PLAN

1. PURPOSES OF THE PLAN. The purposes of this Amended and Restated
1996 Combined Incentive and Nonqualified Stock Option Plan are:

- to attract and retain the best available personnel for positions
of substantial responsibility,

- to provide additional incentive to Employees, Directors and
Consultants, and

- to promote the success of the Company's business.

Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.

2. DEFINITIONS. As used herein, the following definitions shall apply:

(a) "ADMINISTRATOR" means the Board or any of its Committees as shall
be administering the Plan, in accordance with Section 4 of the Plan.

(b) "APPLICABLE LAWS" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.

(d) "CODE" means the Internal Revenue Code of 1986, as amended.

(e) "COMMITTEE" means a committee of Directors appointed by the Board
in accordance with Section 4 of the Plan.

(f) "COMMON STOCK" means the common stock of the Company.

(g) "COMPANY" means ShopNow.com Inc., a Delaware corporation.

<PAGE>

(h) "CONSULTANT" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services to such entity.

(i) "DIRECTOR" means a member of the Board.

(j) "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.

(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.

(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

(m) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:

(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
THE WALL STREET JOURNAL or such other source as the Administrator deems
reliable;

(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in THE WALL STREET JOURNAL or such other source as
the Administrator deems reliable; or

(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.

(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

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<PAGE>

(o) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.

(p) "NOTICE OF GRANT" means a written or electronic notice evidencing
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.

(q) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

(r) "OPTION" means a stock option granted pursuant to the Plan.

(s) "OPTION AGREEMENT" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.

(t) "OPTION EXCHANGE PROGRAM" means a program whereby outstanding
Options are surrendered in exchange for Options with a lower exercise price.

(u) "OPTIONED STOCK" means the Common Stock subject to an Option or
Stock Purchase Right.

(v) "OPTIONEE" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.

(w) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.

(x) "PLAN" means this Amended and Restated 1996 Combined Incentive
and Nonqualified Stock Option Plan.

(y) "RESTRICTED STOCK" means shares of Common Stock acquired pursuant
to a grant of Stock Purchase Rights under Section 11 of the Plan.

(z) "RESTRICTED STOCK PURCHASE AGREEMENT" means a written agreement
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.

(aa) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.

(bb) "SECTION 16(b) " means Section 16(b) of the Exchange Act.

(cc) "SERVICE PROVIDER" means an Employee, Director or Consultant.

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<PAGE>

(dd) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.

(ee) "STOCK PURCHASE RIGHT" means the right to purchase Common Stock
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.

(ff) "SUBSIDIARY" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.

3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 8,000,000 Shares, plus an annual increase to be added on each
anniversary date of the Plan equal to the lesser of (i) 750,000 Shares, (ii) 3%
of the Outstanding Shares on such date or (iii) a lesser amount determined by
the Board. The Shares may be authorized, but unissued, or reacquired
CommonStock.

If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); PROVIDED, however, that Shares that have actually been issued under
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.

4. ADMINISTRATION OF THE PLAN.

(a) PROCEDURE.

(i) MULTIPLE ADMINISTRATIVE BODIES. The Plan may be
administered by different Committees with respect to different groups of Service
Providers.

(ii) SECTION 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.

(iii) RULE 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.

(iv) OTHER ADMINISTRATION. Other than as provided above,
the Plan shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.

-4-

<PAGE>

(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:

(i) to determine the Fair Market Value;

(ii) to select the Service Providers to whom Options and
Stock Purchase Rights may be granted hereunder;

(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;

(iv) to approve forms of agreement for use under the Plan;

(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;

(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;

(vii) to institute an Option Exchange Program;

(viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;

(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;

(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;

(xi) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The
Fair Market Value of the Shares to be withheld shall be determined on the date
that the amount of tax to be withheld is to be determined. All elections by an
Optionee to have Shares

-5-

<PAGE>

withheld for this purpose shall be made in such form and under such
conditions as the Administrator may deem necessary or advisable;

(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;

(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.

(c) EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.

5. ELIGIBILITY. Nonstatutory Stock Options and Stock Purchase Rights may
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.

6. LIMITATIONS.

(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.

(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.

(i) No Service Provider shall be granted, in any fiscal
year of the Company, Options to purchase more than 1,000,000 Shares.

(ii) In connection with his or her initial service, a
Service Provider may be granted Options to purchase up to an additional
1,000,000 Shares which shall not count against the limit set forth in subsection
(i) above.

(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.

-6-

<PAGE>

(iv) If an Option is cancelled in the same fiscal year of
the Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.

7. TERM OF PLAN. Subject to Section 19 of the Plan, the Plan shall
become effective upon its adoption by the Board. It shall continue in effect
for a term of ten (10) years unless terminated earlier under Section 15 of the
Plan.

8. TERM OF OPTION. The term of each Option shall be stated in the Option
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.

9. OPTION EXERCISE PRICE AND CONSIDERATION.

(a) EXERCISE PRICE. The per share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:

(i) In the case of an Incentive Stock Option

(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.

(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.

(ii) In the case of a Nonstatutory Stock Option, the per
Share exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.

(iii) Notwithstanding the foregoing, Options may be granted
with a per Share exercise price of less than 100% of the Fair Market Value per
Share on the date of grant pursuant to a merger or other corporate transaction.

-7-

<PAGE>

(b) WAITING PERIOD AND EXERCISE DATES. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied before the
Option may be exercised.

(c) FORM OF CONSIDERATION. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:

(i) cash;

(ii) check;

(iii) promissory note;

(iv) other Shares which (A) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
months on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;

(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;

(vi) a reduction in the amount of any Company liability to
the Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;

(vii) any combination of the foregoing methods of payment; or

(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.

10. EXERCISE OF OPTION.

(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.

An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of

-8-

<PAGE>

an Option shall be issued in the name of the Optionee or, if requested by the
Optionee, in the name of the Optionee and his or her spouse. Until the Shares
are issued (as evidenced by the appropriate entry on the books of the Company
or of a duly authorized transfer agent of the Company), no right to vote or
receive dividends or any other rights as a shareholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after
the Option is exercised. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the Shares are issued,
except as provided in Section 13 of the Plan.

Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.

(b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence
of a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.

(c) DISABILITY OF OPTIONEE. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.

(d) DEATH OF OPTIONEE. If an Optionee dies while a Service Provider,
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert

-9-

<PAGE>

to the Plan. The Option may be exercised by the executor or administrator of
the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If
the Option is not so exercised within the time specified herein, the Option
shall terminate, and the Shares covered by such Option shall revert to the
Plan.

(e) BUYOUT PROVISIONS. The Administrator may at any time offer to
buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.

11. STOCK PURCHASE RIGHTS.

(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.

(b) REPURCHASE OPTION. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.

(c) OTHER PROVISIONS. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.

(d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.

12. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.

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<PAGE>

13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR
ASSET SALE.

(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.

(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.

(c) MERGER OR ASSET SALE. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the
event that the successor corporation refuses to assume or substitute for the
Option or Stock Purchase Right, the Optionee shall fully vest in and have the
right to exercise the Option or Stock Purchase Right as to all of the Optioned
Stock, including Shares as to which it would not otherwise be vested or
exercisable. If an Option or Stock Purchase Right becomes fully vested and
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Administrator shall notify the Optionee in writing or
electronically that the Option or Stock Purchase Right shall be fully vested and
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option or Stock Purchase Right shall terminate upon the expiration of such
period. For the purposes of this

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<PAGE>

paragraph, the Option or Stock Purchase Right shall be considered assumed if,
following the merger or sale of assets, the option or right confers the right
to purchase or receive, for each Share of Optioned Stock subject to the
Option or Stock Purchase Right immediately prior to the merger or sale of
assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by
the holders of a majority of the outstanding Shares); provided, however, that
if such consideration received in the merger or sale of assets is not solely
common stock of the successor corporation or its Parent, the Administrator
may, with the consent of the successor corporation, provide fo the
consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or
Stock Purchase Right, to be solely common stock of the successor corporation
or its Parent equal in fair market value to the per share consideration
received by holders of Common Stock in the merger or sale of assets.

14. DATE OF GRANT. The date of grant of an Option or Stock Purchase Right
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall
be provided to each Optionee within a reasonable time after the date of such
grant.

15. AMENDMENT AND TERMINATION OF THE PLAN.

(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or terminate the Plan.

(b) SHAREHOLDER APPROVAL. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.

(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.

16. CONDITIONS UPON ISSUANCE OF SHARES.

(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.

(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of an
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being

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<PAGE>

purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.

17. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.

18. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

19. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.

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<PAGE>

SHOPNOW.COM INC.

DWAYNE M. WALKER EMPLOYMENT AGREEMENT

This Agreement is made by and between ShopNow.com Inc. (the "Company"),
and Dwayne M. Walker ("Executive") as of July 23, 1999.

1. DUTIES AND SCOPE OF EMPLOYMENT.

(a) POSITIONS AND DUTIES. Executive will continue to serve
as Chairman, President and Chief Executive Officer of the Company. Executive
will render such business and professional services in the performance of his
duties, consistent with Executive's position within the Company, as shall
reasonably be assigned to him by the Company's Board of Directors (the
"Board"). The period of Executive's employment under this Agreement is
referred to herein as the "Employment Term."

(b) BOARD MEMBERSHIP. Executive will continue to serve as a
member and Chairman of the Company's Board of Directors (the "Board"),
subject to any required Board and/or stockholder approval.

(c) OBLIGATIONS. During the Employment Term, Executive will
devote his full business efforts and time to the Company. For the duration of
the Employment Term, Executive agrees not to actively engage in any other
employment, occupation or consulting activity for any direct or indirect
remuneration without the prior approval of the Board (which approval will not
be unreasonably withheld); provided, however, that Executive may, without the
approval of the Board, serve in any capacity with any civic, educational or
charitable organization, or as a member of corporate Boards of Directors (but
in all cases subject to Section 10).

2. EMPLOYEE BENEFITS. During the Employment Term, Executive will be
eligible to participate in accordance with the terms of all Company employee
benefit plans that are applicable to other senior executives of the Company,
as such plans and terms may exist from time to time. The benefits available
to Executive may be greater than (but will not be less than) those provided
to the Company's other senior executives.

3. AT-WILL EMPLOYMENT. Executive and the Company agree that
Executive's employment with the Company constitutes "at-will" employment.
Executive and the Company acknowledge that this employment relationship may
be terminated at any time, upon written notice to the other party, with or
without good cause or for any or no cause, at the option either of the
Company or Executive.

<PAGE>

However, as described in this Agreement, Executive may be entitled to
severance benefits depending upon the circumstances of Executive's
termination of employment.

4. COMPENSATION.

(a) BASE SALARY. During the Employment Term, the Company
will pay Executive as compensation for his services a base salary at the
annualized rate of $400,000 (the "Base Salary"). The Base Salary will be paid
through payroll periods that are not less frequent than twice per month and
be subject to the usual, required withholding. The Compensation Committee of
the Board (the "Committee") will reevaluate the Base Salary at least annually
and may increase the Base Salary in accordance with its normal practices. The
Base Salary will not be reduced without Executive's consent.

(b) BONUSES. For each fiscal year of the Company, Executive
will be eligible to receive a bonus of up to $200,000 based upon the
achievement of performance criteria specified by the Committee. The actual
amount of the bonus payable for any year will depend upon the extent to which
the applicable performance criteria have been satisfied. Any bonus that
actually is earned will be paid no later than 2 1/2 months after the end of
the fiscal year for which the bonus is earned, but only if Executive was
employed with the Company through the end of the fiscal year.

(c) STOCK OPTIONS. As of the date of the Company's initial
public offering of common stock (the "IPO"), the Company will grant Executive
an option to purchase up to 500,000 shares of the Company's common stock
("Shares") at a per Share exercise price equal to the IPO price per Share.
During the second year of the Employment Term, the Company will grant
Executive an option or options to purchase up to an additional 500,000 Shares
at a per Share exercise price equal to the fair market value per Share on the
grant date(s) of the option(s). During the third year of the Employment Term,
the Company will grant Executive an option or options to purchase up to an
additional 500,000 Shares at a per Share exercise price equal to the fair
market value per Share on the grant date(s) of the option(s). Each grant will
be appropriately adjusted to reflect any stock splits, stock dividends or
similar change affecting the Shares. The grant of any option is subject to
Executive remaining an employee of the Company through the grant date. The
options to be granted during each of the second and third years of the
Employment Term generally will be granted in quarterly installments (that is,
an option for 125,000 Shares will be granted each quarter), unless determined
otherwise by the Committee. All options will be options that are not intended
to be "incentive stock options" as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). Each option may be exercised
by Executive only if it becomes vested in accordance with a two (2) year
vesting schedule providing for vesting of 25% of the Shares subject to the
option on each six-month anniversary of the grant date, except that Shares
actually will vest on any scheduled vesting date only if Executive's
employment with the Company is not terminated on or before the scheduled
vesting date. In addition, Shares may vest earlier than provided in the
preceding sentence (i) due to attainment of performance objectives set by the
Committee and set forth in the written option agreement, or (ii) as otherwise
provided in the option agreement to reflect the severance benefit provisions
of this Agreement. Also, to the extent not inconsistent with this

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<PAGE>

Agreement, each option will be subject to all of the provisions of the
Company's stock option plan and to the provisions of the Company's standard
stock option agreement for options granted under the plan, provided that the
exercise price, number of shares and maximum vesting schedule of each option
will be as stated in this Section 4(c). For purposes of this Section 4(c),
"fair market value" means the closing price of a Share on Nasdaq on the date
in question.

(d) CAR ALLOWANCE. During the Employment Term, the Company
will pay Executive a car allowance of $400 per month.

5. SEVERANCE.

(a) INVOLUNTARY TERMINATION OTHER THAN FOR CAUSE, DEATH OR
DISABILITY. If the Company involuntarily terminates Executive's employment
with the Company without "Cause" (as defined below) and not on account of
either Executive becoming "Disabled" (as defined below) or Executive's death,
then promptly following such termination of employment, Executive will (i)
receive a lump-sum payment equal to 100% of the Base Salary, (ii) receive all
accrued vacation, expense reimbursements and any other benefits due to
Executive through the date of termination of employment in accordance with
the Company's then existing employee benefit plans and policies, (iii) be
entitled to immediate 100% vesting of any stock options granted to Executive
pursuant to Section 4(c), (iv) be paid his then existing Base Salary for a
period of two (2) years following his termination of employment, (v) be
entitled to a loan of up to $2 million for the purpose of exercising his
Company stock options, and (vi) receive such other compensation or benefits
from the Company as may be required by law (for example, under Section 4980B
of the Code). All payments and benefits will be subject to applicable
withholding. Any such loan will be implemented by Executive signing a full
recourse promissory note concurrently with his exercise of stock options
within thirty (30) days after his termination of employment. Repayment of the
promissory will be secured by the Shares acquired upon exercise of the
associated options. The note and associated security agreement will be in a
form specified by the Company and delivered to Executive within fifteen (15)
days after his termination of employment. Although Executive will not be
required to pay interest on the loan, Executive will have taxable income due
to imputed interest at the minimum rate required under the Code. Repayment of
the principal on the note must be made no later than the earlier of two years
from the loan date or sixty (60) days from the sale or other disposition of
the Shares purchased with the note.

(b) VOLUNTARY TERMINATION FOR GOOD REASON. If Executive
voluntarily terminates his employment with the Company for "Good Reason" (as
defined below) then Executive will be entitled to the same payments and
benefits provided in Section 5(a) above (and subject to the same terms and
conditions provided in Section 5(a)).

(c) OTHER VOLUNTARY TERMINATIONS. If Executive voluntarily
terminates his employment with the Company within six (6) months after a
"Change of Control" (as defined below) then Executive will be entitled to the
same payments and benefits provided in Section 5(a) above (and subject to the
same terms and conditions provided in Section 5(a)). Except to the limited
extent

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<PAGE>

provided in the preceding sentence, if Executive voluntarily terminates his
employment with the Company without Good Reason, then Executive will (i)
receive the Base Salary through the date of termination of employment, (ii)
receive all accrued vacation, expense reimbursements and any other benefits
due to Executive through the date of termination of employment in accordance
with established Company plans and policies, (iii) be entitled to immediate
vesting of any stock options granted to Executive pursuant to Section 4(c)
that were scheduled to vest (only due to the passage of time) within six (6)
months after Executive's termination date (but only if Executive gave the
Board specific written notice of his voluntary termination date at least
ninety (90) days before such date), and (iv) not be entitled to any other
compensation or benefits (including, without limitation, accelerated vesting
of stock options) from the Company except to the extent provided under the
applicable stock option agreement(s) or as may be required by law (for
example, under Section 4980B of the Code). All payments and benefits will be
subject to applicable withholding.

(d) INVOLUNTARY TERMINATION FOR CAUSE OR DEATH. If the
Company involuntarily terminates Executive's employment with the Company for
Cause or due to Executive's death, then Executive will (i) receive the Base
Salary through the date of termination of employment, (ii) receive all
accrued vacation, expense reimbursements and any other benefits due to
Executive through the date of termination of employment in accordance with
established Company plans and policies, and (iii) not be entitled to any
other compensation or benefits (including, without limitation, accelerated
vesting of stock options) from the Company except to the extent provided
under the applicable stock option agreement(s) or as may be required by law
(for example, under Section 4980B of the Code).

(e) INVOLUNTARY TERMINATION FOR DISABILITY. If the Company
involuntarily terminates Executive's employment with the Company due to
Executive becoming Disabled, then Executive will (i) receive the Base Salary
for a period of two (2) years following the date of termination of
employment, (ii) receive all accrued vacation, expense reimbursements and any
other benefits due to Executive through the date of termination of employment
in accordance with established Company plans and policies, and (iii) not be
entitled to any other compensation or benefits (including, without
limitation, accelerated vesting of stock options) from the Company except to
the extent provided under the applicable stock option agreement(s) or as may
be required by law (for example, under Section 4980B of the Code).

For purposes of this Agreement, "Cause" means intentional misconduct
that has a material adverse effect on the Company. Misconduct by Executive
will be considered Cause only if Executive has received written notice from
the Board of the misconduct and Executive has not cured the misconduct within
fifteen (15) business days of his receipt of the notice.

For purposes of this Agreement, "Disabled" means Executive being
unable to perform the principal functions of his duties due to a physical or
mental impairment, but only if such inability has lasted or is reasonably
expected to last for at least six months. Whether Executive is Disabled shall
be determined by the Committee based on evidence provided by one or more
medical experts selected by the Committee.

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<PAGE>

For purposes of this Agreement, "Good Reason" means (i) a material
reduction (without Executive's consent) in his title, authority, status, or
responsibilities, or (ii) a material breach by the Company of its obligations
under this Agreement.

For purposes of this Agreement, "Change of Control" means the
occurrence of any of the following events: (i) Any "person" as such term is
used in Sections 13(d) and 14(d) Section 13(d) of the Securities Exchange Act
of 1934, as amended (the ("Exchange Act")) (other than the Company,
Executive, a group of persons including Executive or another person approved
by Executive) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing twenty-five percent (25%) or more of the combined voting power
of the Company's then outstanding securities; or (ii) the occurrence of a
transaction requiring stockholder approval, involving the sale of all or
substantially all of the assets of the Company or the merger of the Company
with or into another corporation (but only if Executive, acting in his
capacity as a member of the Board (and assuming that he is then a member of
the Board), votes against such transaction). For purposes of clause (ii) of
the previous sentence, a transaction that would not be considered a Change of
Control solely because Executive does not vote against the transaction
nevertheless will be considered a Change of Control if, before the Board
votes on the transaction, Executive notifies the Board in writing that he
elects to treat the transaction as a Change of Control.

6. GOLDEN PARACHUTE EXCISE TAX. In the event that the benefits
provided for in this Agreement or otherwise payable to Executive (including,
but not by way of limitation, any accelerated vesting on stock options) (the
"TOTAL PAYMENTS") would subject Executive to the excise tax (the "Excise
Tax") imposed under Section 4999 of the Code, then the Company will pay
Executive (i) an amount sufficient to pay such excise tax, and (ii) an
additional amount sufficient to pay the excise tax and federal and state
income taxes arising from the payments made by the Company pursuant to this
sentence; provided, however, that in no event will the Company be required to
pay the Executive more than $2,000,000 pursuant to this Section 6(b). Any
amount required to paid to Executive under this Section 6(b) will be paid to
him (and/or paid to the appropriate authorities as tax withholding on
Executive's behalf) no later than five (5) days prior to the time when the
excise and/or income taxes are due. In addition, the Company will use its
reasonable best efforts to pay the amount to Executive or the appropriate
authorities as early as administratively practicable after the amount of the
excise tax is determined, but in no event will the Company be required to pay
the amount earlier than sixty (60) days before the excise tax is due. The
determination of Executive's excise tax liability and the amount, if any,
required to be paid under this Section 6(b) will be made in writing by the
Company's independent auditors (the "Accountants"). For purposes of making
the calculations required by this Section 6(b), the Accountants may make
reasonable assumptions and approximations concerning applicable taxes and may
rely on reasonable, good faith interpretations concerning the application of
Sections 280G and 4999 of the Code. The Company and the Executive will
furnish to the Accountants such information and documents as the Accountants
may reasonably request in order to make a determination under this Section
8(b). The

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<PAGE>

Company will pay all costs the Accountants may reasonably incur in connection
with any calculations contemplated by this Section 6(b).

7. ASSIGNMENT. This Agreement will be binding upon and inure to the
benefit of (a) the heirs, executors and legal representatives of Executive
upon Executive's death and (b) any successor of the Company. Any such
successor of the Company will be deemed substituted for the Company under the
terms of this Agreement for all purposes. For this purpose, "successor" means
any person, firm, corporation or other business entity which at any time,
whether by purchase, merger or otherwise, directly or indirectly acquires all
or substantially all of the assets or business of the Company. None of the
rights of Executive to receive any form of compensation payable pursuant to
this Agreement may be assigned or transferred except by will or the laws of
descent and distribution. Any other attempted assignment, transfer,
conveyance or other disposition of Executive's right to compensation or other
benefits will be null and void.

8. NOTICES. All notices, requests, demands and other communications
called for hereunder shall be in writing and shall be deemed given (i) on the
date of delivery if delivered personally, (ii) one (1) day after being sent
by a well established commercial overnight service, or (iii) four (4) days
after being mailed by registered or certified mail, return receipt requested,
prepaid and addressed to the parties or their successors at the following
addresses, or at such other addresses as the parties may later designate in
writing:

If to the Company:

ShopNow.com Inc.
411 First Avenue South
Suite 200 North
Seattle, WA 98104

ATTN: Chairman, Compensation Committee of the Board of Directors

If to Executive:

at the last residential address known by the Company.

9. SEVERABILITY. In the event that any provision hereof becomes or
is declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Agreement will continue in full force and effect without said
provision.

10. NON-COMPETITION AND NON-SOLICITATION.

(a) For a period beginning on the Effective Date and ending
when Executive ceases to be employed by the Company for any reason
whatsoever, Executive, directly or indirectly, whether as employee, owner,
sole proprietor, partner, director, member, consultant, agent, founder,
co-venturer or otherwise, will: (i) not engage, participate or invest in any
business activity anywhere

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<PAGE>

in the world which develops, manufactures or markets products or performs
services which are competitive with the products or services of the Company
at the time of Executive's termination, or products or services which the
Company has under development or which are the subject of active planning at
the time of Executive's termination; PROVIDED, HOWEVER, that Executive, may
own as a passive investor, securities of any corporation which competes with
the business of the Company so long as such securities do not, in the
aggregate, constitute more than 10% of any class of outstanding securities of
such corporations; (ii) not hire or attempt to employ, recruit or otherwise
solicit, induce or influence any person to leave employment with the Company
or its resellers or distributors and (iii) not directly or indirectly solicit
business from any of the Company's customers and users on behalf of any
business which competes with the Company.

(b) Executive understands that the restrictions set forth
in this Section 10 are intended to protect the Company's interest in its
"proprietary information" (as such term may be defined in the Non-disclosure
Agreement) and establish customer relationships in good will, and agrees that
such restrictions are reasonable, necessary and appropriate for this purpose.

11. ENTIRE AGREEMENT. This Agreement represents the entire agreement
and understanding between the Company and Executive concerning Executive's
employment relationship with the Company, and supersedes and replaces any and
all prior agreements and understandings concerning Executive's employment
relationship with the Company.

12. ARBITRATION AND EQUITABLE RELIEF.

(a) Except as provided in Section 12(d) below, Executive
agrees that to the extent permitted by law, any dispute or controversy
arising out of, relating to, or in connection with this Agreement, or the
interpretation, validity, construction, performance, breach, or termination
thereof will be settled by arbitration to be held in or about Seattle,
Washington, in accordance with the National Rules for the Resolution of
Employment Disputes then in effect of the American Arbitration Association
(the "Rules"). The arbitrator may grant injunctions or other relief in such
dispute or controversy. The decision of the arbitrator will be final,
conclusive and binding on the parties to the arbitration. Judgment may be
entered on the arbitrator's decision in any court having jurisdiction.

(b) The arbitrator will apply Washington law to the merits
of any dispute or claim, without reference to rules of conflict of law.
Executive hereby expressly consents to the personal jurisdiction of the state
and federal courts located in Washington for any action or proceeding arising
from or relating to this Agreement and/or relating to any arbitration in
which the parties are participants.

(c) The Company will pay the direct costs and expenses of
the arbitration. The Company and Executive each will separately pay its
counsel fees and expenses.

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<PAGE>

(d) The Company or Executive may apply to any court of
competent jurisdiction for a temporary restraining order, preliminary
injunction, or other interim or conservatory relief, as necessary to enforce
the provisions of the confidential information and trade secrets agreement
between the Company and Executive, without breach of this arbitration
agreement and without abridgement of the powers of the arbitrator.

(e) Executive understands that nothing in Section 12
modifies Executive's at-will status. Either the Company or Executive can
terminate the employment relationship at any time, with or without cause.

(f) EXECUTIVE HAS READ AND UNDERSTANDS SECTION 12, WHICH
DISCUSSES ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT,
EXECUTIVE AGREES TO THE EXTENT PERMITTED BY LAW, TO SUBMIT ANY FUTURE CLAIMS
ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE
INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH, OR TERMINATION
THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES
A WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION
OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EXECUTIVE
RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE FOLLOWING CLAIMS:

(i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE
OF EMPLOYMENT; BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE
COVENANT OF GOOD FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT
OR INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL
MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR
PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION;

(ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY
FEDERAL STATE OR MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, THE
AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR LABOR STANDARDS ACT, AND
ANY LAW OF THE STATE OF WASHINGTON; AND

(iii) ANY AND ALL CLAIMS ARISING OUT OF ANY
OTHER LAWS AND REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT
DISCRIMINATION.

13. NO ORAL MODIFICATION, CANCELLATION OR DISCHARGE. This Agreement
may be changed or terminated only in writing (signed by Executive and the
Company).

14. WITHHOLDING. The Company is authorized to withhold, or cause to
be withheld, from any payment or benefit under this Agreement the full amount
of any applicable withholding taxes.

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<PAGE>

15. GOVERNING LAW. This Agreement will be governed by the laws of
the State of Washington (with the exception of its conflict of laws
provisions).

16. EFFECTIVE DATE. This Agreement is effective July 1, 1999.

17. ACKNOWLEDGMENT. Executive acknowledges that he has had the
opportunity to discuss this matter with and obtain advice from his private
attorney, has had sufficient time to, and has carefully read and fully
understands all the provisions of this Agreement, and is knowingly and
voluntarily entering into this Agreement.

IN WITNESS WHEREOF, the undersigned have executed this Agreement on
the respective dates set forth below:

EXECUTIVE

-------------------------------- Date: July ___, 1999
Dwayne M. Walker

SHOPNOW.COM INC.

-------------------------------- Date: July ___, 1999
David Lonsdale
Chairman, Compensation Committee

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Exhibit 21.1

Subsidiaries

<TABLE>
<CAPTION>
Name State of Incorporation
- ---- ----------------------
<S> <C>
GO Software Inc. Washington
CardSecure, Inc. Delaware
</TABLE>

<PAGE>

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated June 11, 1999, with respect to the 1998 and 1997
financial statements of GO Software, Inc. included in Amendment No. 1 to the
Registration Statement (Form S-1 No. 333-80981) and related Prospectus of
ShopNow.com Inc.

/s/ ERNST & YOUNG LLP

July 29, 1999
Jacksonville, Florida

<PAGE>

Consent of Independent Public Accountants

As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.

/s/ Arthur Andersen LLP

July 29, 1999
Seattle, WA

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 6,474
<SECURITIES> 18,818
<RECEIVABLES> 3,816
<ALLOWANCES> (777)
<INVENTORY> 0
<CURRENT-ASSETS> 11,228
<PP&E> 11,788
<DEPRECIATION> (2,161)
<TOTAL-ASSETS> 64,250
<CURRENT-LIABILITIES> 19,994
<BONDS> 0
0
72,510
<COMMON> 21,839
<OTHER-SE> (57,613)
<TOTAL-LIABILITY-AND-EQUITY> 64,250
<SALES> 0
<TOTAL-REVENUES> 15,982
<CGS> 0
<TOTAL-COSTS> 14,683
<OTHER-EXPENSES> (245)<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0<F1>
<INCOME-PRETAX> (26,234)
<INCOME-TAX> 0
<INCOME-CONTINUING> (26,234)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,234)
<EPS-BASIC> (5.50)
<EPS-DILUTED> (5.50)
<FN>
<F1>Other income (expense), net
</FN>

</TABLE>