GI JOES INC, S-1/A, 1999-02-09

GI JOES INC
S-1/A, 1999-02-09
MISCELLANEOUS SHOPPING GOODS STORES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 9, 1999.

REGISTRATION NO. 333-61527
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

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

AMENDMENT NO. 3

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

G.I. JOE'S, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
OREGON 5940 93-0500948
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NUMBER)
</TABLE>

9805 SW BOECKMAN ROAD
WILSONVILLE, OREGON 97070
(503) 682-2242
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

NORMAN P. DANIELS
CHIEF EXECUTIVE OFFICER, PRESIDENT
AND CHAIRMAN OF THE BOARD
G.I. JOE'S, INC.
9805 SW BOECKMAN ROAD
WILSONVILLE, OREGON 97070
(503) 682-2242
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

COPIES TO:

<TABLE>
<S> <C>
PATRICK J. SIMPSON TODD A. BAUMAN
DAVID S. MATHESON STOEL RIVES LLP
PERKINS COIE LLP 900 SW FIFTH AVENUE, SUITE 2300
1211 SW FIFTH AVENUE, 15TH FLOOR PORTLAND, OREGON 97204
PORTLAND, OREGON 97204 (503) 224-3380
(503) 727-2000
</TABLE>

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

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

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 of 1933, 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 of 1933, 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 of 1933, 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. [ ]
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2

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

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED FEBRUARY 9, 1999

2,500,000 SHARES

LOGO
COMMON STOCK
------------------------

The 2,500,000 shares of Common Stock (the "Common Stock") offered hereby
(the "Offering") are being sold by G.I. Joe's, Inc. ("G.I. Joe's" or the
"Company"). Prior to the Offering, there has been no public market for the
Common Stock. It is currently estimated that the initial public offering price
per share will be between $8.00 and $10.00. See "Underwriting" for information
relating to the factors to be considered in determining the initial public
offering price. Application has been made for quotation of the Common Stock on
the Nasdaq National Market under the symbol "GIJO."

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

SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.

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

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

<TABLE>
<S> <C> <C> <C>
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PRICE UNDERWRITING PROCEEDS TO
TO PUBLIC(1) DISCOUNTS(2) COMPANY(3)
- -----------------------------------------------------------------------------------------------------------------
Per Share...................................... $ $ $
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Total(4)....................................... $ $ $
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</TABLE>

(1) In connection with the Offering, the Underwriters may reserve up to 125,000
shares of Common Stock for sale at the initial public offering price to
persons associated with the Company.

(2) In addition, the Company has agreed to sell to each of Cruttenden Roth
Incorporated and Black & Company, Inc., as representatives for the
Underwriters, for nominal consideration, warrants to purchase an aggregate
of 250,000 shares of Common Stock at an exercise price equal to 120% of the
Price to Public. The Company has agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."

(3) Before deducting expenses payable by the Company, estimated at $750,000. The
Company intends to use approximately $8.5 million of the net proceeds from
the Offering to redeem all of the Company's outstanding Series A 9%
Non-Voting Redeemable Preferred Stock (the "Redeemable Preferred Stock").
Peregrine Capital, Inc. ("Peregrine"), an affiliate of the Company, will be
paid an aggregate of $700,000 upon such redemption of shares they hold. If
the Offering is not completed prior to May 8, 1999, holders of the Company's
preferred stock may require Peregrine to purchase their shares. See "Use of
Proceeds" and "The Reorganization."

(4) The Company has granted to the Underwriters a 30-day option to purchase up
to 375,000 additional shares of Common Stock, on the same terms as set forth
above, solely to cover over-allotments, if any. If such option is exercised
in full, the total Price to Public, Underwriting Discounts and Proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriting."
------------------------

The shares of Common Stock are being offered by the Underwriters subject to
prior sale, when, as and if delivered to and accepted by the Underwriters and
subject to certain other conditions, including the right of the Underwriters to
withdraw, cancel, modify or reject any order in whole or in part. It is expected
that delivery of certificates representing the shares will be made on or about
, 1999 at the offices of Cruttenden Roth Incorporated, Irvine,
California.

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

CRUTTENDEN ROTH BLACK & COMPANY, INC.
INCORPORATED

The date of this Prospectus is , 1999.

<PAGE> 3

[PICTURE]

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH SECURITY,
AND THE IMPOSITION OF PENALTY BIDS. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."

2
<PAGE> 4

PROSPECTUS SUMMARY

This summary highlights information found elsewhere in this Prospectus. It
is not complete and may not contain all of the information prospective
purchasers should consider before investing in the Common Stock. Prospective
purchasers should read the entire Prospectus carefully, including the "Risk
Factors" section and the financial statements and the notes to those statements.
Except as otherwise noted, all information in this Prospectus (i) assumes no
exercise of the Underwriters' over-allotment option, (ii) assumes no exercise of
the Orkney Warrant (as defined below), (iii) gives effect to the redemption of
the Company's Redeemable Preferred Stock to be effected with a portion of the
proceeds from the Offering and (iv) gives retroactive effect to a 2.5567-for-1
split of the Common Stock effected in July 1998 and a 3-for-4 reverse split of
the Common Stock to be effected prior to the closing of the Offering. See
"Underwriting" and "Use of Proceeds." The Company's fiscal year ends January 31.
Financial and other data presented for the Company for the 12-month period ended
January 31, 1999, is unaudited.

"G.I. Joe's" is among the Company's trademarks. This Prospectus includes
other trademarks and trade names of the Company and of other companies.

RISK FACTORS

Prospective purchasers of the Common Stock should consider all of the
information contained in this Prospectus before making an investment in the
Common Stock. The Company's business, financial condition and results of
operations are subject to various risks, including risks related to the
Company's ability to implement its business and growth and expansion strategies
and manage growth, including the integration of any acquired businesses,
competition in the markets in which the Company operates, seasonality and
fluctuations in the Company's periodic operating results, the effects of weather
on the Company's sales, fluctuations in comparable store sales, and changing
economic conditions and consumer preferences. Prospective purchasers should
consider these and other factors set forth in the "Risk Factors" section of this
Prospectus.

THE COMPANY

OVERVIEW

G.I. Joe's is a leading operator of full-service sports and automotive
merchandise superstores in the Pacific Northwest. The Company currently has 16
stores, eight in the Portland, Oregon metropolitan area, two in the
Seattle/Puget Sound area of Washington and six in various other Oregon
communities. These stores average approximately 55,000 square feet in size. In
calendar year 1997, the Company was among the top 15 full-line sporting goods
retailers in the nation based on revenue. The Company has developed a successful
store concept that has significantly increased same-store sales and sales per
square foot in recently remodeled stores. For the 12-month period ended January
31, 1999, the Company's four remodeled stores generated average annual sales per
store of approximately $10.6 million, compared to approximately $8.7 million for
the Company's other stores. In addition, these remodeled stores achieved average
sales per selling square foot of $227 for that same period, compared to $194 for
other stores. For the fiscal year ended January 31, 1998, the Company's four
remodeled stores generated average annual sales per store of approximately $9.9
million, compared to approximately $8.6 million for the Company's other stores.
In fiscal 1998, these remodeled stores achieved average sales per selling square
foot of $213, compared to $193 for other stores. Average annual per store
contribution (i.e., average per store gross margin less average per store
expenses) in fiscal 1998 was approximately $1.6 million for remodeled stores and
$1.3 million for other stores. The Company has opened a new store in each of the
last two fiscal years and remodeled four existing stores over the past five
fiscal years using its updated store concept.

3
<PAGE> 5

and water skiing, snowboarding, kayaking, canoeing, camping, fishing and
hunting, (ii) outdoor apparel and footwear and (iii) automotive aftermarket
parts and accessories. The Company's net sales of $142.7 million in the 12-month
period ended January 31, 1999 were derived 42% from the sale of sporting goods,
32% from the sale of outdoor apparel and footwear, 20% from the sale of
automotive parts and accessories and 6% from the sale of other assorted
products.

G.I. Joe's began operations in 1952 in Portland, Oregon as a government
surplus store. Over the years the Company shifted its focus from surplus goods
to new, general merchandise. By 1995, under the direction of Norman Daniels, the
Company's current Chairman of the Board, President and Chief Executive Officer,
the Company had streamlined its product offerings to focus on sports and
automotive merchandise, its best-selling product lines. Through 1997 the Company
pursued a conservative operating strategy while refining its internal systems,
distribution system and training programs and undertaking selective management
additions, all of which created a solid foundation to support future expansion.
In May 1998, Mr. Daniels acquired majority ownership of the Company and the
Company began implementing an aggressive growth strategy. See "The
Reorganization" and "Business -- Growth and Expansion Strategy."

BUSINESS AND GROWTH AND EXPANSION STRATEGIES

The Company's business strategy is based on the following key competitive
strengths:

- Unique merchandise mix consisting of full lines of sporting goods,
outdoor apparel and footwear, and automotive aftermarket parts and
accessories, which generates substantial cross-shopping by
customers.

- Proven improved store design concept and remodeling strategy, which
has significantly increased same-store sales and sales per square
foot.

- Leading position in and focus on the Pacific Northwest, which has
increased the Company's buying power and economies of scale.

- Competitively priced quality merchandise as a result of favorable
pricing from vendors and internal efficiencies.

- Superior customer service, which the Company believes differentiates
it from mass merchandisers and other large format sporting goods and
automotive parts and accessories retailers.

- Enhanced margins as a result of increased sales of higher margin
merchandise, vendor concept stores and increased direct imports and
buying power.

- Significant management ownership of and experience with the Company.

G.I. Joe's intends to expand its business by implementing a growth and
expansion strategy that includes the following key features:

- Remodeling 10 existing stores over the next four years to increase
same-store sales and sales per square foot.

- Opening eight new stores in the Pacific Northwest, primarily in
Washington, over the next four years.

- Pursuing strategic acquisitions in portions of Montana, Idaho, Utah,
Nevada and Northern California that have consumer demographics and
seasonal outdoor activity patterns similar to those of the Pacific
Northwest.

- Further developing alternative channels of distribution, primarily
mail order catalog and Internet-based retail channels.

- Examining opportunities for national expansion and vertical
integration.

4
<PAGE> 6

RECENT ACQUISITION

In September 1998, the Company acquired certain assets and assumed certain
liabilities of Timberline Direct, a direct marketing retailer that sells
merchandise complementary to that offered by the Company though catalog and
Internet-based channels. The purchase price for the acquisition is $5.4 million,
consisting of $1.2 million payable in cash, $896,000 of assumed liabilities and
the balance payable, in installments, in shares of the Company's Common Stock.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."

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

The Company was founded in 1952 and incorporated under Oregon law in 1961.
The Company's executive offices are located at 9805 SW Boeckman Road,
Wilsonville, OR 97070, and its telephone number is (503) 682-2242.

5
<PAGE> 7

THE OFFERING

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<S> <C>
Common Stock offered hereby.................. 2,500,000 shares
Common Stock to be outstanding after the 7,075,760 shares(1)
Offering...................................
Use of proceeds.............................. To redeem all of the Company's outstanding
Redeemable Preferred Stock, to remodel
existing stores and to open new stores. See
"Use of Proceeds."
Proposed Nasdaq National Market Symbol....... GIJO
</TABLE>

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

(1) Based on shares outstanding as of January 31, 1999. Excludes (i) 371,125
shares issuable upon exercise of outstanding stock options, with a weighted
average exercise price of $9.53 per share, (ii) 428,875 shares reserved for
future grants under the Company's 1998 Stock Incentive Compensation Plan, as
amended (the "1998 Plan"), (iii) 300,000 shares reserved for issuance under
the Company's Amended and Restated 1998 Employee Stock Purchase Plan (the
"ESPP") and (iv) 391,941 shares issuable upon the closing of the Offering
upon exercise of a warrant granted to David Orkney, a Director and the
former majority shareholder of the Company (the "Orkney Warrant"). The
Orkney Warrant is exercisable for a number of shares equal to 5% of the
Company's Common Stock outstanding, on a fully-diluted basis, on the date of
exercise at an exercise price equal to 70% of the fair market value of the
Common Stock on the exercise date. If the Orkney Warrant is exercised prior
to the closing of the Offering, it will be exercisable for approximately
260,362 shares of Common Stock. See "Management -- Retirement and Certain
Other Benefit Plans" and "Description of Capital Stock -- Warrants and Stock
Options."

6
<PAGE> 8

SUMMARY FINANCIAL AND OTHER DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND SELECTED OPERATING DATA)

<TABLE>
<CAPTION>
PREDECESSOR(1) PRO FORMA(2) PREDECESSOR(1)
---------------------------------------------------- ------------ -------------------------
FISCAL YEAR THREE MONTHS
FISCAL YEARS ENDED JANUARY 31, ENDED ENDED APRIL 30,
---------------------------------------------------- JAN. 31, -------------------------
1994 1995 1996 1997 1998 1998 1997 1998
-------- -------- -------- -------- -------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................ $136,629 $127,008 $124,052 $128,112 $128,238 $128,238 $24,013 $25,908
Gross margin............. 41,631 41,742 41,706 43,928 43,686 43,686 7,588 8,238
Selling, general and
administrative
expense................. 39,574 36,598 37,154 37,976 39,528 42,671 8,717 9,755
Income (loss) from
operations.............. 2,057 5,144 4,552 5,952 4,158 1,015 (1,129) (1,517)
Extraordinary item: loss
on early extinguishment
of debt................. -- -- -- -- -- -- -- (2,220)
Net income (loss)........ $ (1,364) $ 1,398 $ 851 $ 2,340 $ 681 $ (1,176) $(1,951) $(4,059)
Income (loss) per share
before extraordinary
item(3):
-- Basic................ $(0.44) $0.45 $0.28 $0.77 $0.22 $(0.43) $(0.64) $(0.60)
-- Diluted.............. $(0.44) $0.45 $0.26 $0.69 $0.20 $(0.43) $(0.64) $(0.60)
Net income (loss) per
share(3):
- -- Basic................. $(0.44) $0.45 $0.28 $0.77 $0.22 $(0.43) $(0.64) $(1.34)
- -- Diluted............... $(0.44) $0.45 $0.26 $0.69 $0.20 $(0.43) $(0.64) $(1.34)
Weighted average shares
outstanding, as
adjusted(3):
- -- Basic................. 3,080 3,073 3,057 3,049 3,040 4,464 3,040 3,040
- -- Diluted............... 3,080 3,129 3,233 3,381 3,469 4,464 3,040 3,040

SELECTED OPERATING DATA:
Number of stores open for
full period............. 14 14 14 14 14 14 14 15
Number of remodeled
stores open for full
period.................. -- -- 2 3 3 3 3 4
Gross margin as a
percentage of sales..... 30.5% 32.9% 33.6% 34.3% 34.1% 34.1% 31.6% 31.8%
Store contribution(4).... $1,436 $1,373 $1,321 $1,351 $1,417 $1,192 $154 $195
Total comparable store
net sales increase
(decrease)(5)........... (1.7)% (7.0)% (2.3)% 3.3% (1.8)% (1.8)% (5.6)% 3.0%
Remodeled same store net
sales increase(6)....... -- -- 1.6% 14.6% -- -- -- 24.0%

<CAPTION>
G.I. JOE'S, INC. PRO FORMA(2)
---------------- ------------
SIX MONTHS NINE MONTHS
ENDED ENDED
OCTOBER 31, OCTOBER 31,
1998 1998
---------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................ $75,201 $101,109
Gross margin............. 25,589 33,827
Selling, general and
administrative
expense................. 23,086 33,626
Income (loss) from
operations.............. 2,503 201
Extraordinary item: loss
on early extinguishment
of debt................. -- --
Net income (loss)........ $ 376 $ (1,123)
Income (loss) per share
before extraordinary
item(3):
-- Basic................ $ (0.00) $ (0.38)
-- Diluted.............. $ (0.00) $ (0.38)
Net income (loss) per
share(3):
- -- Basic................. $ (0.00) $ (0.38)
- -- Diluted............... $ (0.00) $ (0.38)
Weighted average shares
outstanding, as
adjusted(3):
- -- Basic................. 4,464 4,464
- -- Diluted............... 4,464 4,464
SELECTED OPERATING DATA:
Number of stores open for
full period............. 15 15
Number of remodeled
stores open for full
period.................. 4 4
Gross margin as a
percentage of sales..... 34.0% 33.5%
Store contribution(4).... $737 $901
Total comparable store
net sales increase
(decrease)(5)........... 2.0% 2.3%
Remodeled same store net
sales increase(6)....... 22.0% 22.7%
</TABLE>

<TABLE>
<CAPTION>
OCTOBER 31, 1998
-----------------------------
ACTUAL(3) AS ADJUSTED(7)
----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $20,493 $32,168
Inventories................................................. 44,778 44,778
Total assets................................................ 83,439 95,114
Total liabilities........................................... 70,974 70,974
Total shareholders' equity.................................. 12,465 24,140
</TABLE>

(Footnotes on following page)

7
<PAGE> 9

(1) Effective May 1, 1998, the Company underwent a reorganization in which
Norman Daniels, the Company's current Chairman of the Board, President and
Chief Executive Officer, acquired a majority interest in ND Holdings, Inc.,
an Oregon corporation ("Holdings"), which owned more than 80% of the
outstanding capital stock of G.I. Joe's. In July 1998, Holdings merged into
G.I. Joe's, with G.I. Joe's being the surviving corporation. See "The
Reorganization." The financial information with respect to periods prior to
May 1, 1998 reflects information for G.I. Joe's prior to the Reorganization
(the "Predecessor").

(2) The pro forma statement of operations data for the fiscal year ended January
31, 1998 and the nine-month period ended October 31, 1998 give effect to the
Reorganization as if it had occurred as of February 1, 1997 and February 1,
1998, respectively. Prior to the Reorganization, the Company was an S
corporation and, accordingly, was not subject to federal and state income
taxes during the periods indicated, other than during the six-month period
ended October 31, 1998. As of May 1, 1998, the Company was converted to a C
corporation and is now subject to federal and applicable state income
taxation. See "Dividend Policy and Prior S Corporation Status" and Note 1 to
Financial Statements.

(3) The per share statement of operations data for the six-month period ended
October 31, 1998 and the pro forma per share statement of operations data
for the fiscal year ended January 31, 1998 and the nine-month period ended
October 31, 1998 give effect to the issuance of 4,461,227 shares of the
Company's Common Stock in the Merger as if it had occurred at the beginning
of such periods and include dividends payable on the Company's Redeemable
Preferred Stock. See "The Reorganization."

(4) Store contribution is determined by deducting average per store expenses
from average per store gross margin.

(5) A new or remodeled store becomes comparable after it has been open or
remodeled for a full 12 months.

(6) Compares first full fiscal year following the remodeling to the preceding
fiscal year.

(7) Adjusted to reflect (i) the sale of the shares of Common Stock offered
hereby at an assumed initial public offering price of $9.00 per share (the
mid-point of the range set forth on the cover page of this Prospectus) and
(ii) the application of the net proceeds from such transaction.

8
<PAGE> 10

RISK FACTORS

An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Certain statements under the captions "Prospectus Summary," "Use
of Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," as well as statements made in the
following "Risk Factors" and elsewhere in this Prospectus, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors, such as the risk factors set
forth below and elsewhere in this Prospectus, that may cause actual results to
be materially different from those projected in the forward-looking statements.
In addition to the other information contained in this Prospectus, the following
factors should be considered carefully by potential purchasers in evaluating an
investment in the Company's Common Stock offered hereby.

ABILITY TO IMPLEMENT BUSINESS AND GROWTH AND EXPANSION STRATEGIES AND MANAGE
GROWTH

Principal components of the Company's business and growth and expansion
strategies are to increase sales and income from operations in the Company's
existing markets, to complete the remodeling of the Company's stores, to open
new stores, primarily in Washington, to enter new geographic markets through the
acquisition of complementary businesses or internal growth, to further develop
the Company's channels of distribution by means of internal growth or
acquisitions and to examine opportunities for national expansion and vertical
integration. The Company's future growth will depend upon a number of factors,
both within and outside of the Company's control, including: the identification
of new geographic markets in which the Company can successfully compete; the
identification and lease or acquisition on favorable terms of suitable new store
sites; the identification and acquisition on favorable terms of complementary
businesses; the receipt of any required governmental authorizations for proposed
development or expansion; the construction cost of and build-out time required
for new stores; the remodeling of certain existing stores without undue delay,
expense or disruption of operations; results of operations for new and remodeled
stores; the acceptance by potential customers of the Company's expansion into
new markets; and the Company's ability to obtain required financing on favorable
terms. Management estimates that the capital cost of new and remodeled stores
will be approximately $1.45 million and $1.2 million, respectively, per store,
and that each new store will require approximately $2.1 million for inventory
and approximately $175,000 in pre-opening and promotional expenses. Actual costs
to remodel or to construct and open stores may substantially exceed such
amounts. The Company has opened only two stores since 1991. The Company has
remodeled only four stores using its updated store concept, and only two stores
since 1994. Consequently, the Company has a limited history of opening,
remodeling and operating new and remodeled stores. The results achieved to date
by the Company's remodeled stores, particularly the two stores remodeled since
1994, may not be indicative of results that will be achieved from stores
remodeled as part of the Company's growth and expansion strategy. In addition,
the results achieved by the Company to date in Oregon, particularly in the
Portland metropolitan area, may not be indicative of its prospects in or its
ability to penetrate new geographic markets, many of which may have different
competitive conditions and demographic characteristics than the Company's
current markets. See "Business -- Business Strategy" and "Business -- Growth and
Expansion Strategy." The Company may not be able to successfully expand its
operations or to operate remodeled or new stores or acquired businesses on a
profitable basis.

As the Company expands its operations, it will experience growth in the
number of its employees, the scope of its distribution, operating and financial
systems and the geographic area of its operations. This growth will increase the
operating complexity of the Company and the level of responsibility of existing
and new management personnel. As the Company grows, it may not be able to hire,
train and retain qualified management and employees. In addition, the Company's
current distribution, operating, and financial systems and controls may become
inadequate, and failure by the Company to expand, supplement or improve such
systems and controls adequately and in a timely and cost effective manner could
have an adverse impact on the Company's business, financial condition and
results of operations. Management estimates that the Company's existing
distribution center can accommodate at least five additional stores in the
Pacific Northwest without material modification or increased expense. The
Company may not be able to successfully integrate

9
<PAGE> 11

new stores into its existing operating and financial systems. Any failure to
manage growth effectively could have a material adverse effect on the Company's
business, financial condition and results of operations.

LIMITED EXPERIENCE WITH ACQUISITIONS

As part of its growth and expansion strategy, the Company expects to
acquire complementary businesses. To date, the Company has grown primarily by
means of internal growth and has limited experience with completing and
integrating acquisitions. In September 1998, the Company acquired certain assets
and assumed certain liabilities of Timberline Direct, a direct marketing
retailer that sells merchandise complementary to that offered by the Company
through catalog and Internet-based channels. See "Management Discussion and
Analysis of Financial Condition and Results of Operations -- Overview." The
Company has no current understandings or agreements regarding potential
acquisitions. Any acquisitions would involve risks commonly encountered in
acquisitions of companies, such as the difficulty of assimilating the operations
and personnel of the acquired companies into the Company's existing structure,
the potential disruption of the Company's ongoing business, diversion of
management time and resources, increases in administrative costs, potential loss
of key employees of acquired companies and additional costs associated with debt
or equity financing of any such acquisitions. The failure to integrate
effectively any acquired businesses, including Timberline Direct, could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, acquisitions may require additional
financing. Such financing may involve public or private offerings of debt or
equity securities, and may include bank debt. Debt financing may increase the
Company's leveraged position, require the Company to devote significant cash to
service debt and limit funds available for working capital, capital
expenditures, acquisitions and general corporate purposes, all of which could
increase the Company's vulnerability to adverse economic and industry conditions
and competitive pressures. Equity financing may cause additional dilution to
purchasers of the Common Stock in the Offering. The Company has issued 111,657
shares of Common Stock and may be required to issue additional shares in
connection with the Timberline Direct acquisition. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Overview." The
Company has no other commitments for, and may not be able to obtain, any debt or
equity financing for future acquisitions. In addition, restrictions contained in
the Company's existing revolving line of credit facility limit the Company's
ability to obtain additional bank or similar financing. Any inability to obtain
required financing when needed on terms favorable to the Company could have a
material adverse effect on the Company's ability to implement its growth and
expansion strategy and on the Company's business, financial condition and
results of operations. The Company may not be successful in overcoming these
risks or any other problems encountered in connection with potential
acquisitions. See "Business -- Growth and Expansion Strategy."

COMPETITION

The markets for sports and automotive merchandise are highly competitive.
Within the sporting goods and outdoor apparel and footwear markets, the Company
faces significant competition from national, regional and local retailers,
including mass merchandisers, as well as from manufacturers' own retail stores
(such as stores owned and operated by Nike, Inc.). Within the automotive parts
and accessories markets, the Company faces significant competition from
national, regional and local retailers. These and other competitors, including
catalog and Internet-based direct marketing retailers, pose significant
challenges to the Company's market share in its existing markets and will make
it more difficult for the Company to succeed in new markets. Many of the
Company's competitors have substantially greater financial, distribution,
marketing and other resources and have achieved greater name recognition than
the Company. Increased competition by existing and future competitors could
result in reductions in the Company's sales or margins. The Company may not be
able to compete successfully against present or future competitors and
competitive pressures faced by the Company may have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- Competition."

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<PAGE> 12

SEASONALITY AND FLUCTUATIONS IN PERIODIC OPERATING RESULTS

The Company's results of operations have fluctuated and likely will
continue to fluctuate significantly from period to period. The Company's
seasonal sporting goods merchandise mix is weighted substantially toward the
summer and winter seasons. Consequently, the Company's results of operations for
the quarters ending July 31 and January 31 have in the past been much stronger
than results for the other two quarters. The Company has historically incurred
net losses in the quarters ending April 30 and achieved limited net income or
incurred net losses in the quarters ending October 31. In addition, the
Company's sporting goods and outdoor apparel and footwear operations are subject
to traditional retail seasonality patterns related to the holiday season. This
seasonality, along with other factors, including weather conditions, general and
regional economic conditions, changes in consumer preferences and changes in the
Company's merchandise mix, could adversely affect the Company's business and
cause its periodic results of operations to fluctuate. The timing and expenses
associated with the Company's store remodeling program and the opening of new
stores or the acquisition of other businesses as part of the Company's growth
and expansion strategy will also contribute to fluctuations in periodic
operating results. Accordingly, results of operations in any period may not be
indicative of the results to be expected for any future period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Operating Results and Seasonality." Because a high
percentage of the Company's operating expenses are relatively fixed, if sales in
any quarter do not occur as expected, the Company's operating results may be
adversely affected and fall short of expectations.

FLUCTUATIONS IN COMPARABLE STORE SALES

A variety of factors affect the Company's comparable store sales,
including, among others, the general retail sales environment, the Company's
ability to source and distribute products efficiently, changes in the Company's
merchandise mix, the impact of competition and the Company's ability to execute
its business strategy effectively. The Company's comparable store sales results
have fluctuated significantly in the past and the Company believes that such
fluctuations will continue. The Company's comparable store net sales increases
and decreases for the fiscal years ended January 31, 1997 and 1998 and for the
12-month period ended January 31, 1999 were 3.3%, (1.8)% and 4.2%, respectively.
Past comparable store sales results may not be indicative of future results.

EFFECTS OF WEATHER

Weather and changes in weather significantly affect the Company's sales of
sporting goods equipment and outdoor apparel and footwear. Net sales and margins
are adversely affected in periods of unseasonable weather conditions. Customers
delay or forego purchases of skiing and snowboarding equipment and winter
outdoor apparel and footwear in periods of unseasonably warm fall or winter
weather. Unseasonably cool or wet spring or summer weather adversely affects
sales of sporting goods for warmer weather activities, such as camping, fishing,
water sports, golf and tennis, and of spring and summer apparel and footwear.
Delays in seasonal weather changes also shorten the selling period for the
Company's seasonal merchandise and the Company may have to reduce prices in
order to sell seasonal merchandise before the season expires or carry over
merchandise. Any such delays in or reductions of sales of seasonal merchandise
could have a material adverse effect on the Company's business, financial
condition and results of operations.

CHANGING ECONOMIC CONDITIONS; DEPENDENCE ON REGIONAL ECONOMIES

The Company's business is sensitive to changes in discretionary consumer
spending. Such changes are significantly related to prevailing economic
conditions and particularly affect the Company's sales of sporting goods and
outdoor apparel and footwear. A recession in the national or regional economies,
particularly in the Pacific Northwest or Oregon, where a majority of Company's
business is conducted, or uncertainties regarding future economic prospects,
could affect consumer spending habits and have a material adverse effect on the
Company's business, financial condition and results of operations.

11
<PAGE> 13

CHANGING CONSUMER PREFERENCES

Any change in consumer preferences or consumer interest in sports or
outdoor activities, outdoor apparel and footwear, or automotive aftermarket
parts and accessories could have a material adverse effect on the Company's
business, financial condition and results of operations. Failure to anticipate
and appropriately respond to changes in consumer preferences could lead to,
among other things, lower sales, excess inventories and lower margins, any of
which could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company often works with vendors to
plan future orders as much as 12 months in advance to ensure timely delivery.
This, together with the seasonal nature of much of the Company's merchandise
mix, can result in unbalanced inventories, increased inventory levels, and
related carrying costs if consumer preferences change prior to delivery.

SMALL STORE BASE

The Company operated 16 stores as of January 31, 1999. Five of the
Company's stores were opened before 1980, an additional nine stores were opened
between 1980 and 1991 and only two stores have been opened since 1991.
Consequently, the Company has a limited recent history of opening and operating
new stores. The results achieved to date by the Company's relatively small store
base may not be indicative of the results that may be achieved from a larger
number of stores. In addition, should any store (including any new or remodeled
store) be unprofitable, experience a decline in profitability or be
significantly damaged or destroyed, the effect on the Company's results of
operations would be more significant than would be the case if the Company had a
larger store base.

DEPENDENCE ON VENDORS

The Company offers an extensive and changing mix of merchandise,
substantially all of which is supplied by independent vendors. The Company must
develop and maintain relationships with these vendors in order to maintain an
adequate supply of merchandise for the Company's stores. The Company does not
have long-term supply contracts with its vendors. In addition, the Company
competes with other companies for the merchandise supplied by these vendors and
many of these other companies have substantially greater leverage and financial
and other resources than the Company. As a result, the Company may be unable to
obtain from its vendors adequate merchandise at the times or prices or in the
quantities it desires, if at all. The Company's failure to obtain any such
merchandise or to obtain favorable or competitive prices and terms could result
in reduced sales or margins and could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Vendors, Purchasing and Distribution."

The Company's ten largest vendors for the fiscal year ended January 31,
1998, which accounted for approximately 24% of the Company's purchases for such
year, were Nike, Inc., Columbia Sportswear Co., All Sports Supply, Inc., Coleman
Company, Inc., Coast Auto Supply, World Wide Distributors, Remington Arms Co.,
Inc., Adidas U.S.A. Incorporated, Levi Strauss & Company, and Valvoline
Incorporated. The Company is not dependent on any vendor.

Vendors provide the Company with substantial incentives in the form of
volume discounts, longer payment terms and cooperative advertising. Vendor funds
used to offset outside advertising costs amounted to approximately 35%, 46% and
42%, respectively, of such costs in the fiscal years ended January 31, 1996,
1997 and 1998, respectively. A reduction in or discontinuation of these
incentives could have a material adverse effect on the Company's business,
financial condition and results of operations.

INTERNATIONAL RISKS AND CONSTRAINTS

A majority of the Company's merchandise (other than automotive parts and
accessories) is manufactured outside the United States. As a result, the
Company's operations are subject to risks generally associated with
international business, such as foreign governmental regulation, political
unrest, disruptions or delays in shipments, changes in economic conditions and
fluctuations of currency exchange rates. These factors, among others, including
the recent economic turmoil in Asia, could adversely affect the Company's
ability to obtain certain merchandise, which, in turn, could have a material
adverse effect on the Company's business, financial

12
<PAGE> 14

condition and results of operations. In addition, a significant portion of the
merchandise supplied to the Company is subject to existing or potential duties,
tariffs or quotas that may limit the quantity of certain types of goods that may
be imported into the United States. The imposition of additional duties, tariffs
or quotas or the adverse adjustment of existing duties, tariffs or quotas could
have a material adverse effect on the Company's business, financial condition
and results of operations. To date the Company has not experienced any material
adverse effects on its operations due to uncertainties involving international
risks and constraints.

DEPENDENCE ON KEY PERSONNEL; STAFFING AND LABOR COSTS

The Company's future success will depend in part on the continued service
of certain key management and other personnel, including Norman Daniels, the
Company's Chairman of the Board, President and Chief Executive Officer, Philip
M. Pepin, the Company's Vice President of Finance and Chief Financial Officer,
Edward A. Ariniello, the Company's Vice President of Operations, B.G. Eilertson,
Patrick E. Hortsch and Ron J. Menconi, the Company's three Merchandise Managers,
Mark H. Mieher, Vice President and Chief Information Officer, and Douglas B.
Spink, General Manager of Direct Marketing. Another important factor in the
Company's future success will be its ability to attract and retain qualified
managerial, purchasing, sales and marketing personnel. Competition for these
employees is intense. A shortage of qualified personnel may require the Company
to increase compensation and benefit levels in order to compete successfully.
The Company is also dependent upon the available labor pool of lower-wage
employees. The Company may be unable to retain its existing key personnel, may
not be able to attract and retain sufficient numbers of qualified employees in
the future and may experience increased labor costs which may not be matched by
corresponding increases in revenues. Any of these factors could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management." The Company maintains life insurance on Mr.
Daniels in the amount of $3.0 million, but does not maintain life insurance on
any other employee. The Company has no employment agreements with any of its
employees other than Mr. Spink. See "Management -- Employment Agreement."

DEPENDENCE ON DISTRIBUTION CENTER AND LEASED PREMISES

The Company maintains a single warehouse and distribution center adjacent
to its corporate headquarters in Wilsonville, Oregon. If this facility were to
be destroyed or significantly damaged by fire or other disaster, the Company
would need to obtain alternative facilities and replenish its inventory, either
of which would result in significant costs and delays in distributing
merchandise to its stores. The costs and delays associated with any such
disruption could have a material adverse effect on the Company's business,
financial condition and results of operations. Although the Company maintains
business interruption insurance in the amount of $19.3 million, the level of
coverage may not be adequate. In addition, all of the Company's current stores
are located on leased premises. If leases were prematurely terminated for any
reason or if the Company were unable to renew leases, the Company would be
required to relocate subject stores to other locations. Relocations would result
in substantial additional costs and could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Properties."

CONTROL BY PRINCIPAL SHAREHOLDERS

Upon the closing of the Offering, Norman Daniels, the Company's Chairman of
the Board, President and Chief Executive Officer, and Peregrine (together, the
"Controlling Shareholders") will beneficially own approximately 51.7% of the
Company's issued and outstanding Common Stock (approximately 49.1% if the
Underwriters' over-allotment option is exercised in full). As a result, the
Controlling Shareholders will be able to elect all the Company's directors and
to control the vote on substantially all other matters, including significant
corporate actions, without the approval of other shareholders. Such ownership
and control may have the effect of delaying or preventing a takeover of the
Company by third parties, which could deprive the Company's shareholders of a
control premium that might otherwise be realized by them in connection with an
acquisition of the Company. See "Principal Shareholders."

13
<PAGE> 15

ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATION

The Company is subject to federal, state and local laws and regulations
which affect its business, relating to, among other things, advertising, worker
safety and the use, storage, discharge and disposal of environmentally sensitive
materials. Although management of the Company is not aware of any significant
environmental contamination at any of the Company's properties from its own or
prior activities at such locations or from neighboring properties, such
contamination may exist at such properties or at additional store sites or
facilities acquired or leased by the Company, and any such contamination could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, the Company is subject to various local
zoning requirements with regard to the location and design of its stores. The
Company's ability to obtain zoning permits in a timely manner, if at all, will
have an impact on the Company's planned expansion. The failure to comply with
such laws, regulations and requirements or material changes to them could have a
material adverse effect on the Company's business, financial condition and
results of operations.

Sales of hunting equipment, including firearms, ammunition and shooting
accessories accounted for approximately 4.0% of the Company's sales in the
fiscal year ended January 31, 1998. Government regulation of firearms or hunting
can affect sales of these and other goods offered by the Company, and an
increase or material changes in such regulation could have a material adverse
effect on the Company's business, financial condition and results of operations.

POTENTIAL PRODUCT LIABILITY EXPOSURE

The Company's merchandise includes firearms, ammunition, air guns,
paintball guns, bows, knives, automobile and marine parts, kayaks, canoes and
water and snow skiing and snowboarding equipment and other products that create
product liability risks. Although the Company is not a manufacturer of any of
these products, the sale of these and other products carried by the Company
involves a risk of being named as a defendant in product liability litigation.
The Company's insurance may not cover all potential claims arising from the sale
of such products, the amount of coverage may not be adequate, and adequate
insurance coverage may not be available in the future at acceptable rates, if at
all. Any uninsured or inadequately insured claim or liability could have a
material adverse effect on the Company's business, financial condition and
results of operations.

DEPENDENCE ON TRADEMARKS

The Company uses a number of trademarks in connection with the operation of
its business. The Company's "G.I. Joe's" trademark is registered with the United
States Patent and Trademark Office. The Company's other trademarks are not
registered. The Company believes its trademarks are important to its ability to
create and sustain demand for its business and private label products. Although
the Company's operations have not been materially restricted as a result of
trademark disputes, significant obstacles may arise as the Company expands its
business into new market segments and geographic markets. In addition, it may be
determined that the Company's trademarks violate the proprietary rights of
others, they may not be upheld if challenged and the Company may be prevented
from using these trademarks, any of which could have a material adverse effect
on the Company's business, financial condition and results of operations.

YEAR 2000 COMPLIANCE

The Company relies on computer systems and software to operate its
business, including applications used in sales, purchasing, inventory
management, finance and various administrative functions. The Company has
determined that certain of its software applications will be unable to interpret
appropriately the calendar year 2000 and subsequent years. Management believes
that only minor modifications will be required to make its systems "Year 2000"
compliant. However, failure by the Company to achieve full Year 2000 compliance
in a timely manner or consistent with its current cost estimates could have an
adverse effect on the Company's business, financial condition and results of
operations. In addition, the Company could be adversely affected by the failure
of one or more of its vendors, lenders or other organizations with which it
conducts business to

14
<PAGE> 16

become fully Year 2000 compliant. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Year 2000 Compliance."

NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF SHARE PRICE

Prior to the Offering there has been no public market for the Common Stock.
An active trading market for the Common Stock may not develop or be sustained as
a result of the Offering and the price of the Common Stock may drop below the
initial public offering price. The initial public offering price of the Common
Stock will be determined through negotiations between the Company and
representatives of the Underwriters and may not be indicative of the price at
which the Common Stock will actually trade after the Offering. See
"Underwriting" for a discussion of the factors that will be considered in
determining the initial public offering price of the Common Stock.

Following the Offering, the market price of the Common Stock could be
subject to significant variation due to fluctuations in the Company's operating
results, changes in or actual results varying from earnings or other estimates
made by securities analysts, the degree of success the Company achieves in
implementing its growth and expansion strategy, changes in business or economic
conditions affecting the Company, its customers or its competitors and other
factors both within and outside the Company's control. In addition, the stock
market may experience volatility that affects the market prices of companies in
ways unrelated to the operating performance of such companies, and such
volatility may adversely affect the market price of the Common Stock.

SUBSTANTIAL DILUTION TO NEW INVESTORS

The initial public offering price will be substantially higher than the net
tangible book value per share of the Common Stock immediately prior to the
Offering. Investors purchasing Common Stock in the Offering will be subject to
immediate dilution of $6.03 per share in net tangible book value, assuming an
initial public offering price of $9.00 (the mid-point of the range set forth on
the cover page of this Prospectus). Further dilution would result from the
exercise of outstanding warrants or options. See "Dilution" and "Description of
Capital Stock -- Warrants and Stock Options."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of a substantial number of shares of the Common Stock in the public
market following the Offering, or the prospect of such sales, could adversely
affect the market price of the Common Stock and the Company's ability to raise
capital in the equity markets. Upon the closing of the Offering, there will be
approximately 7,075,760 shares of Common Stock outstanding (approximately
7,450,760 shares if the Underwriters' over-allotment option is exercised in
full). Of these shares, all the shares to be sold in the Offering will be
eligible for immediate resale without restriction under the Securities Act of
1933, as amended (the "Securities Act"), unless such shares were purchased by an
"affiliate" of the Company, as that term is defined in Rule 144 under the
Securities Act. The remaining outstanding shares of Common Stock, which
constitute "restricted securities" as defined in Rule 144, are not yet eligible
for resale under Rule 144, but generally will become eligible in July 1999
subject to Rule 144 restrictions (other than shares to be issued in connection
with the Timberline Direct acquisition, which will become eligible for resale
under Rule 144 on the first anniversary of their issuance). The holders of
1,896,148 of the restricted shares have certain registration rights with respect
to such shares. See "Description of Capital Stock -- Registration Rights." The
Company, its directors, executive officers and other shareholders holding an
aggregate of 4,160,378 shares have agreed that, without the prior written
consent of Cruttenden Roth Incorporated, they will not directly or indirectly
offer to sell, sell, or otherwise dispose of shares of Common Stock or any
securities convertible or exchangeable therefor, for a period of 360 days after
the date of this Prospectus, subject to certain limited exceptions. See
"Underwriting" and "Shares Eligible for Future Sale."

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<PAGE> 17

ESPP after the effective date of such registration statement will be freely
tradable in the open market, subject to the lock-up agreements with the
Underwriters described above and, in the case of sales by affiliates, to certain
requirements of Rule 144. As of January 31, 1999, options to purchase
approximately 371,125 shares of Common Stock were outstanding under the 1998
Plan, of which options to purchase 51,775 shares of Common Stock were vested. In
addition, the Orkney Warrant is exercisable for a number of shares equal to 5%
of the Company's Common Stock outstanding, on a fully-diluted basis, on the date
of exercise at an exercise price equal to 70% of the fair market value of the
Common Stock on the exercise date. If the Orkney Warrant is not previously
exercised, it will be exercisable for 391,941 shares of Common Stock upon the
closing of the Offering. The holder of the Orkney Warrant has certain
registration rights with respect to the shares of Common Stock issuable upon
exercise thereof. Further, up to 252,264 additional shares of Common Stock may
be issued in connection with the Timberline Direct acquisition (assuming an
initial public offering price of $9.00, the mid-point of the range set forth on
the cover page of this Prospectus), all of which shares will be covered by
certain registration rights granted to the recipients thereof. See "Description
of Capital Stock -- Warrants and Stock Options," "Management -- Retirement and
Certain Other Benefit Plans," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview," "Description of Capital
Stock -- Registration Rights" and "Shares Eligible For Future Sale."

POTENTIAL ISSUANCE OF PREFERRED STOCK; ANTI-TAKEOVER EFFECT OF OREGON LAW

The Company is authorized to issue up to 10,000,000 shares of Preferred
Stock and the Company's Board of Directors has the authority to fix the rights,
preferences, privileges and restrictions of such shares without any further vote
or action by the Company's shareholders. The potential issuance of Preferred
Stock may have the effect of delaying, deferring or preventing a change in
control of the Company, may discourage bids for the Common Stock at a premium
over the market price of the Common Stock and may adversely affect the market
price and the voting and other rights of the holders of Common Stock. Moreover,
certain "business combination" provisions of Oregon law could make it more
difficult to consummate a merger or tender offer involving the Company, even if
such event could be beneficial to the interests of the shareholders. See
"Description of Capital Stock."

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<PAGE> 18

THE REORGANIZATION

During the fiscal quarter ended July 31, 1998, the Company was reorganized
in connection with a management buy-out by Norman Daniels, the Company's current
Chairman of the Board, President and Chief Executive Officer. Prior to the
reorganization, Mr. Daniels owned approximately 6% of the Company's outstanding
capital stock and David Orkney, a Director of the Company and the son of the
Company's founder, owned approximately 78% of the outstanding capital stock.
Peregrine Capital, Inc., an affiliate of the Company ("Peregrine"), acted as an
advisor to Mr. Daniels in connection with the transaction and assisted in
arranging financing for, and invested in the Company as part of, the
reorganization. The primary components of the reorganization -- the Redemption,
the Exchange and the Merger (as defined below) -- as well as its primary
benefits to certain key participants, are described below. The Redemption, the
Exchange and the Merger are referred to in this Prospectus as the
"Reorganization."

REDEMPTION

In May 1998, in order to effect the Reorganization, the Company redeemed
all the Company's outstanding capital stock, other than shares held by Mr.
Daniels and two individuals who elected not to have their shares redeemed and
are not affiliates of the Company (the "Redemption"), and repurchased
outstanding options held by nine individuals, including Wayne Jackson, the
Company's former Chief Operating Officer. The Company was an S corporation at
the time of the Redemption. The redeemed shares and repurchased options
represented approximately 83% of the Company's outstanding capital stock on a
fully-diluted basis prior to the Redemption. The Company financed the Redemption
and stock option repurchases primarily with proceeds from the sale and
lease-back of substantially all the Company's owned real estate and proceeds
from the sale to 61 individuals and entities, including Peregrine (the
"Investors"), of 9% subordinated notes of the Company (the "Subordinated
Notes"). See "Certain Related Transactions." In connection with the Redemption,
the Company also issued to Mr. Orkney the Orkney Warrant, which entitles him to
purchase a number of shares equal to 5% of the Company's Common Stock
outstanding, on a fully-diluted basis, on the date of exercise at a purchase
price equal to 70% of the fair market value of the Common Stock on the exercise
date. Prior to the Redemption, the Company made S corporation distributions to
its shareholders which were intended to cover all state and federal income tax
liabilities arising from the Company's income prior to the Redemption and from
the sale of the Company's real estate. The Redemption resulted in no gain for
state and federal income tax purposes for the redeemed shareholders.

Set forth below are the sources and uses of funds related to the
Redemption:

<TABLE>
<CAPTION>
SOURCES
-------
<S> <C>
Sale of real estate............. $31.2 million
Sale of Subordinated Notes...... 9.5 million
Notes payable to former option
holders....................... 0.5 million
Repayment of officers' notes.... 0.1 million
-------------
Total................. $41.3 million
=============
</TABLE>

<TABLE>
<CAPTION>
USES
----
<S> <C>
Redemption of stock............. $16.6 million
Repurchase of options........... 3.9 million
S-corporation distributions to
redeemed shareholders......... 5.5 million
S-corporation distributions to
continuing shareholders....... 1.7 million
Mortgage payoffs................ 8.9 million
Mortgage and loan prepayment
fees........................ 1.9 million
Real estate fee to Peregrine
affiliate................... 1.0 million
Miscellaneous fees and
expenses...................... 0.5 million
Working capital................. 1.3 million
-------------
Total................. $41.3 million
=============
</TABLE>

EXCHANGE

Following the Redemption, ND Holdings, Inc. ("Holdings") was organized and
Mr. Daniels exchanged his Common Stock in the Company for all the outstanding
common stock of Holdings, which resulted in the

17
<PAGE> 19

Company becoming a subsidiary of Holdings. Peregrine, which had purchased $1.45
million principal amount of the Subordinated Notes from the Company, exchanged
$1.0 million principal amount of the Subordinated Notes for common stock of
Holdings. See "Certain Related Transactions." In addition, Peregrine and the
other Investors exchanged the remaining $8.5 million principal amount of
Subordinated Notes for preferred stock of Holdings and warrants to purchase
common stock of Holdings (the "Exchange"). Following the Redemption and the
Exchange, (i) Mr. Daniels and the Investors owned 54% and 46%, respectively, of
the common stock of Holdings, on a fully-diluted basis, (ii) the Investors owned
all the outstanding preferred stock of Holdings and (iii) Holdings owned 82% of
the Company's outstanding Common Stock and held all of the Subordinated Notes.

MERGER

In July 1998, Holdings merged with and into the Company, with the Company
being the surviving corporation (the "Merger"). In the Merger, (i) the
outstanding preferred stock of Holdings was exchanged for an aggregate of 85,000
shares of the Company's Redeemable Preferred Stock, (ii) the outstanding common
stock of Holdings was exchanged for an aggregate of 2,676,737 shares of the
Company's Common Stock, (iii) warrants to purchase common stock of Holdings were
exchanged for an aggregate of 1,784,490 shares of the Company's Common Stock and
(iv) the Subordinated Notes were canceled. The Redeemable Preferred Stock will
be redeemed with $8.5 million of the proceeds from the Offering. See "Use of
Proceeds." Following the Merger, there were 4,464,103 shares of the Company's
Common Stock outstanding, which excludes 35,897 shares held by an individual who
dissented from the Merger. Under Oregon law, this shareholder will be entitled
to receive from the Company the fair value of his shares immediately prior to
the Merger. The Company has tendered to this shareholder $154,000, which is the
Company's estimate of the fair value of this shareholder's shares.

BENEFITS OF THE REORGANIZATION TO CERTAIN KEY PARTICIPANTS

Certain key participants received material benefits in connection with the
Reorganization, as described below:

Norman P. Daniels. Prior to the Reorganization, Mr. Daniels owned
approximately 6% of the Company's outstanding Common Stock. He also held options
which after the Merger would have been exercisable for 558,959 shares of Common
Stock at a weighted average exercise price of $2.24 per share. If exercised,
these options would have increased Mr. Daniels' ownership of the Company's
outstanding Common Stock prior to the Reorganization to approximately 16%. As a
result of the Reorganization, Mr. Daniels owned approximately 54% of the
Company's outstanding Common Stock as of July 31, 1998. In connection with the
Reorganization, Mr. Daniels' options to purchase shares of the Company's Common
Stock were canceled. See "Certain Related Transactions."

Peregrine Capital, Inc. In connection with the Reorganization, Peregrine
purchased $1.45 million principal amount of Subordinated Notes from the Company.
Peregrine exchanged $1.0 million principal amount of the Subordinated Notes for
common stock of Holdings, which was converted into 267,674 shares of the
Company's Common Stock in the Merger. Peregrine exchanged the remaining $450,000
principal amount of the Subordinated Notes for preferred stock and a warrant to
purchase common stock of Holdings. In the Merger, the shares of preferred stock
of Holdings were converted into 4,500 shares of the Company's Redeemable
Preferred Stock and the warrant was converted into 30,682 shares of the
Company's Common Stock. For services rendered in connection with the
Reorganization, Peregrine received an additional warrant exercisable for shares
of Holdings common stock (the "Master Warrant"), which in the Merger was
converted into 1,196,727 shares of the Company's Common Stock. Prior to the
Merger, Peregrine assigned to various unaffiliated third parties a portion of
the Master Warrant which otherwise would have entitled Peregrine to 228,067 of
the shares of the Company's Common Stock issuable upon conversion of the Master
Warrant. Peregrine has certain registration rights with respect to the shares of
the Company's Common Stock it received in exchange for the Holdings warrants.
See "Description of Capital Stock -- Registration Rights." An affiliate of
Peregrine received a $1.0 million fee for assisting with the sale of certain of
the Company's real

18
<PAGE> 20

estate in connection with the Reorganization, which fee was credited against the
purchase price for two parcels of the Company's real estate purchased by that
affiliate. See "Certain Transactions."

As part of the Reorganization, Peregrine agreed to pay certain accounting,
legal and other expenses incurred in connection with the Reorganization, paid a
fee of $100,000 to David Orkney to induce him to extend the terms of his
agreement regarding the sale of his interest in the Company and agreed to
reimburse the Company for all dividends paid on the Company's Redeemable
Preferred Stock. In addition, Peregrine has agreed to purchase from the
Investors all outstanding shares of the Company's Redeemable Preferred Stock for
$8.5 million, plus accumulated dividends, if the Company does not complete,
prior to May 8, 1999, an initial public offering of its Common Stock with net
proceeds to the Company of at least $12.0 million. In connection with the
Reorganization, four individuals associated with Peregrine, including Roy Rose,
a Director of the Company and a director and the president and chief executive
officer of Peregrine, and his wife, agreed to guarantee the Company's
obligations under six leases arising from the sale and lease-back of the
Company's owned real estate to unaffiliated third parties. Aggregate annual base
rent under these leases is approximately $3.0 million. This guarantee will
expire upon the closing of the Offering. See "Certain Related Transactions."

As of January 31, 1999, Peregrine beneficially owned 1,232,925 shares of
the Company's Common Stock and 7,000 shares of the Company's Redeemable
Preferred Stock. Peregrine's shares of Redeemable Preferred Stock include 2,500
shares issued upon conversion in the Merger of 250,000 shares of Holdings
preferred stock purchased by Peregrine from another Investor.

Other Investors. The Investors, other than Peregrine, purchased $8.05
million in principal amount of the Company's Subordinated Notes. None of these
Investors are affiliates of the Company. In the Exchange, these Investors
exchanged the Subordinated Notes for preferred stock of Holdings and warrants to
purchase common stock of Holdings. In the Merger, these Investors exchanged the
shares of Holdings preferred stock for an aggregate of 80,500 shares of the
Company's Redeemable Preferred Stock, which will be redeemed with $8.05 million
of the Offering proceeds, and exchanged the warrants to purchase common stock of
Holdings for an aggregate of 557,081 shares of the Company's Common Stock. These
Investors have certain registration rights with respect to these shares of
Common Stock. See "Description of Capital Stock -- Registration Rights." In
addition, these Investors will receive accrued dividends payable with respect to
the Redeemable Preferred Stock (which will be paid by Peregrine upon redemption
of such shares). The Investors have the right to require Peregrine to repurchase
these shares of Redeemable Preferred Stock for an aggregate of $8.05 million
plus accrued dividends if the Company does not complete, prior to May 8, 1999,
an initial public offering of its Common Stock with net proceeds to the Company
of at least $12.0 million. See "Certain Related Transactions."

19
<PAGE> 21

USE OF PROCEEDS

The Company will receive approximately $20.2 million (approximately $23.3
million if the Underwriter's over-allotment option is exercised in full) in net
proceeds from the sale of the shares of Common Stock offered hereby, assuming an
initial public offering price of $9.00 per share (the mid-point of the range set
forth on the cover page of this Prospectus), and after deducting underwriting
discounts and estimated offering expenses.

The Company intends to use approximately $8.5 million of the net proceeds
from the Offering to redeem all of the Company's outstanding Redeemable
Preferred Stock and the remaining net proceeds to remodel the Company's stores
and open new stores over the next four fiscal years. The Company intends to open
eight new stores and remodel ten existing stores prior to the end of fiscal
2003. The Company intends to raise the additional funds, estimated at $11.9
million (excluding inventory), required to complete its remodeling program and
to open new stores through cash generated from operations, lease financings and
borrowings under the Company's revolving credit facility.

The foregoing represents the Company's best estimate of its use of the net
proceeds from the Offering based on current planning and business conditions.
The Company reserves the right to change its use of proceeds when and if market
conditions or unexpected changes in operating conditions or results occur.
Pending any specific application, the net proceeds from the Offering will be
used to pay off existing outstanding balances under the Company's revolving
credit facility or invested in short-term, interest bearing securities.
Outstanding amounts under the revolving credit facility bore interest at the
rate of 8.25% as of January 31, 1999.

DIVIDEND POLICY AND PRIOR S CORPORATION STATUS

The Company intends to retain all earnings for use in its business and,
therefore, does not anticipate paying any cash dividends in the foreseeable
future. The payment of any future dividends will be at the discretion of the
Company's Board of Directors and will depend upon the Company's results of
operations, financial condition, contractual restrictions and other factors
deemed relevant by the Board of Directors. The Company's existing revolving line
of credit facility prohibits the payment of dividends.

Prior to May 1, 1998, the Company was treated for federal and state income
tax purposes as an S corporation under Subchapter S of the Internal Revenue Code
of 1986, as amended (the "Code"), and comparable state laws. As a result, the
earnings of the Company were included in the taxable income of the Company's
shareholders, at their individual federal and state income tax rates, rather
than those otherwise applicable to the Company. As of May 1, 1998, the Company's
S corporation status was terminated in connection with the Reorganization. See
"The Reorganization." Since that date the Company has been fully subject to
federal and applicable state income taxes on its earnings. See Note 1 to
Financial Statements.

In the fiscal years ended January 31, 1997 and 1998 and the three-month
period ended April 30, 1998, the Company paid cash dividends to its shareholders
in the aggregate amounts of approximately $618,000, $410,000 and $6.9 million,
respectively, principally for the payment of the shareholders' income tax
liabilities in connection with the Company's status as an S corporation.

20
<PAGE> 22

DILUTION

As of October 31, 1998, the Company's net tangible book value per share of
Common Stock was approximately $2.03. Net tangible book value per share
represents the amount of the Company's tangible assets less the amount of its
liabilities, divided by the number of shares of Common Stock outstanding.

Giving effect to the issuance of the shares of Common Stock offered hereby
at an assumed initial public offering price of $9.00 per share (the mid-point of
the range set forth on the cover page of this Prospectus) and the deduction of
underwriting discounts and estimated offering expenses, and assuming no exercise
of outstanding options or the Orkney Warrant, the net tangible book value of the
Company as of October 31, 1998, would have been approximately $2.97 per share.
This represents an immediate increase in net tangible book value of $0.94 per
share to existing shareholders of shares of Common Stock in the Offering. The
following table illustrates the per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 9.00
Net tangible book value per share as of October 31,
1998(1)................................................ $2.03
Increase in net tangible book value per share attributable
to new investors....................................... 0.94
-----
Pro forma net tangible book value per share after the
Offering(1)............................................... 2.97
------
Dilution of net tangible book value per share to new
investors................................................. $ 6.03
======
</TABLE>

The following table summarizes as of October 31, 1998, after giving effect
to the Offering, the differences between existing shareholders and purchasers of
shares of Common Stock in the Offering with respect to the number of shares of
Common Stock purchased from the Company, the total consideration paid and the
average price per share paid:

<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION
-------------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ------- -------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Existing shareholders......... 4,464,103 64.1% $ 2.9 11.4% $0.65
New investors................. 2,500,000 35.9 22.5 88.6 9.00
--------- ----- ----- -----
Total............... 6,964,103 100.0% $25.4 100.0%
========= ===== ===== =====
</TABLE>

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

(1) Includes 4,461,227 shares of the Company's Common Stock issued in the
Merger. Excludes (i) 371,125 shares issuable upon exercise of outstanding
stock options, with a weighted average exercise price of $9.53 per share,
(ii) 428,875 shares reserved for future grants under the Company's 1998
Plan, (iii) 300,000 shares reserved for issuance under the Company's ESPP,
(iv) 111,657 shares issued in January 1999 in connection with the Timberline
Direct acquisition and (v) 391,941 shares issuable upon the closing of the
Offering pursuant to the exercise of the Orkney Warrant, which is
exercisable for a number of shares equal to 5% of the Company's Common Stock
outstanding, on a fully-diluted basis, on the date of exercise at an
exercise price equal to 70% of the fair market value of the Common Stock on
the exercise date. If the Orkney Warrant is exercised prior to the closing
of the Offering, it will be exercisable for approximately 260,362 shares of
Common Stock. See "The Reorganization," "Management -- Retirement and
Certain Other Benefit Plans," "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview" and "Description
of Capital Stock -- Warrants and Stock Options."

21
<PAGE> 23

CAPITALIZATION

The following table sets forth the Company's capitalization as of October
31, 1998 and as adjusted to give effect to the sale of the shares of Common
Stock offered hereby at an assumed initial public offering price of $9.00 per
share (the mid-point of the range set forth on the cover page of this
Prospectus) and the application of the estimated net proceeds therefrom. See
"Use of Proceeds." The information set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's financial statements and related notes thereto and
other financial information included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
OCTOBER 31, 1998
----------------------
ACTUAL AS ADJUSTED
------- -----------
(DOLLAR AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Current portion of long-term debt and capital lease
obligations............................................... $ 1,447 $ 1,447
Long-term debt and capital lease obligations, less current
portion................................................... 39,615 39,615
------- -------
Shareholders' equity:
Preferred Stock, no par value; 10,000,000 shares authorized;
85,000 shares of Series A 9% Non-Voting Redeemable
Preferred Stock issued and outstanding, actual; no shares
issued and outstanding, as adjusted(1).................... 7,887 --
Common Stock, no par value; 50,000,000 shares authorized;
4,464,103 shares issued and outstanding, actual; 6,964,103
shares issued and outstanding, as adjusted(2)............. 2,888 23,063
Issued warrant(3)........................................... 1,100 1,100
Additional paid-in capital.................................. 597 597
Accumulated deficit......................................... (7) (620)
------- -------
Total shareholders' equity............................. 12,465 24,140
------- -------
Total capitalization.............................. $53,527 $65,202
======= =======
</TABLE>

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

(1) The outstanding shares of Redeemable Preferred Stock will be redeemed with
$8.5 million of the proceeds from the Offering. Approximately $613,000 of
such amount will be treated as an addition to the Company's accumulated
deficit.

(2) Excludes 371,125 shares issuable upon exercise of outstanding stock options,
with a weighted average exercise price of $9.53 per share, (ii) 428,875
shares reserved for future grants under the Company's 1998 Plan, (iii)
300,000 shares reserved for issuance under the Company's ESPP, (iv) 111,657
shares issued in January 1999 in connection with the Timberline Direct
acquisition and (v) 391,941 shares issuable upon the closing of the Offering
pursuant to the exercise of the Orkney Warrant, which is exercisable for a
number of shares equal to 5% of the Company's Common Stock outstanding, on a
fully-diluted basis, on the date of exercise at an exercise price equal to
70% of the fair market value of the Common Stock on the exercise date. If
the Orkney Warrant is exercised prior to the closing of the Offering, it
will be exercisable for approximately 260,362 shares of Common Stock. See
"The Reorganization," "Management -- Retirement and Certain Other Benefit
Plans," "Management's Discussion and Analysis of Financial condition and
Results of Operations -- Overview" and "Description of Capital
Stock -- Warrants and Stock Options."

(3) Consists of the Orkney Warrant, the terms of which are described in footnote
2 above.

22
<PAGE> 24

SELECTED FINANCIAL AND OTHER DATA

The following selected financial and other data relating to the Predecessor
(as defined in footnote 1 to the following table) and the Company has been taken
or derived from the financial statements and other records of the Company and
should be read in conjunction with the financial statements and the related
notes thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the other financial information included elsewhere in
this Prospectus. The selected financial data for the Predecessor for each of the
years in the five-year period ended January 31, 1998 and for the three-month
period ended April 30, 1998 have been derived from financial statements which
have been audited by Arthur Andersen LLP, independent public accountants. The
selected financial data for the Predecessor for the three-month period ended
April 30, 1997 has been derived from unaudited financial statements for that
period 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 for a fair presentation of such financial data.
As of May 1, 1998, a new entity for purposes of financial accounting treatment
("G.I. Joe's, Inc.") was created through a management buy-out that was accounted
for as a purchase transaction. The selected financial and other data for G.I.
Joe's, Inc. for the six-month period ended October 31, 1998 has been derived
from unaudited financial statements for that period prepared on the same basis
as the audited financial statements as of and for the two-month period ended
June 30, 1998 and, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such financial data. The selected financial and other data for
the six-month period ended October 31, 1998 are not necessarily indicative of
the results to be expected for any other period. Pro forma data for the fiscal
year ended January 31, 1998 and the nine-month period ended October 31, 1998 has
been provided to show the effect upon the Company's statement of operations of
the Reorganization, as if it had occurred as of February 1, 1997 and 1998,
respectively. See "The Reorganization." The pro forma financial data, which is
based upon available information and certain assumptions that management
believes are reasonable, is provided for informational purposes only and should
not be construed to be indicative of the Company's results of operations had the
Reorganization been consummated prior to the periods presented and does not
project the Company's results of operations for any future period.

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND SELECTED OPERATING DATA)

<TABLE>
<CAPTION>
PRO
PREDECESSOR(1) FORMA(2) PREDECESSOR(1)
---------------------------------------------------- ----------- -------------------------
FISCAL YEAR THREE MONTHS ENDED
FISCAL YEARS ENDED JANUARY 31, ENDED APRIL 30,
---------------------------------------------------- JAN. 31, -------------------------
1994 1995 1996 1997 1998 1998 1997 1998
-------- -------- -------- -------- -------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................... $136,629 $127,008 $124,052 $128,112 $128,238 $128,238 $24,013 $25,908
Cost of sales.................. 94,998 85,266 82,346 84,184 84,552 84,552 16,425 17,670
-------- -------- -------- -------- -------- -------- ------- -------
Gross margin................... 41,631 41,742 41,706 43,928 43,686 43,686 7,588 8,238
Selling, general and
administrative expense........ 39,574 36,598 37,154 37,976 39,528 42,671 8,717 9,755
-------- -------- -------- -------- -------- -------- ------- -------
Income (loss) from
operations.................... 2,057 5,144 4,552 5,952 4,158 1,015 (1,129) (1,517)
Interest expense, net.......... (3,421) (3,746) (3,726) (3,612) (3,477) (2,975) (822) (962)
Gain on sale of real estate.... -- -- 25 -- -- -- -- 640
-------- -------- -------- -------- -------- -------- ------- -------
Income (loss) before income
taxes and extraordinary
item.......................... (1,364) 1,398 851 2,340 681 (1,960) (1,951) (1,839)
(Provision for) benefit from
income taxes.................. -- -- -- -- -- 784 -- --
-------- -------- -------- -------- -------- -------- ------- -------
Income (loss) before
extraordinary item............ (1,364) 1,398 851 2,340 681 (1,176) (1,951) (1,839)
Extraordinary item: loss on
early extinguishment of
debt.......................... -- -- -- -- -- -- -- (2,220)
-------- -------- -------- -------- -------- -------- ------- -------
Net income (loss).............. $ (1,364) $ 1,398 $ 851 $ 2,340 $ 681 $ (1,176) $(1,951) $(4,059)
======== ======== ======== ======== ======== ======== ======= =======
Income (loss) per share before
extraordinary item(3):
- -- Basic....................... $(0.44) $0.45 $0.28 $0.77 $0.22 $(0.43) $(0.64) $(0.60)
- -- Diluted..................... $(0.44) $0.45 $0.26 $0.69 $0.20 $(0.43) $(0.64) $(0.60)
Net income (loss) per share(3):
- -- Basic....................... $(0.44) $0.45 $0.28 $0.77 $0.22 $(0.43) $(0.64) $(1.34)
- -- Diluted..................... $(0.44) $0.45 $0.26 $0.69 $0.20 $(0.43) $(0.64) $(1.34)
Weighted average shares
outstanding, as adjusted(3):
- -- Basic....................... 3,080 3,073 3,057 3,049 3,040 4,464 3,040 3,040
- -- Diluted..................... 3,080 3,129 3,233 3,381 3,469 4,464 3,040 3,040

<CAPTION>
G.I. JOE'S, PRO
INC. FORMA(2)
----------- -----------
SIX MONTHS NINE MONTHS
ENDED ENDED
OCTOBER 31, OCTOBER 31,
1998 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................... $75,201 $101,109
Cost of sales.................. 49,612 67,282
------- --------
Gross margin................... 25,589 33,827
Selling, general and
administrative expense........ 23,086 33,626
------- --------
Income (loss) from
operations.................... 2,503 201
Interest expense, net.......... 1,876 (2,073)
Gain on sale of real estate.... -- --
------- --------
Income (loss) before income
taxes and extraordinary
item.......................... 627 (1,872)
(Provision for) benefit from
income taxes.................. (251) 749
------- --------
Income (loss) before
extraordinary item............ 376 (1,123)
Extraordinary item: loss on
early extinguishment of
debt.......................... -- --
------- --------
Net income (loss).............. $376 $(1,123)
======= ========
Income (loss) per share before
extraordinary item(3):
- -- Basic....................... $(0.00) $(0.38)
- -- Diluted..................... $(0.00) $(0.38)
Net income (loss) per share(3):
- -- Basic....................... $(0.00) $(0.38)
- -- Diluted..................... $(0.00) $(0.38)
Weighted average shares
outstanding, as adjusted(3):
- -- Basic....................... 4,464 4,464
- -- Diluted..................... 4,464 4,464
</TABLE>

23
<PAGE> 25

<CAPTION>
G.I. JOE'S, PRO
INC. FORMA(2)
----------- -----------
SIX MONTHS NINE MONTHS
ENDED ENDED
OCTOBER 31, OCTOBER 31,
1998 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
SELECTED OPERATING DATA:
Number of stores open for full
period........................ 15 15
Number of remodeled stores open
for full period............... 4 4
Gross margin as a percentage of
sales......................... 34.0% 33.5%
Store contribution(4).......... $737 $901
Total comparable store net
sales increase
(decrease)(5)................. 2.0% 2.3%
Remodeled same store net sales
increase (6).................. 22.0% 22.7%
</TABLE>

<TABLE>
<CAPTION>
PREDECESSOR G.I. JOE'S, INC.
------------------------------------------------------- ----------------------------
AS OF JANUARY 31, OCTOBER 31, 1998
------------------------------------------------------- ----------------------------
1994 1995 1996 1997 1998 ACTUAL(3) AS ADJUSTED(7)
------- -------- -------- -------- -------- ----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....................... $11,637 $ 9,762 $ 12,041 $ 14,923 $ 15,527 $20,493 $32,168
Inventories........................... 26,916 27,042 28,961 29,442 33,368 44,778 44,778
Total assets.......................... 61,792 62,212 58,365 58,527 66,539 83,439 95,114
Total liabilities..................... 55,538 54,758 50,552 48,734 57,119 70,974 70,974
Total shareholders' equity............ 6,254 7,454 7,813 9,793 9,420 12,465 24,140
</TABLE>

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

(4) Store contribution is determined by deducting average per store expenses
from average per store gross margin.

(5) A new or remodeled store becomes comparable after it has been open or
remodeled for a full 12 months.

(6) Compares first full fiscal year following the remodeling to the preceding
fiscal year.

24
<PAGE> 26

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

The following discussion and analysis of the financial condition and
results of operations of the Company should be read in conjunction with the
selected financial and operating data and the financial statements of the
Company and the related notes thereto included elsewhere in this Prospectus.

OVERVIEW

Most of the products offered by the Company are geared to traditionally
male-oriented activities and the majority of the consumers of G.I. Joe's
merchandise are males between the ages of 21 and 59. However, approximately 45%
of the Company's customers are women, who either purchase merchandise for men
or, increasingly, for themselves. The Company offers full lines of (i) sporting
goods, including equipment for snow and water skiing, snowboarding, kayaking,
canoeing, camping, fishing and hunting, (ii) outdoor apparel and footwear and
(iii) automotive aftermarket parts and accessories. The Company's net sales of
$142.7 million in the 12-month period ended January 31, 1999 were derived 42%
from the sale of sporting goods, 32% from the sale of outdoor apparel and
footwear, 20% from the sale of automotive parts and accessories and 6% from the
sale of other assorted products.

G.I. Joe's began operations in 1952 in Portland, Oregon as a government
surplus store. Over the years the Company shifted its focus from surplus goods
to new, general merchandise. By 1995, under the direction of Norman Daniels, the
Company's current Chairman of the Board, President and Chief Executive Officer,
the Company had streamlined its product offerings to focus on sports and
automotive merchandise, its best-selling product lines. Through 1997 the Company
pursued a conservative operating strategy while refining the Company's internal
systems, distribution system and training programs and undertaking selective
management additions, all of which created a solid foundation to support future
expansion. In May 1998, Mr. Daniels acquired majority ownership of the Company
and the Company began implementing an aggressive growth strategy. See "The
Reorganization" and "Business -- Growth and Expansion Strategy."

G.I. Joe's growth and expansion strategy is to increase the profitability
of the Company's existing stores through a major remodeling program; selectively
open new stores, primarily in Washington; enter new geographic markets in
Montana, Idaho, Utah, Nevada and Northern California through complementary
acquisitions or internal growth; further develop alternative distribution
channels; and examine opportunities for national expansion and vertical
integration.

As part of its growth and expansion strategy, the Company plans to open
eight new stores and remodel ten existing stores prior to the end of the fiscal
year ending January 31, 2003. Stores open for at least 12 months have generally
contributed positively to the Company's margins. For the fiscal year ended

25
<PAGE> 27

January 31, 1998, the average annual per store contribution for stores open for
at least 12 months was approximately $1.4 million, or approximately 16% of
average annual per store sales. Management estimates that new stores will
contribute positively to the Company's margins after 12 months of operation and
that after approximately three full years of operation new stores will generate
net sales comparable to average net sales generated at existing stores. However,
new stores may not achieve historic or anticipated levels of operating results.
Unless and until new stores contribute positively to operating margins or
generate anticipated levels of sales, the opening of new stores will result in
reduced average per store results for the Company. See "Risk Factors -- Ability
to Implement Business and Growth and Expansion Strategies and Manage Growth."

The Company has remodeled four stores using its updated store concept. Two
of these stores were remodeled in 1994, while the Company was in the process of
streamlining its product offerings to focus on sports and automotive
merchandise. See "Business -- Properties." Consequently, management does not
believe that same-store results of those two remodeled stores are comparable to
the same-store results for the two stores remodeled subsequent to the
streamlining of the Company's merchandise mix. Same-store sales at the Company's
two most recently remodeled stores increased approximately 17% on average in the
first year of operation after remodeling.

Weather and changes in weather significantly affect the Company's sales of
sporting goods equipment and outdoor apparel and footwear. Net sales and margins
are adversely affected in periods of unseasonable weather conditions. In
addition, the Company's seasonal sporting goods merchandise mix is weighted
substantially toward the summer and winter seasons, which historically has led
to much stronger results of operations for the quarters ending July 31 and
January 31 than for the other two quarters. The Company has historically
incurred net losses in the quarters ending April 30 and achieved limited net
income or incurred net losses in the quarters ending October 31. In addition,
the Company's sporting goods and outdoor apparel and footwear operations are
subject to traditional retail seasonality patterns related to the holiday
season. This seasonality, dependence on weather conditions and other factors
contribute to fluctuations in periodic operating results. Accordingly, results
of operations in any period may not be indicative of the results to be expected
for any future period. See "Risk Factors -- Effects of Weather," "Risk
Factors -- Seasonality and Fluctuations in Periodic Operating Results" and
"-- Quarterly Operating Results and Seasonality."

Sales by the Company's automotive aftermarket parts and accessories
department have been relatively unchanged for each of the four fiscal years
ended January 31, 1998, and accounted for 21% of the Company's sales in fiscal
1998. For the purpose of increasing sales of its automotive merchandise, the
Company hired a new Automotive Merchandise Manager in June 1998, and has
implemented a revised automotive merchandise marketing plan. This plan features
lower everyday prices made possible by a change in product lines and more
aggressive promotional strategies. The plan also calls for an update of the
electronic automotive parts look-up systems at all stores, which are intended to
increase the efficiency with which the Company serves its automotive parts
customers.

In the first quarter of the fiscal year ended January 31, 1998, the Company
implemented a revised inventory management strategy that focused on reducing
inventory levels, increasing inventory turns and lowering carrying costs.
Although the strategy successfully met its direct objectives, it adversely
affected sales by limiting the availability of in-stock merchandise at the
Company's stores. In the second quarter of fiscal 1998, the Company returned to
its traditional inventory management strategy.

In the three-month period ended July 31, 1998, the Company was restructured
pursuant to the Reorganization. See "The Reorganization." The Reorganization was
financed primarily with net proceeds of approximately $19.6 million from the
sale and lease-back of substantially all the Company's owned real estate (net of
related mortgage payoffs, prepayment penalties and miscellaneous fees and
expenses) and proceeds from the sale of $9.5 million of the Company's
Subordinated Notes, which notes have since been exchanged for shares of the
Company's Redeemable Preferred Stock and Common Stock. The terms of the leases
covering the real estate sold and leased back to the Company are triple net at
market rates, over a period of 15 years with two five-year renewal options. The
Company estimates that the incremental annual operating cost to lease these
facilities as compared to owning them is approximately $2.3 million, taking into
account, among other things, rental expense, reduced interest expense as a
result of mortgage payoffs and reduced depreciation. In

26
<PAGE> 28

conjunction with the sale and lease-back of the real estate, the Company paid
off mortgage loans and the Company's former revolving credit facility before
maturity, resulting in an extraordinary loss on early extinguishment of debt of
approximately $2.2 million recorded in the three-month period ended April 30,
1998. Prior to the Reorganization, the Company made S corporation distributions
of approximately $7.2 million to its shareholders which were intended to cover
all state and federal income tax liabilities arising from the Company's income
prior to the Redemption and from the sale of the Company's real estate. As a
result of the Reorganization, including the termination of the Company's S
corporation status discussed below, results for the six-month period ended
October 31, 1998 are not, and results for future periods will not be, comparable
to results for prior periods.

Prior to the Reorganization, the Company was an S corporation and,
accordingly, not subject to federal or state income taxes. As part of the
Reorganization, the Company was converted to a C corporation and is now subject
to federal and applicable state income taxation. Pro forma statement of
operations data has been provided to give effect to estimated income tax
expenses that would have been incurred if the Company had been subject to
federal and state income taxes for all periods shown. Such pro forma statement
of operations data should not be construed as indicative of future tax expenses.

In September 1998, the Company acquired certain assets and assumed certain
liabilities of three affiliated direct marketing retailers (collectively,
"Timberline Direct") that sell merchandise complementary to that offered by the
Company through catalog and Internet-based channels. The purchase price for the
acquisition is $5.4 million. The Company made cash payments of $450,000,
$350,000 and $250,000 in September 1998, December 1998 and January 1999,
respectively. The Company will pay an additional $150,000 of the purchase price
in cash in three equal payments in April, July and October 1999. An additional
portion of the purchase price consists of approximately $896,000 in assumed
liabilities. The balance of the purchase price will be paid in shares of the
Company's Common Stock, valued at $14.67 per share or, if the initial public
offering price of the Company's Common Stock is less than $11.73 per share, the
initial public offering price. The Common Stock is payable in four equal
installments. The first two installments of 55,829 shares each were paid in
January 1999 and are subject to adjustment if the initial public offering price
is less than $11.73 per share. An aggregate of 70,303 adjustment shares will be
issued if the initial public offering price is $9.00 (the mid-point of the range
set forth on the cover page of this Prospectus). The third installment will be
paid following the fiscal year ending January 31, 2000 or any subsequent fiscal
year in which the Company's catalog and Internet-based sales division achieves
(i) earnings before interest, depreciation and amortization, income taxes and
bonus payments to Douglas Spink, the Company's General Manager of Direct
Marketing, of at least 10% of the division's gross sales and (ii) gross sales of
at least $5.5 million. The final installment shall be paid following the fiscal
year ending January 31, 2001 or any subsequent fiscal year in which standards
similar to those for the third installment are achieved but at levels of 12% and
$8.0 million, respectively. Assuming the division achieves these performance
goals and that the initial public offering price is $9.00 per share, a total of
181,960 shares of Common Stock would be issued in the third and fourth
installments. The Company has granted registration rights with respect to the
shares to be issued as part of the purchase price. See "Description of Capital
Stock -- Registration Rights."

27
<PAGE> 29

RESULTS OF OPERATIONS

The tables below set forth, for the periods indicated, (i) the percentage
of net sales of the Company and the Predecessor (as defined in footnote 1 to the
following table) represented by certain statement of operations and (ii) certain
store data. As a result of the Reorganization, results for the six-months ended
October 31, 1998 are not comparable to prior periods.

<TABLE>
<CAPTION>
G.I.
JOE'S,
PREDECESSOR(1) INC.
----------------------------------------------------- -----------
THREE THREE SIX
FISCAL YEARS ENDED MONTHS MONTHS MONTHS
JANUARY 31, ENDED ENDED ENDED
------------------------- APRIL 30, APRIL 30, OCTOBER 31,
1996 1997 1998 1997 1998 1998
------ ------ ------ ----------- --------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................. 66.4 65.7 65.9 68.4 68.2 66.0
------ ------ ------ ------ ------ ------
Gross margin............................ 33.6 34.3 34.1 31.6 31.8 34.0
Selling, general and administrative
expense................................. 30.0 29.6 30.8 36.3 37.7 30.7
------ ------ ------ ------ ------ ------
Income (loss) from operations............. 3.6 4.7 3.3 (4.7) (5.9) 3.3
Interest expense, net..................... (3.0) (2.9) (2.8) (3.4) (3.7) (2.5)
Gain on sale of real estate............... 0.1 -- -- -- 2.5 --
------ ------ ------ ------ ------ ------
Income (loss) before income taxes and
extraordinary item...................... 0.7 1.8 0.5 (8.1) (7.1) 0.8
(Provision for) benefit from income
taxes(2)................................ -- -- -- -- -- 0.3
------ ------ ------ ------ ------ ------
Income (loss) before extraordinary item... 0.7 1.8 0.5 (8.1) (7.1) 0.5
Extraordinary item: loss on early
extinguishment of debt, net of
taxes(2)................................ -- -- -- -- (8.6) --
------ ------ ------ ------ ------ ------
Net income (loss)......................... 0.7% 1.8% 0.5% (8.1)% (15.7)% 0.5%
====== ====== ====== ====== ====== ======
STORE DATA:
Number of stores open for full period..... 14 14 14 14 15 15
Number of remodeled stores open for full
period.................................. 2 3 3 3 4 4
Average sales per store (in
thousands)(3)........................... $8,861 $9,151 $8,999 $1,715 $1,725 $5,277
Store contribution (in thousands)(4)...... $1,321 $1,351 $1,417 $ 154 $ 195 $ 737
Total comparable store net sales increase
(decrease)(5)........................... (2.3)% 3.3% (1.8)% (5.6)% 3.1% 2.0%
Remodeled same store net sales
increase(6)............................. 1.6% 14.6% -- -- 24.0% 22.0%
</TABLE>

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

(2) The Company was an S corporation prior to May 1, 1998, and, accordingly, was
not subject to federal and state income taxes during the periods indicated
other than during the six-month period ended October 31, 1998. See Note 1 to
Financial Statements.

(3) Based upon the weighted average number of stores open during the period
indicated.

(4) Store contribution is determined by deducting average per store expenses
from average per store gross margin.

(5) A new or remodeled store becomes comparable after it has been open or
remodeled for a full 12 months.

(6) Compares first full fiscal year following the remodeling to the preceding
fiscal year.

28
<PAGE> 30

Selling, general and administrative expense includes store payroll, store
occupancy, advertising expenses, other store expenses, distribution expenses and
general and administrative expenses, including salary, bonuses and benefits of
corporate employees, administrative office occupancy expenses, data processing,
credit card and bank fees and expenses, professional expenses and other related
expenses.

Cost of sales includes inventory and certain freight costs.

SIX-MONTH PERIOD ENDED OCTOBER 31, 1998 COMPARED TO SIX-MONTH PERIOD ENDED

OCTOBER 31, 1997.

Net sales. Net sales for the six-month period ended October 31, 1998, were
approximately $75.2 million, compared with approximately $68.8 million for the
six-month period ended October 31, 1997, an increase of approximately $6.4
million, or 9.3%. Approximately $5.0 million of the overall sales increase was
attributable to the Puyallup, Washington and Hillsboro, Oregon stores, which
opened in October 1997 and July 1998, respectively. Comparable store sales for
the period increased by approximately $1.4 million, or 2.0%. The increase in
comparable store sales resulted from increased demand due to seasonal weather
conditions more favorable to the Company's summer and fall merchandise lines in
the six-month period ended October 31, 1998, the Company's return to its
traditional inventory management strategy for its stores, and a 22% sales
increase in the Bend, Oregon store, which was remodeled in August 1997. See
"-- Overview."

Gross Margin. Gross margin was 34.0% of net sales for the six-month period
ended October 31, 1998, compared with 33.7% of net sales for the six-month
period ended October 31, 1997. The increase in gross margin for the recent
period was the result of increased demand for seasonal merchandise due to more
favorable weather conditions as well as a change in promotional strategy, both
of which resulted in less discounting and fewer promotional markdowns. The
change in promotional strategy included a shift from distribution of coupon
books that focused heavily on automotive parts and accessories at discounted
prices, to distribution of color catalogs. The catalog format enhanced
merchandise presentation, was directed at higher margin merchandise (including
seasonal apparel and footwear, camping, fitness, and seasonal sporting goods),
and resulted in sales of merchandise with a higher gross margin. Separate print
advertising was provided to customers that focused on automotive merchandise.

Selling, General and Administrative Expense. Selling, general and
administrative expense was approximately $23.1 million, or 30.7% of net sales
for the six-month period ended October 31, 1998, compared to $20.1 million, or
29.3% of net sales, for the six-month period ended October 31, 1997.
Approximately $1.3 million of the $3.0 million increase in selling, general and
administrative expense relates to operating costs associated with the Puyallup,
Washington and Hillsboro, Oregon stores, which opened in October 1997 and July
1998, respectively. The balance of the increase is attributable primarily to
increased rent expense and amortization as a result of the sale and lease-back
of the Company's owned real estate in April 1998 in connection with the
Reorganization. See "-- Overview" and "The Reorganization."

Net Interest Expense. Net interest expense was approximately $1.9 million
for the six-month period ended October 31, 1998, compared to approximately $1.7
million for the six-month period ended October 31, 1997. The increase in net
interest expense resulted from an increase in average outstanding borrowings
under the Company's revolving line of credit facility due to higher inventory
levels, primarily from the addition of the Puyallup, Washington and Hillsboro,
Oregon stores, costs associated with the Reorganization, and by an increase in
interest on capitalized lease obligations, due primarily to the addition of the
two stores. These increases in interest expense were offset in part by a
reduction for the period of approximately $372,000 in mortgage interest expense
resulting from the sale and lease-back of the Company's owned real estate.

Net Income before Income Taxes. As a result of the foregoing factors, the
Company's net income before income taxes for the six-month period ended October
31, 1998 was $627,000, compared to net income of $1.4 million for the six-month
period ended October 31, 1997.

29
<PAGE> 31

THREE-MONTH PERIOD ENDED APRIL 30, 1998 COMPARED TO THREE-MONTH PERIOD ENDED
APRIL 30, 1997

Net Sales. Net sales for the three-month period ended April 30, 1998, were
$25.9 million, compared with $24.0 million for the three-month period ended
April 30, 1997, an increase of $1.9 million, or 7.9%. Comparable store sales
increased by $744,000, or 3.1%, for the same period because of several factors,
including weather conditions more favorable to the sale of the Company's late
winter and spring merchandise lines, the Company's return to its traditional
inventory management strategy for its stores, and a 24% sales increase at the
Bend, Oregon store, which was remodeled in August 1997. See "-- Overview."

Gross Margin. Gross margin was 31.8% of net sales for the three-month
period ended April 30, 1998, compared with 31.6% of net sales for the
three-month period ended April 30, 1997. The increase in gross margin for the
period was due primarily to the liquidation during the three-month period ended
April 30, 1998 of certain LIFO inventory quantities carried at lower levels
compared with the cost of current purchases.

Selling, General and Administrative Expense. Selling, general and
administrative expense was $9.8 million, or 37.7% of net sales, for the
three-month period ended April 30, 1998, compared to $8.7 million, or 36.3% of
net sales, for the three-month period ended April 30, 1997. Approximately
$402,000 of the $1.1 million increase in selling, general and administrative
expense related to operating costs associated with the Puyallup, Washington
store, which opened in October 1997. The balance of the increase in selling,
general and administrative expense related primarily to increased payroll costs
attributable to inflationary salary adjustments as well as bonuses based on
sales increases, and to increased rent expense as a result of the sale and
lease-back of the Company's owned real estate in April 1998. See "-- Overview"
and "The Reorganization."

Net Interest Expense. Net interest expense was $962,000 for the three-month
period ended April 30, 1998, compared to $822,000 for the three-month period
ended April 30, 1997. The increase in net interest expense of $140,000 resulted
from an increase in average outstanding borrowings for the period to finance the
Company's operations, including increased borrowings due to higher inventory
levels, primarily from the addition of the Puyallup, Washington store, and
interest on capital lease obligations incurred in connection with opening such
store.

Gain on Sale of Real Estate. The gain on the sale of real estate was
$640,000 for the three-month period ended April 30, 1998. The gain resulted from
the sale of a tract of undeveloped land adjacent to the Company's headquarters
and distribution center. The sale was made in conjunction with the sale and
leaseback of substantially all the Company's owned real estate as part of the
Reorganization. Because the undeveloped land was not leased back by the Company,
a gain was recognized on the sale.

Extraordinary Item: Loss on Early Extinguishment of Debt. In conjunction
with the sale and leaseback of substantially all the Company's owned real estate
in April 1998, the Company paid off mortgages and the Company's former revolving
credit facility before maturity, resulting in an extraordinary loss on early
extinguishment of debt of approximately $2.2 million. See "-- Overview" and "The
Reorganization."

Net Loss. As a result of the foregoing factors, the Company incurred a net
loss of $4.1 million for the three-month period ended April 30, 1998, as
compared to a net loss of $2.0 million for the three-month period ended April
30, 1997.

FISCAL YEAR ENDED JANUARY 31, 1998 COMPARED TO FISCAL YEAR ENDED JANUARY
31, 1997

Net Sales. Net sales for the fiscal year ended January 31, 1998 were $128.2
million, compared with $128.1 million for the fiscal year ended January 31,
1997. While total net sales increased slightly, due to the opening in October
1997 of the Puyallup, Washington store, comparable store sales decreased by
1.8%. The comparable store sales decrease was due primarily to unseasonably mild
weather in the fall and early winter of calendar 1997, which had a significant
impact on sales of winter sports merchandise and cold weather apparel and
footwear during fiscal 1998, and to the Company's revised inventory management
strategy implemented in the first quarter of fiscal 1998. See "-- Overview." In
the second quarter of fiscal 1998, the Company returned to its traditional
inventory management strategy.

30
<PAGE> 32

Gross Margin. Gross margin was 34.1% of net sales in the fiscal year ended
January 31, 1998, compared with 34.3% of net sales in the fiscal year ended
January 31, 1997. This reduction in gross margin was due primarily to an
increase in inventory shrinkage, from approximately 1.0% to 1.3% of net sales.
The Company believes this level of inventory shrinkage is less than the average
in its industry.

Selling, General and Administrative Expense. Selling general and
administrative expense was $39.5 million, or 30.8% of net sales, in the fiscal
year ended January 31, 1998, compared to $38.0 million, or 29.6% of net sales,
in the fiscal year ended January 31, 1997. Approximately $925,000 of the $1.5
million increase in selling, general and administrative expense related to
pre-opening, promotional and operating costs associated with the Company's
Puyallup, Washington store, which opened in October 1997. It is the Company's
policy to expense all pre-opening costs as incurred. The balance of the increase
was due primarily to additional advertising and promotional costs incurred to
stimulate sales which were adversely affected by the mild fall and winter
weather conditions in calendar year 1997.

Net Interest Expense. Net interest expense was $3.5 million for the fiscal
year ended January 31, 1998, compared to $3.6 million for the fiscal year ended
January 31, 1997. The reduction in net interest expense resulted from lower
interest rates and lower average borrowings outstanding under the Company's
revolving line of credit facility, offset in part by an increase in interest
expense on capitalized lease obligations incurred in connection with the
construction of the Puyallup, Washington store. Interest income was virtually
unchanged for the fiscal year ended January 31, 1998 from 1997 levels. Interest
income relates primarily to interest earned by the Company on market-rate loans
to the Henway Partnerships, which partnership's partners are officers and former
officers of the Company, as well as interest earned on direct loans to officers
and former officers. See "Certain Related Transactions."

Net Income. As a result of the foregoing factors, the Company's net income
decreased to $681,000 in the fiscal year ended January 31, 1998, from $2.3
million in the preceding fiscal year.

FISCAL YEAR ENDED JANUARY 31, 1997 COMPARED TO FISCAL YEAR ENDED JANUARY
31, 1996

Net Sales. Net sales for the fiscal year ended January 31, 1997 were $128.1
million, compared with $124.1 million for the fiscal year ended January 31,
1996, an increase of $4.0 million, or 3.3%. This increase in net sales was
primarily the result of unusually cold weather and winter storms in the Pacific
Northwest during February, March, October and November of 1996. The cold weather
and storms in February and March resulted in significant increases in sales of
winter clothing and footwear, rain gear and winter-related automotive products
and sporting goods. The cold weather and storms in late October and November
provided an early start to the winter sports season and allowed the Company to
sell its winter clothing and footwear and skiing and snowboarding merchandise
early in the season at regular retail prices instead of at promotional prices
during the holiday season. Increased sales at remodeled stores and the
installation of additional concept shops featuring nationally prominent brands
within the Company's stores also contributed to increased sales in the fiscal
year ended January 31, 1997.

Gross Margin. Gross margin was 34.3% of net sales in the fiscal year ended
January 31, 1997, compared with 33.6% of net sales in the fiscal year ended
January 31, 1996. The increase in gross margin as a percent of sales was due
primarily to a reduction in inventory shrinkage from approximately 1.2% of net
sales in fiscal 1996 to 1.0% of net sales in fiscal 1997, the liquidation in
fiscal 1997 of certain LIFO inventory quantities carried at lower costs compared
with the cost of current purchases and fewer promotional markdowns as a
percentage of sales in fiscal 1997 as compared to fiscal 1996.

Selling, General and Administrative Expense. Selling, general and
administrative expense was $38.0 million, or 29.6% of net sales, in the fiscal
year ended January 31, 1997, compared to $37.2 million, or 30.0% of net sales,
in the fiscal year ended January 31, 1996. Selling, general and administrative
expense as a percentage of sales decreased in fiscal 1997 because net sales
growth exceeded the growth of selling, general and administrative expense in
that period. The $800,000 increase in selling, general and administrative
expense in fiscal 1997 was due primarily to a $705,000, or 4.0%, increase in
payroll costs attributable to inflationary salary adjustments, as well as to
bonuses based on sales increases. Other increases in employee benefit expenses,

31
<PAGE> 33

store operating expenses and credit card discount fees were offset in part by
reductions in advertising and promotional expenses.

Net Interest Expense. Net interest expense was $3.6 million for the fiscal
year ended January 31, 1997, compared to $3.7 million for the fiscal year ended
January 31, 1996. A $600,000 reduction in interest expense from $4.3 million in
the fiscal year ended January 31, 1996 to $3.7 million in the fiscal year ended
January 31, 1997 was largely offset by a reduction in interest income from
fiscal 1996 to fiscal 1997. The reduction in interest expense resulted from
lower interest rates and lower average borrowings outstanding under the
Company's revolving line of credit facility, the repayment in fiscal 1997 of a
bank term loan and the refinancing in late fiscal 1996 of two existing real
estate mortgages at lower interest rates. The decrease in interest income was
attributable to the repayment of a loan by the Henway Partnerships, the proceeds
of which were used to pay down the revolving credit facility and pay off the
term loan. See "Certain Related Transactions."

Net Income. As a result of the foregoing factors, the Company's net income
increased to $2.3 million for the fiscal year ended January 31, 1997, from
$851,000 in the preceding fiscal year.

32
<PAGE> 34

QUARTERLY OPERATING RESULTS AND SEASONALITY

The following tables set forth certain unaudited financial information for
each of the four quarters in the fiscal years ended January 31, 1997 and 1998
and for the first three quarters of fiscal 1999. This unaudited quarterly
information has been prepared on the same basis as the audited financial
statements and, in the opinion of management, includes all necessary adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the data presented. The unaudited quarterly results should be
read in conjunction with the financial statements and related notes thereto
included elsewhere in this Prospectus. As a result of the recent Reorganization
and for other reasons, the Company believes that quarter-to-quarter comparisons
of its historical financial results should not be relied upon as an indication
of future performance. See "The Reorganization," "Risk Factors -- Effects of
Weather" and "Risk Factors -- Seasonality and Fluctuations in Periodic Operating
Results."

<TABLE>
<CAPTION>
PREDECESSOR(1)
------------------------------------------------------------------------------------------------
QUARTER ENDED
------------------------------------------------------------------------------------------------
APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30,
1996 1996 1996 1997 1997 1997 1997 1998 1998
-------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $25,450 $35,991 $31,868 $34,803 $24,013 $36,215 $32,538 $35,472 $25,908
Cost of sales........... 17,103 24,408 20,848 21,825 16,425 24,134 21,434 22,559 17,670
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross margin.......... 8,347 11,583 11,020 12,978 7,588 12,081 11,104 12,913 8,238
Selling, general and
administrative
expense............... 8,659 9,581 9,609 10,127 8,717 9,871 10,244 10,696 9,755
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations............ (312) 2,002 1,411 2,851 (1,129) 2,210 860 2,217 (1,517)
Interest expense, net... (903) (930) (882) (897) (822) (851) (816) (988) (962)
Gain on sale of real
estate................ -- -- -- -- -- -- -- -- 640
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
taxes and
extraordinary item.... (1,215) 1,072 529 1,954 (1,951) 1,359 44 1,229 (1,839)
(Provision for) benefit
from income
taxes(2).............. -- -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
extraordinary item.... (1,215) 1,072 529 1,954 (1,951) 1,359 44 1,229 (1,839)
Extraordinary item: loss
on early
extinguishment of
debt.................. -- -- -- -- -- -- -- -- (2,220)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $(1,215) $ 1,072 $ 529 $ 1,954 $(1,951) $ 1,359 $ 44 $ 1,229 $(4,059)
======= ======= ======= ======= ======= ======= ======= ======= =======
Basic income (loss) per
share before
extraordinary item.... $ (0.40) $ 0.35 $ 0.17 $ 0.64 $ (0.64) $ 0.45 $ 0.01 $ 0.40 $ (0.60)
======= ======= ======= ======= ======= ======= ======= ======= =======
Diluted income (loss)
per share before
extraordinary item.... $ (0.40) $ 0.34 $ 0.16 $ 0.58 $ (0.64) $ 0.41 $ 0.01 $ 0.36 $ (0.60)
======= ======= ======= ======= ======= ======= ======= ======= =======
Basic net income (loss)
per share............. $ (0.40) $ 0.35 $ 0.17 $ 0.64 $ (0.64) $ 0.45 $ 0.01 $ 0.40 $ (1.34)
======= ======= ======= ======= ======= ======= ======= ======= =======
Diluted net income
(loss) per share...... $ (0.40) $ 0.34 $ 0.16 $ 0.58 $ (0.64) $ 0.41 $ 0.01 $ 0.36 $ (1.34)
======= ======= ======= ======= ======= ======= ======= ======= =======

<CAPTION>
G.I. JOE'S, INC.
-------------------
QUARTER ENDED
-------------------
JULY 31, OCT. 31,
1998 1998
-------- --------

<S> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $38,212 $36,989
Cost of sales........... 25,263 24,349
------- -------
Gross margin.......... $12,949 12,640
Selling, general and
administrative
expense............... 11,226 11,860
------- -------
Income (loss) from
operations............ 1,723 780
Interest expense, net... (896) (980)
Gain on sale of real
estate................ -- --
------- -------
Income (loss) before
taxes and
extraordinary item.... 827 (200)
(Provision for) benefit
from income
taxes(2).............. (331) 80
------- -------
Income (loss) before
extraordinary item.... 496 (120)
Extraordinary item: loss
on early
extinguishment of
debt.................. -- --
------- -------
Net income (loss)....... $ 496 $ (120)
======= =======
Basic income (loss) per
share before
extraordinary item.... $ 0.07 $ (0.07)
======= =======
Diluted income (loss)
per share before
extraordinary item.... $ 0.07 $ (0.07)
======= =======
Basic net income (loss)
per share............. $ 0.07 $ (0.07)
======= =======
Diluted net income
(loss) per share...... $ 0.07 $ (0.07)
======= =======
</TABLE>

33
<PAGE> 35

<CAPTION>
G.I. JOE'S, INC.
-------------------
QUARTER ENDED
-------------------
JULY 31, OCT. 31,
1998 1998
-------- --------
<S> <C> <C>
Net sales............ 100.0% 100.0%
Cost of sales........ 66.1 65.8
----- -----
Gross margin....... 33.9 34.2
Selling, general and
administrative
expense............ 29.4 32.1
----- -----
Income (loss) from
operations......... 4.5 2.1
Interest expense,
net................ (2.3) (2.6)
Gain on sale of real
estate............. -- --
----- -----
Income (loss) before
extraordinary
item............... 2.2 (0.5)
(Provision for)
benefit from income
taxes(2)........... (0.9) 0.2
Income (loss) before
extraordinary
item............... 1.3 (0.3)
Extraordinary item:
loss on early
extinguishment of
debt............... -- --
----- -----
Net income (loss).... 1.3% (0.3)%
===== =====
</TABLE>

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

(2) The Company was an S corporation prior to May 1, 1998, and, accordingly, was
not subject to federal and state income taxes during the periods indicated
other than during the three-month period ended July 31, 1998 and the
three-month period ended October 31, 1998. See Note 1 to Financial
Statements.

The Company's results of operations have fluctuated, and likely will
continue to fluctuate, significantly from period to period. Weather and changes
in weather significantly affect the Company's sales of sporting goods equipment
and outdoor apparel and footwear. Net sales and margins are adversely affected
in periods of unseasonable weather conditions. In addition, the Company's
seasonal sporting goods merchandise mix is weighted substantially toward the
summer and winter seasons, which historically has led to much stronger results
of operations for the quarters ending July 31 and January 31 than for the other
two quarters. The Company has historically incurred net losses in the quarters
ending April 30 and achieved limited net income or incurred net losses in the
quarters ending October 31. The Company's sporting goods and outdoor apparel and
footwear operations are also subject to traditional retail seasonality patterns
related to the holiday season and to changes in general and regional economic
conditions and changes in consumer preferences. The timing and expenses
associated with the Company's store remodeling program and the opening of new
stores or the acquisition of other businesses as part of the Company's growth
and expansion strategy will also contribute to fluctuations in periodic
operating results. Accordingly, the Company's operating results may vary
materially from quarter to quarter. See "Risk Factors -- Effects on Weather,"
"Risk Factors -- Seasonality and Fluctuations in Periodic Operating Results" and
"Business -- Growth and Expansion Strategy."

LIQUIDITY AND CAPITAL RESOURCES

The Company requires capital principally to finance working capital needs,
remodel and upgrade existing stores and open new stores. Historically, these
activities have been funded by internally generated cash, long-term mortgage
financing, capital and operating leases and borrowings under the Company's
revolving line of

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<PAGE> 36

credit facilities. Prior to the end of the fiscal year ending January 31, 2003,
the Company plans to open eight new stores and remodel ten existing locations at
an estimated aggregate cost of approximately $23.6 million, which figure
excludes inventory for the new stores. See "Business -- Growth and Expansion
Strategy." Management expects to fund these expenditures through internally
generated cash, lease financings, borrowings under the Company's revolving line
of credit facility and proceeds from the sale of shares in the Offering. See
"Use of Proceeds." This or further expansion of the Company's operations,
including the possible acquisition of complementary businesses, may also be
funded by public or private debt or subsequent equity offerings by the Company.
See "Risk Factors -- Risks Associated With Potential Acquisitions." Management
estimates that the capital cost of new and remodeled stores will be
approximately $1.45 million and $1.2 million, respectively, per store. In
addition, management expects that each new store will require approximately $2.1
million for inventory, which will be financed on normal trade credit terms, and
approximately $175,000 in pre-opening and promotional expenses. Actual costs to
remodel or to construct and open stores may substantially exceed such amounts.

Capital expenditures by the Company in the nine months ended October 31,
1998 and in the fiscal years ended January 31, 1998, 1997 and 1996 were
approximately $1.8 million, $2.5 million, $2.3 million and $1.7 million,
respectively. These capital expenditures were primarily for remodeling existing
stores, acquiring land for new store locations and constructing and opening new
stores.

In March 1998, the Company entered into a three-year revolving line of
credit facility with Foothill Capital Corporation to replace an existing
revolving line of credit facility and term loan. The amount available under the
new line of credit facility is the lesser of $20.0 million or an amount equal to
60% of eligible FIFO inventory, less specified reserves and the aggregate amount
of all undrawn letters of credit. Interest is payable monthly at either (i) the
lender's prime reference rate plus 1/4% or (ii) an adjusted rate based on the
lender's Eurodollar rate. Letters of credit are issuable against the revolving
line of credit facility up to a maximum of the lesser of $1.0 million or
available borrowings under the facility. The line of credit facility is secured
by a security interest in substantially all of the Company's assets and contains
covenants which restrict, among other things, the Company's ability to incur
additional indebtedness.

In conjunction with the Reorganization, in May 1998, the Company redeemed
all of the Company's outstanding capital stock, other than shares held by Norman
Daniels and two minority shareholders, for an aggregate purchase price of
approximately $16.6 million, and repurchased certain of the Company's
outstanding options to purchase Common Stock for an aggregate purchase price of
approximately $3.9 million. See "The Reorganization" and "Certain Related
Transactions." The redemption of shares as part of the Reorganization resulted
in no gain to redeemed shareholders for state or federal income tax purposes.
The Company financed the stock redemption and the repurchase of stock options
primarily with the net proceeds of approximately $19.6 million from the sale and
lease-back of substantially all its owned real estate (net of related mortgage
payoffs, prepayment penalties and miscellaneous fees and expenses) and the
proceeds from the sale of $9.5 million of the Company's Subordinated Notes. See
"The Reorganization." The terms of the leases covering the real estate sold by
and leased back to the Company are triple net at market rates, over a period of
15 years with two five-year renewal options. The Company estimates that the
incremental annual operating cost to lease these facilities as compared to
owning them is approximately $2.3 million, taking into account, among other
things, rental expense, reduced interest expense as a result of mortgage payoffs
and reduced depreciation. In conjunction with the sale and lease back of the
real estate, the Company paid off mortgage loans and the Company's former
revolving credit facility before maturity, resulting in an extraordinary loss on
early extinguishment of debt of approximately $2.2 million recorded in the
three-month period ended April 30, 1998. Prior to the Reorganization, the
Company made S corporation distributions of approximately $7.2 million to its
shareholders which are intended to cover all state and federal income tax
liabilities arising from the Company's income prior to the Redemption and from
the sale of the Company's real estate. See "The Reorganization."

The Company believes that the net proceeds from the Offering, combined with
borrowings under its line of credit facility and internally generated funds,
will be sufficient to fund its requirements for working capital and capital
expenditures for at least the next 12 months.

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<PAGE> 37

As of October 31, 1998, the Company had checks outstanding in excess of
cash deposits of $1.3 million and borrowing capacity under its revolving line of
credit facility of approximately $2.5 million.

Cash Flow for the Six-Month Period Ended October 31, 1998. During the
six-month period ended October 31, 1998, checks outstanding in excess of cash
deposits increased by $1.1 million. Net cash used by operating activities was
$943,000, derived principally from cash net income (net income plus depreciation
and amortization) of $1.7 million and an increase in accounts payable and
accrued liabilities of $2.9 million, offset by an increase in inventory of $3.8
million and an increase in accounts receivable and other current assets of $1.8
million.

Investing activities during the period included capital expenditures of
$1.8 million, related principally to the Company's new store in Hillsboro,
Oregon, which opened in July 1998. Approximately $1.5 million of these
expenditures were offset by the proceeds from the sale and lease back of
substantially all of the fixtures and improvements associated with the Hillsboro
store. Investing activities also included a cash payment of $450,000 and an
increase in notes receivable of $100,000 in conjunction with the acquisition of
Timberline Direct, and $508,000 related to professional fees and financing fees
incurred by the Company in connection with the Reorganization and the Offering.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview" and "The Reorganization."

Financing activities during the period consisted of a net increase in
borrowing of $1.9 million under the Company's revolving line of credit facility,
principal payments of $212,000 on term loan obligations and $457,000 on capital
lease obligations.

Cash Flow for the Three-Month Period Ended April 30, 1998. During the
three-month period ended April 30, 1998, checks outstanding in excess of cash
deposits decreased by $370,000. Net cash used by operating activities was $1.2
million, derived principally from a cash net loss (net loss less depreciation
and amortization, plus the gain on sale of real estate, less the extraordinary
loss on early extinguishment of debt) of $1.9 million, an increase in accounts
payable and accrued liabilities of $2.8 million and a net reduction in all other
current assets, excluding inventory, of $289,000, offset in part by an increase
in inventory of $2.6 million. The increase in inventory is due primarily to
seasonal increases in spring and summer merchandise and inventory designated for
the new Hillsboro, Oregon store, which opened in July 1998.

Investing activities during the three-month period ended April 30, 1998
included the proceeds of $25.1 million from the sale and lease-back of
substantially all the Company's owned real estate and capital expenditures of
$90,000. Investing activities also included an increase in other non-current
assets of $768,000, related to professional and financing fees incurred by the
Company in conjunction with the Reorganization. See "The Reorganization."

Financing activities during the period included a net reduction in
borrowings of $3.5 million under the Company's revolving line of credit
facility. Net proceeds resulting from the sale and lease-back in late April 1998
of substantially all the Company's owned real estate (net of related mortgage
payoffs, prepayment penalties and miscellaneous fees and expenses) were used to
pay down temporarily the revolving line of credit facility prior to the
redemption in May 1998 of capital stock and options of the Company as part of
the Reorganization. See "The Reorganization." This reduction in the revolving
line of credit facility was net of an increase of approximately $1.0 million
attributable to a term loan that was rolled into the revolving credit facility
when the Company replaced its former revolving credit facility in May 1998.
Prior to the sale and lease-back transaction, borrowings under the revolving
line of credit facility had actually increased for the period to finance the
Company's operations. The Company historically incurs net operating losses
during the three-month period ending April 30.

Financing activities during the three-month period ended April 30, 1998
also included a pay-down of long term debt of $10.1 million, which related
primarily to the payoff of mortgage obligations on the properties included in
the sale and lease-back transaction and the rollover of the term loan discussed
above, principal payments on capital lease obligations of $226,000, prepayment
penalties of $1.9 million incurred on the payoff of the mortgages and the
Company's former revolving credit facility, and S corporation distributions in
the

36
<PAGE> 38

amount of $6.9 million to cover shareholder tax liabilities for the fiscal years
ended January 31, 1997 and 1998, and the three-month period ended April 30,
1998. See "The Reorganization."

Cash Flow for the Fiscal Year Ended January 31, 1998. During the fiscal
year ended January 31, 1998, checks outstanding in excess of cash decreased by
$87,000. Operating activities generated net cash of $1.5 million, principally
from cash net income (net income plus depreciation and amortization) of $3.0
million and an increase in accounts payable and accrued liabilities of $2.0
million, offset in part by an increase in inventory of $3.9 million. The
increase in inventory was due primarily to the opening of the Puyallup,
Washington store in October 1997.

Investing activities during the period included capital expenditures of
$2.5 million, the majority of which was used to remodel an existing store in
Bend, Oregon, and to open the Puyallup, Washington store.

Financing activities during the period consisted principally of a net
increase of $1.4 million in borrowings under a revolving line of credit
facility, $3.2 million borrowed to refinance mortgages on two Company owned
store locations, and $1.3 million borrowed for fixtures and equipment for the
Puyallup, Washington store. Other financing activities included principal
payments of $3.4 million on term loan obligations, payments of $854,000 on
capital lease obligations and S corporation distributions of $370,000 to cover
shareholder tax liabilities.

YEAR 2000 COMPLIANCE

Since June 1997, the Company has been actively engaged in achieving Year
2000 compliance. The Company's Year 2000 compliance project has been divided
into several phases. First, all hardware and operating system software
applications were audited and found to be Year 2000 compliant. Second, all
third-party software applications were checked for compliance. Since the Company
has developed most of its applications internally, few applications needed to be
checked. Of these, only two minor applications were found to have Year 2000
issues and the Company has taken steps to replace these applications. Third, the
Company has completed an inventory of its database files and
internally-developed software applications, and has developed an application to
modify non-Year-2000-compliant database files, re-compile software applications
and monitor progress. Finally, the Company re-prioritized existing information
technology ("IT") projects to allocate programming resources to the Company's
Year 2000 project.

As of January 31, 1999, approximately 85 percent of the Company's systems
are Year 2000 compliant. The target date for full compliance is June 30, 1999.

The Company's total budget for its Year 2000 project is $145,000,
approximately half of which amount had been spent through December 31, 1998.
This amount represents approximately 10 percent of total IT expenditures
budgeted for the period from June 1997 through June 1999. The Company continues
to manage total IT expenses by re-prioritizing or curtailing less critical
investments, incorporating Year 2000 readiness into previously planned system
enhancements and by using existing staff to implement its Year 2000 program. The
Company has not hired any outside consultants for its Year 2000 project, nor has
it needed to purchase any hardware or software.

The Company has also conducted an inventory of non-computer equipment that
may contain date-sensitive microprocessor chips. All of the Company's telephone
systems, environmental controls, copiers, fax machines, forklift equipment and
other similar equipment have been found to be Year 2000 compliant. Upgrades will
need to be made to camera surveillance systems installed in two of the Company's
16 retail stores. These upgrades are scheduled for the second quarter of fiscal
1999.

The Company acquires a majority of its inventory from approximately 30
vendors. If these vendors have unresolved Year 2000 issues which affect their
ability to supply merchandise, the Company could be adversely

37
<PAGE> 39

affected. The Company completed a Year 2000 readiness survey of its top vendors
in January 1999. None of the Company's top vendors indicated that it will be
adversely affected by Year 2000 issues. In the event that it appears a vendor
will be adversely affected by Year 2000 issues, the Company believes that it
will be able to find alternative suppliers.

Should the Company not achieve full compliance in a timely manner or
complete its Year 2000 project within its current cost estimates, the Company's
business, financial condition and results of operations could be adversely
affected. However, in the event that the Company fails to meet the deadlines
above, the Company believes that the financial impact will not be material since
all systems believed by the Company to be critical have already been certified
as Year 2000 compliant.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 "Reporting Comprehensive Income" ("SFAS 130"). This statement
establishes standards for reporting and displaying comprehensive income and its
components in a full set of general purpose financial statements. The objective
of SFAS 130 is to report a measure of all changes in equity of an enterprise
that result from transactions and other economic events of the period other than
transactions with owners. The Company adopted SFAS 130 during the first quarter
of fiscal 1999. Comprehensive loss did not differ from currently reported net
loss in the periods presented.

Effective in its fiscal year ending January 31, 1999, the Company will be
required to adopt SFAS No. 131 "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 131 changes current practice under SFAS No. 14 by
establishing a new framework on which to base segment reporting (referred to as
the "management" approach) and also requires interim reporting of segment
information. Management does not expect that the impact of adoption of this
pronouncement will be material to the Company's financial position or results of
operations.

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for all derivative instruments.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. The
Company currently has no derivative instruments and, therefore, the adoption of
SFAS 133 will have no impact on the Company's financial position or results of
operations.

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<PAGE> 40

BUSINESS

INTRODUCTION

INDUSTRY OVERVIEW

According to the National Sporting Goods Association, between 1992 and 1997
the U.S. sports merchandise retail market grew 23% to $42.9 billion from $34.9
billion, representing a compound annual growth rate of 4.0%. There are four
principal categories of sports merchandise retailers in the United States: (i)
traditional sports merchandise retailers which generally operate stores under
30,000 square feet in size and are regional in focus, (ii) specialty sports
merchandise retailers which generally focus on high-end products relating to a

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<PAGE> 41

single activity category, such as The Orvis Company, Inc., (iii) mass
merchandisers such as Wal-Mart and K-Mart and (iv) large format sports
merchandise retailers which generally operate stores larger than 50,000 square
feet in size, such as The Sports Authority, Inc. and Gart/Sportmart. Large
format sports merchandise retailers represent a rapidly increasing percentage of
this retail market. From 1995 to 1997, sales by the top five large format sports
merchandise retailers grew approximately 20%, from approximately $3.0 billion to
approximately $3.6 billion.

According to the Automotive Parts and Accessories Association, between 1992
and 1997 the U.S. market for automotive aftermarket parts and accessories grew
35% to $30.0 billion from $22.3 billion, representing a compound annual growth
rate of 6%. Automotive parts retailers account for over one-third of all sales
in this market. Growth in this market has been driven primarily by two trends:
(i) the increasing sales of pickup trucks, mini-vans and sports-utility vehicles
and (ii) the increasing average age of automobiles in the United States. In
1997, sales of light trucks accounted for 45% of all new U.S. vehicle sales and
a record 6.9 million pickup trucks, mini-vans and sport-utility vehicles were
sold, representing a 4.5% increase over 1996. Increased sales of pickup trucks,
mini-vans and sport-utility vehicles have increased demand for automotive
accessories such as utility racks, running boards and truck bed liners and
covers. In addition, as the average sales price of new vehicles has continued to
increase, so has the average length of vehicle ownership. In 1996, more than 33%
of vehicles were five to ten years old, and more than 35% of the remaining
vehicles were more than ten years old. These factors have led to growth in the
"do-it-yourself" automotive parts market, as vehicle owners reduce costs by
performing repairs and maintenance. People who perform work on their own
automobiles account for more than half of the purchases of starting, fuel system
and charging system parts, and more than one-third of all purchases of brake and
engine parts.

The retail markets for sports and automotive merchandise are both highly
fragmented on a national and regional basis. This fragmentation presents
numerous opportunities for consolidation. Although there is substantial overlap
between consumers of sports merchandise and automotive merchandise, most
participants in these retail markets carry only sports or automotive merchandise
or a limited mix of these products. Few participants take advantage of the
cross-selling opportunities available by carrying full lines of both types of
merchandise.

BUSINESS STRATEGY

The Company's business strategy is based on the following key competitive
strengths.

Unique Merchandise Mix. G.I. Joe's carries full lines of sporting goods,
outdoor apparel and footwear, and automotive aftermarket parts and accessories.
The Company's merchandise mix has led to substantial cross-shopping by customers
between the sporting goods and automotive departments. Based on a survey of
approximately 1,400 customers conducted by the Company in 1997, during the same
visit to a G.I. Joe's store over 30% of the Company's sporting goods customers
also purchased automotive products, and over 50% of the Company's automotive
customers also purchased sporting goods products. For example, a customer may
purchase both a bicycle and a bicycle rack for his vehicle, or snow skis, a ski
rack and snow chains for his vehicle. The Company continually adjusts its
merchandise mix to respond to changes in consumer preference, to target higher
margin products and to attract additional customers in an ongoing effort to
increase sales and improve profitability. A typical G.I. Joe's store stocks over
75,000 active stock keeping units ("SKUs") (including different styles and
colors as separate units) of sports and automotive merchandise. No other
superstore retailer pursues the Company's two-stores-in-one merchandise mix
strategy, and the Company's extensive and diverse merchandise selection
differentiates it from other retailers of sports or automotive merchandise.

Proven Store Concept and Remodeling Strategy. The Company has developed a
successful open ceiling, racetrack design concept for its stores that has
significantly increased same-store sales and sales per square foot. See "Store
Concept." Same-store sales at the Company's two stores remodeled in the last
four years have increased approximately 17% on average in the first year of
operation after remodeling, which equates to an improvement in average sales for
those stores from $214 per selling square foot in the year prior to remodeling
to $250 per selling square foot in the first year after remodeling. For the
12-month period ended January 31,

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<PAGE> 42

1999, the Company's four remodeled stores generated average annual sales per
store of approximately $10.6 million, compared to approximately $8.7 million for
the Company's other stores. In addition, these four remodeled stores achieved
average sales per selling square foot of $227 for that same period, compared to
$194 for other stores. For the fiscal year ended January 31, 1998, the Company's
four remodeled stores generated average annual sales per store of approximately
$9.9 million, compared to approximately $8.6 for the Company's other stores. In
fiscal 1998, these remodeled stores achieved average sales per selling square
foot of $213, compared to $193 for other stores. Average annual per store
contribution in fiscal 1998 was approximately $1.6 million for remodeled stores
and $1.3 million for other stores. In addition, in fiscal 1998 the average sale
per transaction at the Company's remodeled stores was $34, which is 17% higher
than the $29 amount at the Company's other stores. The Company has opened a new
store in each of the last two fiscal years and remodeled four existing stores
over the past five fiscal years using its updated store concept. The Company
intends to open eight new stores and remodel ten existing stores prior to the
end of fiscal 2003. See "Business -- Growth and Expansion Strategy."

Leading Position in the Pacific Northwest. By focusing on the Pacific
Northwest, the Company has established a significant presence in the region. The
Company has developed customer loyalty by offering an extensive selection of
quality merchandise. The Company has gained strong regional name recognition by
sponsoring nationally and regionally promoted sporting events, such as the
nationally televised Budweiser/G.I. Joe's 200 Champ Car race. The Company's
status as a leading regional retailer has increased its buying power with
vendors. In addition, the Company's regional focus has allowed it to benefit
from certain economies of scale, including those related to the Company's
concentrated advertising and marketing plan and centralized distribution system.
Management believes that favorable economic conditions and population trends in
the Northwest will result in increased demand for the Company's merchandise and
provide further opportunities for the Company to leverage its strong market
position in the region.

Quality Merchandise Competitively Priced. G.I. Joe's focuses on providing
customer value. The Company has developed strong working relationships with its
vendors, which contributes to the Company's ability to obtain leading brand name
merchandise at favorable prices. The Company frequently receives significant
volume discounts from vendors because of its strong regional presence, high
sales volume and membership in national buying groups. Favorable pricing from
vendors, together with the Company's direct purchasing and efficient
distribution system, enables the Company to offer premium quality merchandise at
competitive prices.

Superior Customer Service. Superior customer service is a key component of
the quality shopping experience provided at G.I. Joe's. The Company has
established a reputation in its markets for sales associates who understand the
needs of customers and are knowledgeable about the Company's merchandise. The
Company extensively trains its sales associates by merchandise department and
activity category, and many sales associates actively participate in the
activities related to the specific merchandise they sell. The Company also
specially trains its sales associates to serve female customers shopping in
traditionally male-oriented product categories, such as field and stream and
automotive products. The Company believes that the extensive product knowledge
of its sales associates and the Company's superior customer service and
after-sale support differentiate it from mass merchandisers and other large
concept sporting goods and automotive parts and accessories retailers.

Enhanced Margins. The Company continually seeks to improve its gross margin
and operating margin. The Company has improved its gross margin by: increasing
sales of higher margin outdoor apparel and footwear and private label products;
including vendor concept shops within the Company's stores; increasing the
quantity of merchandise the Company directly imports; and increasing its buying
power as a result of its expanded operations and membership in national buying
groups. To the extent the Company expands its business in the Pacific Northwest,
the Company anticipates that its operating margin will improve as a result of
further economies of sale, including those related to the Company's concentrated
advertising and marketing plan and centralized distribution system. Stores open
for at least 12 months have generally contributed positively to the Company's
margins. For the fiscal year ended January 31, 1998, the average annual per
store contribution for stores open for at least 12 months was approximately $1.4
million, or approximately 16% of average annual per store sales.

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<PAGE> 43

Management Ownership and Experience. In May 1998, Norman Daniels, the
Company's current Chairman, President and Chief Executive Officer, acquired
control of the Company in a management buy-out. After the Offering, Mr. Daniels
will own approximately 34.0% of the Company's outstanding Common Stock
(approximately 32.3% if the Underwriters' over-allotment option is exercised in
full). Mr. Daniels has served in various positions with the Company over the
past 34 years and the Company's executive officers have an average of over 20
years' experience with the Company. Ten of the Company's 14 full-time
purchasing, sales and managerial employees (excluding the executive officers)
have been with the Company for over ten years. The Company's store managers
average over 12 years of service with the Company.

GROWTH AND EXPANSION STRATEGY

G.I. Joe's intends to expand its business by implementing the following
growth and expansion strategy:

Remodel Existing Stores to Increase Sales. The Company has embarked upon a
major remodeling program to increase same-store sales. Same-store sales at the
two stores remodeled in the last four years have increased approximately 17% on
average in the first year of operation after remodeling, which equates to an
improvement in average sales from $214 per selling square foot in the year prior
to remodeling to $250 per selling square foot in the first year after
remodeling. The Company has remodeled four of its existing stores over the past
five fiscal years using its updated store concept and intends to remodel the
following ten stores prior to the end of the fiscal year ending January 31,
2003.

<TABLE>
<CAPTION>
SCHEDULED DATE PLACED IN
LOCATION REMODELING DATE(1) SERVICE SQUARE FOOTAGE
-------- ------------------ -------------- --------------
<S> <C> <C> <C>
Beaverton, Oregon 6/99 04/74 55,120
Tualatin, Oregon 8/99 09/85 55,120
Gresham, Oregon 8/99 05/87 55,120
Medford, Oregon 2/00 03/86 48,500
Federal Way, Washington 2/00 03/91 55,120
Vancouver, Washington 2/00 06/89 55,120
Oak Grove, Oregon 2/01 04/72 67,100
South Salem, Oregon 2/01 03/85 55,120
Albany, Oregon 2/01 11/89 55,120
Portland, Oregon 2/02 03/79 55,120
</TABLE>

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

(1) Scheduled remodeling dates represent management's estimates of the dates
remodeling will commence. Actual commencement dates may differ from these
estimates.

The criteria used by the Company in determining when a store will be
remodeled includes the store's sales volume, the remaining term of the related
lease, proximity to other G.I. Joe's stores (to limit cannibalization of sales)
and to competitors' stores and the general prospects for the store based on
local population and demographic trends, including items such as income levels
and distribution, age and family size.

The remodeling procedure includes improvements in store layout, lighting,
signage, fixtures and merchandise presentation and a conversion from a drop
ceiling to an open ceiling. Remodeling of each store is performed in stages in
order to permit continued operation during the typical 70- to 90-day remodeling
period. Remodeling costs are estimated to be approximately $1.2 million per
store, including approximately $650,000 for fixtures and approximately $550,000
for leasehold improvements. Actual remodeling costs may be higher. The average
annual per store contribution (i.e., store gross margin less store expenses) in
fiscal 1998 for the Company's four remodeled stores that had been operating for
over a year was approximately $1.6 million, compared to a corresponding per
store contribution of approximately $1.3 million for the Company's non-remodeled
stores (excluding newer stores).

Open New Stores in the Pacific Northwest. The Company intends to expand its
presence in the Pacific Northwest, primarily in Washington, by selectively
opening two new stores each year for the next four fiscal years. The Company
currently has two stores operating in the Seattle/Puget Sound area of
Washington, with

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<PAGE> 44

two additional stores scheduled to open in this area, and an additional store
scheduled to open in Longview, Washington, in calendar year 1999. The Company
believes that it can successfully expand its business in Washington because of
the geographic proximity of this area to the Company's Oregon operations, which
strengthens name-brand recognition for the Company in the Washington markets,
and the lack of a dominant sports merchandise retailer in Washington. Weather
patterns and consumer demographics in Washington and Oregon are similar, which
will assist the Company in predicting the merchandise mix suitable for
Washington stores and enable the Company to employ advertising campaigns used
successfully to target Oregon consumers. The Company intends to implement in the
Seattle/Puget Sound area its strategic multi-store placement strategy used
successfully in the Portland metropolitan area, where a cluster of stores in an
urban center has led to increased market penetration and economies of scale.
Management believes that the Company's distribution center can accommodate at
least five additional stores in the Pacific Northwest without material
modification. Expansion beyond five additional stores in the Pacific Northwest
and expansion into other geographic areas may require material modification of
the Company's distribution center or the construction or development of
additional distribution facilities. See " -- Vendors, Purchasing and
Distribution."

The Company carefully evaluates potential new store sites in an effort to
maximize profitability and market share. Factors considered by the Company in
evaluating a potential site include: proximity to other G.I. Joe's stores
(balancing the benefits of market penetration with possible cannibalization of
sales) and to competitors' stores; local demographics (such as income levels and
distribution, age and family size), and population base and trends; availability
of adequate parking; and proximity to commercial thoroughfares. The Company
generally decides whether to construct its standard 55,000 square foot store or
the smaller 35,000 square foot version based upon the size of the population of
the surrounding community, with larger stores typically serving local
populations in excess of 50,000 people and smaller stores typically serving
smaller communities.

The Company currently operates all of its stores on a long-term operating
lease basis. Management estimates that capital expenditures required to open new
stores on an operating lease basis will be approximately $1.45 million per
store. In addition, management expects that each new store will require
approximately $2.1 million of inventory, which will be financed on normal trade
credit terms. If the Company purchases the underlying real estate and building,
or if opening a new store at a location requires that an existing building be
retrofitted, the initial investment by the Company will increase. In addition to
capital expenditures, the Company anticipates incurring expenses of
approximately $175,000 for pre-opening and promotional activities associated
with each store opening, including the cost of training employees and stocking
the store. It is the Company's policy to expense all pre-opening costs as
incurred.

Stores open for at least 12 months have generally contributed positively to
the Company's margins. For the fiscal year ended January 31, 1998, the average
annual per store contribution for stores open for at least 12 months was
approximately $1.4 million, or approximately 16% of average annual per store
sales. Management estimates that new stores will contribute positively to the
Company's margins after 12 months of operation and that after approximately
three full years of operation new stores will generate net sales comparable to
average net sales generated at existing stores. However, new stores may not
achieve historic or anticipated levels of operating results for the Company. See
"Risk Factors -- Ability to Implement Business and Growth and Expansion
Strategies and Manage Growth."

Pursue Acquisitions in Existing and New Markets. The retail markets for
sports and automotive merchandise are both highly fragmented. Management
believes that the fragmented nature of these markets, together with the
similarity of the consumer demographics and seasonal outdoor activity patterns
in the Pacific Northwest and portions of Montana, Idaho, Utah, Nevada and
Northern California, provide attractive expansion opportunities for the Company
by means of strategic acquisitions. Most participants in the retail sports and
automotive markets carry only sports or automotive merchandise or a limited mix
of these products. After a strategic acquisition of a local or regional sports
or automotive retail chain, the Company would introduce its other product
categories into those stores' merchandise mix where management deems such new
product introductions to be profitable. The Company has no current
understandings or agreements regarding potential acquisitions.

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<PAGE> 45

Further Develop Alternative Channels of Distribution. G.I. Joe's is
entering new distribution channels that the Company believes are suited to its
competitive strengths. For example, management believes that expansion
opportunities exist in the mail order catalog and Internet-based retail
distribution channels. As part of this expansion, the Company has completed a
test mailing of catalogs to 50,000 potential customers in the Pacific Northwest
and has developed the G.I. Joe's Online Store, a complete Internet store to sell
its products. The Company is planning additional catalogs for specific
categories of its merchandise, including bicycles, camping gear, backpacking
equipment, snowboards, skateboards and aftermarket automotive supplies. In
addition, in September 1998 the Company acquired Timberline Direct, a direct
marketing retailer which sells merchandise complementary to that offered by the
Company through catalog and Internet-based channels. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview." Management anticipates that use of these types of
alternative distribution channels will present additional up-selling and
cross-selling opportunities to the Company on a national level.

Examine Opportunities for National Expansion and Vertical
Integration. Management believes that the Company's experience in developing a
strong position in the Pacific Northwest and the fragmented nature of the sports
and automotive retail markets place it in a position to replicate its success in
other regions. Management further believes that the Company's sports and
automotive merchandise mix would prove equally effective in other regions,
particularly in the Northern and Central portions of the United States. The
Company intends to evaluate national expansion opportunities, particularly those
available by means of acquisitions and alternative distribution channels. The
Company also intends to explore vertical integration opportunities through the
acquisition of complementary manufacturing operations.

TARGET CUSTOMERS

The Company tailors its merchandise mix of full lines of sports and
automotive products to the active Pacific Northwest lifestyle. The majority of
the consumers of the Company's merchandise are males between the ages of 21 and
59 who engage in outdoor activities, especially field and stream activities, and
who perform light to medium work on their vehicles. While many of the products
carried by the Company are geared to traditionally male-oriented activities
(such as hunting and fishing), approximately 45% of the Company's customers are
women purchasing products for themselves, as women's participation in outdoor
and team activities increases, or for men. In response to increasing numbers of
female customers, the Company has expanded its women's activewear departments.
The Company is also in the process of adding active kids' clothing departments
to its stores.

MERCHANDISE

G.I. Joe's stores offer full lines of sports and automotive merchandise at
a wide range of retail price points. A typical store stocks over 75,000 active
SKUs (including different styles and colors as separate units). The Company
supplements its extensive selection of in-stock merchandise by means of a
special order department. The Company's understanding of the Pacific Northwest's
seasonal weather patterns and its customers' active lifestyles allows it to
stock merchandise that appeals to its customers' unique needs. The demographics
of consumers drawn to the Company's sporting goods and automotive product lines
are similar, which leads to significant cross-shopping between G.I. Joe's
sporting goods and automotive departments.

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<PAGE> 46

The following charts set forth the approximate percentage of sales and SKUs
attributable to each merchandise category during the 12-month period ended
January 31, 1999.

PERCENTAGE SALES BY PRODUCT CATEGORY TOTAL SKUS BY PRODUCT CATEGORY

[GRAPHIC] [GRAPHIC]

Sporting Goods

Sales of sporting goods have increased at an average annual rate of 5.8%
for the three fiscal years ended January 31, 1998 and the 12-month period ended
January 31, 1999, and such sales accounted for approximately 42% of the
Company's sales in the 12-month period ended January 31, 1999. The sporting
goods departments of the Company's stores carry equipment for, among other
activities, cycling, golf, tennis, outdoor games, snow skiing and snowboarding,
water skiing and water sports, kayaking and canoeing, camping, backpacking,
fishing, hunting, archery, team sports and general fitness. The sporting goods
departments also stock fishing boats and motors and marine accessories.

The Company sells leading name-brand products, including sporting goods
supplied by the following manufacturers, among others:

- - ALUMACRAFT
- - BAUSCH AND LOMB
- - COLEMAN
- - CLEVELAND GOLF
- - DIAMONDBACK
- - DYNASTAR
- - EUREKA
- - G-LOOMIS
- - GARCIA
- - HOSPORTS
- - HUFFY SPORT
- - JANSPORT
- - K2
- - MARKER
- - NORDICA
- - O'BRIEN
- - OLD TOWN
- - RAICHLE
- - RAWLINGS
- - RIDE
- - ROLLERBLADE
- - ROSSIGNOL
- - SALOMON
- - SPALDING
- - TOMMY ARMOUR
- - WILSON

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<PAGE> 47

Outdoor Apparel and Footwear

The Company's fastest growing department is the outdoor apparel and
footwear department, which also generates the highest gross margin for the
Company. Sales attributable to this department have grown at an average annual
rate of 4.5% for the three fiscal years ended January 31, 1998 and the 12-month
period ended January 31, 1999, and such sales accounted for approximately 32% of
the Company's sales in the 12-month period ended January 31, 1999. The outdoor
apparel and footwear department includes several categories of products: men's,
women's and youth sports and active wear; team-licensed apparel (with special
emphasis on Northwest professional and college teams); work clothing; outdoor
and rain wear; and ski and snowboard apparel. Footwear includes various types of
athletic shoes as well as seasonal footwear, "brown shoes" (i.e., leather
outdoor, non-athletic footwear) and hiking, fishing and hunting boots, including
waders and insulated pak boots.

The Company purchases outdoor apparel and footwear from leading sports and
apparel manufacturers such as:

- - ADIDAS
- - AIRWALK
- - ASICS
- - CARHART
- - CHAMPION
- - COLUMBIA SPORTSWEAR
- - DANNER
- - HELLY-HANSEN
- - LEVI STRAUSS
- - NIKE
- - PACIFIC TRAIL
- - REEBOK
- - ROFFE
- - RUSSELL ATHLETICS
- - SPEEDO
- - STARTER

- - THE NORTH FACE

- - TIMBERLAND

- - VANS
- - WOLVERINE
- - WOOLRICH

Automotive Aftermarket Parts and Accessories

Each G.I. Joe's store features a full-service automotive aftermarket parts
and accessory department. Sales by these departments have been relatively
unchanged for each of the three fiscal years ended January 31, 1998 and the
12-month period ended January 31, 1999, and such sales accounted for
approximately 20% of the Company's sales in the 12-month period ended January
31, 1999. These "stores-within-a-store" are divided into parts, accessories and
lube sections. The parts section carries a full selection of name-brand parts,
including brakes, shocks, tune-up, exhaust and engine parts and batteries, as
well as certain private label products. Merchandise in the accessory section
includes seat covers, floor mats, light truck and sport utility vehicle
accessories, recreational vehicle parts, supplies and accessories (including
chemical toilets, propane accessories, solar panels and recreational vehicle
hookup parts), lift equipment, engine additives, utility racks and custom parts
and accessories. The sport utility and recreational vehicle parts, supplies and
accessories merchandise categories are the Company's fastest growing merchandise
categories within this department. The lube section of this department offers
oil and antifreeze and generates year-round traffic for the Company's stores.
For the purpose of increasing sales of its automotive merchandise, the Company
hired a new Automotive Merchandise Manager in June 1998, and has implemented a
revised automotive merchandise marketing plan. This plan features lower everyday
prices made possible by a change in product lines and more aggressive
promotional strategies. The plan also calls for an update of the electronic
automotive parts look-up systems at all stores, which are intended to increase
the efficiency with which the Company serves its automotive parts customers.

The Company purchases name-brand automotive aftermarket parts and
accessories from leading manufacturers such as:

- - BOSCH
- - CHAMPION
- - FELPRO
- - FRAM
- - GNB
- - KENCO
- - LUND
- - MONROE
- - OMNIGUARD
- - PENNZOIL
- - PUROLATOR
- - STANDARD BATTERY
- - SUPERWINCH
- - SYLVANIA
- - VALVOLINE

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<PAGE> 48

Other Merchandise

The Company enhances its sporting goods and automotive merchandise mix with
related electronics equipment and other assorted merchandise. Sales of
electronics equipment and other assorted merchandise accounted for approximately
6% of the Company's sales in the 12-month period ended January 31, 1999. The
electronics department features name-brand electronic automotive accessories,
primarily for sports utility and recreational vehicles, and electronics suited
for an active lifestyle. Such products include auto alarms, CB and VHF radios,
cellular phones, radar detectors, compact stereos and CD players, car stereos,
personal electronics, sport watches, GPS (global positioning system) units and
marine and fishing electronics. The Company also offers a wide selection of
outdoor cooking and furniture merchandise on a seasonal basis.

TicketMaster

Each of the Company's retail locations includes a TicketMaster outlet,
which is located near the main entrance. During calendar 1998, the G.I. Joe's
TicketMaster outlets accounted for approximately 70% of all entertainment ticket
sales by ticket outlets in Oregon. These TicketMaster outlets offer tickets to
sporting events, concerts and plays as well as game licenses, ski lift tickets,
river running passes and snow park permits. Pursuant to an operating agreement
with TicketMaster-Oregon, the Company receives a percentage of the convenience
charges to which TicketMaster-Oregon is entitled under its own operating
agreement with TicketMaster Northwest for sales generated in G.I. Joe's Oregon
stores. The Company has established a similar arrangement directly with
TicketMaster Northwest with respect to its Washington stores. Revenue to the
Company generated by the TicketMaster outlets is generally offset by related
expenses, primarily for labor. The primary benefits to the Company of having
TicketMaster outlets in its stores are the increased foot traffic and
familiarity with the Company's store locations generated thereby. Norman P.
Daniels, the Company's Chairman of the Board, President and Chief Executive
Officer, is a partner in TicketMaster-Oregon. See "Certain Related
Transactions."

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<PAGE> 49

STORE CONCEPT

The Company has developed a successful open-ceiling, racetrack design
concept for its new and remodeled stores. This store concept offers a flexible
store footprint that uses floor space more efficiently and is designed to
enhance the customers' shopping experience by creating an inviting atmosphere.
High ceilings, bright lighting and wide aisles create an open, spacious
environment and increase customer traffic flow and exposure to merchandise.
Within each store, merchandise is organized by activity category, and each
department and product category is identified with extensive, easy-to-read
signage to facilitate access to the Company's major product lines. The store
layout increases floor space by decreasing the area used for back room and
office purposes. Increased selling-floor space typically is used for the
prominent display of soft goods and other high margin products. The store layout
also promotes cross-shopping by strategically placing complementary departments
adjacent to one another.

A map of the Company's typical store layout is set forth below.

[MAP OF STORE LAYOUT]
The Company changes its merchandise mix by season and shifts its seasonal
display areas to highlight high margin products, which result in increases in
same-store sales and gross and operating margins for stores which employ this
layout.

VENDORS, PURCHASING AND DISTRIBUTION

The Company offers its customers a changing mix of products supplied by
over 2,600 vendors. The Company considers numerous factors in selecting vendors,
including: customer demand for the vendor's

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<PAGE> 50

merchandise; product availability, quality and performance; vendor return
policies; and price and credit terms. Although the Company has no long-term
contracts with vendors for the purchase of merchandise, the Company has
developed strong working relationships with its vendors. These relationships,
together with the Company's high sales volume and strong regional presence,
frequently result in favorable volume discounts, additional advertising funds
and extended payment terms for the Company. The Company also receives volume
discounts and additional advertising funds as a result of its participation in
national buying groups. No vendor accounted for more than 5% of total purchases
by the Company in any of the three fiscal years ended January 31, 1998, and the
Company is not dependent on any vendor. The Company's ten largest vendors for
the fiscal year ended January 31, 1998, which accounted for approximately 24% of
the Company's purchases for such year, were Nike, Inc., Columbia Sportswear Co.,
All Sports Supply, Inc., Coleman Company, Inc., Coast Auto Supply, World Wide
Distributors, Remington Arms Co., Inc., Adidas U.S.A. Incorporated, Levi Strauss
& Company and Valvoline Incorporated. Although brand name products and
individual items are important to the Company's business, management believes
that competitive sources of supply are available in substantially all of the
merchandise categories that the Company carries. However, the Company competes
with other companies for the merchandise supplied by its vendors and many of
these other companies have substantially greater leverage and financial and
other resources than the Company. As a result, the Company may be unable to
obtain from its vendors adequate merchandise at the times or prices or in the
quantities it desires, if at all. See "Risk Factors -- Dependence on Vendors."

The Company's buying group utilizes three centralized buying teams: a
sporting goods team, an apparel and footwear team and an automotive parts and
accessories team. In addition, the Company has activity-based sub-teams (e.g.
skiing, fishing, hunting, etc.) to ensure that there is coordination between
equipment and apparel for certain activities. Each team is led by a merchandise
manager and is supported by individual category buyers, a store merchandiser and
an administrative assistant. The primary objective of the teams is to maintain
close relationships with vendors and store and department managers, and to
monitor changes in consumer preferences. Each buyer's performance is measured
against sales, inventory turns and gross margin targets.

The Company's purchasing system allows its buyers to ship inventory
directly to individual stores or to the Company's centralized, 150,000 square
foot distribution center located adjacent to the Company's headquarters. A
perpetual inventory system monitors each store's sales and replenishes the
inventory two or three times a week with shipments from the distribution center.
By monitoring SKU movements, the Company is able to optimize its purchasing and
maintain adequate amounts of merchandise at its distribution center. This system
has greatly reduced the levels of surplus inventory at the Company's retail
stores. Stores can obtain merchandise rapidly from the Company's distribution
center or can place special orders with vendors for items not held in inventory.

Approximately 80% of the merchandise purchased by the Company is shipped by
vendors to the Company's distribution center. The remaining merchandise is
shipped directly to individual stores. The Company makes two or three weekly
deliveries to its stores using its fleet of 3 leased tractors and 22 owned
trailers. Management believes this system is substantially less expensive than
drop shipping goods directly to its stores because it allows more timely
matching of store inventory needs, reduces each retail store's inventory
investment, allows better use of relatively higher cost store floor space and
reduces freight costs. Management believes that the distribution center has
sufficient capacity to support at least five additional stores, which would be
sufficient to support the Company's planned expansion in Washington for the next
two to three years. As the Company enters new markets and the geographic scope
of its operations increases, the Company will examine several options for
supplying new stores. Such options include increasing its use of direct vendor
deliveries and increasing its use of contract shipping to transport merchandise
to its retail stores from the distribution center. In addition, the Company may
establish one or more additional regional distribution centers as the Company
expands its operations beyond Oregon and Washington.

MARKETING, ADVERTISING AND PROMOTION

The Company's extensive marketing plan is designed to identify and promote
the Company as a major retailer of sports and automotive merchandise, and to
differentiate the Company from its competition by

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<PAGE> 51

emphasizing its extensive selection, excellent customer service and competitive
prices. The Company's marketing plan primarily targets males between the ages of
21 and 59, who make up the bulk of the consumers of the Company's merchandise.
The Company has highlighted its "Joe's" brand name in its advertisements in
recognition of its greater acceptability as a brand name in its markets. The
Company created its "Go to Joe's. Grab the Gear. Seize the Weekend." advertising
campaign to target its main customer base. Key components of the Company's
marketing program include multi-focus advertising via print, radio and
television, in-store, vendor-specific concept shops, sponsorship of high-profile
local sports and outdoors events and selective special promotional events.

The Company's advertising strategy allocates its advertising budget
approximately as follows: 62% print; 34% radio and television; and 4% event
advertising. The Company's print advertising campaign employs newspaper
advertisements (usually in the form of inserts or run of the press display
advertisements), catalogs (which are direct mailed to targeted households) and
coupon books (which are direct mailed to potential customers three times each
year). The Company produces several newspaper inserts annually, which are run in
various local newspapers. The Company's television and radio commercials
generally focus on seasonal messages to promote specific sales events, and
showcase two to three non-competing products.

The Company was an early proponent of vendor-sponsored concept shops.
Concept shops create a shopping environment that is consistent with the vendor's
specific image and enable the Company to display and stock a greater volume of
the vendor's products per square foot of retail space. The Columbia Sportswear
concept shops at the Company's Bend and Eugene, Oregon stores have increased
same-store sales of Columbia Sportswear products by as much as 45%. The
Company's stores feature two of the first 25 Adidas concept shops installed on
the West Coast. Installation of concept shops in the Company's stores as part of
the remodeling process boosts the potential for increasing sales and margins by
using the manufacturer's own fixtures and signage, and by targeting higher
margin products. As of January 31, 1999, the Company had over 28 concept shops
in its stores, including shops for Columbia Sportswear, Nike clothing, Woolrich,
Levi Strauss and Adidas.

Cooperative advertising is a vital part of the Company's advertising
strategy. The Company works closely with vendors to obtain cooperative
advertising funds. The Company's flexibility and mid-size market have led
vendors to make funds available in excess of normal allowances. Vendor funds
used to offset outside advertising costs amounted to approximately 35%, 46% and
42% of such costs in the fiscal years ended January 31, 1996, 1997 and 1998,
respectively. Vendor promotions further supplement the Company's marketing
efforts.

As part of its marketing efforts, the Company sponsors sporting and auto
racing events in the Pacific Northwest. These include the nationally televised
Budweiser/G.I. Joe's 200 Champ Car race, and the G.I. Joe's/Thriftway Portland
Invitational Golf Tournament. The Budweiser/G.I. Joe's 200 Champ Car race is one
of 19 such races held annually worldwide and is broadcast to over 61 million
viewers in 188 countries. This race was attended by more than 150,000 people in
1998, which is the largest attendance of any sporting event in Oregon. The
Company has sponsored this race for 15 years and will continue to sponsor the
race for at least two more years. As a major annual golf event in the Pacific
Northwest, the G.I. Joe's/Thriftway Portland Invitational Golf Tournament draws
professional golfers from around the country to compete. The Company has
sponsored the golf tournament for 12 years and intends to continue this
sponsorship for the foreseeable future. The Company is also a long-time radio
sponsor of Portland Trailblazers basketball games, which are broadcast on more
than 25 radio stations in Oregon and Washington, and hosts several in-arena
promotions during home games. In addition to reinforcing the effects of the
Company's marketing efforts in its local markets, these sponsorships give the
Company regional and national exposure it would not otherwise receive.

Part of the Company's annual promotion events include sales designed to
highlight the latest sports and automotive merchandise. The Company has four
major annual sales events: the Anniversary Sale, the Sidewalk Sale, the Fall
Kick-Off and the Thanksgiving Weekend Sale. Other significant promotions are
seasonal or target specific holidays and special events. These activities are
designed to promote the Company as a leading retailer of sports and automotive
merchandise in the Pacific Northwest.

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CUSTOMER SERVICE

The Company believes that the extensive product knowledge of its employees,
and its superior customer service and after-sale product support differentiate
G.I. Joe's from mass merchandisers and other large concept sporting goods and
automotive parts retailers. The Company strongly emphasizes the training of its
sales associates so that they are prepared to address customer inquiries and
assist with purchasing decisions. The Company trains its employees using
seminars, videos, vendor representative tours and product knowledge events. In
addition, the Company specially trains sales associates to serve female
customers shopping for traditionally male-oriented products. Key departments of
each store are supported by "Pro Staff" personnel who have met specified
technical requirements and have extensive sales and service experience. These
highly qualified specialists offer exceptional product knowledge and assistance
to customers.

The Company's Sports and Recreation Services Department provides customers
certain product assembly, installation, testing, repair and other support
services, as well as winter equipment rental services. The Company's service
technicians are trained and certified by merchandise manufacturers. A Sports and
Recreation Service Department located at the Company's distribution center
provides much of this support for the Portland metropolitan area. Additional
Sports and Recreation Service Departments are prominently included in a majority
of the Company's stores in geographic areas located outside the Portland area
and will be included in the Company's new and remodeled stores. The Sports and
Recreation Departments primarily offer services in connection with the sale of
high-quality branded merchandise.

MANAGEMENT INFORMATION SYSTEM

The Company makes significant expenditures with respect to its information
system in order to operate efficiently and to control costs. Expenditures for
the nine-month period ended October 31, 1998 and each of the three fiscal years
ended January 31, 1998 were $500,000, $587,000, $516,000 and $499,000,
respectively. The Company's IBM AS/400-based information system includes fully
integrated store, merchandising, distribution and financial systems and includes
a local area network and a sophisticated wide area network, on-line credit and
check authorization and electronic data exchange. The wide area network links
all store locations with the Company's headquarters and distribution center and
allows (i) direct communications to all store locations, (ii) point-of-sale
("POS") data collection and (iii) daily reporting of store sales. This system
provides an immediate link between the Company, its stores and its customers,
enhancing the Company's ability to monitor its performance against historical
and budgetary benchmarks, as well as to make better informed operational
decisions. Other in-store systems capture payroll hours and inventory receipts,
and maintain on-hand inventory quantities. The perpetual inventory reporting
system monitors, at cost and retail, all SKUs carried in inventory. This system
interfaces with the merchandising, receiving and POS systems to provide the
Company with accurate real-time inventory information which assists management
in implementing merchandise assortment, allocation and markdown decisions, as
well as decisions regarding future merchandise orders. Each day, the Company's
IBM AS/400 processes merchandise movement by SKU to automatically generate
orders for the Company's distribution center and stores. This is accomplished by
calculating the store inventory, comparing it to the desired inventory level and
ordering appropriately. The Company utilizes a series of Microsoft Windows NT
servers to run in-house developed applications and a variety of third-party
software and maintains a high-speed Internet connection which supports the G.I.
Joe's Online Store. An in-house information systems staff performs development,
programming and support services for the Company's information system.

The Company's information system allows the Company to efficiently
integrate new stores, as demonstrated by the recent addition of the Company's
Puyallup, Washington and Hillsboro, Oregon stores. The system is also capable of
expansion as needed to service additional locations. Although management
believes that the Company's operating systems will provide the Company with an
adequate platform to support its growth and expansion strategy for the
foreseeable future, the Company intends to continue to invest in its information
systems as necessary to remain competitive.

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COMPETITION

The markets for sports and automotive merchandise are highly competitive.
Within the sporting goods and outdoor apparel and footwear markets the Company
faces significant competition from national, regional and local retailers, as
well as from manufacturers' own retail stores (such as stores owned and operated
by Nike, Inc.). The Company's retail competitors in the sporting goods market
include, among others: large format sporting goods retailers which generally
operate stores larger than 50,000 square feet in size, such as Gart/Sportmart
and The Sports Authority, Inc.; traditional sporting goods retailers which
generally operate stores under 30,000 square feet in size, such as Big 5
Corporation, Copeland's Sports, Inc. and Recreational Equipment, Inc. (REI);
specialty sporting goods retailers which focus on high-end products relating to
a specific activity category, such as The Orvis Company, Inc.; and mass
merchandisers such as Wal-Mart, K-Mart, Target and Fred Meyer. The Company
competes with these companies, chains such as Foot Locker and with department
stores in the apparel and footwear markets. Within the automotive parts and
accessories markets the Company faces competition from: national chains such as
Shucks Auto Supply, Sears and NAPA; regional and local companies such as Thrifty
Auto Supply, Baxter's Auto Supply and Al's Auto Supply; and from mass
merchandisers with automotive departments, such as Wal-Mart, K-Mart, Target and
Fred Meyer. Many of the Company's competitors have substantially greater
financial, distribution, marketing and other resources and have achieved greater
name recognition than the Company. The primary competitive factors in the sports
and automotive markets are merchandise selection, quality and mix, price and
customer service. See "Risk Factors -- Competition."

ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATIONS

The Company is subject to federal, state and local laws and regulations
which affect its business, relating to, among other things, advertising, worker
safety and the use, storage, discharge and disposal of environmentally sensitive
materials. Although Company's management is not aware of any significant
environmental contamination at any of the Company's properties from its own or
prior activities at such locations or from neighboring properties, such
contamination may exist at such properties or at additional store sites or
facilities acquired or leased by the Company, and any such contamination could
have a material adverse effect on the Company's business, financial condition
and results of operations. Because the Company is subject to various local
zoning requirements with regard to the location and design of its stores, the
development or expansion of the Company's operations will be contingent upon the
timely receipt of required licenses, permits and other governmental
authorizations. The Company is also subject to laws and regulations in certain
jurisdictions which may restrict the sale of certain merchandise, such as
firearms, ammunition and shooting accessories. In addition, state and local
government regulation of hunting can also affect the sales of hunting equipment
by the Company. See "Risk Factors -- Environmental and Other Governmental
Regulation." The Company believes that it is in compliance in all material
respects with all laws, regulations and requirements that affect its business,
and that compliance with such laws, regulations and requirements does not impose
a material impediment on the Company's ability to conduct its business.

TRADEMARKS

The Company uses a number of trademarks in connection with the operation of
its business, primarily in connection with its private label products. The
Company's "G.I. Joe's" trademark is registered with the United States Patent and
Trademark Office. The Company's other trademarks are not registered. The
Company's private label trademarks include: "Power Plus," used for automobile
supplies such as oil, anti-freeze and batteries; "North X Northwest," used for
fishing rods; "Cotton Wear By Joe's" and "Rugged Wear By Joe's," used for
certain outdoor apparel; "Comfort Plus by Joe's" for casual wear; and "Power
Play By Joe's," which it intends to use for additional private label sports and
active wear apparel. See "Risk Factors -- Dependence on Trademarks."

PROPERTIES

The Company's retail stores range in size from 35,000 to 73,000 square
feet, with an average size of approximately 55,000 square feet. The Company
generally decides whether to construct its standard 55,000

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square foot store or a smaller 35,000 square foot version based upon the size of
the population of the surrounding community, with larger stores typically
serving local populations in excess of 50,000 people and smaller stores
typically serving smaller communities. The stores are either free standing units
or located in malls or strip centers which are easily accessible and provide
ample parking. G.I. Joe's stores are open seven days a week, typically from 9
a.m. to 9 p.m. All of the Company's retail store properties are leased. The
Company generally obtains long-term leases for its retail stores, with a minimum
initial term of 15 years and renewal options for up to an additional 10 years.
These leases generally provide for fixed monthly rental payments plus additional
amounts calculated as a percentage of income earned on the leased premises above
a given threshold. The aggregate annualized minimum rental commitment under the
Company's real estate leases for the 12-month period ended January 31, 1999 was
approximately $7.5 million. See Note 10 to Financial Statements. The 16 stores
currently operated by the Company are located in Oregon and Washington,
including eight in the Portland metropolitan area. An additional two stores are
scheduled to open in the Seattle/Puget Sound area of Washington, and an
additional store is scheduled to open in Longview, Washington, in calendar year
1999.

The following table includes certain information for each of the Company's
properties:

<TABLE>
<CAPTION>
DATE
REMODELED OR
SCHEDULED LEASE
SQUARE DATE PLACED REMODELING MATURITY TYPE OF STORE
LOCATION FOOTAGE IN SERVICE DATE(1) DATE LOCATION
-------- ------- ----------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
RETAIL STORES:
North Portland, Oregon............... 73,000 03/82 5/94 8/2008 Free-Standing
Tualatin, Oregon..................... 55,120 09/85 8/99 4/2013 Strip Center
Gresham, Oregon...................... 55,120 05/87 8/99 4/2013 Strip Center
Oak Grove, Oregon.................... 67,100 04/72 2/01 4/2013 Free-Standing
Beaverton, Oregon.................... 55,120 04/74 6/99 4/1999 Mall
Portland, Oregon..................... 55,120 03/79 2/02 2/2004 Strip Center
Hillsboro, Oregon.................... 55,000 08/98 New 7/2018 Strip Center
Vancouver, Washington................ 55,120 06/89 2/00 6/2014 Strip Center
South Salem, Oregon.................. 55,120 03/85 2/01 4/2013 Free-Standing
Salem, Oregon........................ 67,100 08/76 5/94 4/2013 Free-Standing
Albany, Oregon....................... 55,120 11/89 2/01 10/2014 Free-Standing
Eugene, Oregon....................... 55,120 03/83 10/95 12/2005 Free-Standing
Medford, Oregon...................... 48,500 03/86 2/00 10/2009 Strip Center
Bend, Oregon......................... 35,400 07/79 8/97 1/2018 Mall
Federal Way, Washington.............. 55,120 03/91 2/00 3/2021 Free-Standing
Puyallup, Washington................. 53,000 10/97 New 9/2017 Strip Center
DISTRIBUTION CENTER.................. 150,000 06/79 4/2013
HEADQUARTERS......................... 20,000 07/82 4/2013
</TABLE>

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

(1) Scheduled remodeling dates represent management's estimates of the dates
remodeling will commence. Actual commencement dates may differ from these
estimates.

In addition, the Company owns vacant parcels of land in Renton, Washington
and Grants Pass, Oregon. The Company is currently under contract to sell part of
the Renton property.

EMPLOYEES

As of January 31, 1999, the Company employed approximately 1,050 employees,
approximately 30% of whom worked part-time. The number of part-time employees
varies seasonally. The Company expects to increase its number of employees as it
expands its operations and hires additional employees to staff new stores. The
Company is not subject to any collective bargaining agreements and believes that
its relationships with its employees are good.

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<PAGE> 55

A typical G.I. Joe's store requires a store manager, a manager in training,
a training specialist, five department managers and 57 sales, merchandising and
support staff.

LEGAL PROCEEDINGS

From time to time the Company has been, and expects to continue to be,
subject to legal proceedings and claims in the ordinary course of its business.
Such claims, even if lacking merit, could result in the expenditure of
significant financial and managerial resources. The Company is not aware of any
legal proceedings or claims that it believes will have, individually or in the
aggregate, a material adverse effect on the Company's business, financial
condition or results of operations.

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<PAGE> 56

MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

The executive officers, directors and key employees of the Company and
their ages and positions as of January 31, 1999 are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Norman P. Daniels................ 50 Chairman of the Board, President and Chief
Executive Officer
Philip M. Pepin.................. 47 Vice President of Finance and Chief Financial
Officer
Edward A. Ariniello.............. 37 Vice President of Operations
Marc H. Mieher................... 35 Vice President of Information Services and
Chief Information Officer
Robert R. Ames................... 58 Director
David E. Orkney.................. 52 Director
Charles H. Putney................ 59 Director
Roy Rose......................... 40 Director

KEY EMPLOYEES
B.G. Eilertson................... 44 Merchandise Manager
David N. Fouts................... 44 Director of Planning and Logistics
Patrick E. Hortsch............... 43 Merchandise Manager
Dennis E. Irish.................. 48 Director of Advertising and Promotions
Ron J. Menconi................... 47 Merchandise Manager
Douglas B. Spink................. 27 General Manager of Direct Marketing
</TABLE>

EXECUTIVE OFFICERS AND DIRECTORS

Norman P. Daniels joined the Company in 1965. Mr. Daniels has been a
Director since 1975 and was named President of the Company in March 1992 and
Chief Executive Officer in January 1996. Mr. Daniels became Chairman of the
Board in June 1998. Mr. Daniels also has served as the Company's Advertising
Manager, Sporting Goods Merchandise Manager and Vice President of Merchandise
and Marketing.

Philip M. Pepin joined the Company in 1994 as Controller and was promoted
to Vice President of Finance and Chief Financial Officer in November 1996. Prior
to joining the Company, from 1990 to 1994 and from 1982 to 1988, Mr. Pepin
worked in public accounting with Arthur Andersen LLP in Portland, Oregon and
Seattle, Washington. In addition, from 1988 to 1990, Mr. Pepin served as
corporate controller of VWR Corporation, a wholesale distributor of scientific
and laboratory equipment. Mr. Pepin is a Certified Public Accountant.

Edward A. Ariniello joined the Company in 1982 and has worked in various
operations positions, including Department Manager, Warehousing and Store
Manager. Mr. Ariniello was promoted to Director of Training and Merchandising in
March 1994, and Vice President of Operations in December 1996.

Marc H. Mieher joined the Company in 1989 as Programmer/Analyst and was
promoted to Director of Information Services in May 1994 and to Vice President
of Information Services and Chief Information Officer on October 1, 1998.

Robert R. Ames has served as a director of the Company since February 1999.
From 1991 to 1995 Mr. Ames served as vice-chairman of First Interstate Bank of
Oregon. In addition, since 1978 Mr. Ames has developed and invested in real
estate on his own behalf. Mr. Ames serves on the board of directors of the
following companies: Barrett Business Services, Inc., Portland Bottling Company,
Golden Northwest Aluminum, Inc., David Evans and Associates, Inc. and Brooks
USA.

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<PAGE> 57

David E. Orkney has served as a Director of the Company since 1974, and
served as Chairman of the Board of Directors from 1976 until May 1998. Mr.
Orkney has served in various positions at the Company, including President from
1976 to 1992 and Chief Executive Officer from 1976 to 1996. Mr. Orkney founded
and has served as chief executive officer of Buckingham Investment Group, a
personal investment company, since December 1997.

Charles H. Putney has served as a director of the Company since February
1999. Since 1964 Mr. Putney has been employed with Paine Webber in various
positions. Since 1994 Mr. Putney has served as a Senior Vice President for Paine
Webber. In addition, Mr. Putney serves on the Advisory Board of the Oregon
Medical Laser Center at Saint Vincent Hospital.

Roy Rose has served as a Director of the Company since May 1998. Mr. Rose
founded and has served as the president and chief executive officer of Peregrine
Holdings (Oregon), Ltd. since 1991 and Peregrine Capital, Inc. since 1997. These
entities are involved in making investments in various businesses. Peregrine
Capital, Inc. is a principal shareholder of the Company and, together with
affiliated entities, has entered into various transactions with the Company. See
"Certain Related Transactions."

KEY EMPLOYEES

B.G. Eilertson joined the Company in 1972 and has held various operations
and merchandising positions with the Company, including Department Manager,
Assistant Store Manager and Sporting Goods Buyer. He was promoted to Merchandise
Manager for Sporting Goods in March 1996.

David Fouts joined the Company in 1974 and became Director of Planning and
Logistics in October 1995. From 1980 until 1995, Mr. Fouts served as a Store
Manager. From 1974 to 1979 he held positions in location retail and distribution
center management. Mr. Fouts is a member of APICS Resource Management
Educational Society.

Patrick E. Hortsch joined the Company in June 1998 as Merchandise Manager
for the Automotive Group. Prior to joining the Company, from January 1997 to
June 1998, Mr. Hortsch owned and operated a retail automotive parts store in
Vancouver, Washington. From 1986 to 1996, Mr. Hortsch was the executive vice
president of Team Marketing Inc., a manufacturer's representative firm and from
1982 to 1986 was a district manager for Rognlien, Wright & Harrison, Inc., a
manufacturer's representative firm. Mr. Hortsch has over 23 years of experience
in the automotive aftermarket industry.

Dennis E. Irish joined the Company in 1974 and has worked in various
positions, including Store Manager. In 1987, Mr. Irish became Advertising
Manager and in March 1992 was promoted to Director of Advertising and
Promotions.

Ron J. Menconi joined the Company in 1967 and has held various positions
with the Company, including Department Manager and Buyer. Mr. Menconi became
Merchandise Manager for Sporting Goods in 1989 and Merchandise Manager for
Apparel and Footwear, Cycling, Athletics, Fitness and Winter Sports in May 1992.
Mr. Menconi served as the inaugural president of the Oregon Ski Industry
Association from 1988 to 1996, and as a board member from 1992 to 1995. Mr.
Menconi has been serving as a director of the National Sporting Goods
Association since June 1998.

Douglas B. Spink has served as the General Manager of Direct Marketing
since September 1998, when the Company acquired Timberline Direct. Mr. Spink was
a founder and the President and Chief Executive Officer of Timberline Direct, a
catalog and Internet-based retailer, since May 1997. From March 1996 to April
1997, Mr. Spink served as Western Regional Director for Tessera Enterprise
Systems, a leading builder of database marketing systems for large direct
marketers. From October 1994 to March 1996, he was Vice President of Finance for
Ideon Group, a financial services company. Mr. Spink, who started his career as
a database marketing analyst with Leo Burnett & Co., has also served as a
strategic consultant with the Boston Consulting Group.

The Company has no employment or noncompetition agreements with any of its
employees other than Mr. Spink. See "-- Employment Agreement."

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<PAGE> 58

DIRECTOR COMMITTEES AND COMPENSATION

The Company will establish an Audit Committee and a Compensation Committee,
each of which will be comprised of independent directors. The Audit Committee
will review the functions of the Company's management and independent auditors
pertaining to the Company's financial statements and will perform such other
related duties and functions as are deemed appropriate by the Audit Committee
and the Board of Directors. The Compensation Committee will determine officer
and director compensation and administer the Company's compensation plans.

Directors who are employees of the Company receive no additional
compensation for their service as directors. Nonemployee directors will each
receive $1,000 for each Board of Directors meeting attended and $500 for each
committee meeting attended, plus reimbursement for travel expenses in attending
meetings. In addition, prior to the closing of the Offering, the Company intends
to grant nonqualified stock options to purchase 1,875 shares of Common Stock to
each nonemployee director which will be fully vested on the first anniversary of
the date of grant.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No executive officer of the Company serves as a member of the compensation
committee of any entity that has one or more executive officers serving as a
member of the Company's Board of Directors.

EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth certain information with respect to
compensation paid by the Company in the 12-month period ended January 31, 1999
to its Chief Executive Officer and the other executive officers of the Company
whose total annual salary and bonus exceeded $100,000 (collectively the "Named
Executive Officers").

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------- SECURITIES ALL OTHER
OTHER ANNUAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) OPTIONS (2)
--------------------------- -------- -------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Norman P. Daniels,
President and Chief Executive
Officer.............................. $250,000 $187,000 $12,000 -- $2,270
Philip M. Pepin,
Chief Financial Officer.............. 137,500 -- 8,400 26,250 2,352
David E. Orkney(3)
Chairman of the Board of Directors... 122,500 -- -- -- 1,725
Edward A. Ariniello
Vice President of Operations......... 110,000 -- 8,400 22,500 1,592
</TABLE>

- ---------------
(1) Consists of amounts paid for car allowance.

(2) Consists of Company matching contributions to the 401(k) Savings Plan.

(3) Mr. Orkney resigned as Chairman of the Board of the Company in May 1998.

57
<PAGE> 59

Option Grants in Last Fiscal Year

The following table sets forth certain information regarding stock options
granted to the Named Executive Officers during the 12-month period ended January
31, 1999.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO PER SHARE OPTION TERM(2)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ------------------------
NAME GRANTED FISCAL YEAR(1) PRICE DATE 5% 10%
---- ---------- -------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Norman P. Daniels........... -- -- -- -- -- --
Philip M. Pepin............. 26,250 8.2 10.67 11/30/2008 $176,146 $446,387
David E. Orkney............. -- -- -- -- -- --
Edward A. Ariniello......... 22,500 7.0 10.67 11/30/2008 150,975 382,618
</TABLE>

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

(1) Based on a total of 319,350 shares subject to options granted to employees
in the 12-month period ended January 31, 1999.

(2) The assumed rates of growth are prescribed by the Securities and Exchange
Commission (the "Commission") for illustrative purposes only and are not
intended to forecast or predict future stock prices.

Year-End Option Values

No options were exercised by the Named Executive Officers during the
12-month period ended January 31, 1999. The following table sets forth certain
information regarding unexercised stock options held by the Named Executive
Officers as of January 31, 1999.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END(1)
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Norman P. Daniels................... -- -- -- --
Philip M. Pepin..................... 12,464 26,250 $79,645 --
David E. Orkney..................... -- -- -- --
Edward A. Ariniello................. 2,876 22,500 16,604 --
</TABLE>

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

(1) Calculated based on the difference between the exercise price and the
assumed initial public offering price of $9.00 per share (the mid-point of
the range set forth on the cover page of this Prospectus).

RETIREMENT AND CERTAIN OTHER BENEFIT PLANS

Defined Benefit Pension Plan

The Company established a defined benefit retirement plan (the "Pension
Plan"), effective March 1, 1976, which is intended to be qualified under Section
401(a) of the Code. The Pension Plan covers all non-union employees who have
both attained the age of 21 and completed one year of service with the Company.

The Pension Plan generally provides each participant with a retirement
benefit in an amount equal to the benefit accrued by such participant as of
February 28, 1993, under the terms of the Pension Plan as then in effect, plus
the sum of 1.1% of such participant's annual compensation and .364% of the
participant's excess compensation for each plan year of participation in the
plan during which the participant completes at least 1,000 hours of service with
the Company. A participant's annual compensation generally is the participant's
compensation for the plan year for federal income tax withholding purposes,
except that for the plan year commencing March 1, 1993, a participant's annual
compensation is limited to $235,840 and for plan years commencing after February
28, 1994, a participant's annual compensation is limited to $150,000 (plus
cost-of-living increases promulgated by the Internal Revenue Service). A
participant's excess contribution for a plan year is the amount of such
participant's annual compensation for such plan year in excess of the social
security taxable wage base in effect under Section 230 of the Social Security
Act for the calendar year in which such

58
<PAGE> 60

plan year begins. A plan year is the 12-consecutive-month period beginning each
March 1. The formula set forth above calculates benefits in the form of a single
life annuity (payable for the participant's lifetime) with a 10-year term
commencing at age 65. If a participant's benefit is distributed in a form other
than a single life annuity with a 10-year term or commencing prior to the
participant's 65th birthday, the benefit amount will be the actuarial equivalent
of such an annuity. Actuarial adjustments may also be made to a participant's
benefit, if that benefit commences after the participant's 65th birthday.

The Pension Plan provides for full vesting of benefits upon the earliest of
the participant's completion of five years of service with the Company,
attainment of age 65 while employed by the Company or death while employed by
the Company. Payment of the participant's vested benefit will generally commence
upon the latest of the participant's separation from service, attainment of age
55 or completion of a distribution request.

The Company funds at least the minimum annual contribution required under
Section 412 of the Code and the Employee Retirement Income Security Act of 1974,
as amended. Effective February 28, 1999, the Company will freeze future benefit
accruals under the Pension Plan.

The estimated annual benefit (calculated as a single life annuity with a
10-year term) payable under the Pension Plan upon retirement at normal
retirement age (age 65) for each of the Named Executive Officers, based on their
fiscal 1998 compensation levels, are as follows:

<TABLE>
<CAPTION>
ESTIMATE OF
NAME ANNUAL BENEFIT
---- --------------
<S> <C>
Norman P. Daniels $60,882
Philip M. Pepin 3,790
David E. Orkney 71,142
Edward A. Ariniello 6,597
</TABLE>

401(k) Savings Plan

The G. I. Joe's, Inc. Savings Plan (the "Savings Plan"), established in
1991, is intended to be qualified under Sections 401(a) and 401(k) of the Code.
The Savings Plan covers all non-union employees who have both attained age 21
and completed one year of service with the Company. Subject to certain
limitations imposed by the Code and the regulations promulgated thereunder,
under the Savings Plan, employees may contribute up to 15% of their compensation
each calendar year on a pre-income-tax basis and the Company may make matching
contributions in such amount as it determines each calendar year. Only the first
6% of compensation deferred by a participant during a calendar year will be
taken into account for purposes of allocating any matching contributions made by
the Company for such year. In addition, the Company may make supplemental
contributions for any calendar year in such amount as it determines.
Supplemental contributions are allocated among eligible participants in
proportion to their compensation. Only participants who have completed 1,000
hours of service with the Company during the calendar and are employed with the
Company on the last day of such year and participants whose employment with the
Company terminated during the calendar year on account of their retirement,
disability or death are eligible to share in the Company's supplemental
contributions for such calendar year. The Company's matching and supplemental
contributions to the Savings Plan for the fiscal years ended January 31, 1997
and 1998 and for the 12-month period ended January 31, 1999 totaled $103,000,
$109,000 and $120,000, respectively.

1998 Stock Incentive Compensation Plan

In July 1998, the Company adopted the 1998 Plan. The purpose of the 1998
Plan is to enhance the long-term shareholder value of the Company by offering
employees, directors, officers, consultants, agents, advisors and independent
contractors of the Company an opportunity to participate in the Company's growth
and success, and to encourage them to remain in the service of the Company and
acquire and maintain stock ownership in the Company. The 1998 Plan includes both
stock options and stock awards, including restricted stock. A maximum of 800,000
shares of Common Stock are subject to the 1998 Plan. As of January 31, 1999,
371,125 shares of Common Stock were issuable upon the exercise of outstanding
stock options under the 1998 Plan, with a weighted average exercise price of
$9.53 per share, and 428,875 shares were reserved for future

59
<PAGE> 61

grants. Of such outstanding options, options exerciseable for 51,775 shares of
Common Stock were issued under a prior stock option plan of the Company and
rolled over into the 1998 Plan when it was adopted in July 1998. These
outstanding options include options granted to Philip M. Pepin, the Company's
Chief Financial Officer, for 12,464 shares of Common Stock with a weighted
average exercise price of $2.61 per share, and options granted to Edward A.
Ariniello, the Company's Vice President of Operations, for 2,876 shares of
Common Stock with an exercise price of $3.23 per share.

Stock Option Grants. The Plan Administrator of the 1998 Plan is currently
the Company's Board of Directors, which has the authority to select individuals
who are to receive options under the 1998 Plan and to specify the terms and
conditions of each option granted (incentive or nonqualified), the exercise
price (which, for incentive stock options, must be at least equal to the fair
market value of the Common Stock on the date of grant), the vesting provisions
and the option term. For purposes of the 1998 Plan, fair market value means the
closing sale price of the Common Stock as reported on the Nasdaq National Market
on the date of grant. Unless otherwise provided by the Plan Administrator, and
to the extent required for incentive stock options by the Code, an option
granted under the 1998 Plan will expire 10 years from the date of grant or, if
earlier, three months after the optionee's termination of service, other than
termination for cause, or one year after the optionee's retirement, early
retirement at the Company's request, death or disability. Once established, the
Compensation Committee of the Board of Directors will serve as the Plan
Administrator.

Stock Awards. The Plan Administrator is authorized under the 1998 Plan to
issue shares of Common Stock to eligible participants on such terms and
conditions and subject to such restrictions, if any, as the Plan Administrator
may determine in its sole discretion. Restrictions may be based on continuous
service with the Company or its subsidiaries or the achievement of such
performance goals as the Plan Administrator may determine. Holders of restricted
stock are recorded as shareholders of the Company and have, subject to certain
restrictions, all the rights of shareholders with respect to such shares.

Adjustments. Proportional adjustments to the aggregate number of shares
issuable under the 1998 Plan and to outstanding awards will be made for stock
splits and other capital adjustments.

Corporate Transactions. In the event of certain Corporate Transactions (as
defined below), each outstanding option and restricted stock award under the
1998 Plan will automatically accelerate so that it will become fully vested
immediately before the Corporate Transaction, except that acceleration will not
occur if such option or restricted stock award is, in connection with the
Corporate Transaction, to be assumed by the successor corporation or parent
thereof. Any option or restricted stock award granted to an "executive officer"
(as defined below) that is assumed or replaced in the Corporate Transaction and
does not otherwise accelerate at that time shall be accelerated in the event the
executive officer, for Good Reason (as defined below), or the successor
corporation, without cause, terminates the executive officer's employment or
services within two years following such Corporate Transaction.

As used in this paragraph, the term "Corporate Transaction" means any of
the following events: (a) consummation of any merger or consolidation of the
Company in which the Company is not the continuing or surviving corporation, or
pursuant to which shares of Common Stock are converted into cash, securities or
other property, if following such merger or consolidation the holders of the
Company's outstanding voting securities immediately prior to such merger or
consolidation own less than 66 2/3% of the outstanding voting securities of the
surviving corporation; (b) consummation of any sale, lease, exchange or other
transfer in one transaction or a series of related transactions of all or
substantially all of the Company's assets other than a transfer of the Company's
assets to a majority-owned subsidiary corporation of the Company; (c) approval
by the holders of the Common Stock of any plan or proposal for the liquidation
or dissolution of the Company; or (d) acquisition by a person of a majority or
more of the Company's outstanding voting securities (whether directly or
indirectly, beneficially or of record). The term "executive officer" means the
Company's president, principal financial officer, principal accounting officer
(or, if there is no such accounting officer, the controller), any vice president
of the Company in charge of a principal business unit, division or function
(such as sales, administration or finance), any other officer who performs a
policy-making function, or any other person who performs similar policy-making
functions for the Company. The term "Good Reason" means the occurrence of any of
the following events or conditions and the failure of the successor corporation
to the Company

60
<PAGE> 62

after a Corporate Transaction (or the parent company of such successor
corporation) to cure such event or condition within 30 days after receipt of
written notice by the option holder: (a) a change in the holder's status, title,
position or responsibilities (including reporting responsibilities) that, in the
holder's reasonable judgment, represents a substantial reduction in the status,
title, position or responsibilities as in effect immediately prior thereto; the
assignment to the holder of any duties or responsibilities that, in the holder's
reasonable judgment, are materially inconsistent with such status, title,
position or responsibilities; or any removal of the holder from or failure to
reappoint or reelect the holder to any of such positions, except in connection
with the termination of the holder's employment for cause, for disability or as
a result of his or her death, or by the holder other than for Good Reason; (b) a
reduction in the holder's annual base salary; (c) the successor corporation's
requiring the holder (without the holder's consent) to be based at any place
outside a 50-mile radius of his or her place of employment prior to a Corporate
Transaction, except for reasonably required travel on the successor
corporation's business that is not materially greater than such travel
requirements prior to the Corporate Transaction; (d) the successor corporation's
failure to (i) continue in effect any material compensation or benefit plan (or
the substantial equivalent thereof) in which the holder was participating at the
time of a Corporate Transaction, including, but not limited to, the 1998 Plan,
or (ii) provide the holder with compensation and benefits substantially
equivalent (in terms of benefit levels and/or reward opportunities) to those
provided for under each material employee benefit plan, program and practice as
in effect immediately prior to the Corporate Transaction; (e) any material
breach by the successor corporation of its obligations to the holder under the
1998 Plan or any substantially equivalent plan of the successor corporation; or
(f) any purported termination of the holder's employment or service for cause by
the successor corporation that does not comply with the terms of the 1998 Plan
or any substantially equivalent plan of the successor corporation.

Employee Stock Purchase Plan

In January 1999, the Company amended and restated the Company's 1998
Employee Stock Purchase Plan (as amended and restated, the "ESPP"). No shares
have been issued under the ESPP. The Company intends for the ESPP to qualify
under Section 423 of the Internal Revenue Code of 1986, as amended. The ESPP
permits the eligible employees of the Company and its subsidiaries to purchase
Common Stock through payroll deductions of up to 10% of their cash compensation.
The Company will implement the ESPP with six-month offering periods, except that
the first offering period will begin April 1, 1999 and end on June 30, 1999.
Subsequent offering periods will begin on each January 1 and July 1. Under the
ESPP, no employee may purchase Common Stock worth more than $25,000 in any
offering period or in any calendar year, valued as of the first day of each
offering period. In addition, owners of 5% of more of the combined voting power
or value of all classes of stock of the Company or a subsidiary of the Company
may not participate in the ESPP. The Company authorized the issuance of a total
of 300,000 shares of Common Stock under the ESPP, plus an automatic increase on
the first day of the Company's fiscal year beginning in 2000 and each
anniversary thereafter that will be equal to the lesser of (i) 10,500 shares;
(ii) 0.125% of the average common shares outstanding as used to calculate fully
diluted earnings per share as reported in the Annual Report to shareholders for
the preceding fiscal year; or (iii) a lesser amount determined by the Company's
Board of Directors. Any unissued shares resulting from increases in previous
years will be added to the aggregate number of shares available for issuance
under the ESPP.

The price of the Common Stock purchased under the ESPP will be the lesser
of 85% of the fair market value on the first day of an offering period and 85%
of the fair market value on the last day of an offering period. The ESPP will
terminate in January 2009, but the Board of Directors may terminate it at any
earlier time. The Company has not issued any shares of Common Stock under the
ESPP.

In the event of a merger or proposed sale of all or substantially all of
the Company's assets, the ESPP provides that each outstanding option to purchase
shares under the ESPP will be assumed or an equivalent option substituted by the
successor corporation. If the successor corporation refuses to assume or provide
an equivalent substitute for the option, the offering period during which a
participant may purchase stock will be shortened to a specified date before the
merger or proposed sale. In the event of a proposed liquidation or

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<PAGE> 63

dissolution of the Company, the offering period during which a participant may
purchase stock will be shortened to a specified date before the date of the
proposed liquidation or dissolution.

Employment Agreement

As part of the Timberline Direct acquisition, the Company entered into an
employment agreement with Douglas B. Spink, an executive officer and a majority
shareholder of Timberline Direct. Mr. Spink serves as the Company's General
Manager of Direct Marketing. The employment agreement, which continues until
January 31, 2004 unless earlier terminated, provides for an annual base salary
of $100,000 for Mr. Spink. It also provides for an annual bonus for Mr. Spink in
an amount equal to 0.6% of the annual sales for the Company's catalog and
Internet-based sales division, but only if certain net profit and sales
thresholds are achieved. The net profit thresholds are calculated before income
taxes and bonus payments to this employee and range from 10% to 15% of sales for
the Company's catalog and Internet-based sales division; the minimum sales
thresholds range from $5.5 million to $30.0 million. The employment agreement
may be terminated by the Company at any time, generally upon notice. However, if
Mr. Spink is terminated without cause, the agreement provides that his base
salary will continue to be paid through January 31, 2004, as will bonuses in
annual amounts equal to the average of bonuses paid prior to termination of
employment. Mr. Spink also entered into a noncompetition agreement that contains
noncompetition, nonsolicitation and confidentiality provisions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."

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<PAGE> 64

CERTAIN RELATED TRANSACTIONS

Prior to the Offering, the Company entered into transactions and business
relationships with certain of its officers, directors and 5% shareholders. Any
future transactions between the Company and its officers, directors and 5%
shareholders will be subject to approval by a majority of the Company's
disinterested directors and will be on terms no less favorable to the Company
than would be available from unaffiliated third parties.

TicketMaster-Oregon, a partnership whose partners have included, among
others, Norman Daniels, the Company's Chairman of the Board, President and Chief
Executive Officer, David Orkney, a Director of the Company, and former
shareholder and officer Wayne Jackson ("TicketMaster-Oregon"), has entered into
an operating agreement with TicketMaster Northwest. TicketMaster-Oregon has
placed TicketMaster outlets which are operated by the Company in all of the
Company's Oregon stores. The Company receives a percentage of the convenience
charges to which TicketMaster-Oregon is entitled under its own operating
agreement with TicketMaster Northwest for sales generated in G.I. Joe's Oregon
stores. The Company has established a similar arrangement directly with
TicketMaster Northwest with respect to its Washington stores. For the 12-month
periods ended January 31, 1997, 1998 and 1999, TicketMaster-Oregon received an
aggregate of approximately $284,000, $280,000 and $294,000, respectively, from
TicketMaster fees. Prior to February 1, 1999, Messrs. Daniels, Orkney and
Jackson each beneficially owned 20% of TicketMaster-Oregon. As of February 1,
1999, Mr. Daniels' beneficial ownership increased to 50% and Messrs. Orkney and
Jackson are no longer partners in Ticketmaster-Oregon. Revenue to the Company
generated by the TicketMaster outlets is generally offset by related expenses,
primarily for labor. The primary benefits to the Company of having TicketMaster
outlets in its stores are the increased foot traffic and familiarity with the
Company's store locations generated thereby. See
"Business -- Merchandise -- TicketMaster."

In July 1994, the Company loaned $181,788, $97,769 and $127,791 to Messrs.
Daniels, Orkney and Jackson, respectively. Each loan was made pursuant to a
promissory note with an annual interest rate equal to the Applicable Federal
Rate determined by the Internal Revenue Service, and which required minimum
annual payments of $10,000 each year until all interest and principal was paid
in full. Mr. Jackson repaid his loan in full upon termination of employment with
the Company in connection with the Reorganization in May 1998. In November 1995,
the Company loaned Mr. Daniels an additional $37,735 and from April 1996 through
April 1997, the Company loaned Mr. Orkney an additional $99,970, each on the
same terms described above. Just prior to the Reorganization, the outstanding
balances of Mr. Daniels' and Mr. Orkney's indebtedness to the Company were
approximately $187,000 and $132,000, respectively. In April 1998, the Company
awarded a bonus payment to Mr. Daniels which was paid by canceling his
indebtedness of $187,000. In connection with the Reorganization, the Company
forgave Mr. Orkney's indebtedness to the Company.

In July 1994, the Company loaned approximately $5.6 million in the
aggregate to two partnerships in which Messrs. Daniels, Orkney and Jackson were
three of four partners (the "Henway Partnerships") to refinance two parcels of
real estate upon which are located the Company's stores in Vancouver, Washington
and Albany, Oregon. Each partner held a 25% interest in each Henway Partnership.
The Henway Partnerships leased these properties to the Company. These loans
accrued interest at Bank of America's prime rate plus 2.5% per year, and were
due in August 1996. The Henway Partnerships repaid all amounts outstanding under
these loans in January 1996, other than $257,849, which was refinanced pursuant
to a promissory note from one of the Henway Partnerships in favor of the
Company, with an annual interest rate of 10.5% and a 60-month payment schedule.
The leases for the Vancouver and Albany stores were entered into in June and
November 1989, respectively, and each has a 25-year term and a 10-year renewal
option. Base rental payments under these leases are $385,836 and $391,344 per
year for the Vancouver and Albany locations, respectively, on a triple-net
basis. In addition, the Company is obligated to pay additional rent for the
Vancouver and Albany stores in the amount of 1.5% of gross receipts in excess of
approximately $15.3 million and $11.9 million, respectively, but has not been
required to pay any such additional rent in the last three fiscal years. The
Company believes the leases for the Vancouver and Albany stores were entered
into on terms no less favorable to the Company than would have been obtained
from unaffiliated third parties. In December 1998, the Henway Partnerships were
terminated and the former partners entered into a co-tenancy agreement with
respect to these parcels of real estate.

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<PAGE> 65

In April 1998, in connection with the Reorganization, the Company sold two
parcels of real estate to PD Properties, LLC ("PD"), an Oregon limited liability
company affiliated with Roy Rose, a Director of the Company and a director and
the president and chief executive officer of Peregrine, a principal shareholder
of the Company. Linda Rose, Mr. Rose's wife, has a controlling interest in both
PD and Peregrine. PD paid approximately $2.7 million in the aggregate to the
Company for the South Salem, Oregon store location and for the Company's vacant
land located in Forest Grove, Oregon (the "PD Real Properties"). The Company
leases the South Salem property from PD pursuant to a lease which commenced in
April 1998 (the "PD Lease"). The initial term of the PD Lease is 15 years, with
two renewal options of 5 years each. Rental payments under the PD Lease consist
of a base rent of $385,836 per year on a triple net basis. The base rent will be
adjusted every five years based on changes in the consumer price index. The PD
Lease is in substantially the same form as the six leases (the "Non-PD Leases")
entered into with an unaffiliated party in connection with the sale and
lease-back of the Company's owned store locations consummated in connection with
the Reorganization. The Company believes the PD Lease was entered into on terms
no less favorable to the Company than would have been obtained from an
unaffiliated third party. In connection with the Reorganization, four
individuals associated with Peregrine, including Mr. Rose and his spouse, agreed
to guarantee the Company's performance of its obligations under the Non-PD
Leases. Aggregate annual base rent under the Non-PD Leases is approximately $3.0
million. This guarantee will expire upon the closing of an initial public
offering of the Company's Common Stock. PD received a fee of $1.0 million in
connection with the sale of the properties subject to the Non-PD Leases, which
fee was credited against the purchase price for the PD Real Properties.

As stated above, Roy Rose, a Director of the Company, is a director and the
president and chief executive officer of Peregrine, a principal shareholder of
the Company. Mr. Rose's wife, Linda Rose, has a controlling interest in
Peregrine. In connection with the Reorganization, Peregrine purchased $1.45
million of Subordinated Notes from the Company. Peregrine exchanged $1.0 million
of the Subordinated Notes for common stock of ND Holdings, Inc. ("Holdings"),
which was converted into 267,674 shares of the Company's Common Stock in the
Merger. Peregrine exchanged the remaining $450,000 of the Subordinated Notes for
preferred stock and a warrant to purchase common stock of Holdings. In the
Merger, the shares of preferred stock of Holdings were converted into 4,500
shares of the Company's Redeemable Preferred Stock and the warrant was converted
into 30,682 shares of the Company's Common Stock. See "The Reorganization." For
services rendered in connection with the Reorganization, Peregrine received an
additional warrant exercisable for shares of Holdings common stock (the "Master
Warrant"), which in the Merger was converted into 1,196,727 shares of the
Company's Common Stock. Prior to the Merger, Peregrine assigned to various
unaffiliated third parties a portion of the Master Warrant which otherwise would
have entitled Peregrine to 228,067 shares of the Company's Common Stock issuable
upon conversion of the Master Warrant. Peregrine has certain registration rights
with respect to the shares of the Company's Common Stock it received in exchange
for the Holdings warrants. See "Description of Capital Stock -- Registration
Rights." Peregrine purchased from another Investor 250,000 shares of Holdings
preferred stock, which in the Merger were converted into 2,500 shares of
Redeemable Preferred Stock. All outstanding shares of Redeemable Preferred Stock
will be redeemed for $100 per share using proceeds from the Offering. See "Use
of Proceeds." Peregrine has agreed to pay certain accounting, legal and other
expenses in connection with the Reorganization, paid a fee of $100,000 to David
Orkney to induce him to extend the terms of his agreement regarding the sale of
his interest in the Company and agreed to reimburse the Company for all
dividends paid on the Company's Redeemable Preferred Stock. In addition,
Peregrine has agreed to purchase from the Investors all outstanding shares of
the Company's Redeemable Preferred Stock for $8.5 million, plus accumulated
dividends, if the Company does not complete, prior to May 8, 1999, an initial
public offering of its Common Stock with net proceeds to the Company of at least
$12.0 million. See "The Reorganization."

In October 1998, the Company and Peregrine entered into an agreement that
provides that Peregrine will act as a non-exclusive independent representative
of the Company to identify potential acquisition or investment candidates and
assist in completing any such acquisitions or investments the Company chooses to
pursue. As compensation for Peregrine's services, the Company has agreed to pay
to Peregrine 4% of the gross amount of all cash and non-cash fees and
consideration paid by the Company or any of its affiliates as a result of or
directly related to any transaction between the Company and candidates
identified by Peregrine that is

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<PAGE> 66

completed within the term of the agreement or one year thereafter. The agreement
terminates on October 31, 2003, unless earlier terminated by either party upon
at least 30 days' notice to the other party.

In connection with the Reorganization, in May 1998 the Company redeemed all
of Mr. Orkney's outstanding shares of Common Stock in the Company for an
aggregate purchase price of approximately $13.9 million. In addition, the
Company issued to Mr. Orkney a warrant to purchase a number of shares equal to
5% of the Company's Common Stock outstanding, on a fully-diluted basis, at the
time of exercise at a purchase price equal to 70% of the fair market value of
the Common Stock on the exercise date. Mr. Orkney has certain registration
rights with respect to the Common Stock issuable upon exercise of the warrant.
See "The Reorganization" and "Description of Capital Stock -- Registration
Rights." The Company also entered into an agreement with Mr. Orkney pursuant to
which Mr. Orkney received a $140,000 bonus in May 1998 (consisting of $132,000
in debt forgiveness and a Company car with an estimated value of $8,000) and
will be paid an additional $150,000 over the following two years ($100,000 of
which is to be paid in 12 equal monthly installments during the first year, and
the remaining $50,000 of which is to be paid in 12 equal monthly installments
during the second year). During the first year, Mr. Orkney will also receive a
car allowance in accordance with the Company's past practice as well as health
insurance and certain other benefits. Mr. Orkney's mother and sister received
compensation from the Company for the last three fiscal years in the aggregate
amounts of approximately $105,000 and $59,000, respectively. The Company stopped
making such payments in May 1998.

In connection with the Reorganization, the Company redeemed all of Mr.
Jackson's outstanding shares of Common Stock for approximately $977,000 (at the
same price per share offered to the Company's other shareholders, excluding the
warrant issued to Mr. Orkney). The Company also repurchased Mr. Jackson's
outstanding options exercisable for 511,021 shares of the Company's Common Stock
for approximately $2.3 million. The Company issued to Mr. Jackson a promissory
note in the amount of approximately $283,000 in partial payment of the purchase
price for such options. This promissory note is due in July 1999, and does not
bear interest, except after maturity or default.

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<PAGE> 67

PRINCIPAL SHAREHOLDERS

The following table sets forth, as of January 31, 1999, certain information
with respect to the beneficial ownership of the Company's Common Stock by (i)
each person (or group of affiliated persons) known by the Company to
beneficially own more than a number of shares equal to 5% of the Common Stock,
(ii) each director of the Company, (iii) each of the Named Executive Officers
and (iv) all of the Company's directors and executive officers as a group.
Except as otherwise indicated, the Company believes that the beneficial owners
of the Common Stock listed below, based on information furnished by such owners,
have sole voting and investment power with respect to such shares.

<TABLE>
<CAPTION>
PERCENTAGE OF COMMON STOCK
SHARES BENEFICIALLY --------------------------------
NAME AND ADDRESS OWNED(1) BEFORE OFFERING AFTER OFFERING
---------------- ------------------- --------------- --------------
<S> <C> <C> <C>
Norman P. Daniels(2)..................... 2,409,063 52.6% 34.0%
c/o G.I. Joe's, Inc.
9805 S.W. Boeckman Road
Wilsonville, OR 97070
Roy Rose(3).............................. 1,249,970 27.3 17.7
c/o Peregrine Capital, Inc.
9725 S.W. Beaverton-Hillsdale Highway,
#350
Beaverton, OR 97005
Peregrine Capital, Inc.(3)............... 1,249,970 27.3 17.7
9725 S.W. Beaverton-Hillsdale Highway,
#350
Beaverton, OR 97005
David E. Orkney(4)....................... 260,362 5.0 5.0
2562 S.W. Buckingham Avenue
Portland, OR 97201
Philip M. Pepin(5)....................... 12,464 * *
c/o G.I. Joe's, Inc.
9805 S.W. Boeckman Road
Wilsonville, OR 97070
Edward A. Ariniello(5)................... 2,876 * *
c/o G.I. Joe's, Inc.
9805 S.W. Boeckman Road
Wilsonville, OR 97070
Charles Putnam........................... -- * *
c/o G.I. Joe's, Inc.
9805 S.W. Boeckman Road
Wilsonville, OR 97070
Robert Ames.............................. -- * *
c/o G.I. Joe's, Inc.
9805 S.W. Boeckman Road
Wilsonville, OR 97070
All directors and executive officers as a
group
(eight persons)(6)..................... 3,934,735 81.1 52.6
</TABLE>

- ---------------
* Less than 1%.

(1) Beneficial ownership is determined in accordance with rules of the
Commission and includes shares over which the indicated beneficial owner
exercises voting and/or investment power. Shares of Common Stock subject to
options or warrants currently exercisable or exercisable within 60 days are
deemed outstanding for purposes of computing the percentage ownership of the
person holding the options or warrants, but are not deemed outstanding for
computing the percentage ownership of any other person.

(2) Includes 4,000 shares owned by Mr. Daniels' children.

(3) Consists entirely of shares beneficially owned by Peregrine, of which Mr.
Rose is the president and chief executive officer. Includes up to 17,045
shares of Common Stock which Peregrine is entitled to repurchase from a
lender upon prepayment of a loan.

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<PAGE> 68

(4) Consists solely of shares to be issued upon exercise of the Orkney Warrant,
which is exercisable for a number of shares equal to 5% of the Company's
Common Stock outstanding, on a fully diluted basis, on the date of exercise
at an exercise price equal to 70% of the fair market value of the Common
Stock on the exercise such date. The number of shares listed in the table is
based upon a total of (i) 5,207,247 shares of Common Stock outstanding
before the closing of the Offering on a fully-diluted basis (including
260,362 shares issuable upon exercise of the Orkney Warrant) and (ii)
7,838,826 shares outstanding after the Offering on a fully-diluted basis
(including 391,941 shares issuable upon exercise of the Orkney Warrant if it
is not exercised prior to the closing of the Offering).

(5) Consists solely of shares subject to options exercisable within 60 days.

(6) Includes (i) 15,340 shares subject to options exercisable within 60 days,
(ii) 1,249,970 shares beneficially owned by Peregrine (see Note 3 above) and
(iii)(a) 260,362 shares issuable upon exercise of the Orkney Warrant before
the closing of the Offering (based upon a total of 5,207,247 shares of
Common Stock outstanding, on a fully-diluted basis (including the shares
issuable upon exercise of the Orkney Warrant)) and (b) 391,941 shares
issuable upon exercise of the Orkney Warrant after the closing of the
Offering (based upon a total of 7,838,826 shares outstanding, on a
fully-diluted basis (including the shares issuable upon exercise of the
Orkney Warrant)). See Note 4 above.

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<PAGE> 69

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, having no par value, and 10,000,000 shares of preferred stock,
having no par value.

The following summary description of the Company's capital stock is
qualified in its entirety by reference to the Company's Amended and Restated
Articles of Incorporation (the "Articles") and Amended and Restated Bylaws,
copies of which are filed as exhibits to the Registration Statement of which
this Prospectus forms a part.

COMMON STOCK

As of January 31, 1999, there were 4,575,760 shares of Common Stock
outstanding held of record by approximately 101 shareholders.

The holders of shares of Common Stock, on the basis of one vote per share,
have the right to vote for the election of members of the Board of Directors of
the Company and the right to vote on all other matters. Subject to preferences
that may be applicable to any preferred stock outstanding at the time, holders
of Common Stock are entitled to receive ratably such dividends, if any, as may
be declared from time to time by the Board of Directors out of funds legally
available therefor. In the event of a liquidation, dissolution or winding up of
the Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of the Company's liabilities and the liquidation
preference, if any, of any outstanding shares of preferred stock. Holders of
Common Stock have no preemptive rights and no rights to convert their Common
Stock into any other securities, and there are no redemption provisions with
respect to such shares. All the outstanding shares of Common Stock are fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock are subject to, and may be adversely affected by, the rights of
holders of shares of any series of preferred stock that the Company may
designate and issue in the future.

PREFERRED STOCK

The Board of Directors has the authority to issue up to 10,000,000 shares
of preferred stock in one or more series and to fix the powers, designations,
preferences and relative, participating, optional or other rights thereof,
including dividend rights, conversion rights, voting rights, redemption terms,
liquidation preferences and the number of shares constituting each such series,
without any further vote or action by the Company's shareholders. As of January
31, 1999 there were 85,000 shares of Redeemable Preferred Stock outstanding, all
of which will be redeemed with $8.5 million of the net proceeds from the
Offering. See "Use of Proceeds."

The issuance of additional shares of preferred stock could have one or more
of the following effects: (i) restrict Common Stock dividends if preferred stock
dividends have not been paid, (ii) dilute the voting power and equity interest
of holders of Common Stock to the extent that any series of preferred stock has
voting rights or is convertible into Common Stock or (iii) prevent current
holders of Common Stock from participating in the Company's assets upon
liquidation until any liquidation preferences granted to holders of preferred
stock are satisfied. In addition, the issuance of preferred stock may, under
certain circumstances, have the effect of discouraging a change in control of
the Company by, for example, granting voting rights to holders of preferred
stock that require approval by the separate vote of the holders of preferred
stock for any amendment to the Articles or any reorganization, consolidation or
merger (or other similar transaction involving the Company). As a result, the
issuance of such preferred stock may discourage bids for the Company's Common
Stock at a premium over the market price therefor and could have a material
adverse effect on the market value of the Common Stock. The Board of Directors
does not currently intend to issue any additional shares of preferred stock. See
"Risk Factors -- Potential Issuance of Preferred Stock; Anti-Takeover Effect of
Oregon Law."

WARRANTS AND STOCK OPTIONS

In connection with the Reorganization, the Company granted David Orkney a
warrant to purchase a number of shares equal to 5% of the Company's Common Stock
outstanding, on a fully-diluted basis, on the

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<PAGE> 70

date of exercise at a purchase price equal to 70% of the fair market value of
the Common Stock on the exercise date. Mr. Orkney's warrant is exercisable until
May 8, 2008. See "The Reorganization" and "Certain Related Transactions." As of
Prior to the Offering, the Orkney Warrant is exercisable for 260,362 shares of
Common Stock. If the Orkney Warrant is not previously exercised, it will be
exercisable for 391,941 shares of Common Stock upon the closing of the Offering.

In connection with the Offering, the Company has agreed to issue to each of
Cruttenden Roth Incorporated and Black & Company, Inc., as representatives for
the Underwriters, warrants (the "Representatives' Warrants") to purchase an
aggregate of 250,000 shares. The Representatives' Warrants are exercisable for a
period of four years, beginning one year from the date of this Prospectus. The
Representatives' Warrants are exercisable at a price equal to 120% of the
initial public offering price per share. The number of shares covered by the
Representatives' Warrants and the exercise price are subject to adjustment in
certain circumstances to prevent dilution. The Representatives' Warrants are
nontransferable for a period of one year following the date of this Prospectus,
except to (i) members of the selling group for the Offering or their respective
officers and/or partners and (ii) officers and/or partners of the
Representatives. The holders of the Representatives' Warrants will have, in that
capacity, no voting, dividend or other shareholder rights.

As of January 31, 1999, the Company had options outstanding to purchase
371,125 shares of Common Stock, with a weighted average exercise price of $9.53
per share. Of such options, options exercisable for 51,775 shares of Common
Stock had vested as of such date and an additional 428,875 shares were reserved
for future grants under the 1998 Plan. See "Management -- Retirement and Certain
Other Benefit Plans -- 1998 Stock Incentive Compensation Plan."

REGISTRATION RIGHTS

Pursuant to the terms of a Registration Rights Agreement, individuals and
entities, including Peregrine and its affiliates who received in the Merger an
aggregate of 1,896,148 shares of the Company's Common Stock in exchange for
warrants exercisable for Holdings common stock may request that their Common
Stock be included in any public offering of Common Stock of the Company at the
Company's expense. In addition, at any time after the first anniversary of the
closing of the Offering, the holders of 50% or more of such shares of Common
Stock may make one request that the Company use its best efforts to register
such shares of Common Stock under the Securities Act at the Company's expense.
In any underwritten offering of shares of Common Stock being issued by the
Company, if the underwriters determine that marketing factors require a
limitation on the number of shares to be sold on account of shareholders, the
Company may limit or exclude from the registration such shares of Common Stock.

Mr. Orkney received registration rights with respect to the shares of
Common Stock to be issued to him upon exercise of the warrant he received in
connection with the Reorganization. The Company has also granted registration
rights with respect to the shares of Common Stock to be issued in connection
with the Company's acquisition of Timberline Direct. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview" and "Certain Related Transactions." Mr. Orkney and the
holders of the shares issued in connection with the Timberline Direct
acquisition may request that their shares of Common Stock be included in any
public offering of capital stock of the Company at the Company's expense. In any
underwritten offering of the Company's capital stock, if the underwriters
determine that marketing factors require a limitation on the number of shares to
be sold for the account of shareholders, then the Company may limit or exclude
from the registration such shares of Common Stock.

At any time during the period in which the Representatives' Warrants are
exercisable, the holders of the Representatives' Warrants have the right,
subject to certain limitations, to require the Company on one occasion to
register under the Securities Act, at the Company's expense, the shares of
Common Stock issuable upon exercise of the Representatives' Warrants. Such
holders also may request that such shares be included in any public offering of
Common Stock of the Company at the Company's expense. In any underwritten
offering of the Company's capital stock, if the underwriters determine that
marketing factors require a limitation on the number of shares to be sold for
the account of shareholders, then the Company may limit or exclude from the
registration such shares of Common Stock.

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<PAGE> 71

OREGON CONTROL SHARE AND BUSINESS COMBINATION STATUTES

The Company is subject to certain provisions of the Oregon Business
Corporation Act that, in certain circumstances, restrict the ability of
significant shareholders to exercise voting rights (the "Control Share Act").
The Control Share Act generally provides that a person (the "Acquiring Person")
who acquires voting stock of an Oregon corporation in a transaction that results
in the Acquiring Person holding more than 20%, 33 1/3% or 50% of the total
voting power of the corporation (a "Control Share Acquisition") cannot vote the
shares such person acquires in a Control Share Acquisition ("Control Shares")
unless voting rights are accorded to the Control Shares by (i) a majority of
each voting group entitled to vote and (ii) the holders of a majority of the
outstanding voting shares, excluding the Control Shares held by the Acquiring
Person and shares held by the corporation's officers and inside directors. The
term "Acquiring Person" is broadly defined to include persons acting as a group.

The Acquiring Person may, but is not required to, submit to the corporation
a statement setting forth certain information about the Acquiring Person and its
plans with respect to the corporation. The statement may also request that the
corporation call a special meeting of shareholders to determine whether voting
rights will be accorded to the Control Shares. If the Acquiring Person does not
request a special meeting of shareholders, the issue of voting rights of Control
Shares will be considered at the next annual or special meeting of shareholders.
If the Acquiring Person's Control Shares are accorded voting rights and
represent a majority of all voting power, shareholders who do not vote in favor
of voting rights for the Control Shares will have the right to receive the
appraised "fair value" of their shares, which may not be less than the highest
price paid per share by the Acquiring Person for the Control Shares.

The Company is also subject to certain provisions of the Oregon Business
Corporation Act that govern business combinations between corporations and
interested shareholders (the "Business Combination Act"). The Business
Combination Act generally provides that if a person or entity acquires 15% or
more of the voting stock of an Oregon corporation (an "Interested Shareholder"),
the corporation and the Interested Shareholder, or any affiliated entity of the
Interested Shareholder, may not engage in certain business combination
transactions for three years following the date the person became an Interested
Shareholder. Business combination transactions for this purpose include (a) a
merger or plan of share exchange, (b) any sale, lease, mortgage or other
disposition of 10% or more of the assets of the corporation and (c) certain
transactions that result in the issuance of capital stock of the corporation to
the Interested Shareholder. These restrictions do not apply if (i) the
Interested Shareholder, as a result of the transaction in which such person
became an Interested Shareholder, owns at least 85% of the outstanding voting
stock of the corporation (disregarding shares owned by directors who are also
officers and certain employee benefit plans), (ii) the board of directors
approves the share acquisition or business combination before the Interested
Shareholder acquired 15% or more of the corporation's outstanding voting stock
or (iii) the board of directors and the holders of at least two-thirds of the
outstanding voting stock of the corporation (disregarding shares owned by the
Interested Shareholder) approve the transaction after the Interested Shareholder
acquires 15% or more of the corporation's voting stock.

TRANSFER AGENT AND REGISTRAR

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

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to the Offering, there has been no public market for the Company's
Common Stock and a significant public market for the Common Stock may not be
developed or sustained after the Offering. Future sales of substantial amounts
of the Company's Common Stock in the public market, or the prospect of such
sales, could adversely affect the prevailing market prices of the Company's
Common Stock or the future ability of the Company to raise capital through an
offering of equity securities.

Upon the closing of the Offering, the Company will have 7,075,760 shares of
Common Stock outstanding (7,450,760 shares if the Underwriters' over-allotment
option is exercised in full), assuming no exercise of outstanding options under
the Company's 1998 Plan and no exercise of the Orkney Warrant. The 2,500,000
shares sold in the Offering will be freely tradable without restriction or
limitation under the Securities Act, except for any such shares purchased by
"affiliates" of the Company, as such term is defined under Rule 144 of the
Securities Act, which will be subject to the resale limitations of Rule 144. The
remaining 4,575,760 shares of the Company's Common Stock issued and outstanding
are "restricted securities" within the meaning of Rule 144 and were issued and
sold by the Company in private transactions. Such restricted securities may be
publicly sold only if registered under the Securities Act or sold in accordance
with an applicable exemption from registration, such as Rule 144.

In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least one year, including an affiliate of the Company, would be entitled
to sell, within any three-month period, that number of shares that does not
exceed the greater of 1% of the then-outstanding shares of Common Stock (71,000
shares upon the closing of the Offering) or the average weekly trading volume in
the Common Stock during the four calendar weeks immediately preceding the date
on which a notice of sale is filed with the Commission, provided certain manner
of sale and notice requirements and requirements as to the availability of
current public information about the Company are satisfied. In addition,
affiliates of the Company must comply with the restrictions and requirements of
Rule 144, other than the one-year holding period requirement, in order to sell
shares of Common Stock which are not restricted securities. As defined in Rule
144, an "affiliate" of an issuer is a person who directly or indirectly through
the use of one or more intermediaries controls, or is controlled by, or is under
common control with, such issuer. Under Rule 144(k), a holder of "restricted
securities" who is not deemed an affiliate of the issuer and who has
beneficially owned shares for at least two years would be entitled to sell
shares under Rule 144(k) without regard to the limitations described above.

Currently outstanding restricted shares of the Company's Common Stock are
not yet eligible for sale under Rule 144, but generally will become eligible for
sale in July 1999 subject to Rule 144 restrictions (other than shares to be
issued in connection with the Timberline Direct acquisition, which will become
eligible for resale under Rule 144 on the first anniversary of their issuance).
The holders of 1,896,148 of the Company's outstanding restricted shares,
including Peregrine, have certain registration rights with respect to such
shares. All shares registered under the Securities Act upon exercise of these
registration rights will be freely tradable without restriction or limitation
under the Securities Act, except for any such shares (i) purchased by affiliates
of the Company, which will remain subject to the resale limitations of Rule 144,
or (ii) subject to lock-up agreements with the Underwriters. The Company, its
directors, executive officers and other certain shareholders holding an
aggregate of 4,160,378 shares have agreed that, without the prior written
consent of Cruttenden Roth Incorporated, they will not directly or indirectly
offer to sell, sell, or otherwise dispose of shares of Common Stock or any
securities convertible or exchangeable therefor, for a period of 360 days after
the date of this Prospectus, subject to certain limited exceptions. See
"Underwriting."

The Company intends to file a registration statement under the Securities
Act following the date of this Prospectus to register the future issuance of up
to 800,000 shares of Common Stock under the 1998 Plan and up to 300,000 shares
of Common Stock under the Company's ESPP. Shares issued under the 1998 Plan and
the ESPP after the effective date of such registration statement will be freely
tradable in the open market, subject to the lock-up agreements with the
Underwriters described above and, in the case of sales by affiliates, to certain
requirements of Rule 144. As of January 31, 1999, options to purchase 371,125
shares of Common Stock were outstanding under the 1998 Plan, of which options
exercisable for 51,775 shares of Common Stock

71
<PAGE> 73

were vested. In addition, the Orkney Warrant is exercisable for a number of
shares equal to 5% of the Company's Common Stock outstanding, on a fully-diluted
basis, on the date of exercise at an exercise price equal to 70% of the fair
market value of the Common Stock on the exercise date. If the Orkney Warrant is
not previously exercised, it will be exercisable for 391,941 shares of Common
Stock upon the closing of the Offering. The holder of the Orkney Warrant has
certain registration rights with respect to the shares of Common Stock issuable
upon exercise thereof. Further, up to 252,264 additional shares of Common Stock
may be issued in connection with the Timberline Direct acquisition (assuming an
initial public offering price of $9.00, the mid-point of the range set forth on
the cover page of this Prospectus), all of which shares will be covered by
certain registration rights granted to the recipients thereof. See "Management's
Discussion and Analysis of Results of Operations and Financial
Condition -- Overview," "Description of Capital Stock -- Warrants and Stock
Options," "Management -- Retirement and Certain Other Benefit Plans," and
"Description of Capital Stock -- Registration Rights."

72
<PAGE> 74

UNDERWRITING

Under the terms and subject to the conditions of the Underwriting
Agreement, the Underwriters named below (the "Underwriters"), for whom
Cruttenden Roth Incorporated and Black & Company, Inc. are acting as
representatives (the "Representatives"), have severally agreed to purchase from
the Company, and the Company has agreed to sell to each Underwriter, the
aggregate number of shares of Common Stock set forth opposite their respective
names in the table below. The Underwriting Agreement provides that the
obligations of the Underwriters to pay for and accept delivery of the shares of
Common Stock are subject to certain conditions precedent and that the
Underwriters are committed to purchase and pay for all shares if any shares are
purchased.

<TABLE>
<CAPTION>
NUMBER
OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Cruttenden Roth Incorporated......................
Black & Company, Inc..............................

---------
Total................................... 2,500,000
=========
</TABLE>

The Company has been advised by the Representatives that the Underwriters
propose initially to offer the shares of Common Stock to the public at the
offering price set forth on the cover page of this Prospectus and to certain
dealers (who may include the Underwriters) at such price less a concession not
in excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession to certain other dealers (who may include the
Underwriters) not in excess of $ per share. After the initial offering to
the public, the offering price and other selling items may be changed by the
Representatives.

The Company has granted an option to the Underwriters exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 375,000 shares of Common Stock at the initial public offering price per
share, less the underwriting discounts, set forth on the cover page of this
Prospectus. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the Common Stock offered
hereby. To the extent the Underwriters exercise such option, each of the
Underwriters will be committed, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number of
shares of Common Stock to be purchased by such underwriter as shown in the above
table bears to the total shown.

In the Underwriting Agreement, the Company has agreed to indemnify the
Underwriters against certain liabilities that may be incurred in connection with
the Offering, including liabilities under the Securities Act, or to contribute
payments that the Underwriters may be required to make in respect thereof.

The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.

The Company, its directors, executive officers and other shareholders have
agreed that, without the prior written consent of Cruttenden Roth Incorporated,
they will not directly or indirectly offer to sell, sell, or otherwise dispose
of shares of Common Stock or any securities convertible or exchangeable
therefor, for a period of 360 days after the date of this Prospectus, subject to
certain limited exceptions.

73
<PAGE> 75

In connection with the Offering, the Underwriters may reserve up to
approximately 125,000 shares of Common Stock for sale at the initial public
offering price to persons associated with the Company. The number of shares
available for sale to the general public will be reduced to the extent any
reserved shares are purchased. Any reserved shares not so purchased will be
offered by the Underwriters on the same basis as the other shares offered
hereby.

In connection with the Offering, the Company has agreed to issue to the
Representatives Representatives' Warrants to purchase an aggregate of 250,000
shares of Common Stock. The Representatives' Warrants are exercisable for a
period of four years, beginning one year from the date of this Prospectus. The
Representatives' Warrants are exercisable at a price equal to 120% of the
initial public offering price per share. The number of shares covered by the
Representatives' Warrants and the exercise price are subject to adjustment in
certain circumstances to prevent dilution. The Representatives' Warrants are
nontransferable for a period of one year following the date of this Prospectus,
except to (i) officers and/or partners of the Representatives and (ii) members
of the selling group for the Offering or their respective officers and/or
partners. The holders of the Representatives' Warrants will have, in that
capacity, no voting, dividend or other shareholder rights. At any time during
the period in which the Representatives' Warrants are exercisable, the holders
of the Representatives' Warrants shall have the right, subject to certain
limitations, to require the Company on one occasion to register under the
Securities Act, at the Company's expense, the shares of Common Stock issuable
upon exercise of the Representatives' Warrants. Such holders also may request
that such shares be included in any registered public offering of Common Stock
of the Company at the Company's expense.

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

LEGAL MATTERS

Certain legal matters will be passed on for the Company by Perkins Coie
LLP, Portland, Oregon. Certain legal matters will be passed on for the
Underwriters by Stoel Rives LLP, Portland, Oregon.

EXPERTS

The financial statements included in this Prospectus and elsewhere in the
Registration Statement, to the extent and for the periods indicated in their
reports, have been audited by Arthur Andersen LLP, independent public
accountants, and are included herein in reliance upon the authority of said firm
as experts in giving said reports.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby (as
amended, the "Registration Statement"). This Prospectus, which constitutes part
of the Registration Statement, omits certain information contained in the
Registration Statement and the exhibits and schedules thereto on file with the
Commission pursuant to the Securities Act and the rules and regulations of the
Commission thereunder. The Registration Statement, including the exhibits and
schedules thereto, may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the Commission's Regional Offices at 7 World
Trade Center, Suite 1300, New York, New York 10048, and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and copies may be obtained at the
prescribed rates from the Public Reference Section of the Commission at its
principal office in Washington, D.C. The Commission also maintains a Web site on
the Internet that contains reports, proxy and information statements and other
information regarding registrants that file electronically, including the
Company, with the Commission at http://www.sec.gov.

74
<PAGE> 76

Statements contained in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete, and in
each instance reference is made to the copy of such contract, agreement or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. All provisions of such
contracts, agreements and other documents that are material to the subject of
such statements, however, are described in the appropriate portions of this
Prospectus.

The Company will furnish its shareholders with annual reports containing
audited financial statements and an opinion thereon expressed by independent
auditors and will furnish its shareholders with quarterly reports for the first
three quarters of each fiscal year containing unaudited summary financial
information.

75
<PAGE> 77

G.I. JOE'S, INC.

INDEX TO FINANCIAL STATEMENTS

CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Arthur Andersen LLP, Independent Public
Accountants............................................... F-2
Financial Statements:
Balance Sheets............................................ F-3
Statements of Operations.................................. F-4
Statements of Shareholders' Equity........................ F-5
Statements of Cash Flows.................................. F-6
Notes to Financial Statements............................. F-7
</TABLE>

F-1
<PAGE> 78

After the 3-for-4 reverse stock split discussed in Note 8 to G.I. Joe's,
Inc. financial statements is effected, we expect to be in position to render the
following audit report.

Portland, Oregon,

September 18, 1998 /s/ ARTHUR ANDERSEN LLP

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
G.I. Joe's, Inc.:

We have audited the accompanying balance sheets of G.I. Joe's, Inc. (an
Oregon corporation) as of June 30, 1998, and the related statements of
operations, shareholders' equity and cash flows for the two months ended June
30, 1998. We have also audited the accompanying balance sheets of the
Predecessor, as described in Note 1, as of January 31, 1997 and 1998 and April
30, 1998, and the related statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended January 31, 1998 and
for the three months ended April 30, 1998. 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 G.I. Joe's, Inc. as of June
30, 1998, and the results of its operations and its cash flows for the two
months ended June 30, 1998, and the financial position of the Predecessor as of
January 31, 1997 and 1998 and April 30, 1998, and the results of its operations
and its cash flows for each of the three years in the period ended January 31,
1998 and for the three months ended April 30, 1998, in conformity with generally
accepted accounting principles.

F-2
<PAGE> 79

G.I. JOE'S, INC.

BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

ASSETS

<TABLE>
<CAPTION>
PREDECESSOR G.I. JOE'S, INC. G.I. JOE'S, INC.
------------------------------- ---------------- ----------------
JANUARY 31,
----------------- APRIL 30, JUNE 30, OCTOBER 31,
1997 1998 1998 1998 1998
------- ------- ----------- ---------------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash................................... $ -- $ -- $ -- $ -- $ --
Accounts and notes receivable.......... 302 264 235 260 362
Current portion of receivables from
officers and employees............... 48 49 39 9 10
Merchandise inventories................ 29,442 33,368 35,919 41,687 44,778
Prepaid expenses and other............. 1,236 873 613 1,371 1,629
Amounts held in escrow................. -- -- 5,002 819 787
------- ------- ------- ------- -------
Total current assets............ 31,028 34,554 41,808 44,146 47,566
PROPERTY AND EQUIPMENT, net.............. 17,393 18,531 7,255 8,545 7,781
CAPITALIZED LEASED PROPERTY AND
EQUIPMENT, net......................... 8,797 12,021 13,312 17,323 22,184
OTHER ASSETS:
Receivables from officers and
employees, net of current portion.... 583 631 449 250 246
Other, net............................. 726 802 1,252 1,852 5,662
------- ------- ------- ------- -------
Total other assets.............. 1,309 1,433 1,701 2,102 5,908
------- ------- ------- ------- -------
$58,527 $66,539 $64,076 $72,116 $83,439
======= ======= ======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Checks outstanding in excess of cash
deposits............................. $ 705 $ 618 $ 248 $ 522 $ 1,330
Current portion of long-term
obligations.......................... 1,194 1,560 1,089 1,102 1,447
Accounts payable....................... 9,641 11,665 14,787 17,219 18,581
Accrued payroll and related
liabilities.......................... 1,280 1,201 1,205 1,311 934
Deferred income taxes.................. -- -- -- 1,844 1,877
Other accrued liabilities.............. 3,285 3,983 2,922 3,905 2,904
------- ------- ------- ------- -------
Total current liabilities....... 16,105 19,027 20,251 25,903 27,073
REVOLVING LINE OF CREDIT................. 11,563 12,976 9,445 14,348 17,497
LONG-TERM DEBT, net of current portion... 9,758 10,532 948 900 800
CAPITAL LEASE OBLIGATIONS, net of current
portion................................ 11,308 14,584 15,874 15,728 20,467
NOTES PAYABLE............................ -- -- -- 474 851
DEFERRED GAIN ON SALE LEASEBACK.......... -- -- 18,363 -- --
DEFERRED INCOME TAXES.................... -- -- -- 2,624 2,648
PURCHASE OBLIGATION PAYABLE IN COMMON
STOCK.................................. -- -- -- -- 1,638
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY:
Preferred stock, no par value,
10,000,000 shares authorized, Series
A nonvoting redeemable preferred 0,
0, 0, 85,000 and 85,000 shares issued
and outstanding, $8,500 redemption
value................................ -- -- -- 7,887 7,887
Common stock, no par value, 50,000,000
shares authorized, 3,039,680,
3,039,680, 3,039,680, 4,464,103 and
4,464,103 shares issued and
outstanding.......................... 1,585 1,585 1,585 2,888 2,888
Warrants for common stock.............. -- -- -- 1,100 1,100
Additional paid-in capital............. 911 911 911 342 597
Retained earnings (accumulated
deficit)............................. 7,297 6,924 (3,301) (78) (7)
------- ------- ------- ------- -------
Total shareholders' equity...... 9,793 9,420 (805) 12,139 12,465
------- ------- ------- ------- -------
$58,527 $66,539 $64,076 $72,116 $83,439
======= ======= ======= ======= =======
</TABLE>

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

F-3
<PAGE> 80

G.I. JOE'S, INC.

STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
PREDECESSOR G.I. JOE'S, INC. G.I. JOE'S, INC.
---------------------------------------------------------- ---------------- ----------------
THREE THREE TWO SIX
MONTHS MONTHS MONTHS MONTHS
JANUARY 31, ENDED ENDED ENDED ENDED
------------------------------ APRIL 30, APRIL 30, JUNE 30, OCTOBER 31,
1996 1997 1998 1997 1998 1998 1998
-------- -------- -------- ----------- ----------- ---------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES............ $124,052 $128,112 $128,238 $24,013 $25,908 $23,461 $75,201
COST OF GOODS SOLD... 82,346 84,184 84,552 16,425 17,670 15,511 49,612
-------- -------- -------- ------- ------- ------- -------
Gross margin....... 41,706 43,928 43,686 7,588 8,238 7,950 25,589
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSE............ 37,154 37,976 39,528 8,717 9,755 7,264 23,086
OTHER INCOME
(EXPENSE):
Interest expense..... (4,331) (3,663) (3,542) (829) (971) (602) (1,885)
Interest income...... 605 51 65 7 9 -- 9
Gain on sale of real
estate............. 25 -- -- -- 640 -- --
-------- -------- -------- ------- ------- ------- -------
(3,701) (3,612) (3,477) (822) (322) (602) (1,876)
-------- -------- -------- ------- ------- ------- -------
INCOME (LOSS) BEFORE
TAXES AND EXTRA-
ORDINARY ITEM...... 851 2,340 681 (1,951) (1,839) 84 627
INCOME TAX
PROVISION.......... -- -- -- -- -- 34 251
-------- -------- -------- ------- ------- ------- -------
INCOME (LOSS) BEFORE
EXTRAORDINARY
ITEM............... 851 2,340 681 (1,951) (1,839) 50 376
EXTRAORDINARY ITEM:
Loss on early
extinguishment of
debt............... -- -- -- -- (2,220) -- --
-------- -------- -------- ------- ------- ------- -------
NET INCOME (LOSS).... 851 2,340 681 (1,951) (4,059) 50 376
Preferred
dividends.......... -- -- -- -- -- (128) (383)
-------- -------- -------- ------- ------- ------- -------
INCOME (LOSS)
ATTRIBUTABLE TO
COMMON
SHAREHOLDERS....... $ 851 $ 2,340 $ 681 $(1,951) $(4,059) $ (78) (7)
======== ======== ======== ======= ======= ======= =======
INCOME (LOSS) PER
SHARE BEFORE
EXTRAORDINARY ITEM
Basic.............. $ 0.28 $ 0.77 $ 0.22 $ (0.64) $ (0.60) $ (0.02) $ (0.00)
Diluted............ $ 0.26 $ 0.69 $ 0.20 $ (0.64) $ (0.60) $ (0.02) $ (0.00)
NET INCOME (LOSS) PER
SHARE
Basic.............. $ 0.28 $ 0.77 $ 0.22 $ (0.64) $ (1.34) $ (0.02) $ (0.00)
Diluted............ $ 0.26 $ 0.69 $ 0.20 $ (0.64) $ (1.34) $ (0.02) $ (0.00)
</TABLE>

The accompanying notes are an integral part of these statements.
F-4
<PAGE> 81

G.I. JOE'S, INC.

STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
RETAINED
PREFERRED STOCK COMMON STOCK ADDITIONAL EARNINGS
--------------- ------------------- PAID-IN (ACCUMULATED)
SHARES AMOUNT SHARES AMOUNT WARRANTS CAPITAL DEFICIT) TOTAL
------ ------ ---------- ------ -------- ---------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 31, 1995
Predecessor................. 3,056,938 $1,594 $946 $ 4,914 $ 7,454
Acquisition of common
stock..................... (3,413) (2) (6) -- (8)
Dividends................... -- -- -- (484) (484)
Net income.................. -- -- -- 851 851
---------- ------ ---- ------- -------
BALANCE, January 31, 1996
Predecessor................. 3,053,525 1,592 940 5,281 7,813
Acquisition of common
stock..................... (13,845) (7) (29) -- (36)
Dividends................... -- -- -- (324) (324)
Net income.................. -- -- -- 2,340 2,340
---------- ------ ---- ------- -------
BALANCE, January 31, 1997
Predecessor................. 3,039,680 1,585 911 7,297 9,793
Dividends................... -- -- -- (1,054) (1,054)
Net income.................. -- -- -- 681 681
---------- ------ ---- ------- -------
BALANCE, January 31, 1998
Predecessor................. 3,039,680 1,585 911 6,924 9,420
Dividends................... -- -- -- (6,166) (6,166)
Net loss.................... -- -- -- (4,059) (4,059)
---------- ------ ---- ------- -------
BALANCE, April 30, 1998
Predecessor................. 3,039,680 $1,585 $911 $(3,301) $ (805)
========== ====== ==== ======= =======
=======================================================================================================================
BALANCE, May 1, 1998
G.I. Joe's, Inc............. 85,000 $7,887 4,464,103 $2,888 $1,100 $214 $ -- $12,089
Net income.................. -- -- -- -- -- -- 50 50
Dividends accrued but
undeclared................ -- -- -- -- -- 128 (128) --
------ ------ ---------- ------ ------ ---- ------- -------
BALANCE, June 30, 1998
G.I. Joe's, Inc............. 85,000 $7,887 4,464,103 $2,888 $1,100 $342 $ (78) $12,139
Net income.................. -- -- -- -- -- -- 326 326
Dividends accrued but
undeclared................ -- -- -- -- -- 255 (255) --
------ ------ ---------- ------ ------ ---- ------- -------
BALANCE, October 31, 1998
G.I. Joe's, Inc.
(unaudited)............... 85,000 $7,887 4,464,103 $2,888 $1,100 $597 $ (7) $12,465
====== ====== ========== ====== ====== ==== ======= =======
</TABLE>

The accompanying notes are an integral part of these statements.
F-5
<PAGE> 82

G.I. JOE'S, INC.

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
PREDECESSOR G.I. JOE'S, INC. G.I. JOE'S, INC.
---------------------------------------------------- ---------------- ----------------
THREE THREE TWO SIX
MONTHS MONTHS MONTHS MONTHS
JANUARY 31, ENDED ENDED ENDED ENDED
-------------------------- APRIL 30, APRIL 30, JUNE 30, OCTOBER 31,
1996 1997 1998 1997 1998 1998 1998
------- ------ ------- ----------- --------- ---------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)................. $ 851 $2,340 $ 681 $(1,951) $ (4,059) $ 50 $ 376
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities --
Extraordinary item:
Loss on early extinguishment of
debt.......................... -- -- -- -- 2,220 -- --
Gain on sale of property and
equipment..................... (25) -- -- -- (640) -- --
Depreciation and amortization... 2,481 2,472 2,366 573 604 378 1,368
Amortization of deferred gain on
sale leaseback................ -- -- -- -- (32) -- --
Forgiveness of officer
receivables................... -- -- -- -- 187 -- --
Change in deferred income
taxes......................... -- -- -- -- -- (36) 21
Changes in current assets and
liabilities:
Accounts and notes
receivable.................. 153 358 38 182 29 (25) (127)
Merchandise inventories....... (1,919) (481) (3,926) 805 (2,551) (757) (3,812)
Prepaid expenses and other.... (26) (129) 363 (6) 260 (735) (1,721)
Accounts payable and accrued
liabilities................. 879 (3,266) 1,959 (268) 2,779 3,278 2,952
------- ------ ------- ------- -------- ------- -------
Net cash provided by (used in)
operating activities........ 2,394 1,294 1,481 (665) (1,203) 2,153 (943)
------- ------ ------- ------- -------- ------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to property and
equipment....................... (1,668) (2,292) (2,491) (199) (90) (896) (1,754)
Proceeds from sale of property and
equipment, net.................. 82 -- -- -- 25,057 -- 1,463
Increase in deposits and other
assets.......................... (238) (71) (196) (75) (768) (77) (508)
Business acquisition.............. -- -- -- -- -- -- (450)
Increase in receivables from
officers, employees and
others.......................... (315) (94) (86) (38) -- -- (100)
Payments received on receivables
from officers and employees..... 5,439 227 37 2 5 -- 3
------- ------ ------- ------- -------- ------- -------
Net cash provided by (used in)
investing activities........ 3,300 (2,230) (2,736) (310) 24,204 (973) (1,346)
------- ------ ------- ------- -------- ------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Change in checks outstanding in
excess of cash deposits......... (1,027) 705 (87) (705) (370) 274 1,082
Net borrowings (repayments) on
revolving line of credit........ (2,062) 843 1,413 2,765 (3,531) (1,273) 1,876
Borrowings on long-term debt...... 6,300 1,100 4,525 -- -- -- --
Payments on long-term debt........ (7,725) (291) (3,372) (90) (10,054) (48) (212)
Payments on capital lease
obligations..................... (896) (883) (854) (202) (226) (133) (457)
Prepayment penalties due to early
extinguishment of debt.......... -- -- -- -- (1,940) -- --
Acquisition of common stock....... (8) (36) -- -- -- -- --
Cash dividends.................... (160) (618) (370) (147) (6,880) -- --
------- ------ ------- ------- -------- ------- -------
Net cash provided by (used in)
financing activities........ (5,578) 820 1,255 1,621 (23,001) (1,180) 2,289
------- ------ ------- ------- -------- ------- -------
NET INCREASE (DECREASE) IN CASH..... 116 (116) -- 646 -- -- --
CASH, beginning of period........... -- 116 -- -- -- -- --
------- ------ ------- ------- -------- ------- -------
CASH, end of period................. $ 116 $ -- $ -- $ 646 $ -- $ -- $ --
======= ====== ======= ======= ======== ======= =======
SUPPLEMENTAL CASH FLOW
INFORMATION --
Cash paid for interest............ $ 4,297 $3,662 $ 3,559 $ 906 $ 897 $ 602 $ 1,885
NONCASH TRANSACTIONS:
Additions of capital leases for
property and equipment.......... -- 268 4,117 -- 1,515 -- 5,408
Applied deposits to purchase
options of leased equipment..... -- 108 -- -- -- -- --
Dividends declared but unpaid..... 324 30 714 -- -- 128 383
Sale of property in exchange for
note receivable................. 211 -- -- -- -- -- --
Proceeds from sale of property
held in escrow.................. -- -- -- -- 5,002 -- --
Deferred gain on sale of property
and equipment................... -- -- -- -- 18,395 -- --
Write-off of unamortized loan
fees............................ -- -- -- -- 280 -- --
Business Acquisition:
Liabilities assumed in business
acquisition................... -- -- -- -- -- -- 896
Purchase obligation payable in
Common Stock.................. -- -- -- -- -- -- 1,638
Goodwill........................ -- -- -- -- -- -- 750
</TABLE>

The accompanying notes are an integral part of these statements.
F-6
<PAGE> 83

G.I. JOE'S, INC.

NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The Company

G.I. Joe's, Inc. (the "Company") was founded in 1952 by Edward Orkney as a
government surplus store, and evolved over the years into a mass merchandiser.
By 1995, under the direction of Norman Daniels, the Company's current Chairman
of the Board, President and Chief Executive Officer, the Company had streamlined
its product offerings to focus on sports and automotive merchandise, its
best-selling product lines. The Company currently has 16 stores in Oregon and
Washington, and also maintains a corporate office and operates an attached
150,000 square foot distribution center at its headquarters location in
Wilsonville, Oregon. In addition, the Company sells tickets to all major
entertainment and sporting events through TicketMaster outlets located in all of
its retail locations. TicketMaster-Oregon, which has entered into an operating
agreement with TicketMaster Northwest to operate TicketMaster outlets in Oregon,
includes officers and former officers of the Company. Ticket sales are made on
behalf of, or for the benefit of, related parties and are not a direct
revenue-producing activity of the Company. (See Note 12 for further discussion
of TicketMaster-Oregon).

Reorganization and Prior S Corporation Status

A majority of the Company's capital stock was owned by David Orkney, the
founder's son and a Director of the Company. On May 5, 1998, the Company
redeemed all of the Company's outstanding capital stock and options, other than
shares held by Mr. Daniels and two minority shareholders, for an aggregate
consideration of approximately $20,500 (the "Redemption"). In connection with
the Redemption, the Company granted David Orkney a warrant to purchase 5% of the
Company's Common Stock outstanding on the date of exercise at a purchase price
equal to 70% of the fair market value of the Common Stock on such date (the
"Orkney Warrant").

The Company financed the Redemption with the proceeds from the sale of its
owned real estate and the sale of $9,500 of subordinated notes of the Company to
investors (the "Investors"). Following the Redemption, Mr. Daniels exchanged his
common stock in the Company for all the common stock of ND Holdings, Inc., an
Oregon corporation ("Holdings"), which resulted in the Company becoming a
subsidiary of Holdings. In addition, holders of the Company's subordinated notes
exchanged their notes for preferred stock, common stock and warrants to purchase
common stock of Holdings (the "Exchange"). Following the Redemption and the
Exchange, Mr. Daniels and the Investors owned 54% and 46%, respectively, of the
common stock of Holdings, on a fully-diluted basis, and the Investors owned all
of the outstanding preferred stock of Holdings.

In July 1998, Holdings merged with and into the Company, with the Company
being the surviving corporation (the "Merger"). In the Merger, all preferred
shareholders of Holdings received shares of preferred stock of the Company, and
all common shareholders and warrant holders of Holdings received 4,461,227
shares of the Company's Common Stock. Following the Merger, there were 85,000
outstanding shares of the Company's Series A Non-Voting Redeemable Preferred
Stock, all of which shares are redeemable with approximately $8,500 of the
proceeds from an initial public offering, and 4,464,103 outstanding shares of
the Company's Common Stock.

The Redemption, the Exchange and the Merger are a series of planned
transactions (the "Reorganization") executed to consummate the acquisition of
the Company. Accordingly, this series of transactions has been reflected as if
they occurred on May 1, 1998. The financial statements with respect to periods
prior to May 1, 1998 reflect the financial position and results of operations of
the Company prior to the Reorganization (the "Predecessor").

F-7
<PAGE> 84
G.I. JOE'S, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)

The acquisition was accounted for as a purchase. The total purchase price
was comprised of cash of $20,500, common stock valued at $1,888, the Orkney
Warrant valued at $1,100, forgiveness of loans of $132 (see Note 5), and $475 of
fees and expenses related to the acquisition. The aggregate consideration has
been allocated to the assets of the Company, based on fair market value. The
excess of the purchase price over the assets acquired and liabilities assumed
was allocated as follows:

<TABLE>
<S> <C>
Inventory.................................................. $ 5,011
Property................................................... 572
Capitalized leased property and equipment.................. 4,209
Goodwill................................................... 1,037
-------
$10,829
=======
</TABLE>

The following unaudited pro forma financial information has been prepared
based upon the historical financial statements of the Company as if the
acquisition had occurred at the beginning of the respective periods.

<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEAR ENDED MONTHS
JANUARY 31, ENDED OCTOBER 31,
1998 1998
------------------ -------------------
<S> <C> <C>
Net sales................................ $128,238 $101,109
Net loss attributable to common
shareholders........................... (1,941) (1,697)
Basic net loss per share................. (0.43) (0.38)
Diluted net loss per share............... (0.43) (0.38)
</TABLE>

Prior to the Exchange, the Company was treated for federal and state income
tax purposes as an S Corporation under Subchapter S of the Internal Revenue Code
of 1986, as amended (the "Code"), and comparable state laws. Upon the Exchange,
the Company's S Corporation status was terminated and, accordingly, the Company
is fully subject to federal and state income taxes on its earnings. See also
"Income Taxes" below.

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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The Company's financial instruments consist of accounts and notes
receivable and debt instruments. For the periods presented, the fair value of
the Company's receivables and debt under the loan and security agreement
approximated the carrying value.

Advertising

Advertising costs are expensed as incurred. The Company has cooperative
advertising arrangements with certain vendors whereby the vendors will reimburse
the Company for advertising their products. Cooperative advertising funds are
accounted for as a reduction in advertising expense. For the fiscal years ended

F-8
<PAGE> 85
G.I. JOE'S, INC.

January 31, 1996, 1997 and 1998 and for the three months ended April 30, 1998
and the two months ended June 30, 1998, advertising costs were $4,963, $3,828,
$4,498, $890 and $756, respectively.

Property and Equipment

The Financial Accounting Standards Board has issued SFAS 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," which establishes criteria for measuring impairment losses of long-lived
assets and determining when such losses should be recognized. In fiscal year
1997, the Company adopted SFAS 121, with no effect on its financial position or
results of operations.

Property and equipment are recorded at cost. Additions and improvements,
including interest costs incurred during construction, are capitalized, whereas
maintenance and repairs are charged to expense as incurred.

Revenue Recognition

Revenues are recorded at the time of sale of merchandise to customers.

Capitalized Leased Property and Equipment

Capitalized leased property and equipment are recorded at the lesser of the
present value of minimum lease payments or the fair value of the leased
property.

Depreciation and Amortization

Depreciation of property and equipment is computed using the straight-line
method over the estimated useful lives of the assets. Leasehold improvements are
amortized on the straight-line method over the shorter of the remaining lease
period or the estimated useful life of the asset. Capital leases are amortized
using the straight-line method over the shorter of the estimated useful lives of
the leased assets or primary terms of the leases. The estimated useful lives of
property and equipment are as follows:

<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings............................................ 20-40
Fixtures & equipment................................. 3-10
Leasehold improvements............................... 10-25
</TABLE>

Sale-Leaseback Transaction

The Company entered into a sale-leaseback transaction totaling $31,200 in
April 1998, relating to 5 store locations and the Company's distribution center.
The net gain of $18,395 was deferred and was being amortized over the applicable
leaseback period. In conjunction with the acquisition, the deferred amount was
reduced to zero. The leases for the distribution center and four of the five
store locations are operating leases and the lease for the remaining store
location is a capital lease.

Goodwill

Goodwill is the excess of the purchase price paid over the value of net
assets acquired. Amortization expense is calculated on a straight-line basis
over forty years. The carrying value of goodwill is reviewed quarterly if the
facts and circumstances suggest that it may be permanently impaired. If the
review indicates that goodwill will not be recoverable, as determined by the
undiscounted cash flow method, the asset will be

F-9
<PAGE> 86
G.I. JOE'S, INC.

reduced to its estimated recoverable value. Goodwill is included in other
long-term assets in the accompanying balance sheet as of June 30, 1998.

Income Taxes

Prior to the Exchange, the Company was treated for federal and state income
tax purposes as an S Corporation under Subchapter S of the Internal Revenue Code
of 1986, as amended (the "Code"), and comparable state laws. As a result, the
earnings of the Company prior to the Exchange were included in the taxable
income of the Company's shareholders at their individual federal and state
income tax rates, rather than that of the Company. Upon the Exchange, the
Company's S Corporation status was terminated and, accordingly, the Company is
fully subject to federal and state income taxes on its earnings.

In connection with the Redemption and Exchange, the Company established a
net deferred tax liability of $4,504 using the asset and liability method.

Under the asset and liability method, deferred income tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred income tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred income tax assets and liabilities
of changes in tax rates is recognized in income in the period that includes the
enactment date.

Computation of Per Share Amounts

Basic earnings per share (EPS) and diluted EPS are computed using the
methods prescribed by Statement of Financial Accounting Standard No. 128,
Earnings per Share (SFAS 128). Basic EPS is calculated using the weighted
average number of common shares outstanding for the period and diluted EPS is
computed using the weighted average number of common shares and dilutive common
equivalent shares outstanding. Following is a reconciliation of basic EPS and
diluted EPS (all share amounts in thousands):

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
---------------------------------------------------------------------------------------
1996 1997 1998
--------------------------- --------------------------- ---------------------------
PER SHARE PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------ ------ --------- ------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income available to Common
Shareholders.............. $851 3,057 $0.28 $2,340 3,049 $0.77 $681 3,040 $0.22
===== ===== =====
Effect of Dilutive
Securities:
Stock Options............... -- 176 -- 332 -- 429
---- ----- ------ ----- ---- -----
Diluted EPS:
Income available to Common
Shareholders.............. $851 3,233 $0.26 $2,340 3,381 $0.69 $681 3,469 $0.20
===== ===== =====
</TABLE>

F-10
<PAGE> 87
G.I. JOE'S, INC.

<TABLE>
<CAPTION>
PERIOD ENDED APRIL 30, PERIOD ENDED APRIL 30, PERIOD ENDED JUNE 30,
1997 1998 1998
---------------------------- ---------------------------- ---------------------------
PER SHARE PER SHARE INCOME PER SHARE
LOSS SHARES AMOUNT LOSS SHARES AMOUNT (LOSS) SHARES AMOUNT
------- ------ --------- ------- ------ --------- ------ ------ ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net Income (Loss)........... $(1,951) $(4,059) $ 50
Preferred Dividends......... -- -- (128)
------- ------- ------
Loss attributable to Common
Shareholders.............. $(1,951) 3,040 $(0.64) $(4,059) 3,040 $(1.34) $ (78) 4,464 $(0.02)
====== ====== ======
Effect of Dilutive
Securities:
Stock Options and
Warrants.................. -- -- -- -- -- --
------- ----- ------- ----- ------ ------
Diluted EPS:
Loss attributable to Common
Shareholders.............. $(1,951) 3,040 $(0.64) $(4,059) 3,040 $(1.34) $ (78) 4,464 $(0.02)
====== ====== ======

<CAPTION>
PERIOD ENDED OCTOBER 31,
1998
---------------------------
INCOME PER SHARE
(LOSS) SHARES AMOUNT
------ ------ ---------
(UNAUDITED)
<S> <C> <C> <C>
Basic EPS:
Net Income (Loss)........... $ 376
Preferred Dividends......... (383)
-----
Loss attributable to Common
Shareholders.............. $ (7) 4,464 $(0.00)
======
Effect of Dilutive
Securities:
Stock Options and
Warrants.................. -- -- --
----- ------ ------
Diluted EPS:
Loss attributable to Common
Shareholders.............. $ (7) 4,464 $(0.00)
======
</TABLE>

Reclassifications

Certain amounts in the prior year financial statements have been
reclassified to conform to current year presentation.

Interim Financial Statements

The accompanying interim financial statements of the Company for the
three-month period ended April 30, 1997 and for the six-month period ended
October 31, 1998 have been prepared by the Company without audit. Certain
information and footnote disclosures normally included in financial statements
presented in accordance with generally accepted accounting principles have been
condensed or omitted for these periods. G.I. Joe's, Inc. believes the
disclosures made are adequate to make the information presented not misleading.
However, the interim financial statements should be read in conjunction with the
financial statements and notes thereto.

In the opinion of G.I. Joe's, Inc., the accompanying unaudited financial
statements reflect all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position of G.I. Joe's,
Inc. as of April 30, 1997 and October 31, 1998 and the results of operations and
cash flows for the three months ended April 30, 1997 and for the six months
ended October 31, 1998. Interim results are not necessarily indicative of fiscal
year performance because of the impact of seasonal and short-term variations.

Recent Accounting Pronouncements

F-11
<PAGE> 88
G.I. JOE'S, INC.

practice under SFAS No. 14 by establishing a new framework on which to base
segment reporting (referred to as the "management" approach) and also requires
interim reporting of segment information. Management does not expect that the
impact of adoption of this pronouncement will be material to the Company's
financial position or results of operations.

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for all derivative instruments.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. The
Company currently has no derivative instruments and, therefore, the adoption of
SFAS No. 133 will have no impact on the Company's financial position or results
of operations.

2. MERCHANDISE INVENTORIES:

Substantially all of the Company's inventories are determined using the
retail last-in, first-out (LIFO) inventory valuation method. Vendor discounts on
inventory are accounted for as a reduction in inventory cost. Merchandise
inventories are summarized as follows:

<TABLE>
<CAPTION>
PREDECESSOR G.I. JOE'S, INC.
------------------------------- ----------------
JANUARY 31,
------------------ APRIL 30, JUNE 30,
1997 1998 1998 1998
------- ------- --------- ----------------
<S> <C> <C> <C> <C>
Inventories at retail cost..................... $36,231 $39,686 $42,131 $41,687
Less -- LIFO reserve........................... (6,789) (6,318) (6,212) --
------- ------- ------- -------
$29,442 $33,368 $35,919 $41,687
======= ======= ======= =======
</TABLE>

During fiscal years 1996, 1997 and 1998, certain inventory quantities were
reduced, resulting in a liquidation of LIFO inventory quantities carried at
lower costs than prevailing in prior years as compared with the cost of
purchases. The effect of these liquidations was to increase net income by
approximately $146, $190 and $98 for the years ended January 31, 1996, 1997 and
1998, respectively. For the three months ended April 30, 1998 and the two months
ended June 30, 1998, the effect of liquidation of LIFO inventory quantities on
net income was not material.

F-12
<PAGE> 89
G.I. JOE'S, INC.

3. PROPERTY AND EQUIPMENT:

Property and equipment consist of the following:

<TABLE>
<CAPTION>
PREDECESSOR G.I. JOE'S, INC.
--------------------------------- ----------------
JANUARY 31,
-------------------- APRIL 30, JUNE 30,
1997 1998 1998 1998
-------- -------- --------- ----------------
<S> <C> <C> <C> <C>
Property and equipment used in operations --
Land...................................... $ 2,871 $ 2,940 $ -- $ --
Buildings................................. 11,089 11,370 -- --
Fixtures and equipment.................... 9,401 8,969 8,857 2,646
Leasehold improvements.................... 4,238 5,416 4,134 2,942
Construction in progress.................. 80 111 81 973
-------- -------- ------- ------
27,679 28,806 13,072 6,561
Less -- Accumulated depreciation and
amortization.............................. (12,979) (12,877) (7,405) (178)
-------- -------- ------- ------
Net property and equipment used in
operations...................... 14,700 15,929 5,667 6,383
-------- -------- ------- ------
Property held for future development or
sale:
Land...................................... 2,071 2,010 1,588 2,162
Buildings................................. 1,058 1,007 -- --
-------- -------- ------- ------
3,129 3,017 1,588 2,162
Less -- Accumulated depreciation............ (436) (415) -- --
-------- -------- ------- ------
Net property held for future
development or sale............. 2,693 2,602 1,588 2,162
-------- -------- ------- ------
$ 17,393 $ 18,531 $ 7,255 $8,545
======== ======== ======= ======
</TABLE>

4. CAPITALIZED LEASED PROPERTY AND EQUIPMENT:

Capitalized leased property and equipment consist of the following:

<TABLE>
<CAPTION>
G.I. JOE'S,
PREDECESSOR INC.
--------------------------------- ----------------
JANUARY 31,
-------------------- APRIL 30, JUNE 30,
1997 1998 1998 1998
-------- -------- --------- ----------------
<S> <C> <C> <C> <C>
Buildings.................................. $ 15,223 $ 19,132 $ 19,899 $17,308
Fixtures and equipment..................... 6,790 6,645 6,645 213
-------- -------- -------- -------
22,013 25,777 26,544 17,521
Less -- Accumulated amortization........... (13,216) (13,756) (13,232) (198)
-------- -------- -------- -------
$ 8,797 $ 12,021 $ 13,312 $17,323
======== ======== ======== =======
</TABLE>

5. RECEIVABLES FROM OFFICERS AND EMPLOYEES:

Receivables from officers include loans made by the Company to four current
and former officers at interest rates that approximate market rates. They also
include advances, at market rates, made to a partnership comprised of former
officers and shareholders of the Company. Receivables from employees consist
mainly of advances made by the Company to facilitate employee relocations.
Interest income earned on these receivables was $588, $46, $48, $9 and $0 for
the years ended January 31, 1996, 1997 and 1998 and for the three months ended
April 30, 1998 and the two months ended June 30, 1998, respectively.

F-13
<PAGE> 90
G.I. JOE'S, INC.

In 1994, the Company advanced amounts to the partnership referred to above
for bridge financing for two retail sites owned by the partnership which are
leased to and operated by the Company. In fiscal years 1997 and 1998, and the
three months ended April 30, 1998, $31, $34 and $9, including principal and
interest, of these advances were repaid to the Company, respectively. In May
1998, in conjunction with the termination of their employment, two officers of
the Company repaid the principal and interest on their loans totaling $99. The
outstanding balance of the partnership at January 31, 1997, January 31, 1998,
April 30, 1998 and June 30, 1998 was $251, $243, $240, and $240, respectively.

In April 1998, the Company awarded a bonus to one officer which was paid by
forgiving all principal and interest owed by the officer of approximately $187.

In May 1998, in connection with the Redemption and Exchange the Company
forgave all principal and interest owed by one officer of the Company, who was a
selling shareholder, totaling approximately $132. This forgiveness was
considered a part of the purchase price in connection with the acquisition of
the Company. (See Note 1.)

Outstanding receivables from current and former officers and employees are
as follows:

<TABLE>
<CAPTION>
G.I. JOE'S,
PREDECESSOR INC.
------------------------- -----------
JANUARY 31,
------------ APRIL 30, JUNE 30,
1997 1998 1998 1998
---- ---- --------- -----------
<S> <C> <C> <C> <C>
Officers.............................................. $612 $660 $469 $240
Employees............................................. 19 20 19 19
---- ---- ---- ----
631 680 488 259
Less -- Current portion............................... (48) (49) (39) (9)
---- ---- ---- ----
$583 $631 $449 $250
==== ==== ==== ====
</TABLE>

6. OTHER ACCRUED LIABILITIES:

Other accrued liabilities consist of the following:

<TABLE>
<CAPTION>
PREDECESSOR G.I. JOE'S, INC.
----------------------------- -----------------
JANUARY 31,
---------------- APRIL 30, JUNE 30,
1997 1998 1998 1998
------ ------ --------- -----------------
<S> <C> <C> <C> <C>
Amounts due to TicketMaster.................... $1,597 $1,399 $1,133 $1,671
Unredeemed customer gift certificates.......... 835 973 893 873
Other.......................................... 853 1,611 896 1,361
------ ------ ------ ------
$3,285 $3,983 $2,922 $3,905
====== ====== ====== ======
</TABLE>

F-14
<PAGE> 91
G.I. JOE'S, INC.

7. LONG-TERM DEBT:

Following is a summary of long-term debt:

<TABLE>
<CAPTION>
PREDECESSOR G.I. JOE'S, INC.
------------------------------- -----------------
JANUARY 31,
------------------ APRIL 30, JUNE 30,
1997 1998 1998 1998
------- ------- --------- -----------------
<S> <C> <C> <C> <C>
Term loan, prime plus .25%, payable $6
monthly plus interest, matures August 1999
with final payment of $1,027............... $ 1,100 $ 1,033 $ -- $ --
Term loan, 8.80%, payable $33 monthly
including interest, matures 2001........... -- 1,293 1,246 1,198
Revolving line of credit facility, prime plus
.25%, balance refinanced in March 1998..... 11,563 12,976 -- --
Revolving line of credit facility, reference
rate plus .50%, due March 2001............. -- -- 9,445 14,348
Mortgage notes:
8.63%, payable $12 monthly including
interest, matures 2011..................... 1,193 1,185 -- --
8.63%, payable $21 monthly including
interest, matures 2011..................... 1,794 1,974 -- --
8.30%, payable $22 monthly including
interest, fully amortizing, matures 2010... 2,205 2,116 -- --
7.96%, payable $38 monthly including
interest, fully amortizing, matures 2011... 3,855 3,699 -- --
------- ------- ------- -------
21,710 24,276 10,691 15,546
Less -- Current portion...................... (389) (768) (298) (298)
------- ------- ------- -------
$21,321 $23,508 $10,393 $15,248
======= ======= ======= =======
</TABLE>

On March 10, 1998, the Company entered into a $20,000, three-year loan and
security agreement with Foothill Capital Corporation (Foothill) to replace its
existing revolving line of credit facility and term loan. Amounts available
under this line of credit facility are the lesser of $20,000, or an amount
calculated as the sum of 60% of eligible FIFO inventory, as defined, less
specified reserves and the aggregate amount of all undrawn outstanding letters
of credit. Interest is payable at the bank's reference rate plus .50% (9% at
June 30, 1998). Letters of credit are issuable against the revolving line of
credit up to a maximum of the lesser of $1,000 or available borrowings under the
revolving line of credit facility.

Borrowings outstanding under the Foothill loan and security agreement are
secured by all of the assets of the Company, including receivables, inventory,
and property and equipment. The loan and security agreement contain restrictive
covenants relating to minimum levels of EBITDA and net worth, and restrictions
on dividend payments and capital expenditures. The Company was in compliance
with these covenants at June 30, 1998.

During the three months ended April 30, 1998, the Company used the proceeds
from the sale of certain properties to pay-off certain mortgages and other
long-term debt prior to maturity. This resulted in an extraordinary charge of
$2,220 ($0.55 per diluted share).

F-15
<PAGE> 92
G.I. JOE'S, INC.

Principal payment requirements on long-term debt after June 30, 1998 are as
follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDING JANUARY 31,
------------------------------
<S> <C>
1999(for the remaining 7 months)............................ $ 203
2000........................................................ 324
2001........................................................ 352
2002........................................................ 14,667
-------
$15,546
=======
</TABLE>

8. SHAREHOLDERS' EQUITY:

Common Stock

In the fiscal year ended January 31, 1998, the Company declared a 10-for-1
stock split of its common stock effective April 15, 1997 and in the fiscal year
ending January 31, 1999, the Company declared a 2.5567-for-1 stock split of its
common stock effective in July 1998. All share and per share amounts have been
retroactively restated for the stock splits.

The Company intends to effect a 3-for-4 reverse stock split prior to the
effective date of the Registration Statement. Accordingly, all share and per
share data presented in the financial statements have been adjusted to reflect
the 3-for-4 reverse stock split.

Redeemable Preferred Stock

In connection with the Redemption, Exchange and Merger, the Company
authorized 10,000,000 shares of preferred stock without par value. Of the total
authorized shares, 85,000 shares were issued. These shares designated as Series
A Non-Voting Preferred Stock (Preferred Stock), are non-voting and have a
redemption price equal to the original issue price of $100 per share, together
with any accrued and unpaid dividends thereon. The Preferred Stock is redeemable
upon the completion of an initial public offering of the Company's common stock
in which the aggregate offering proceeds to the Company are not less than
$12,000.

The net proceeds received have been classified as Preferred Stock on the
Company's balance sheet. The difference between the stated value and the
carrying amount represents the fair value of warrants issued to the holders of
Preferred Stock. This difference will be accreted to the Preferred Stock upon
redemption with a corresponding charge to retained earnings (accumulated
deficit).

Dividends on the Preferred Stock are due at a rate of 9% of the original
issue price per share, payable when, as and if declared by the Board of
Directors. Accrued but undeclared dividends totaled $128 for the two months
ended June 30, 1998. No dividends have been paid by the Company.

The Preferred Stock has liquidation preferences over any other class of
preferred stock and the common stock. The Preferred Stock is nonconvertible and
has a liquidation value equal to the original issue price of $100 per share plus
any accrued and unpaid dividends.

F-16
<PAGE> 93
G.I. JOE'S, INC.

9. INCOME TAXES

The provision for income taxes for the two months ended June 30, 1998 is as
follows:

<TABLE>
<S> <C>
Current
Federal................................................... $ 58
State..................................................... 12
----
70
Deferred.................................................... (36)
----
Total............................................. $ 34
====
</TABLE>

Total deferred income tax assets were $246 and liabilities were $4,714 at
June 30, 1998. Individually significant temporary differences, which are
primarily a result of the purchase accounting treatment for the Redemption and
Exchange and the allocation of excess purchase price to the fair value of assets
and liabilities, are as follows at June 30, 1998:

<TABLE>
<S> <C>
Inventory (including unicap)................................ $(1,844)
Fixed Assets................................................ (2,709)
Other....................................................... 85
-------
$(4,468)
=======
</TABLE>

The Company's deferred tax assets are realizable as a result of past and
future income, therefore, a valuation allowance is not considered necessary.

The difference between the effective tax rate of 40% and the statutory
federal income tax rate of 34% is a result of state income taxes.

10. COMMITMENTS AND CONTINGENCIES:

Operating Leases

The Company leases certain retail store facilities, fixtures and equipment
under operating leases. The real estate leases generally range in terms from 20
to 30 years with renewal options from 5 to 10 years. Certain real estate leases,
with terms of 25 years, are leased from a partnership made up of current and
former officers and stockholders of the Company. Rental expense incurred on
operating leases was $1,636, $1,767 and $1,909 for the years ended January 31,
1996, 1997 and 1998, respectively, and $618 and $888 for the three months ended
April 30, 1998 and the two months ended June 30, 1998, respectively. These
amounts include rental expense incurred on leases from related parties of $403,
$415 and $314 for the years ended January 31, 1996, 1997 and 1998, respectively,
and $61 and $40 for the three months ended April 30, 1998 and the two months
ended June 30, 1998, respectively. The Company also incurs other direct rental
costs associated with its operating leases, principally real estate taxes and
insurance.

F-17
<PAGE> 94
G.I. JOE'S, INC.

Future minimum rental commitments after June 30, 1998 for all noncancelable
operating leases are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDING JANUARY 31,
------------------------------
<S> <C>
1999 (for the remaining 7 months).......................... $ 2,770
2000....................................................... 4,486
2001....................................................... 4,301
2002....................................................... 4,239
2003....................................................... 4,221
Thereafter................................................. 45,203
-------
$65,220
=======
</TABLE>

Capital Leases

Capital leases for retail store facilities and equipment range in terms
from 5 to 30 years with renewal options on certain leases to 70 years.

Future minimum lease payments under capital leases as of June 30, 1998 are
as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDING JANUARY 31,
------------------------------
<S> <C>
1999 (for the remaining 7 months).......................... $ 1,585
2000....................................................... 2,639
2001....................................................... 2,572
2002....................................................... 2,516
2003....................................................... 2,292
Thereafter................................................. 23,923
--------
Total minimum lease payments..................... 35,527
Less -- Amount representing interest (at a weighted average
interest rate of 11.4%).................................. (18,995)
--------
Present value of minimum lease payments.................... 16,532
Less -- Current portion.................................... (804)
--------
$ 15,728
========
</TABLE>

The Company pays contingent rentals based on sales volume for certain of
its retail store facilities under capital leases. Total contingent rentals were
$198, $218 and $200 in fiscal years 1996, 1997 and 1998. Total contingent
rentals were $5 and $23 for the three months ended April 30, 1998 and the two
months ended June 30, 1998, respectively. The Company also incurs other direct
expenses for its capital leases, principally real estate taxes and insurance.

Included in total capital lease obligations is $4,154, $4,086, $4,067 and
$4,055 at January 31, 1997, January 31, 1998, April 30, 1998 and June 30, 1998,
respectively, payable to a partnership comprised of current and former officers
and shareholders of the Company.

Contingencies

There are various claims involving employment matters against the Company
incident to the operations of its business. The liability, if any, associated
with these matters was not determinable at April 30, 1998. It is

F-18
<PAGE> 95
G.I. JOE'S, INC.

the opinion of management that the ultimate resolution of these claims will not
have a materially adverse effect on the Company's financial position or results
of operations.

11. PENSION AND OTHER POST-RETIREMENT PLANS:

Defined Benefit Pension Plan

Full-time employees who have attained the age of 21 and have completed one
year of service are covered under a Company sponsored defined benefit pension
plan (the Plan). The Plan provides benefits based on participants' years of
service and compensation. The Company funds at least the minimum annual
contribution required by the Employee Retirement Income Security Act of 1974.

The following table sets forth the funded status of the Plan:

<TABLE>
<CAPTION>
PREDECESSOR
-----------------------------
JANUARY 31,
----------------- APRIL 30,
1997 1998 1998
------- ------- ---------
<S> <C> <C> <C>
Accumulated benefit obligations:
Vested.................................................... $(3,857) $(5,287) $(5,287)
Nonvested................................................. (286) (333) (333)
------- ------- -------
(4,143) (5,620) (5,620)
Projected benefit obligation................................ (5,258) (6,591) (6,591)
Plan assets at fair value................................... 5,054 5,756 5,756
------- ------- -------
Projected benefit obligation in excess of plan assets....... (204) (835) (835)
Unrecognized prior service cost............................. (1,020) (933) (933)
Unrecognized net obligation at February 1, 1987 being
recognized over 15 years.................................. 144 115 115
Unrecognized net loss from past experience different from
that assumed and effects from changes in assumptions...... 611 1,032 1,032
------- ------- -------
Accrued pension cost........................................ $ (469) $ (621) $ (621)
======= ======= =======
</TABLE>

In connection with the Merger and Exchange, and in accordance with APB 16,
the Company recorded an additional accrued pension cost of $214 in order to
record the projected benefit obligation in excess of plan assets at May 1, 1998.
This represents the projected benefit obligation in excess of plan assets as of
the most recent actuarial valuation received by the Company.

Net pension expense included the following components:

<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------
THREE
MONTHS
JANUARY 31, ENDED
--------------------- APRIL 30,
1996 1997 1998 1998
----- ----- ----- ---------
<S> <C> <C> <C> <C>
Service cost -- benefits earned during the period...... $ 233 $ 236 $ 289 $ 88
Interest cost on projected benefit obligations......... 354 363 429 127
Actual return on plan assets........................... (863) (553) (786) (136)
Net amortization and deferral.......................... 525 108 293 (4)
----- ----- ----- -------
Net periodic pension cost.............................. $ 249 $ 154 $ 225 $ 75
===== ===== ===== =======
</TABLE>

F-19
<PAGE> 96
G.I. JOE'S, INC.

Rates used in determining the actuarial present value of the projected
benefit obligation were as follows:

<TABLE>
<CAPTION>
PREDECESSOR
-------------------------
JANUARY 31,
------------ APRIL 30,
1997 1998 1998
---- ---- ---------
<S> <C> <C> <C>
Discount rate............................................... 8.0% 7.5% 7.5%
Increase in future compensation levels...................... 5.0 5.0 5.0
Expected long-term rate of return........................... 9.0 9.0 9.0
</TABLE>

The Company has a custodial agreement with a trust wherein certain plan
assets are invested in one or more pooled investment funds.

Savings Plan

The G.I. Joe's, Inc. Savings Plan is a defined contribution plan and covers
substantially all employees who have attained age 21 and have completed one year
of service. The Savings Plan provides for employer matching contributions, which
are determined annually by the Company. Contributions to the Savings Plan made
by the Company were $99, $103, $109, $27 and $19 in fiscal years 1996, 1997 and
1998 and the three months ended April 30, 1998 and the two months ended June 30,
1998, respectively.

Executive Stock Option Plan

The Company has three Incentive Stock Option Plans (the Plans), the purpose
of which is to make available common stock of the Company for purchase by
eligible officers and other key employees. The Plans have authorized an
aggregate of 1,662,498 shares of common stock, no par value, to be reserved for
issuance under the Plans. The administrator of the Plans, an officer of the
Company, is responsible for granting options, and is not eligible to receive any
options. The option price shall be set by the administrator of the Plans, and
shall approximate, as nearly is feasible without appraisal, the fair market
value of the common stock as of the date on which the options are granted, but
may not be less than the stated par value. The options vest over three to five
years from date of grant and expire at dates no later than March 31, 2010.

<TABLE>
<CAPTION>
SHARES
AVAILABLE FOR SHARES SUBJECT WEIGHTED AVERAGE
GRANT TO OPTIONS EXERCISE PRICE
------------- -------------- ----------------
<S> <C> <C> <C>
BALANCE, January 31, 1995 -- Predecessor.......... 224,351 1,438,147 $2.23
--------- ---------- -----
BALANCE, January 31, 1996 -- Predecessor.......... 224,351 1,438,147 $2.23
Granted......................................... (9,588) 9,588 $2.44
--------- ---------- -----
BALANCE, January 31, 1997 -- Predecessor.......... 214,763 1,447,735 $2.23
Granted......................................... (32,598) 32,598 $3.23
--------- ---------- -----
BALANCE, January 31, 1998 -- Predecessor.......... 182,165 1,480,333 $2.25
--------- ---------- -----
BALANCE, April 30, 1998 -- Predecessor............ 182,165 1,480,333 $2.25
Redeemed........................................ 869,598 (869,598) $2.24
Canceled........................................ 558,960 (558,960) $2.24
--------- ---------- -----
BALANCE, June 30, 1998 -- G.I. Joe's, Inc. ....... 1,610,723 51,775 $2.53
========= ========== =====
</TABLE>

During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 123 ("SFAS 123"), Accounting for Stock Based
Compensation, which defines a fair value based method of accounting for employee
stock options and similar equity instruments and encourages all entities to
adopt that method of accounting for all of their employee stock compensation
plans. However, SFAS123 also
F-20
<PAGE> 97
G.I. JOE'S, INC.

allows an entity to continue to measure compensation cost for those plans using
the method of accounting prescribed by APB25. Entities electing to remain with
the accounting in APB25 must make pro forma disclosures of net income and, if
presented, earnings per share, as if the fair value based method of accounting
defined in SFAS123 had been adopted.

The Company has elected to account for its stock based compensation plans
under APB25; however, the Company has computed, for pro forma disclosure
purposes, the value of all options granted during fiscal 1997 and 1998 (no
options were granted during fiscal 1996) using the minimum value method, as
prescribed by SFAS123, using the following weighted average assumptions for
grants:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED JANUARY 31, 1997 1998
------------------------------ ---- ----
<S> <C> <C>
Risk-free interest rate..................................... 6% 6.25%
Expected dividend yield..................................... 0% 0%
Expected lives (years)...................................... 6 4
</TABLE>

Using the minimum value methodology, the total value of options granted
during fiscal 1997 and fiscal 1998 was $7 and $23, respectively, which would be
amortized on a pro forma basis over the vesting period of the options (5 years
for 1997 grants and 3 years for 1998 grants). The weighted average fair value of
options granted during 1997 and 1998 was $0.55 per share and $0.53 per share,
respectively.

If the Company had accounted for its stock-based compensation plan in
accordance with SFAS123, the Company's net income would not have been materially
different and net income (loss) per share would have been the same as reported
net income (loss) per share amounts.

The following table summarizes information about stock options outstanding
on June 30, 1998:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- --------------------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES AT 6/30/98 LIFE (YEARS) PRICE AT 6/30/98 PRICE
- ------------ ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$2.04 19,175 5.8 $2.04 19,175 $2.04
2.44 9,588 7.8 2.44 9,588 2.44
2.65 9,588 4.8 2.65 9,588 2.65
3.23 13,424 9.1 3.23 13,424 3.23
- ------------ ------ --- ----- ------ -----
$2.04 - 3.23 51,775 6.8 $2.53 51,775 $2.53
============ ====== === ===== ====== =====
</TABLE>

At January 31, 1996, 1997 and 1998, 287,629, 575,258 and 862,886 options,
respectively, were exercisable at a weighted average exercise price of $2.15 per
share at each date. At April 30, 1998, 1,150,516 options were exercisable at a
weighted average exercise price of $2.28.

1998 Stock Incentive Compensation Plan (unaudited)

In July 1998, the Company adopted the G.I. Joe's, Inc. 1998 Stock Incentive
Compensation Plan (the "1998 Plan"). In conjunction with the adoption of the
1998 Plan, options outstanding under the Plans covering 51,775 shares of the
Company's common stock were converted to options outstanding under the 1998 Plan
and the Plans were terminated. The purpose of the 1998 Plan is to enhance the
long-term shareholder value of the Company by offering employees, directors,
officers, consultants, agents, advisors and independent contractors of the
Company an opportunity to participate in the Company's growth and success, and
to encourage them to remain in the service of the Company and acquire and
maintain stock ownership in the Company. The

F-21
<PAGE> 98
G.I. JOE'S, INC.

1998 Plan includes both stock options and stock awards, including restricted
stock. A maximum of 600,000 shares of common stock are available for issuance
under the 1998 Plan.

The Plan Administrator of the 1998 Plan will be the Compensation Committee
of the Board of Directors (the "Plan Administrator"), which will have the
authority to select individuals who are to receive options under the 1998 Plan
and to specify the terms and conditions of each option granted (incentive or
nonqualified), the exercise price (which, for incentive stock options, must be
at least equal to the fair market value of the common stock on the date of
grant), the vesting provisions and the option term. For purposes of the 1998
Plan, fair market value means the closing sale price of the common stock as
reported on the Nasdaq National Market on the date of grant. Unless otherwise
provided by the Plan Administrator, and to the extent required for incentive
stock options by the Code, an option granted under the 1998 Plan will expire 10
years from the date of grant or, if earlier, three months after the optionee's
termination of service, other than termination for cause, or one year after the
optionee's retirement, early retirement at the Company's request, death or
disability.

At June 30, 1998, there were options covering 51,775 shares of the
Company's common stock outstanding at a weighted average exercise price of
$2.53, all of which were exercisable. At June 30, 1998, there were 600,000
shares of the Company's common stock reserved for issuance under the 1998 Plan
and 548,225 shares available for future grant.

EMPLOYEE STOCK PURCHASE PLAN

In January 1999, the Company amended and restated the Company's 1998
Employee Stock Purchase Plan (as amended and restated, the "ESPP"). The Company
intends for the ESPP to qualify under Section 423 of the Internal Revenue Code
of 1986, as amended. The ESPP permits the eligible employees of the Company and
its subsidiaries to purchase Common Stock through payroll deductions of up to
10% of their cash compensation. The Company authorized the issuance of a total
of 300,000 shares of Common Stock under the ESPP, plus certain automatic future
increases.

12. RELATED PARTY TRANSACTIONS:

TicketMaster-Oregon

TicketMaster-Oregon, a partnership whose partners have included, among
others, Norman P. Daniels, the Company's Chairman of the Board, President and
Chief Executive Officer, David E. Orkney, a Director of the Company, and former
shareholders and officers Wayne Jackson and B. Duane Mellen ("TicketMaster-
Oregon"), has entered into an operating agreement with TicketMaster Northwest to
operate TicketMaster outlets in Oregon. TicketMaster-Oregon has placed
TicketMaster outlets in all of the Company's Oregon stores. The Company has
established a similar arrangement directly with TicketMaster Northwest with
respect to its Washington stores. The Company receives a percentage of the
convenience charges to which TicketMaster-Oregon is entitled under its operating
agreement with TicketMaster Northwest for sales generated in G.I. Joe's Oregon
stores. For the fiscal years ended January 31, 1996, 1997 and 1998 and for the
three months ended April 30, 1998 and the two months ended June 30, 1998, the
Company received an aggregate of $665, $539, $589, $125 and $88 respectively,
from TicketMaster fees.

F-22
<PAGE> 99
G.I. JOE'S, INC.

Officer Loans

In July 1994, the Company loaned $182, $98 and $128 to Messrs. Daniels,
Orkney and Jackson, respectively. Each loan was made pursuant to a promissory
note with an annual interest rate equal to the applicable federal rate
determined by the Internal Revenue Service, and require minimum annual payments
of $10 each year until all interest and principal was paid in full. Mr. Jackson
repaid his loan in full upon termination of employment with the Company in
connection with the Redemption and Exchange in May 1998. In November 1995, the
Company loaned Mr. Daniels an additional $38 and from April 1996 through April
1997, the Company loaned Mr. Orkney an additional $100, each on the same terms
described above. Just prior to the Redemption and Exchange, the outstanding
balance of Mr. Daniels' and Mr. Orkney's indebtedness to the Company were
approximately $187 and $132, respectively. In April 1998, the Company awarded a
bonus payment to Mr. Daniels which was paid by canceling his indebtedness of
$187. In connection with the Redemption and Exchange, the Company canceled Mr.
Orkney's indebtedness to the Company. See also Note 5.

Henway Partnerships

In July 1994, the Company loaned $5,672 in the aggregate to two
partnerships in which Messrs. Daniels, Orkney and Jackson were three of four
partners (the "Henway Partnerships") to finance the purchase by the partnerships
of two parcels of real estate upon which are located the Company's stores in
Vancouver, Washington and Albany, Oregon. Each partner held a 25% interest in
each Henway Partnership. The Henway Partnerships leased these properties to the
Company. These loans accrued interest at Bank of America's prime rate plus 2.5%
per year, and were due in August 1996. The Henway Partnerships repaid all
amounts outstanding under these loans in January 1996, other than $258, which
was refinanced pursuant to a promissory note from one of the Henway Partnerships
in favor of the Company, with an annual interest rate of 10.5% and a 60-month
payment schedule. The leases for the Vancouver and Albany stores were entered
into in June and November 1989, respectively, and each has a 25-year term and a
10-year renewal option. Base rental payments under these leases are $386 and
$391 per year for the Vancouver and Albany locations, respectively, on a
triple-net basis. In addition, the Company is obligated to pay additional rent
for the Vancouver and Albany stores in the amount of 1.5% of gross receipts to
the extent that gross receipts exceed $15,304 and $11,898, respectively, but has
not been required to pay any such additional rent in the last three fiscal
years. The Company believes the leases for the Vancouver and Albany stores were
entered into on terms no less favorable to the Company than would have been
obtained from unaffiliated third parties.

PD Properties

In April 1998, in connection with the Redemption and Exchange, the Company
sold two parcels of real property to PD Properties, LLC ("PD"), an Oregon
limited liability company affiliated with Roy Rose, a Director of the Company
and of Peregrine Capital, Inc. ("Peregrine"), a principal shareholder of the
Company. PD paid $2,725 in the aggregate to the Company for the South Salem,
Oregon store location and for the Company's vacant land located in Forest Grove,
Oregon (the "PD Real Properties"). The Company leases the South Salem property
from PD pursuant to a lease, which commenced in April 1998 (the "PD Lease"). The
initial term of the PD Lease is 15 years, with two renewal options of 5 years
each. Rental payments under the PD Lease consist of a base rent of $386 per year
on a triple net basis. The base rent will be adjusted every five years based on
changes in the consumer price index. The PD Lease is in substantially the same
form as the six leases (the "Non-PD Leases") entered into with an unaffiliated
party in connection with the sale and lease-back of the Company's owned store
locations consummated in connection with the Reorganization. The Company
believes the PD Lease was entered into on terms no less favorable to the Company
than would have been obtained from an unaffiliated third party. In addition, in
connection with the Reorganization, four

F-23
<PAGE> 100
G.I. JOE'S, INC.

individuals associated with Peregrine, including Roy Rose and his wife, agreed
to guarantee the performance of the Company's obligations under the Non-PD
Leases. Aggregate annual base rent under the Non-PD Leases is approximately
$3,000. This guarantee will expire upon the closing of an initial public
offering of the Company's Common Stock. PD received a fee of $1,000 in
connection with the sale of the properties subject to the Non-PD Leases, which
fee was credited against the purchase price for the PD Real Properties.

Peregrine Capital, Inc.

In connection with the Redemption and Exchange, Peregrine Capital, Inc.
("Peregrine") purchased $1,450 of subordinated notes from the Company. Peregrine
exchanged $1,000 of the subordinated notes for common stock of Holdings, which
was converted into 267,674 shares of the Company's Common Stock in the Merger.
Peregrine exchanged the remaining $450 of the subordinated notes for preferred
stock and a warrant to purchase common stock of Holdings, which in the Merger
were converted into 4,500 shares of the Company's Series A Non-Voting Redeemable
Preferred Stock (the "Redeemable Preferred Stock") and 30,682 shares of the
Company's common stock. For services rendered in connection with the Redemption
and Exchange, Peregrine received an additional warrant exercisable for shares of
Holdings common stock (the "Master Warrant"), which in the Merger was converted
into 1,196,727 shares of the Company's Common Stock. Prior to the Merger,
Peregrine assigned to various unaffiliated third parties a portion of the Master
Warrant which otherwise would have entitled Peregrine to 228,067 shares of the
Company's Common Stock issued upon conversion of the Master Warrant. In
addition, Peregrine has agreed to purchase from the Investors all outstanding
shares of the Company's Redeemable Preferred Stock for $8,500, plus accumulated
dividends, if the Company does not complete, prior to May 8, 1999, an initial
public offering of its Common Stock with net proceeds to the Company of at least
$12,000.

Orkney Agreement

In connection with the Redemption and Exchange, in May 1998 the Company
redeemed all of Mr. Orkney's outstanding shares of common stock in the Company
for an aggregate purchase price of $13,893. In addition, the Company issued to
Mr. Orkney a warrant to purchase 5% of the Company's common stock outstanding,
on a fully-diluted basis, at the time of exercise at a purchase price equal to
70% of the fair market value of the common stock on the exercise date. Mr.
Orkney has registration rights with respect to the common stock issuable upon
exercise of the warrant. The Company also entered into an agreement with Mr.
Orkney, pursuant to which Mr. Orkney received a $140 bonus in May 1998
(consisting of $132 in debt forgiveness and a Company car worth $8) and will be
paid an additional $150 over the following two years ($100 of which is to be
paid in 12 equal monthly installments during the first year, and the remaining
$50 of which is to be paid in 12 equal monthly installments during the second
year). During the first year, Mr. Orkney will also receive a car allowance in
accordance with the Company's past practice as well as health insurance and
certain other benefits. Mr. Orkney's mother and sister received compensation
from the Company for the last two fiscal years in the aggregate amounts of
approximately $105 and $59, respectively. The Company stopped making such
payments in May 1998.

F-24
<PAGE> 101
G.I. JOE'S, INC.

Buyout of Former Officer of the Company

In connection with the Redemption and Exchange, the Company redeemed all of
Mr. Jackson's outstanding shares of common stock for $977 (at the same per share
purchase price received by the Company's other shareholders, excluding the
warrant issued to Mr. Orkney). The Company also repurchased Mr. Jackson's
outstanding options exercisable for 511,021 shares of the Company's common stock
for $2,267. The Company issued to Mr. Jackson a promissory note in the amount of
$283, in partial payment of the purchase price for such options. The promissory
note is due in July 1999, and does not bear interest, except after maturity or
default. The promissory note is included in Notes Payable in the accompanying
balance sheets.

13. RECENT ACQUISITION:

F-25
<PAGE> 102

G.I. JOE'S INC.

PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
(PREDECESSOR) PRO FORMA G.I. JOE'S, INC.
G.I. JOE'S, INC. ADJUSTMENTS PRO FORMA
---------------- ----------- ----------------
<S> <C> <C> <C>
Net sales.......................................... $128,238 $ -- $128,238
Cost of goods sold................................. 84,552 -- 84,552
-------- ------- --------
Gross margin..................................... 43,686 -- 43,686
Selling, general and administrative expense........ 39,528 3,143(a) 42,671
Other income (expense)
Interest expense................................. (3,542) 502(b) (3,040)
Interest income.................................. 65 -- 65
-------- ------- --------
(3,477) 502 (2,975)
-------- ------- --------
Income (loss) before income taxes.................. 681 (2,641) (1,960)
Benefit from income taxes.......................... -- 784(c) 784
-------- ------- --------
Net income (loss).................................. 681 (1,857) (1,176)
Preferred dividends................................ -- (765)(d) (765)
-------- ------- --------
Loss attributable to common shareholders........... $ 681 $(2,622) $ (1,941)
======== ======= ========
Basic net income (loss) per share.................. $ 0.22 $ -- $ (0.43)
======== ======= ========
Diluted net income (loss) per share................ $ 0.20 $ -- $ (0.43)
======== ======= ========
Shares used in per share calculations:
Basic............................................ 3,040 -- 4,464
Diluted.......................................... 3,469 -- 4,464
</TABLE>

PF-1
<PAGE> 103

G.I. JOE'S INC.

PRO FORMA STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED OCTOBER 31, 1998 (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
(PREDECESSOR) G.I. JOE'S, INC.
G.I. JOE'S, INC. SIX MONTHS
THREE MONTHS ENDED
ENDED OCTOBER 31, PRO FORMA G.I. JOE'S, INC.
APRIL 30, 1998 1998 ADJUSTMENTS PRO FORMA
---------------- ---------------- ----------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales................................. $25,908 $75,201 $ -- $101,109
Cost of goods sold........................ 17,670 49,612 -- 67,282
------- ------- ------ --------
Gross margin............................ 8,238 25,589 -- 33,827
Selling, general and administrative
expense................................. 9,755 23,086 785(a) 33,626
Other income (expense)
Interest expense........................ (971) (1,885) 125(b) (2,731)
Interest income......................... 9 9 -- 18
Gain on sale of real estate............. 640 -- -- 640
------- ------- ------ --------
(322) (1,876) 125 (2,073)
------- ------- ------ --------
Income (loss) before income taxes......... (1,839) 627 (660) (1,872)
(Provision for) benefit from income
taxes................................... -- (251) 1,000(c) 749
------- ------- ------ --------
Net income (loss)......................... (1,839) 376 340 (1,123)
Preferred dividends....................... -- (383) (191)(d) (574)
------- ------- ------ --------
Loss attributable to common
shareholders............................ $(1,839) $ (7) $ 149 $ (1,697)
======= ======= ====== ========
Basic net loss per share.................. $ (0.60) $ (0.00) $ -- $ (0.38)
======= ======= ====== ========
Diluted net loss per share................ $ (0.60) $ (0.00) $ -- $ (0.38)
======= ======= ====== ========
Shares used in per share calculations:
Basic and diluted....................... 3,040 4,464 -- 4,464
</TABLE>

PF-2
<PAGE> 104

G.I. JOE'S, INC.

FOOTNOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS)

1. BASIS OF PRESENTATION

The accompanying unaudited pro forma financial statements have been
prepared to present the effect of the Redemption, the Exchange and the Merger of
the Company as more fully discussed in Note 1 to the financial statements. The
pro forma financial statements have been prepared based upon the historical
financial statements of the Predecessor and the Company as if the Redemption,
the Exchange and the Merger had occurred at the beginning of the respective
periods.

A Pro Forma Balance Sheet is not included since the most recent balance
sheet filed with the Company's financial statements includes the effects of the
Redemption, the Exchange and the Merger. The Redemption, the Exchange and the
Merger are a series of planned transactions executed to consummate the
acquisition of the Company. Accordingly, this series of transactions has been
reflected as if they occurred on May 1, 1998.

The Pro Forma Statements of Operations may not be indicative of the results
of operations that actually would have occurred if the transactions had been in
effect as of the beginning of the respective periods nor do they purport to
indicate the results of future operations of the Company. The pro forma
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's audited financial statements and
notes thereto, included elsewhere in this Prospectus. Management believes that
all adjustments necessary to present fairly such pro forma financial statements
have been made based on the terms and structure of the transaction.

2. EXTRAORDINARY ITEM

The Pro Forma Statement of Operations for the nine-month period ended
October 31, 1998 does not include an extraordinary loss item related to the
early extinguishment of debt in the amount of $1,332, net of tax benefit of
$888.

3. PRO FORMA ADJUSTMENTS

(a) The adjustment to selling, general and administrative expense consists
of the following:

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
JANUARY 31, 1998 OCTOBER 31, 1998
---------------- -----------------
<S> <C> <C>
Reduction in depreciation from properties sold
and leased back............................. $ (336) $(84)
Rental expense on properties sold and leased
back........................................ 3,092 773
Amortization expense on capitalized leased
assets recorded at fair market value........ 387 96
------ ----
$3,143 $785
====== ====
</TABLE>

(b) To record the reduction in interest expense related to mortgages on
sold properties.

(d) To record 9% cumulative dividend on preferred stock.

PF-3
<PAGE> 105

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

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED, OR
IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO,
OR TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER OR SOLICITATION

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

TABLE OF CONTENTS

<TABLE>
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 9
The Reorganization...................... 17
Use of Proceeds......................... 20
Dividend Policy and Prior S Corporation
Status................................ 20
Dilution................................ 21
Capitalization.......................... 22
Selected Financial and Other Data....... 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 25
Business................................ 39
Management.............................. 55
Certain Related Transactions............ 63
Principal Shareholders.................. 66
Description of Capital Stock............ 68
Shares Eligible for Future Sale......... 71
Underwriting............................ 73
Legal Matters........................... 74
Experts................................. 74
Additional Information.................. 74
Index to Financial Statements........... F-1
</TABLE>

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

UNTIL , 1999 (25 DAYS AFTER THE DATE OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

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

2,500,000 SHARES

LOGO

COMMON STOCK
------------------------

PROSPECTUS
------------------------

CRUTTENDEN ROTH

INCORPORATED

BLACK & COMPANY, INC.

, 1999

- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 106

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 the registrant in connection
with the sale of the Common Stock being registered hereby. All amounts shown are
estimates, except the Securities and Exchange Commission registration fee, the
NASD filing fee and the Nasdaq National Market listing fee.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 9,330
NASD filing fee............................................. 3,663
Nasdaq National Market listing fee.......................... 72,875
Printing and engraving expenses............................. 90,000
Legal fees and expenses..................................... 250,000
Accounting fees and expenses................................ 170,000
Directors' and Officers' Liability Insurance................ 96,000
Transfer Agent and Registrar fees........................... 4,000
Miscellaneous expenses...................................... 54,132
--------
Total............................................. $750,000
--------
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

As an Oregon corporation, the registrant is subject to the laws of the
State of Oregon governing private corporations and the exculpation from
liability and indemnification provisions contained therein. Pursuant to Section
60.047(2)(d) of the Oregon Revised Statutes ("ORS"), Article 6 of the
registrant's Amended and Restated Articles of Incorporation, as amended (the
"Articles"), eliminates the liability of the registrant's directors to the
registrant or its shareholders except for any liability related to (i) breach of
the duty of loyalty; (ii) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law; (iii) any unlawful
distribution under ORS 60.367; or (iv) any transaction from which the director
derived an improper personal benefit.

ORS Section 60.391 allows corporations to indemnify their directors and
officers against liability where the director or officer has acted in good faith
and with a reasonable belief that actions taken were in the best interests of
the corporation or at least not opposed to the corporation's best interests and,
if in a criminal proceeding, the individual had no reasonable cause to believe
the conduct in question was unlawful. Under ORS Sections 60.387 to 60.414,
corporations may not indemnify a director or officer against liability in
connection with a claim by or in the right of the corporation or for any
improper personal benefit in which the director or officer was adjudged liable
to the corporation. ORS Section 60.394 mandates indemnification for all
reasonable expenses incurred in the successful defense of any claim made or
threatened whether or not such claim was by or in the right of the corporation.
Finally, pursuant to the ORS Section 60.401, a court may order indemnification
in view of all the relevant circumstances, whether or not the director or
officer met the good-faith and reasonable belief standards of conduct set out in
ORS Section 60.391.

ORS Section 60.414 also provides that the statutory indemnification
provisions are not deemed exclusive of any other rights to which directors or
officers may be entitled under a corporation's articles of incorporation or
bylaws, any agreement, general or specific action of the board of directors,
vote of shareholders or otherwise.

The Articles provide that the registrant is required to indemnify its
current and former directors to the fullest extent permitted by law. The Company
intends to enter into indemnification agreements with all its directors and
executive officers which would obligate the registrant to indemnify such
individuals for liabilities incurred by such individuals while serving as
directors or officers of the registrant.

II-1
<PAGE> 107

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since December 31, 1995, the registrant has issued and sold the following
unregistered securities (adjusted to give retroactive effect to a 3-for-4
reverse split of the registrant's Common Stock):

1. On July 31, 1997, the registrant granted to 15 of its employees
stock options exercisable for an aggregate of 32,600 shares of the
registrant's Common Stock at an exercise price of $3.23 per share, the fair
market value per share of Common Stock on the grant date. The options were
granted under a written stock option plan of the registrant in
consideration of these employees' services to the registrant, and in
issuing these securities the registrant relied on an exemption from
registration pursuant to Rule 701 under Section 3(b) of the Securities Act.

2. On May 8, 1998, the registrant issued to 61 individuals and
entities an aggregate principal amount of $9.5 million of its 9%
Subordinated Notes due 2008. One of these investors, Peregrine Capital,
Inc., is an affiliate of the registrant and received an aggregate amount of
$450,000 of the Subordinated Notes. The consideration paid for the notes
was $9.5 million. Each such investor represented that he, she or it is an
"accredited investor" within the meaning of Rule 501 under the Securities
Act and the shares were not offered or sold by means of a general
solicitation or general advertising. In issuing these securities, the
registrant relied on an exemption from registration pursuant to Rule 506
under Section 4(2) of the Securities Act.

3. On May 8, 1998, the registrant issued to David E. Orkney, a
director of the registrant, a warrant to purchase an amount of the
registrant's Common Stock equal to 5% of the registrant's outstanding
shares of Common Stock (on a fully-diluted basis) at an exercise price
equal to 70% of the initial public offering price. Mr. Orkney represented
that he is an "accredited investor" within the meaning of Rule 501 under
the Securities Act. This warrant was issued in connection with the
redemption of shares of the registrant's Common Stock owned by Mr. Orkney,
and in issuing this security the registrant relied on an exemption from
registration under Section 4(2) of the Securities Act.

4. On July 27, 1998, and in connection with the merger of ND Holdings,
Inc. with and into the registrant (with the registrant being the surviving
corporation), the registrant issued to (a) 95 individuals and entities an
aggregate of 4,461,227 shares of the registrant's Common Stock in exchange
for common stock and warrants exercisable for common stock of ND Holdings,
Inc. and (b) to 61 individuals and entities an aggregate of 85,000 shares
of the registrant's Series A 9% Non-Voting Redeemable Preferred Stock in
exchange for preferred stock of ND Holdings, Inc. One of these investors,
Peregrine Capital, Inc., is an affiliate of the registrant and received
4,500 shares of the registrant's Series A 9% Non-Voting Redeemable
Preferred Stock and 1,267,016 shares of the registrant's Common Stock. Each
such investor represented that he, she or it is an "accredited investor"
within the meaning of Rule 501 under the Securities Act and the shares were
not offered or sold by means of a general solicitation or general
advertising. In issuing these securities, the registrant relied on an
exemption from registration pursuant to Rule 506 under Section 4(2) of the
Securities Act.

5. On December 1, 1998, the registrant granted to 342 of its employees
stock options for an aggregate of 319,350 shares of the registrant's Common
Stock at an exercise price of $10.67 per share, the fair market value per
share of the Common Stock on the grant date. The options were granted under
a written stock option plan of the registrant in consideration of these
employees' services to the registrant, and, in issuing these securities,
the registrant relied on an exemption from registration pursuant to Section
3(b) of the Securities Act.

6. On January 1, 1999, the registrant issued to three entities an
aggregate of 55,829 shares of the registrant's Common Stock as partial
consideration for the purchase of certain assets from Timberline Direct. In
issuing these securities, the registrant relied on an exemption from
registration pursuant to Section 4(2) of the Securities Act.

7. On January 31, 1999, the registrant issued to three entities an
aggregate of 55,829 shares of the registrant's Common Stock as partial
consideration for the purchase of certain assets from Timberline

II-2
<PAGE> 108

Direct. In issuing these securities, the registrant relied on an exemption
from registration pursuant to Section 4(2) of the Securities Act.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
+1.1 Form of Underwriting Agreement between G.I. Joe's, Inc., and
Cruttenden Roth Incorporated and Black & Company, Inc., as
agents for the Underwriters
*2.1 Agreement and Plan of Merger dated July 1, 1998 between ND
Holdings, Inc. and G.I. Joe's, Inc.
*3.1 Amended and Restated Articles of Incorporation
*3.2 Bylaws, as restated
4.1 Form of Common Stock Certificate
5.1 Opinion of Perkins Coie LLP
10.1 Ticket Center Agreement dated as of August 1, 1998 between
TicketMaster-Oregon and G.I. Joe's, Inc. (certain portions
of this Exhibit have been omitted based upon a request for
confidential treatment; such portions have been filed
separately with the SEC)
*10.2 Lease dated June 3, 1997, as amended, between Milestone
Properties, Inc. and G.I. Joe's, Inc. (Bend, Oregon)
*10.3 Eastport Plaza Lease dated April 21, 1978 between Eastport
Plaza Shopping Center and G.I. Joe's, Inc.
*10.4 Lease dated May 10, 1973, as amended, between Center
Development Oreg., Ltd. and G.I. Joe's, Inc. (Beaverton,
Oregon)
*10.5 Sublease dated March 28, 1984 between Donald R. Wyant, Sr.
and Martin L. Peterson, (dba The Wyant-Peterson Company) and
G.I. Joe's, Inc. (Medford, Oregon)
*10.6 Building Lease dated October 9, 1980, as amended, between
Hayden Meadows and G.I. Joe's, Inc. (North Portland, Oregon)
*#10.7 Lease dated April 17, 1998 between WREP 1998-1 LLC and G.I.
Joe's, Inc. (South Salem, Oregon)
*10.8 Purchase and Sale Agreement dated April 17, 1998 among WREP
1998-1 LLC, G.I. Joe's, Inc., and PD Properties, L.L.C.
*10.9 Real Estate Purchase and Sale Agreement dated April 17, 1997
between PD Properties, L.L.C. and G.I. Joe's, Inc.
*10.10 Sublease dated October 8, 1981 between Pacific Cascade
Corporation, dba PCC Associates and G.I. Joe's, Inc.
*10.11 First Amendment to Lease dated June 15, 1991 between Eugenie
E. Keene and Philip A. Keene and G.I. Joe's, Inc. (Eugene,
Oregon)
*10.12 Lease dated May 12, 1997 between South Hill Village Limited
Partnership and G.I. Joe's, Inc. (Puyallup, Washington)
*#10.13 Lease dated June 23, 1989, as amended, between The Henway
Group XII and G.I. Joe's, Inc. (Vancouver, Washington)
*10.14 Lease dated June 23, 1989, as amended, between West Campus
Square Joint Venture and G.I. Joe's, Inc. (Federal Way,
Washington)
*10.15 Lease dated January 28, 1998 between Pacific Realty
Associates, L.P. and G.I. Joe's, Inc. (Hillsboro, Oregon)
</TABLE>

II-3
<PAGE> 109

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
*10.16 Purchase and Sale Agreement dated April 21, 1998 between
G.I. Joe's and ESA Management, Inc. (Renton, Washington)
*10.17 G.I. Joe's, Inc. Pension Plan
*10.18 1998 Incentive Compensation Plan
10.19 Loan and Security Agreement dated March 10, 1998 between
G.I. Joe's, Inc. and Foothill Capital Corporation, as
amended
*#10.20 9% Subordinated Note Due 2008 dated May 4, 1998 in favor of
certain investors
*10.21 ND Holdings, Inc. Common Stock Purchase Warrant dated May 8,
1998 evidencing the right of Peregrine Capital, Inc. to
purchase shares of common stock of ND Holdings, Inc.
*#10.22 Warrant dated May 8, 1998 by ND Holdings, Inc. in favor of
Blackwell Donaldson & Company
*#10.23 Warrant dated May 8, 1998 by ND Holdings, Inc. in favor of
certain investors
*10.24 Registration Rights Agreement dated May 8, 1998 between ND
Holdings, Inc. and certain investors
*10.25 Security Agreement dated October 31, 1997 between G.I.
Joe's, Inc. and Heller Financial, Inc.
*10.26 Promissory Notes dated October, 1997 and December 22, 1997
in the amounts of $929,092.82 and $396,003.00, respectively,
in favor of Heller Financial, Inc.
*10.27 Promissory Note dated April, 1998 in the amount of
$283,410.00 in favor of Wayne T. Jackson
*10.28 Promissory Note dated April, 1998 in the amount of
$191,106.00 in favor of B. Duane Mellen
*10.29 Agreement between David Orkney and G.I. Joe's, Inc.
*10.30 G.I. Joe's, Inc. Common Stock Purchase Warrant evidencing
the right of David E. Orkney to purchase shares of Common
Stock
10.31 G.I. Joe's, Inc. Amended and Restated 1998 Employee Stock
Purchase Plan
10.32 Finder Agreement date October 6, 1998 between Peregrine
Capital, Inc. and G.I. Joe's, Inc.
10.33 Asset Purchase Agreement dated August 24, 1998 between Joe
Direct, Inc. and Athletica, Inc., Gravity Games, Inc. and TS
Holding, Inc. as amended
+10.34 Form of Warrant by G.I. Joe's, Inc. in favor of Cruttenden
Roth Incorporated and Black & Company, Inc., respectively
10.35 Lease dated December 15, 1998 by and between Issaquah
Associates and G.I. Joe's, Inc.
10.36 Sublease by and between FADCO, LLC, and G.I. Joe's, Inc.
dated July 22, 1998
23.1 Consent of Perkins Coie LLP (included in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP (included on page II-7)
*27.1 Financial Data Schedule for the Fiscal Year Ended January
31, 1998
*27.2 Financial Data Schedule for the Three-Month Period Ended
April 30, 1998
*27.3 Financial Data Schedule for the Two-Month Period Ended June
30, 1998
27.4 Financial Data Schedule for the Six-Month Period Ended
October 31, 1998
</TABLE>

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

* Previously filed.

+ To be filed.

# A schedule attached to this exhibit identifies all other documents not
required to be filed as exhibits because such exhibits are substantially
identical to this exhibit. The Schedule also sets forth material detail by
which the omitted documents differ from this exhibit.

(b) FINANCIAL STATEMENT SCHEDULES

All schedules are omitted because they are inapplicable.

II-4
<PAGE> 110

ITEM 17. UNDERTAKINGS

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

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of 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
of 1933, 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 of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-5
<PAGE> 111

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused Amendment No. 3 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wilsonville, State of Oregon, on the 9th day of February, 1999.

G.I. JOE'S, INC.

By: /s/ NORMAN P. DANIELS

------------------------------------
Norman P. Daniels
Chairman of the Board, President
and Chief Executive Officer

POWER OF ATTORNEY

Each person whose individual signature appears below hereby authorizes and
appoints Norman P. Daniels and Philip M. Pepin, and each of them, with full
power of substitution and resubstitution and full power to act without the
other, as his true and lawful attorney-in-fact and agent to act in his name,
place and stead and to execute in the name and on behalf of each person,
individually and in each capacity stated below, and to file, any and all
amendments to this Registration Statement, including any and all post-effective
amendments and amendments thereto and any registration statement relating to the
same offering as this Registration Statement that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing, ratifying and confirming all that said
attorneys-in-fact and agents or any of them or their and his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Act of 1933, as amended,
Amendment No. 3 to this Registration Statement has been signed by the following
persons in the capacities indicated below on the 9th day of February, 1999.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ NORMAN P. DANIELS Chairman of the Board, President
- -------------------------------------------------------- and Chief Executive Officer
Norman P. Daniels (principal executive officer)

PHILIP M. PEPIN* Chief Financial Officer
- -------------------------------------------------------- (principal financial and accounting officer)
Philip M. Pepin

DAVID E. ORKNEY* Director
- --------------------------------------------------------
David E. Orkney

ROY ROSE* Director
- --------------------------------------------------------
Roy Rose

/s/ CHARLES H. PUTNEY Director
- --------------------------------------------------------
Charles H. Putney

/s/ ROBERT R. AMES Director
- --------------------------------------------------------
Robert R. Ames
</TABLE>

* By: /s/ NORMAN P. DANIELS

---------------------------------
Norman P. Daniels,
Attorney-in-Fact

II-6
<PAGE> 112

CONSENT OF INDEPENDENT AUDITORS

As independent public accountants, we hereby consent to the use of our
reports (and to all references to our firm) included in or made a part of this
registration statement.

/s/ ARTHUR ANDERSEN LLP

Portland, Oregon

February 9, 1999

II-7
<PAGE> 113

EXHIBIT LIST

<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT PAGE
NO. DESCRIPTION NUMBER
- ------- ----------- ------------
<C> <S> <C>
+1.1 Form of Underwriting Agreement between G.I. Joe's, Inc., and
Cruttenden Roth Incorporated and Black & Company, Inc., as
agents for the Underwriters.................................
*2.1 Agreement and Plan of Merger dated July 1, 1998 between ND
Holdings, Inc. and G.I. Joe's, Inc. ........................
*3.1 Amended and Restated Articles of Incorporation..............
*3.2 Bylaws, as restated.........................................
4.1 Form of Common Stock Certificate............................
5.1 Opinion of Perkins Coie LLP.................................
10.1 Ticket Center Agreement dated as of August 1, 1998 between
TicketMaster-Oregon and G.I. Joe's, Inc. (certain portions
of this Exhibit have been omitted based upon a request for
confidential treatment; such portions have been filed
separately with the SEC)....................................
*10.2 Lease dated June 3, 1997, as amended, between Milestone
Properties, Inc. and G.I. Joe's, Inc. (Bend, Oregon)........
*10.3 Eastport Plaza Lease dated April 21, 1978 between Eastport
Plaza Shopping Center and G.I. Joe's, Inc. .................
*10.4 Lease dated May 10, 1973, as amended, between Center
Development Oreg., Ltd. and G.I. Joe's, Inc. (Beaverton,
Oregon).....................................................
*10.5 Sublease dated March 28, 1984 between Donald R. Wyant, Sr.
and Martin L. Peterson, (dba The Wyant-Peterson Company) and
G.I. Joe's, Inc. (Medford, Oregon)..........................
*10.6 Building Lease dated October 9, 1980, as amended, between
Hayden Meadows and G.I. Joe's, Inc. (North Portland,
Oregon).....................................................
*#10.7 Lease dated April 17, 1998 between WREP 1998-1 LLC and G.I.
Joe's, Inc. (South Salem, Oregon)...........................
*10.8 Purchase and Sale Agreement dated April 17, 1998 among WREP
1998-1 LLC, G.I. Joe's, Inc., and PD Properties, L.L.C. ....
*10.9 Real Estate Purchase and Sale Agreement dated April 17, 1997
between PD Properties, L.L.C. and G.I. Joe's, Inc. .........
*10.10 Sublease dated October 8, 1981 between Pacific Cascade
Corporation, dba PCC Associates and G.I. Joe's, Inc. .......
*10.11 First Amendment to Lease dated June 15, 1991 between Eugenie
E. Keene and Philip A. Keene and G.I. Joe's, Inc. (Eugene,
Oregon).....................................................
*10.12 Lease dated May 12, 1997 between South Hill Village Limited
Partnership and G.I. Joe's, Inc. (Puyallup, Washington).....
*#10.13 Lease dated June 23, 1989, as amended, between The Henway
Group XII and G.I. Joe's, Inc. (Vancouver, Washington)......
*10.14 Lease dated June 23, 1989, as amended, between West Campus
Square Joint Venture and G.I. Joe's, Inc. (Federal Way,
Washington).................................................
*10.15 Lease dated January 28, 1998 between Pacific Realty
Associates, L.P. and G.I. Joe's, Inc. (Hillsboro, Oregon)...
*10.16 Purchase and Sale Agreement dated April 21, 1998 between
G.I. Joe's and ESA Management, Inc. (Renton, Washington)....
*10.17 G.I. Joe's, Inc. Pension Plan...............................
</TABLE>

<PAGE> 114

<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT PAGE
NO. DESCRIPTION NUMBER
- ------- ----------- ------------
<C> <S> <C>
*10.18 1998 Incentive Compensation Plan............................
10.19 Loan and Security Agreement dated March 10, 1998 between
G.I. Joe's, Inc. and Foothill Capital Corporation, as
amended.....................................................
*#10.20 9% Subordinated Note Due 2008 dated May 4, 1998 in favor of
certain investors...........................................
*10.21 ND Holdings, Inc. Common Stock Purchase Warrant dated May 8,
1998 evidencing the right of Peregrine Capital, Inc. to
purchase shares of common stock of ND Holdings, Inc. .......
*#10.22 Warrant dated May 8, 1998 by ND Holdings, Inc. in favor of
Blackwell Donaldson & Company...............................
*#10.23 Warrant dated May 8, 1998 by ND Holdings, Inc. in favor of
certain investors...........................................
*10.24 Registration Rights Agreement dated May 8, 1998 between ND
Holdings, Inc. and certain investors........................
*10.25 Security Agreement dated October 31, 1997 between G.I.
Joe's, Inc. and Heller Financial, Inc. .....................
*10.26 Promissory Notes dated October, 1997 and December 22, 1997
in the amounts of $929,092.82 and $396,003.00, respectively,
in favor of Heller Financial, Inc. .........................
*10.27 Promissory Note dated April, 1998 in the amount of
$283,410.00 in favor of Wayne T. Jackson....................
*10.28 Promissory Note dated April, 1998 in the amount of
$191,106.00 in favor of B. Duane Mellen.....................
*10.29 Agreement between David Orkney and G.I. Joe's, Inc. ........
*10.30 G.I. Joe's, Inc. Common Stock Purchase Warrant evidencing
the right of David E. Orkney to purchase shares of Common
Stock.......................................................
10.31 G.I. Joe's, Inc. Amended and Restated 1998 Employee Stock
Purchase Plan...............................................
10.32 Finder Agreement date October 6, 1998 between Peregrine
Capital, Inc. and G.I. Joe's, Inc. .........................
10.33 Asset Purchase Agreement dated August 24, 1998 between Joe
Direct, Inc. and Athletica, Inc., Gravity Games, Inc. and TS
Holding, Inc. as amended....................................
+10.34 Form of Warrant by G.I. Joe's, Inc. in favor of Cruttenden
Roth Incorporated and Black & Company, Inc., respectively...
10.35 Lease dated December 15, 1998 by and between Issaquah
Associates and G.I. Joe's, Inc. ............................
10.36 Sublease by and between FADCO, LLC, and G.I. Joe's, Inc.
dated July 22, 1998.........................................
23.1 Consent of Perkins Coie LLP (included in Exhibit 5.1).......
23.2 Consent of Arthur Andersen LLP (included on page II-7)......
*27.1 Financial Data Schedule for the Fiscal Year Ended January
31, 1998....................................................
*27.2 Financial Data Schedule for the Three-Month Period Ended
April 30, 1998..............................................
*27.3 Financial Data Schedule for the Two-Month Period Ended June
30, 1998....................................................
27.4 Financial Data Schedule for the Six-Month Period Ended
October 31, 1998............................................
</TABLE>

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

* Previously filed.

+ To be filed.

<PAGE> 1

COMMON STOCK COMMON STOCK
NUMBER [G.I. JOE'S LOGO] SHARES
GIJ

INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN
OF THE STATE OF OREGON RESTRICTIONS AND DEFINITIONS
CUSIP 36172Q 10 8
CUSIP 361720 10 8

This certifies that

is the owner of

SHARES OF THE COMMON STOCK OF

============================== G. I. JOE'S, INC.================================

transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this certificate properly endorsed.

This certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.

WITNESS the facsimile seal of the Corporation and the facsimile signatures
of the duly authorized officers of the Corporation.

Dated:

CORPORATE
SEAL

G.I. JOE'S, INC.

STATE OF OREGON
[SIG] [SIG]
SECRETARY PRESIDENT

COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR

AUTHORIZED SIGNATURE

<PAGE> 2

G. I. JOE'S, INC.

The Corporation is authorized to issue different classes of shares or different
series within a class. The Corporation will furnish to any shareholder upon
request and without charge a full statement of the designations, preferences,
limitations and relative rights applicable to each class authorized to be issued
and the variations in the rights, preferences and limitations between the shares
of each series so far as the same has been determined. The board of directors is
authorized to determine the relative rights and preferences of a series before
the issuance of any shares of that series.

The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

<TABLE>
<S> <C> <C>
TEN COM -- as tenants in common (Oregon Custodians use the following)
TEN ENT -- as tenants by the (Name) CUST UL OREG (Name) MIN-- ................................as Custodian under
entireties
JT TEN -- as joint tenants with the laws of Oregon, for ..........................
rights of survivorship a minor
and not as tenants in (Name) CUST (Name) (State) UNIF GIFT MIN ACT -- .............Custodian.................
common (Cust) (Minor)
Under .................Uniform Gifts to Minors Act
(State)
</TABLE>

Additional abbreviations may also be used though not in the above list.

For Value Received, hereby sell, assign and transfer unto
-----------------

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE

- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

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

- --------------------------------------------------------------------------------
shares
- ------------------------------------------------------------------------
of the common stock represented by the within certificate, and do hereby
irrevocably constitute and appoint

Attorney
- ----------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.

Dated
----------------------------

X
------------------------------------------
X
------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.

Signature(s) Guaranteed

By
----------------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.

<PAGE> 1
EXHIBIT 5.1

PERKINS COIE LLP
A LAW PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
1211 SOUTHWEST FIFTH AVENUE, SUITE 1500 O PORTLAND, OREGON 97204-3715
TELEPHONE: 503 727-2000 O FACSIMILE: 503 727-2222

February 9, 1998

G.I. Joe's, Inc.
9805 S.W. Boeckman Road
Wilsonville, OR 97070

RE: REGISTRATION STATEMENT ON FORM S-1 (NO. 333-61527)

Dear Sirs:

We have acted as special counsel to G.I. Joe's, Inc., an Oregon
corporation (the "Company"), in connection with the Registration Statement on
Form S-1, Registration No. 333-61527 (the "Registration Statement") filed by the
Company under the Securities Act of 1933, as amended (the "Securities Act"), and
the rules and regulations promulgated thereunder (the "Rules") with the
Securities and Exchange Commission in connection with a proposed underwritten
public offering of up to 2,875,000 shares of the Company's Common Stock (the
"Shares"). You have asked us to render our opinion as to matters hereinafter set
forth.

In this connection, we have examined the Registration Statement and such
certificates, agreements, records, and other documents as we have deemed
relevant and necessary as a basis for this opinion. We have assumed, with your
permission and without independent investigation, (i) the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as photostatic
or facsimile copies, and the authenticity of the originals of such copies, (ii)
the accuracy of the factual representations made to us by officers and other
representatives of the Company, whether evidenced by certificates or otherwise,
and (iii) that all actions contemplated by the Registration Statement have been
and will be carried out only in the manner described therein.

Based upon the foregoing, we are of the opinion that, upon (a)
effectiveness of the Registration Statement and (b) the due execution by the
Company and registration

<PAGE> 2

G.I. Joe's, Inc.
February 9, 1998
Page 2

by its registrar of the Shares, and the sale of the Shares as contemplated by
the Registration Statement, the Shares will be validly issued, fully paid and
nonassessable.

We are qualified to practice law in the State of Oregon. In giving the
opinion expressed herein, we express no opinion as to the laws of any
jurisdiction other than the laws of the State of Oregon and the federal laws of
the United States of America.

We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm in the Prospectus made
part of the Registration Statement under the caption "Legal Matters." In giving
such consent, we do not hereby admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act or related
Rules. This Consent may be incorporated by reference in any amendment to the
Registration Statement filed pursuant to Rule 462(b) of Regulation C under the
Securities Act.

Very truly yours,

/s/ Perkins Coie LLP

PERKINS COIE LLP

<PAGE> 1
EXHIBIT 10.1

CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED BASED UPON A REQUEST FOR
CONFIDENTIAL TREATMENT; SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SEC

TICKET CENTER AGREEMENT

THIS TICKET CENTER AGREEMENT ("Agreement") is entered into as of the 1st
day of August, 1998, by and between Ticketmaster-Oregon, an Oregon general
partnership of Tom Lasley, David Orkney, Duane Mellon, Wayne Jackson and Norm
Daniels, and G. I. Joe's, Inc., an Oregon corporation ("Ticket Center"), with
reference to the following facts:

WHEREAS, Ticketmaster is in the business of, among other things,
designing, building, operating and servicing computerized systems for the
purposes of producing, selling, auditing and controlling sales of admission
tickets to public events;

WHEREAS, Ticketmaster is engaged from time to time by, among others,
entertainment artists, concert promoters, theatrical groups, symphonies, operas,
ballets, radio stations, colleges and universities and professional athletic
clubs to produce and sell tickets to events promoted or sponsored by such
individuals or organizations; and

WHEREAS, Ticket Center desires to, and Ticketmaster desires to permit
Ticket Center to, utilize certain aspects of the TM System (as defined in
Section 1.(j) below) and other services of Ticketmaster for the purposes of
producing, selling, auditing and controlling the sale of admission tickets to
such events, said sales being conducted from the Locations (as defined Section
1. (f) below).

NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties hereby agree as follows:

1. Definitions: As used in this Agreement, the following terms shall
have the respective meanings indicated below unless the context otherwise
requires:

(a) Attraction: A sporting event or other entertainment feature
of any nature or description for which Tickets are sold.

(b) Commission: The amount of compensation to Ticket Center
determined in accordance with Section 4(d) of this Agreement.
Commissions shall be the only portion of the total revenues the Ticket
Center collects from the sale of Tickets which are not considered funds
to be held in trust for remittance to Ticketmaster.

PAGE 1 - TICKET CENTER AGREEMENT

<PAGE> 2

(d) Equipment: Those items of tangible personal property to be
provided by Ticketmaster to Ticket Center pursuant to this Agreement.

(e) Floor Space: The floor space supplied in each Location to
Ticketmaster by Ticket Center for the installation of the Equipment.

(f) Location: The business locations owned or controlled by
Ticket Center. Locations may be added from time to time by mutual
agreement. Locations shall be deleted if no longer owned or controlled
by Ticket Center.

(g) Location Employees: The employees of Ticket Center at a
particular Location.

(h) Payment Schedule: The schedule as set forth in Exhibit B
[sic] attached hereto and incorporated herein, which governs the
remittance of the proceeds of sales of Tickets by Ticket Center to 5.

(i) TM System: The equipment and procedures established and
maintained by Ticketmaster for the purpose of selling, auditing and
controlling sales of Tickets for Attractions.

(j) Ticket: A printed evidence of the right to occupy space at or
participate in an Attraction.

(k) User: Any natural person, partnership, corporation, joint
venture or other entity which operates an Attraction for which Tickets
are sold through the TM System.

2. Equipment and Software.

(a) Ticketmaster shall supply, deliver, initially install,
maintain and service the Equipment at each Location. The Equipment at
each Location shall include such items as are required for the
performance of Ticket Center's obligations hereunder, and such items may
be supplemented or replaced by Ticketmaster in accordance with the
provisions of this Agreement and the standard service procedures of
Ticketmaster. With the exception of those costs paid by Ticket Center in
accordance with the provisions of Section 3(a) hereof, Ticketmaster
shall pay the cost of supplying, delivering and installing the Equipment
at each of the Locations.

(b) Ticketmaster shall provide supporting equipment at a central
computer center at such location or locations as it shall deem necessary
for the operation of the TM System which shall be connected by telephone
lines to the Equipment at each of the Locations. The computer center
equipment will be

PAGE 2 - TICKET CENTER AGREEMENT

<PAGE> 3

available and operate during the Normal Business Hours of each Location.
Ticket Center shall pay the cost of all telephone line connections
between the central computer center and each of the Locations and all
telephone monthly costs with respect to the operation of the Equipment
during the term hereof.

(c) Ticketmaster shall maintain the Equipment in good serviceable
and operable condition. Maintenance and service costs shall be paid by
Ticketmaster except under the terms and conditions specified herein.
Ticketmaster shall make prompt and reasonable effort to repair or
correct any problems which render the Equipment inoperable. In the event
of the malfunction or inoperability of the Equipment, Ticket Center's
exclusive remedy shall be that Ticketmaster make the necessary repairs,
corrections or replacements. Ticketmaster shall have full and free
access to the Equipment during Normal Business Hours at each of the
Locations for the purpose of making service or maintenance calls. NO
OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE WARRANTY OF
MERCHANTABILITY AND THE WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE,
SHALL APPLY TO THE EQUIPMENT OR ANY SOFTWARE. UNDER NO CIRCUMSTANCES
SHALL TICKETMASTER BE LIABLE FOR ECONOMIC, INCIDENTAL OR CONSEQUENTIAL
DAMAGES RESULTING FROM EQUIPMENT FAILURE OR ANY CLAIM TICKETMASTER HAS
BREACHED ITS DUTY TO REPAIR THE EQUIPMENT AS PROVIDED HEREIN.

(d) Ticket Center shall use its best efforts to protect and keep
the Equipment in good working condition. Ticket Center shall promptly
notify Ticketmaster of any malfunction or damage to the Equipment or the
TM System. In the event of damage to or malfunction of the Equipment
caused by abuse, misuse or vandalism on the part of Ticket Center, its
agents, servants, employees or representatives, Ticket Center shall be
responsible for all costs of repairs or replacement.

(e) Ticket Center shall not encumber or cause or permit any liens
to be placed on any item of Equipment. Ticket Center shall give
Ticketmaster immediate notice of any attachment or other judicial
process affecting any item of Equipment and shall advise Ticketmaster of
the exact location of the Equipment.

(f) Neither Ticket Center nor its employees, agents, servants, or
representatives shall alter, change, modify, copy, duplicate or add to
the Equipment without the prior written consent of Ticketmaster. All
alterations and improvements of whatsoever kind and nature shall belong
to and become the property of Ticketmaster. Ticket Center acknowledges
that the TM System and Equipment represent and contain certain
proprietary and confidential data relating to the software and hardware
configurations and the unique methods by which Ticketmaster utilizes the
software and

PAGE 3 - TICKET CENTER AGREEMENT

<PAGE> 4

hardware to accomplish the overall results of the TM System, and Ticket
Center agrees that nothing of a technical or proprietary and
confidential nature will be copied, duplicated or disclosed to any
person or entity without the prior written consent of Ticketmaster.

(g) Ticket Center shall use the Equipment only for the purposes
specified in this Agreement and shall use and operate the Equipment in
compliance with the laws of the jurisdiction governing the Locations.
Ticket Center shall not move the Equipment from or between the Locations
without the prior written consent of Ticketmaster.

(h) Ticket Center acknowledges and agrees that it has not, and by
the execution hereof, it does not have or will not obtain any title to
the Equipment or any property right or interest, legal or equitable,
therein, except its interest as Ticket Center under this Agreement. The
Equipment and the TM System shall at all times be and remain the sole
and exclusive property of Ticketmaster. Ticketmaster shall place labels
or other identifying signs on each item of Equipment or other property
of Ticketmaster in Ticket Center's possession. Ticket Center shall not
remove, cover, alter or obliterate such labels or signs.

(i) Upon termination of this Agreement or upon termination of a
particular Location, Ticketmaster shall have the right to immediately
remove Ticket Center or said Location, as applicable, from the TM
System. Upon such a termination, Ticket Center shall immediately return
the Equipment to Ticketmaster or make the Equipment available to be
easily retrieved by Ticketmaster. The Equipment shall be in as good
condition as when received by Ticket Center, ordinary wear and tear
alone excepted. If the Equipment is not returned or made available in
such manner, Ticket Center hereby agrees that Ticketmaster may enter any
premises wherein the Equipment is located, remove the same without being
in violation of any trespassing or similar laws, and charge the cost
thereof to Ticket Center.

3. Installation and Operation of Equipment and Software.

(a) Ticket Center shall supply Floor Space to Ticketmaster in
each Location for the proper installation and operation of the Equipment
and the TM System. Ticketmaster shall have the right to approve such
Floor Space, which approval shall not be unreasonably withheld. Floor
Space shall be wired for electricity and telephone services in
accordance with the specifications of Ticketmaster, and Ticket Center
shall pay the cost of providing and maintaining such services during the
term hereof Ticket Center shall equip each Location with suitable

PAGE 4 - TICKET CENTER AGREEMENT

<PAGE> 5

counter space, partitioning and/or other fixtures necessary to present
an attractive and easily accessible Ticket sales office, and Ticket
Center shall pay the cost of equipping and maintaining such Ticket sales
office. Ticket Center shall have the right to relocate Floor Space upon
giving written notification to Ticketmaster prior to such relocation.

(b) Ticketmaster shall use its best efforts to have each Location
operational as quickly as possible. The date on which the first Location
becomes operational is referred to hereinafter as the "Installation
Date."

(c) During the Normal Business Hours at each Location, Ticket
Center shall staff the Ticket sales office at each Location with
employees for the proper operation of the Equipment and the TM System.
Ticketmaster shall, at its cost, train each Location Employee as to the
operation and care of the Equipment and shall assist in training new
Location Employees if and when needed. Further, Ticketmaster agrees to
provide additional training to Location Employees should additional
training become necessary due to changes in or a modification of the
Equipment or Ticketmaster's method of operation.

(d) Ticket Center shall use its best efforts to sell Tickets and
shall make Tickets accessible to the public during the Normal Business
Hours at each Location of Ticket Center. All sales of Tickets shall be
made by Ticket Center to the general public only, and Ticket Center
shall not utilize the TM System to obtain Tickets for the benefit of
Ticket Center's officers, agents, employees or shareholders.

(e) Ticket Center may only sell Tickets to customers physically
present at a Location. Ticket Center may not accept orders for Tickets
or effect sales of Tickets by telephone.

(f) Ticketmaster shall give Ticket Center reasonable notice of
the date on which Tickets for each Attraction will be available for sale
through the TM Systems.

(g) Scalping or brokering of Tickets by Ticket Center or any
employee or agent of Ticket Center, or the providing of Tickets to third
party scalpers or brokers through preferential sale or otherwise, or the
providing of inside information concerning Attractions, will be
considered to be a material breach of this Agreement and, in the event
of such activity, Ticketmaster may terminate this Agreement immediately.

PAGE 5 - TICKET CENTER AGREEMENT

<PAGE> 6

(h) Ticket Center shall comply with all policies and procedures
reasonably promulgated by Ticketmaster in relation to sales of Tickets
at ticket centers, and in the event of any breach of any such policy or
procedure, Ticket Center shall be in default under this Agreement.

4. Accounting Procedure for Tickets.

(a) Ticket Center agrees, as Ticketmaster's agent, to produce and
sell Tickets to all Attractions, collect the proceeds from such sales
and remit all proceeds, less commissions to Ticketmaster in accordance
with the provisions of this Agreement and the Payment Schedule set forth
in Exhibit A hereto.

(b) Ticketmaster shall furnish Ticket Center with blank tickets
for sale to customers ("Ticket Stock"). Ticket Center shall be
responsible for the security of the Ticket Stock and risk of loss of the
Ticket Stock shall shift to Ticket Center upon the delivery to Ticket
Center or Ticket Center's authorized representative, agent or employee.
For all ticket sales made through the TM System, Ticket Center shall use
exclusively the Ticket Stock. Ticket Center shall make an accounting to
Ticketmaster for all unused Ticket Stock upon Ticketmaster's request,
and Ticketmaster shall have the right to inspect Ticket Center's
inventory of Ticket Stock during then normal business hours of each
Location as Ticketmaster deems necessary; provided, however, the
inspection shall not be conducted in a manner or during a time that
unreasonably interrupts Ticket Center's sales of Tickets. Ticket Center
shall return to Ticketmaster all Tickets which are returned to or voided
on the TM System or are canceled, defaced, mutilated or otherwise
rendered unsalable. Ticket Center shall be responsible for any and all
damages arising out of or resulting from missing or unaccounted for
Tickets, including, but not limited to, costs of Ticket Stock, printing,
and the face value of any such Tickets, if the face value is known, or
$20.00 per Ticket, if the face value is not known.

(c) Ticket Center shall, as Ticketmaster's agent, charge each
Ticket purchaser the face value of the Ticket as prescribed by
Ticketmaster plus a Customer Convenience Charge as specified by
Ticketmaster. Ticketmaster may change the amount of the Customer
Convenience Charge from time to time by giving Ticket Center notice
thereof in writing or via the TM System, whereupon Ticket Center shall
charge each Ticket purchaser such Customer Convenience Charge, as
adjusted, immediately upon such effective date. Ticket Center may not
change the amount of the Customer Convenience Charge otherwise than at
the direction of Ticketmaster and may not assess any other charge
against a Ticket purchaser.

PAGE 6 - TICKET CENTER AGREEMENT

<PAGE> 7

(d) Ticket Center agrees its sole compensation for producing,
selling and accounting for Tickets pursuant hereto shall be Commissions
of [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SEC]
percent of the Customer Convenience Charge collected on each Ticket sold
by Ticket Center, but in no event more than $[CONFIDENTIAL PORTION
OMITTED AND FILED SEPARATELY WITH THE SEC] per Ticket. Ticket Center's
Commission may be deducted by it concurrently with the remittance by
Ticket Center of Ticket proceeds to Ticketmaster in accordance with the
terms of the Payment Schedule.

(e) Ticket Center shall accept only cash (not checks or credit
cards) in payment of Tickets for all Attractions. Notwithstanding the
foregoing, Ticketmaster may permit payment to be made by major credit
card with respect to any Attraction, on notice to the Ticket Center via
the TM System. Ticket Center shall bear any loss occasioned by
acceptance of checks or credit cards in violation of this provision.

(f) All receipts and proceeds from the sale of Tickets except for
Commissions shall remain the property of Ticketmaster, shall be
segregated from Ticket Center's other assets and shall be held in trust
by Ticket Center on behalf of Ticketmaster. Except for commissions,
Ticket Center shall have no right, title or interest in or to the Ticket
proceeds or receipts. Ticket Center shall deposit all proceeds less
commissions once a week in an account to be designated by Ticketmaster.
Ticket Center shall not use any amounts due Ticketmaster as its own
property, or to make loans to itself, or as collateral for loans from
third parties to itself or otherwise, and such funds shall not be
subject to assignment or alienation by Ticket Center or to the claims of
creditors of Ticket Center.

(g) Ticket Center acknowledges and agrees its obligations to
remit and pay to Ticketmaster all receipts or monies due from sold or
unaccounted for Tickets, less the Commission, and the rights of
Ticketmaster in and to such remittance and payment, shall be absolute
and unconditional and shall not be subject to any abatement, reduction,
set off, defense, counterclaim or recoupment due or alleged to be due
to, or by reason of, any past, or present or future claims which Ticket
Center may have against Ticketmaster, or against any person for any
reason whatsoever.

(h) In the event of the cancellation of an Attraction, Ticket
Center shall refund Tickets through its Locations in a manner and in an
amount to be determined by Ticketmaster at the time of refund. Ticket
Center shall not be required to make refunds unless directed in writing
by Ticketmaster to do so.

PAGE 7 - TICKET CENTER AGREEMENT

<PAGE> 8

5. Term. The term of this Agreement shall commence August 26, 1998, and
shall end on the tenth anniversary thereof. This Agreement shall be renewed for
additional five (5) year terms without any action necessary to be taken by the
parties hereto, unless either party notifies the other party, in writing, no
less than 60 days nor more than 120 days prior to the expiration hereof, of such
party's desire not to renew this Agreement.

6. Exclusivity and Restrictive Covenants.

(a) During the term of this Agreement, Ticket Center shall sell
only Tickets made available to it on the TM System, and no other tickets
of any kind.

(b) During the term of this Agreement, Ticket Center, any
affiliate of Ticket Center, or any corporation, firm, partnership,
company or entity which Ticket Center controls or is controlled by or is
under common control with Ticket Center shall not compete in any manner
whatsoever, directly or indirectly, with Ticketmaster or with any
subsidiary or affiliate of Ticketmaster with respect to the TM System or
any business or activity of Ticketmaster or of any subsidiary or
affiliate of Ticketmaster, which is of a type which Ticketmaster was
engaged in at the time of the execution hereof or of a type which it may
engage in during the term hereof, in those counties in which a TM System
is currently in operation or which may be in operation during the term
hereof.

(c) In the event Ticketmaster or Ticket Center shall cease to do
business, this Agreement may be terminated by Ticketmaster upon full and
complete settlement of all obligations between the parties hereto.

(d) Termination of this Agreement by either party shall not
terminate the continuing confidentiality obligations imposed upon Ticket
Center by the terms of this Agreement.

(e) If any provision hereof is adjudicated invalid or illegal or
otherwise unenforceable, but such provision may be made enforceable by a
limitation or reduction of its scope, Ticket Center agrees to abide by
such limitation or reduction as may be necessary to make such provision
enforceable to the fullest extent permitted by applicable law.

PAGE 8 - TICKET CENTER AGREEMENT

<PAGE> 9

7. Default by Ticket Center.

(a) If Ticket Center shall fail in the performance of any term,
covenant or condition described herein, other than those terms,
covenants and conditions described in Section 7(b), and such failure to
perform shall continue for a period of ten (10) days after Ticket Center
has received written notice thereof from Ticketmaster of such failure,
then any such failure shall constitute an ordinary default. Further,
from and after the date on which Ticketmaster shall have notified Ticket
Center of its default, the obligations of Ticketmaster hereunder shall
be suspended until such time as Ticket Center cures such default.

(b) If Ticket Center assigns, mortgages or encumbers, in any
manner whatsoever, its interest under this Agreement, or if Ticket
Center or any Location makes a bulk transfer of inventory and equipment,
or if Ticket Center shall dissolve or commence winding up its activities
to effect dissolution, liquidation or termination, or shall make an
assignment for the benefit of creditors, or shall admit, in writing, its
inability to pay its debts as they become due or shall file a voluntary
petition in bankruptcy, or shall be adjudicated a bankrupt or insolvent
or shall file any petition or answer seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or
similar relief under any present or future statute, law or regulation,
or shall file any answer admitting or not contesting the material
allegations of a petition filed against it in any such proceeding, or
shall seek, consent to, or acquiesce in, the appointment of any trustee,
receiver or liquidator of Ticket Center or of all or any substantial
part of the properties of Ticket Center, then and in any of such events,
Ticket Center shall be in immediate default hereunder, and Ticketmaster
shall not be required to give written notice to Ticket Center of such
default.

(c) In the event of any ordinary or immediate default by Ticket
Center, Ticketmaster may, at its option, seek any one or more of the
following remedies:

(i) Disconnect all terminals, Equipment and services from
the central computer center to any or all Locations.

(ii) Take immediate peaceful possession of the Equipment
wherever same may be located without demand, notice, or court order.

(iii) Sue for and recover any and all damages and losses
resulting from Ticket Center's failure to perform the requirements of
this Agreement.

PAGE 9 - TICKET CENTER AGREEMENT

<PAGE> 10

(iv) Obtain injunctive relief for any breach or threatened
breach of the covenants contained in Section 2(f) or Section 6 hereof

(v) Terminate this Agreement.

(vi) Pursue any other remedy at law, in equity or
otherwise.

No remedy referred to herein is intended to be exclusive, but
each shall be cumulative and in addition to any other remedy above or
otherwise available to Ticketmaster at law, in equity or otherwise.

8. Default by Ticketmaster.

(a) If Ticketmaster shall fail in the performance of any term,
covenant or condition described herein and such failure to perform shall
continue for a period of ten (10) days after Ticketmaster has received
prior written notice thereof from Ticket Center of such failure, then
such failure shall constitute a default.

(b) In the event of any default by Ticketmaster, Ticket Center
may, at its option, seek any one or more of the following as its sole
remedies:

(i) Terminate this Agreement.

(ii) Notify Ticketmaster to pick up the Equipment from the
Locations and cease all services hereunder.

9. Insurance.

(a) Ticket Center shall, at its own expense, provide and
maintain, at all times during the term hereof, insurance to protect the
Equipment against loss caused by fire, extended coverage, vandalism,
malicious mischief and theft, with a policy limit of at least $5,000 per
Equipment set-up per Location, or if greater, the full replacement value
of the Equipment as determined by Ticketmaster. Should Ticket Center
become unable to provide or maintain such insurance coverage, Ticket
Center shall promptly notify Ticketmaster in writing prior to the
expiration of any such coverage, and, thereafter, Ticketmaster shall
have the right, but is not obligated, to provide insurance coverage for
the occurrences specified above and charge Ticket Center the costs of
such insurance coverage.

PAGE 10 - TICKET CENTER AGREEMENT

<PAGE> 11

(b) Ticket Center shall provide, at its sole expense, any and all
other forms of insurance, including, but not limited to, public
liability and property damage insurance, required for its protection and
the protection of Ticketmaster. Ticket Center shall indemnify and hold
Ticketmaster harmless from and against any and all risks, claims,
liabilities, expenses (including reasonable attorneys' fees) or causes
of action arising from Ticket Center's use, possession or operation of
the Equipment, except to the extent of damages caused by the negligence
of Ticketmaster in the repair or maintenance of the Equipment.

(c) All insurance provided and maintained by Ticket Center shall
be in such amounts, under such forms of policies, upon such terms, for
such periods and written by such companies or underwriters as
Ticketmaster may approve, in all cases naming Ticketmaster as an
additional named insured under the policy. All policies of insurance
shall provide for at least ten days prior written notice of cancellation
to Ticketmaster. Ticket Center shall furnish Ticketmaster with
certificates of such insurance or other evidence satisfactory to
Ticketmaster as to its compliance with the provisions of this Section.
Ticketmaster may act as attorney for Ticket Center in making, adjusting
and settling claims under and canceling such insurance and endorsing
Ticket Center's name on any drafts drawn by insurers. Notwithstanding
the foregoing, Ticketmaster may not settle any claim which would result
in the imposition of additional liability on Ticket Center without the
consent of Ticket Center.

(d) Ticket Center shall, in the event of loss, damage, theft or
destruction of Equipment covered by insurance pursuant to the terms of
this Section 9, promptly remit to Ticketmaster all proceeds received on
account thereof. In the event that such loss, damage, theft or
destruction of Equipment is not covered by insurance pursuant to the
terms of this Section 9, or to the extent of any deficiency in such
insurance coverage, Ticket Center shall bear the risk of loss, damage,
theft or destruction of such Equipment.

10. Advertising.

(a) Ticket Center agrees to permit Ticketmaster to use Ticket
Center's business name, logo and symbol and/or the business names of the
Locations in any advertising or promotion which Ticketmaster may do to
promote Ticket sales at such Locations.

PAGE 11 - TICKET CENTER AGREEMENT

<PAGE> 12

(b) Ticketmaster shall have the right to advertise or to sell
advertising to be placed on the back side of the Tickets and/or Ticket
envelopes. Advertising printed on Tickets or Ticket envelopes shall be
solely at the discretion of Ticketmaster; provided, however, the
advertiser(s) and advertising shall not, directly, be in competition
with Ticket Center. Ticketmaster shall receive the income derived from
such advertising, and Ticket Center shall have no claim or interest in
such income.

(c) Ticket Center may, during the term hereof, provide and place
advertisements in any form of media Ticket Center shall desire,
advertising the availability of Tickets utilizing the TM System at each
of the Locations. In all such advertisements, Ticket Center shall ensure
that the name "Ticketmaster", the logo of Ticketmaster then in use and
the central telephone number of Ticketmaster are displayed in the
advertisement, as well as the address of all Locations where the Tickets
may be purchased.

11. Indemnity. Ticket Center shall indemnify Ticketmaster against, and
hold Ticketmaster harmless from, any and all claims, actions, damages, expenses
(including reasonable attorneys' fees), obligations, liabilities and liens
imposed on or incurred by or asserted against Ticketmaster or its successors or
assigns, or any joint venturer in Ticketmaster occurring as a result of Ticket
Center's management, operation, or use of the Equipment or the TM System.
Ticketmaster shall indemnify Ticket Center against, and hold Ticket Center
harmless from, any and all claims, actions, damages, expenses (including
reasonable attorneys' fees), obligations, liabilities and liens imposed on or
incurred by, or asserted against Ticket Center or its successors or assigns
arising out of any claim for patent, trademark or copyright infringement on the
Equipment or the TM System or arising out of negligent maintenance or repair of
the Equipment by Ticketmaster.

12. No Joint Venture. The relationship of Ticketmaster and Ticket Center
hereunder shall in no way be construed to create a joint venture or partnership,
or to constitute Ticketmaster or Ticket Center as an agent or employee of the
other for any purpose other than as set forth herein.

13. Assignment and Sublease. Without the prior written consent of
Ticketmaster, Ticket Center shall not (a) assign, transfer, pledge or
hypothecate, the Equipment or any part thereof, or any interest therein or (b)
permit the Equipment or any part thereof to be used by anyone other than Ticket
Center or the Location Employees. Provided, however, upon giving prior written
notice to Ticketmaster, Ticket Center may assign its rights hereunder to any
other party with the prior written consent of Ticketmaster, which consent shall
not be unreasonably

PAGE 12 - TICKET CENTER AGREEMENT

<PAGE> 13

withheld, provided such assignment shall not relieve Ticket Center of any of its
obligations hereunder. Any assignment, transfer, pledge or hypothecation for
which consent is required hereby and which is made without such consent shall be
void.

14. Miscellaneous.

(a) Notices. Any notices permitted or required under this
Agreement shall be given by personal delivery, deposited in the United
States mail, postage fully prepaid, return receipt requested, addressed
to the parties at the addresses set forth below or any other address as
any party may, from time to time, designate by notice given in
compliance with this section, facsimile transmission or any other means
which results in actual notice.

(b) Effect of Waiver. No delay or omission to exercise any right
or remedy accruing to Ticketmaster upon any breach or default of Ticket
Center shall impair any such right or remedy or be construed to be a
waiver of any such breach or default; nor shall any waiver of any single
breach or default be deemed a wavier of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or
approval on the part of Ticketmaster of any breach or default under this
Agreement, or of any provision or condition hereof, shall be in writing
and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement, or by law or in
equity or otherwise afforded Ticketmaster, shall be cumulative and not
exclusive.

(c) Attorneys' Fees. In the event of any action at law or in
equity in relation to this Agreement, the prevailing party shall be
entitled to a reasonable sum for its attorneys' fees.

(d) Severability. In the event any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement,
but this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.

(e) Binding Effect. The terms, conditions, provisions and
undertakings of this Agreement shall bind and benefit each of the
parties and their respective successors and permitted assigns.

PAGE 13 - TICKET CENTER AGREEMENT

<PAGE> 14

(f) Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Oregon.

(g) Additional Documents. Each of the parties hereto agrees to
execute and deliver such additional and further documents and
instruments as may be necessary or appropriate to carry out the intent
and purposes of this Agreement.

(h) Amendments. This Ticket Center Agreement shall not be amended
without the mutual consent of the parties hereto, which consent shall be
evidenced by a written amendment to this Agreement executed by the
parties.

(i) Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be an original and all
of which together shall constitute one and the same agreement.

(j) Suspension. The obligations of the parties hereunder shall be
suspended or, if applicable, of no further force or effect, to the
extent that they are hindered or prevented from complying therewith
because of labor disturbances, including strikes and lockouts, acts of
God, fires, storms, accidents, failure of the manufacturer to deliver
any unit of Equipment, shortage of parts for the repair and maintenance
of the Equipment, governmental regulations or interference or any cause
whatsoever not within the sole control of the party who is unable to
perform.

(k) No Representations Regarding Attractions. Ticketmaster does
not, by the execution of this Agreement and the delivery of the
Equipment and Tickets, make any representations or warranties of any
kind whatsoever with respect to the number and/or the nature of
Attractions for which Tickets are or will be sold through the TM System.

(l) Representations Regarding Authority. Ticket Center represents
and warrants to Ticketmaster Ticket Center has all requisite authority
and has taken all requisite action to execute and perform this Agreement
and the execution and performance of this Agreement by Ticket Center
will not (with or without the giving of notice or the passage of time)
conflict with, violate or breach any law, statute, rule or regulation,
Ticket Center's governing instruments or any agreement or contract to
which Ticket Center is a party or by which it or its assets are bound.

PAGE 14 - TICKET CENTER AGREEMENT

<PAGE> 15

(m) Effective Date. This Agreement is effective as of August 1,
1998.

TICKETMASTER-OREGON, INC., G. I. JOE'S, INC. an Oregon General Partnership an
Oregon Corporation

By: /s/ Tom Lasley By: /s/ Norm Daniels
-------------------------- --------------------------------
TOM LASLEY NORM DANIELS
Its: Managing Partner Its: President

Address: Address:

1700 S.W. Fourth Avenue 9805 Boeckman Road
Suite 100 Wilsonville, OR 97070
Portland, OR 97201

Facsimile (503) 682-7200
Facsimile (503) 274-8937
with a copy to:

Terry DeSylvia, Esq.
Brownstein, Rask, Arenz,
Sweeney, Kerr & Grim, LLP
1200 S.W. Main Building
Portland, OR 97205

Facsimile (503) 221-1074

PAGE 15 - TICKET CENTER AGREEMENT

<PAGE> 16

EXHIBIT A

PAYMENT SCHEDULE

Ticket Center shall make a daily accounting for Ticket sales and
unaccounted for Tickets based on computer, cash and related sales reports for
each Location. During the term of this Agreement, Ticket Center shall remit to
and pay Ticketmaster in cash the aggregate amount for all Ticket sales, plus the
Customer Convenience Charge for all such Ticket sales pursuant to Section 4(c),
plus the aggregate amount due for unaccounted for Tickets calculated pursuant to
Section 4(b), less the amount which Ticket Center is entitled to deduct pursuant
to Section 4(d), no later than Friday of each week for sales generated during
the week ending on the previous Saturday.

<PAGE> 1
EXHIBIT 10.19

AMENDMENT NUMBER TWO TO LOAN AND SECURITY AGREEMENT

This Amendment Number Two to Loan and Security Agreement ("Amendment")
is entered into as, of February __, 1999, by and between FOOTHILL CAPITAL
CORPORATION, a California corporation ("Foothill"), and G.I. JOE'S, INC., an
Oregon corporation ("Borrower"), in light of the following:

FACT ONE: Borrower and Foothill have previously entered into that
certain Loan and Security Agreement, dated as of March 10, 1998 (as amended, the
"Agreement").

FACT TWO: Borrower and Foothill desire to further amend the Agreement as
provided for and on the conditions herein.

NOW, THEREFORE, Borrower and Foothill hereby amend and supplement the
Agreement as follows:

1. DEFINITIONS. All initially capitalized terms used in this Amendment
shall have the meanings given to them in the Agreement unless specifically
defined herein.

2. AMENDMENTS.

(a) Section 1.1 of the Agreement is amended by adding or amending the
following definitions:

"Adjusted Eurodollar Rate" means, with respect to each Interest
Period for any Eurodollar Rate Loan, the rate per annum (rounded upwards, if
necessary, to the next whole multiple of 1/ 16 of 1 % per annum) determined by
dividing (a) the Eurodollar Rate for such Interest Period by (b) a percentage
equal to (i) 100% minus (ii) the Reserve Percentage. The Adjusted Eurodollar
Rate shall be adjusted on and as of the effective day of any change in the
Reserve Percentage.

"Average Unused Portion of Maximum Revolving Amount" means, as of any
date of determination, (a) the Maximum Revolving Amount, less (b) the sum of (i)
the average Daily Balance of Advances that were outstanding during the
immediately preceding month, plus (ii) the average Daily Balance of the undrawn
Letters of Credit that were outstanding during the immediately preceding month.

"Eurodollar Rate" means, with respect to the Interest Period for a
Eurodollar-Rate Loan, the interest rate per annum (rounded upwards, if
necessary, to the next whole multiple of 1/16 of 1% per annum) at which United
States dollar deposits are offered to Norwest Bank Minnesota, National
Association (or its Affiliates) by major banks in the London interbank market
(or other Eurodollar Rate market selected by Foothill) on or about 11:00 a.m.
(California time) two Business Days prior to the commencement of such Interest
Period in amounts comparable to the amount of the Eurodollar Rate Loans
requested by and

<PAGE> 2

available to Borrower in accordance with this Agreement and for a period equal
to the Interest Period.

"Eurodollar Rate Loan" means any Advance (or any portion thereof)
made or outstanding hereunder during any period when interest on such Advance
(or portion thereof) is payable based on the Adjusted Eurodollar Rate.

"Interest Period" means, for any Eurodollar Rate Loan, the period
commencing on the Business Day such Eurodollar Rate Loan is disbursed or
continued, or on the Business Day on which a Reference Rate Loan is converted to
such Eurodollar Rate Loan, and ending on the date that is one or three months
thereafter, as selected by Borrower and notified to Foothill as provided in
Section 2.12(a) and (b).

"IPO" means an initial public offering shares of Borrower's common
stock with net proceeds to Borrower of not less than $20,000,000.

"Maximum Amount" means $25,000,000.

"Reference Rate Loan" means any Advance (or portion thereof) made or
outstanding hereunder during any period when interest on such Advance (or
portion thereof) is payable based on the Reference Rate.

"Requirement of Law" means, as to any Person: (a) (i) all statutes
and regulations and (ii) court orders and injunctions, arbitrators' decisions,
and/or similar rulings, in each instance by any Governmental Authority or
arbitrator applicable to or binding upon such Person or any of such Person's
property or to which such Person or any of such Person's property is subject;
and (b) that Person's organizational documents, by-laws and/or other instruments
which deal with corporate or similar governance, as applicable.

"Reserve Percentage" for any Interest Period means, as of the date of
determination thereof, the maximum percentage (rounded upward, if necessary to
the nearest 1/100th of 1%), as determined by Foothill (or its Affiliates) in
accordance with its (or their) usual procedures (which determination shall be
conclusive in the absence of manifest error), that is in effect on such date as
prescribed by the Board of Governors of the Federal Reserve System for
determining the reserve requirements (including supplemental, marginal, and
emergency reserve requirements) with respect to eurocurrency funding (currently
referred to as "eurocurrency liabilities") having a term equal to such Interest
Period by Foothill or its Affiliates.

(b) Section 2.6(a) of the Agreement is amended to read as follows:

(a) Interest Rate. Except as provided in Section 2.6(c), below, all
Obligations shall bear interest on the Daily Balance as follows:

<PAGE> 3

(i) each Eurodollar Rate Loan shall bear interest at a per annum
rate of 3.0 percentage points above the Adjusted Eurodollar Rate;

(ii) all other Obligations shall bear interest at a per annum
rate of 0.25 percentage points above the Reference Rate; and

(iii) in the event that Borrower's net income for the fiscal
year ending January 31, 2000 equals or exceeds $1,000,000, then the interest
rates set for in (i) and (ii) above shall each be reduced by 25 basis points.
Such reduction shall effective on the first day of the month in, which Foothill
receives Borrower's audited financial statement for the fiscal year ending
January 31, 1999.

Interest in respect of Reference Rate Loans and Letter of Credit fees payable
hereunder shall be due and payable, in arrears, on the first day of each month
during the term hereof. Interest in respect of each Eurodollar Rate Loan shall
be due and payable, in arrears, on (i) the last day of the applicable Interest
Period, and (ii) the first day of each month occurring during the term thereof.

(d) Section 2.11 is amended to add subsection (b) and to amend
subsection (d) to read as follows:

(b) Unused Line Fee. On the first day of each month during the term
of this Agreement, an unused line fee in an amount equal to 0.25 % per annurn
times the Average Unused Portion of the Maximum Amount; provided, however, upon
closing of the IPO such fee shall be reduced to 0.125 % per annum times the
Average Unused Portion of the Maximum Amount.

(d) Servicing Fee, On the first day of each month during the term of
the Agreement, and thereafter so long as any Obligations are outstanding, a
servicing fee in the amount of $3,000 per month, which fee shall be reduced to
$2,500 upon closing of the IPO.

(e) Article 2 of the Agreement is amended by adding the following
Section 2.12 through Section 2.15:

2.12 EURODOLLAR RATE LOANS. Any other provisions herein to the
contrary notwithstanding, the following provisions shall govern with respect to
Eurodollar Rate Loans as to the matters covered:

(a) Borrowing; Conversion; Continuation. Borrower may from time to
time (and subject to the satisfaction of the requirements of Section 3.2),
request in a written communication with Foothill: (i) Advances to constitute
Eurodollar Rate Loans; (ii) that Reference Rate Loans be converted into
Eurodollar Rate Loans; or (iii) that existing

<PAGE> 4

Eurodollar Rate Loans continue for an additional Interest Period. Any such
request shall specify the aggregate amount of the requested Eurodollar Rate
Loans, the proposed funding date therefor (which shall be a Business Day, and
with respect to continued Eurodollar Rate Loans shall be the last day of the
Interest Period of the existing Eurodollar Rate Loans being continued), and the
proposed Interest Period (in each case subject to the limitations set forth
below). Eurodollar Rate Loans may only be made, continued, or extended if, as of
the proposed funding date therefor, each of the following conditions is
satisfied:

(u) no Event of Default exists;

(v) no more than three Interest Periods may be in effect at any one
time;

(w) the amount of each Eurodollar Rate Loan borrowed, converted, or
continued must be in an amount not less than $1,000,000 and integral multiples
of $500,000 in excess thereof;

(x) the aggregate amount of Eurodollar Rate Loans outstanding shall
not exceed, at any time, 80% of Borrower outstanding Obligations;

(y) Foothill shall have determined that the Interest Period or
Adjusted Eurodollar Rate is available to it and can be readily determined as of
the date of the request for such Eurodollar Rate Loan by Borrower; and

(z) Foothill shall have received such request Business Days prior to
the proposed funding date therefor.

Any request by Borrower to borrow Eurodollar Rate Loans, to convert
Reference Rate Loans to Eurodollar Rate Loans, or to continue any existing
Eurodollar Rate Loans shall be irrevocable, except to the extent that Foothill
shall determine under Sections 2.12(a), 2.13 or 2.14 that such Eurodollar Rate
Loans cannot be made or continued.

(b) Determination of Interest Period. By giving notice as set forth in
Section 2.12(a), Borrower shall select an Interest Period for such Eurodollar
Rate Loan. The determination of the Interest Period shall be subject to the
following provisions:

(i) in the case of immediately successive Interest Periods, each
successive Interest Period shall commence on the day on which the next
preceding Interest Period expires;

(ii) if any Interest Period would otherwise expire on a day which is
not a Business Day, the Interest Period shall be extended to expire on the
next succeeding Business Day; provided, however, that if the next succeeding
Business Day occurs in the following calendar mouth, then such Interest
Period shall expire on the immediately preceding Business Day;

<PAGE> 5

(iii) if any Interest Period begins on the last Business Day of a
month, or on a day for which there is no numerically corresponding day in
the calendar month at the end of such Interest Period, then the Interest
Period shall end on the last Business Day of the calendar month at the end
of such Interest Period; and

(iv) Borrower may not select an Interest Period which expires later
than the Maturity Date.

(c) Automatic Conversion; Optional Conversion by Foothill. Any
Eurodollar Rate Loan shall automatically convert to a Reference Rate Loan upon
the last day of the applicable Interest Period, unless Foothill has received a
request to continue such Eurodollar Rate Loan at least two Business Days prior
to the end of such Interest Period in accordance with the terms of Section
2.12(a). Any Eurodollar Rate Loan shall, at Foothill's option, upon notice to
Borrower, immediately convert to a Reference Rate Loan in the event that (i) an
Event of Default shall have occurred and be continuing or (ii) this Agreement
shall terminate, and Borrower shall pay to Foothill any amounts required by
Section 2.15 as a result thereof

2.13 ILLEGALITY. Any other provision herein to the contrary
notwithstanding, if the adoption of or any change in any Requirement of Law or
in the interpretation or application thereof by a Governmental Authority made
subsequent to February 1, 1999 shall make it unlawful for Foothill to make or
maintain Eurodollar Rate Loans as contemplated by this Agreement, (a) the
obligation of Foothill hereunder to make Eurodollar Rate Loans, continue
Eurodollar Rate Loans as such, and convert Reference Rate Loans to Eurodollar
Rate Loans shall forthwith be suspended and (b) Foothill's then outstanding
Eurodollar Rate Loans, if any, shall be converted automatically to Reference
Rate Loans on the respective last days of the then current Interest Periods with
respect thereto or within such earlier period as required by law; provided,
however, that before making any such demand, Foothill agrees to use reasonable
efforts (consistent with its internal policy and legal and regulatory
restrictions and so long as such efforts would not be disadvantageous to it, in
its reasonable discretion, in any legal, economic, or regulatory manner) to
designate a different lending office if the making of such a designation would
allow Foothill or its lending office to continue to perform its obligations to
make Eurodollar Rate Loans. If any such conversion of a Eurodollar Rate Loan
occurs on a day which is not the last day of the then current Interest Period
with respect thereto, Borrower shall pay to Foothill such amounts, if any, as
may be required pursuant to Section 2.14. If circumstances subsequently change
so that Foothill shall determine that it is no longer so affected, Foothill will
promptly notify, and upon receipt of such notice, the obligations of Foothill to
make or continue Eurodollar Rate Loans or to convert Reference Rate Loans into
Eurodollar Rate Loans shall be reinstated.

2.14 REQUIREMENTS OF LAW.

(a) If the adoption of or any change in any Requirement of Law or
in the interpretation or application thereof by a Governmental Authority made
subsequent to the Closing Date or compliance by Foothill with any request or
directive (whether or not having

<PAGE> 6

the force of law) from any central bank or other Governmental Authority made
subsequent to the Closing Date

(i) shall subject Foothill to any tax, levy, charge, fee,
reduction, or withholding of any kind whatsoever with respect to
Eurodollar Rate Loans, or change the basis of taxation of payments to
Foothill in respect thereof (except for the establishment of a tax based
on the net income of Foothill or changes in the rate of tax on the net
income of Foothill);

(ii) shall in respect of Eurodollar Rate Loans impose,
modify or hold applicable any reserve, special deposit, compulsory loan,
or similar requirement against assets held by, deposits or other
liabilities in or for the account of, Advances or other extensions of
credit by, or any other acquisition of funds by, any office of Foothill;
or

(iii) shall impose on Foothill any other condition with
respect to Eurodollar Rate Loans;

and the result of any of the foregoing is to increase the cost to Foothill, by
an amount which Foothill deems to be material, of making, converting into,
continuing, or maintaining Eurodollar Rate Loans or to increase the cost to
Foothill in respect of Eurodollar Rate Loans, by an amount which Foothill deems
to be material, or to reduce any amount receivable hereunder in respect of
Eurodollar Rate Loans, or to forego any other sum payable thereunder or make any
payment on account thereof in respect of Eurodollar Rate Loans, then, in any
such case, Borrower shall promptly pay Foothill, upon its demand, any additional
amounts necessary to compensate Foothill for such increased cost or reduced
amount receivable; provided, however, that before making any such demand,
Foothill agrees to use reasonable efforts (consistent with its internal policy
and legal and regulatory restrictions and so long as such efforts would not be
disadvantageous to it, in its reasonable discretion, in any legal, economic, or
regulatory manner) to designate a different Eurodollar lending office if the
making of such designation would allow Foothill or its Eurodollar lending office
to continue to perform its obligations to make Eurodollar Rate Loans or to
continue to fund or maintain Eurodollar Rate Loans and avoid the need for, or
materially reduce the amount of, such increased cost. If Foothill becomes
entitled to claim any additional amounts pursuant to this Section 2.14, Foothill
shall promptly notify Borrower of the event by reason of which it has become so
entitled. A certificate as to any additional amounts payable pursuant to this
Section 2.14 submitted in reasonable detail by Foothill to Borrower shall be
conclusive in the absence of manifest error. Within five Business Days after
Foothill notifies Borrower of any increased cost pursuant to the foregoing
provisions of this Section 2.14, Borrower may convert all Eurodollar Rate Loans
then outstanding into Reference Rate Loans in accordance with Section 2.12 and,
additionally, reimburse Foothill for any cost in accordance with Section 2.15.
This covenant shall survive the termination of this Agreement and the payment of
the Advances and all other amounts payable hereunder for nine months following
such termination and repayment.

<PAGE> 7

(b) If Foothill shall have determined that the adoption of or any
change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof by a Governmental Authority made
subsequent to the Closing Date or compliance by Foothill or any Person
controlling Foothill with any request or directive regarding capital adequacy
(whether or not having the force of law) from any Governmental Authority made
subsequent to February 1, 1999 does or shall have the effect of increasing the
amount of capital required to be maintained or reducing the rate of return on
Foothill's or such Person's capital as a consequence of its obligations
hereunder to a level below that which Foothill or such Person could have
achieved but for such change or compliance (taking into consideration Foothill's
or such Person's policies with respect to capital adequacy) by an amount deemed
by Foothill to be material, then from time to time, after submission by Foothill
to Borrower of a prompt written request therefor, Borrower shall pay to Foothill
such additional amount or amounts as will compensate Foothill or such Person for
such reduction. This covenant shall survive the termination of this Agreement
and the Payment of the Advances and all other amounts payable hereunder for nine
months following such termination and repayment.

2.15 INDEMNITY. Borrower agrees to indemnify Foothill and to hold
Foothill harmless from any loss or expense which Foothill may sustain or incur
as a consequence of (a) default by Borrower in payment when due of the principal
amount of or interest on any Eurodollar Rate Loan, (b) default by Borrower in
making a Borrowing of, conversion into, or continuation of Eurodollar Rate Loans
after Borrower has given a notice requesting the same in accordance with the
provisions of this Agreement, (c) default by Borrower in making any prepayment
of a Eurodollar Rate Loan after Borrower has given a notice thereof in
accordance with the provisions of this Agreement, or (d) the making of a
prepayment of Eurodollar Rate Loans on a day which is not the last day of an
Interest Period with respect thereto (whether due to the termination of this
Agreement, upon an Event of Default, or otherwise), including, in each case, any
such loss or expense (but excluding loss of margin or anticipated profits)
arising from the reemployment of funds obtained by it or from fees payable to
terminate the deposits from which such funds were obtained; provided, however,
that Foothill, if requesting indemnification, shall have delivered to the
Borrower a certificate as to the amount of such loss or expense, which
certificate shall be conclusive in the absence of manifest error. Calculation of
all amounts payable to Foothill under this Section 2.15 shall be made as though
Foothill had actually funded the relevant Eurodollar Rate Loan through the
purchase of a deposit bearing interest at the Eurodollar Rate in an amount equal
to the amount of such Eurodollar Rate Loan and having a maturity comparable to
the relevant Interest Period; provided, however, that Foothill may fund each of
the Eurodollar Rate Loans in any manner it sees fit, and the foregoing
assumption shall be utilized only for the calculation of amounts payable under
this Section 2.15. This covenant shall survive the termination of this Agreement
and the payment of the Loans and all other amounts payable hereunder for a
period of nine months thereafter.

(f) Section 3.4 of the Agreement is amended to read as follows:

<PAGE> 8

3.4 Term; Automatic Renewal. This Agreement shall become effective
upon the execution and delivery hereof by Borrower and Foothill and shall
continue in full force and effect for a term ending on March 10, 2002 (the
"Renewal Date") and automatically shall be renewed for successive one year
periods thereafter, unless sooner terminated pursuant to the terms hereof.
Either party may terminate this Agreement effective on the Renewal Date or on
any anniversary of the Renewal Date by giving the other party at least 90 days
prior written notice. The foregoing notwithstanding, Foothill shall have the
right to terminate its obligations under this Agreement immediately and without
notice upon the occurrence and during the continuation of an Event of Default.

(g) Section 3.6 of the Agreement is amended to read as follows:

3.6 Early Termination by Borrower. The provisions of Section 3.4
that allow termination of this Agreement by Borrower only on the Renewal Date
and certain anniversaries thereof notwithstanding, Borrower has the option, at
any time upon 90 days prior written notice to Foothill, to terminate this
Agreement by paying to Foothill, in cash, the Obligations (including an amount
equal to 102% of the undrawn amount of the Letters of Credit), in full, together
with a premium (the "Early Termination Premium") equal to the following
percentages of the Maximum. Amount in effect on the date hereof, as applicable:
(a) 3.00% of the Maximum Amount during the period ending March 10, 2000, (b)
2.00% of the Maximum Amount during the period beginning March 11, 2000 and
ending on March 10, 2001, and (c) 1.00% of the Maximum Amount at any time after
March 10, 2001.

(h) Section 7.20(a) is amended to read as follows:

7.20 Financial Covenants. Fail to maintain:

(a) Tangible Net Worth. Tangible Net Worth of at least the
following amounts as of the end of the following fiscal quarters:

<TABLE>
<CAPTION>
Fiscal Quarter Ending Minimum Tangible Net Worth
--------------------- --------------------------
<S> <C>
October 31, 1998 $4,000,000
January 31, 1999 $4,350,000
April 30, 1999 $4,550,000
July 31, 1999 $7,100,000
October 31, 1999 $7,600,000
January 31, 2000 $8,700,000
April 30, 2000 $7,150,000
July 31, 2000 $8,350,000
October 31, 2000 $8,750,000
</TABLE>

<PAGE> 9

<TABLE>
<S> <C>
January 31, 2001 $9,750,000
</TABLE>

Borrower and Foothill agree to negotiate in financial covenants for
Borrower's fiscal year ending January 31, 2002.

3. REPRESENTATIONS AND WARRANTIES. Borrower hereby affirms to Foothill
that all of Borrower's representations and warranties set forth in the Agreement
are true, complete and accurate in all respects as of the date hereof.

4. NO DEFAULT. Borrower hereby affirms to Foothill that no Event of
Default has occurred and is continuing as of the date hereof.

5. CONDITIONS PRECEDENT. The effectiveness of this Amendment is
expressly conditioned upon the following:

(a) Receipt by Foothill of an executed copy of this Amendment;

6. COSTS AND EXPENSES. Borrower shall pay to Foothill all of Foothill's
out-of-pocket costs and expenses (including, without limitation, the fees and
expenses of its counsel, which counsel may include any local counsel deemed
necessary, search fees, filing and recording fees, documentation fees, appraisal
fees, travel expenses, and other fees) arising in connection with the
preparation, execution, and delivery of this Amendment and all related
documents.

7. LIMITED EFFECT. In the event of a conflict between the terms and
provisions of this Amendment and the terms and provisions of the Agreement, the
terms and provisions of this Amendment shall govern. In all other respects, the
Agreement, as amended and supplemented hereby, shall remain in full force and
effect.

8. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any
number of counterparts and by different parties on separate counterparts, each
of which when so executed and delivered shall be deemed to be an original. All
such counterparts, taken together, shall constitute but one and the same
Amendment. This Amendment shall become effective upon the execution of a
counterpart of this Amendment by each of the parties hereto.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first set forth above.

FOOTHILL CAPITAL CORPORATION,
a California corporation

By:
---------------------------------
Title:
------------------------------

<PAGE> 10

G.I. JOE'S, INC.
an Oregon corporation

By:
---------------------------------
Title:
------------------------------

<PAGE> 1

EXHIBIT 10.31

G.I. JOE'S, INC.

AMENDED AND RESTATED 1998 EMPLOYEE STOCK PURCHASE PLAN

SECTION 1. PURPOSE

The purposes of the G.I. Joe's, Inc. 1998 Employee Stock Purchase Plan
(the "Plan") are (a) to assist employees of G.I. Joe's, Inc., an Oregon
corporation (the "Company"), and its designated subsidiaries in acquiring a
stock ownership interest in the Company pursuant to a plan that is intended to
qualify as an "employee stock purchase plan" under Section 423 of the Internal
Revenue Code of 1986, as amended and (b) to encourage employees to remain in the
employ of the Company and its subsidiaries.

SECTION 2. DEFINITIONS

For purposes of the Plan, the following terms shall be defined as set
forth below.

"BOARD" means the Board of Directors of the Company.

"CODE" means the Internal Revenue Code of 1986, as amended.

"COMMITTEE" means the Company's Compensation Committee.

"COMPANY" means G.I. Joe's, Inc., an Oregon corporation.

"DESIGNATED SUBSIDIARY" has the meaning set forth under the definition
of "Eligible Employee" in this Section 2.

"ELIGIBLE COMPENSATION" means all regular cash compensation including
overtime, cash bonuses and commissions. Regular cash compensation does not
include severance pay, hiring and relocation bonuses, pay in lieu of vacations,
sick leave or any other special payments.

"ELIGIBLE EMPLOYEE" means any employee of the Company or any domestic
Subsidiary Corporation or any other Subsidiary Corporation designated by the
Board or the Committee (each a "Designated Subsidiary"), who is in the employ of
the

<PAGE> 2

Company (or any Designated Subsidiary) on one or more Offering Dates and who
meets the following criteria:

(a) the employee does not, immediately after the option is
granted, own stock (as defined by the Code) possessing 5%
or more of the total combined voting power or value of all
classes of stock of the Company or of a Parent Corporation
or Subsidiary Corporation of the Company;

(b) the employee's customary employment is for more than 20
hours per week; provided, however, that the Plan
Administrator may decrease this minimum requirement for
future Offering Periods; and

If the Company permits any employee of a Designated Subsidiary to participate in
the Plan, then all employees of that Designated Subsidiary who meet the
requirements of this paragraph shall also be considered Eligible Employees.

"ENROLLMENT PERIOD" has the meaning set forth in Section 7.1.

"ESPP BROKER" has the meaning set forth in Section 10.

"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

"NEW PURCHASE DATE" has the meaning set forth in Sections 10.2 and 10.3.

"OFFERING" has the meaning set forth in Section 5.1.

"OFFERING DATE" means the first day of an Offering.

"OPTION" means an option granted under the Plan to an Eligible Employee
to purchase shares of Stock.

"PARENT CORPORATION" means any corporation, other than the Company, in
an unbroken chain of corporations ending with the Company, if, at the time of
the granting of the Option, each of the corporations, other than the Company,
owns stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.

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<PAGE> 3

"PARTICIPANT" means any Eligible Employee who has elected to participate
in an Offering in accordance with the procedures set forth in Section 7.1 and
who has not withdrawn from the Plan or whose participation in the Plan is not
terminated.

"PLAN" means the G.I. Joe's, Inc. 1998 Employee Stock Purchase Plan.

"PURCHASE DATE" means the last day of each Purchase Period.

"PURCHASE PERIOD" has the meaning set forth in Section 5.2.

"PURCHASE PRICE" has the meaning set forth in Section 6.

"STOCK" means the common stock of the Company.

"SUBSCRIPTION" has the meaning set forth in Section 7.1.

"SUBSIDIARY CORPORATION" means any corporation, other than the Company,
in an unbroken chain of corporations beginning with the Company, if, at the time
of the granting of the Option, each of the corporations, other than the last
corporation in the unbroken chain, owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.

SECTION 3. ADMINISTRATION

3.1 PLAN ADMINISTRATOR

The Plan shall be administered by the Board or the Committee or, if and
to the extent the Board or the Committee designates an executive officer of the
Company to administer the Plan, by such executive officer (each, the "Plan
Administrator"). Any decisions made by the Plan Administrator shall be
applicable equally to all Eligible Employees.

3.2 ADMINISTRATION AND INTERPRETATION BY THE PLAN ADMINISTRATOR

Subject to the provisions of the Plan, the Plan Administrator shall have
the authority, in its sole discretion, to determine all matters relating to
Options granted under the Plan, including all terms, conditions, restrictions
and limitations of Options; provided, however, that all Participants granted
Options pursuant to the Plan shall have the same rights and privileges within
the meaning of Code Section 423. The Plan Administrator shall also have
exclusive authority to interpret the Plan and may from time to time adopt, and
change, rules and regulations of general application for the Plan's
administration. The Plan Administrator's interpretation of the Plan and its
rules and regulations, and all actions taken and determinations made by the Plan
Administrator pursuant to the Plan, unless reserved to the Board or the
Committee,

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<PAGE> 4

shall be conclusive and binding on all parties involved or affected. The Plan
Administrator may delegate administrative duties to such of the Company's other
officers or employees as the Plan Administrator so determines.

SECTION 4. STOCK SUBJECT TO PLAN

Subject to adjustment from time to time as provided in Section 10, the
maximum number of shares of Stock which shall be available for issuance under
the Plan shall be 300,000 shares, plus an annual increase to be added on the
first day of the Company's fiscal year beginning in 2000 equal to the lesser of
(a) 10,500 shares, (b) 0.125% of the adjusted average common shares outstanding
of the Company used to calculate fully diluted earnings per share as reported in
the Annual Report to shareholders for the preceding year, or (c) a lesser amount
determined by the Board; provided, however, that any shares from any increases
in previous years that are not actually issued shall be added to the aggregate
number of shares available for issuance under the Plan. Shares issued under the
Plan shall be drawn from authorized and unissued shares or shares now held or
subsequently acquired by the Company as treasury shares.

SECTION 5. OFFERING DATES

5.1 OFFERING PERIODS

(a) Except as otherwise set forth below, the Plan shall be implemented
by a series of Offerings (each, an "Offering"). Offerings shall commence on
January 1 and July 1 of each year and end on the next June 30 and December 31,
respectively, occurring thereafter; provided, however, that the first Offering
shall begin on _______________, 1998.

(b) Notwithstanding the foregoing, the Plan Administrator may establish
(i) a different term for one or more Offerings and (ii) different commencing and
ending dates for such Offerings; provided, however, that an Offering may not
exceed five years; and provided, further, that if the Purchase Price may be less
than 85% of the fair market value of the Stock on the Purchase Date, the
Offering may not exceed 27 months.

(c) In the event the first or the last day of an Offering is not a
regular business day, then the first day of the Offering shall be deemed to be
the next regular business day and the last day of the Offering shall be deemed
to be the last preceding regular business day. An employee who becomes eligible
to participate in the Plan after an Offering has commenced shall not be eligible
to participate in such Offering but may participate in any subsequent Offering,
provided that such employee is still

-4-
<PAGE> 5

an Eligible Employee as of the commencement of any such subsequent Offering.
Eligible Employees may not participate in more than one Offering at a time.

5.2 PURCHASE PERIODS

Each Offering shall consist of one or more consecutive purchase periods
(each, a "Purchase Period"). The last day of each Purchase Period shall be the
Purchase Date for such Purchase Period. Except as otherwise set forth below,
each Purchase Period shall commence on January 1 and July 1 of each year and end
on the next June 30 and December 31, respectively, occurring thereafter;
provided, however, that the Purchase Period for the first Offering shall
commence on _______________, 1998 and end on June 30, 1998. Notwithstanding the
foregoing, the Board may establish (a) a different term for one or more Purchase
Periods and (b) different commencing and ending dates for any such Purchase
Period. In the event the first or last day of a Purchase Period is not a regular
business day, then the first day of the Purchase Period shall be deemed to be
the next regular business day and the last day of the Purchase Period shall be
deemed to be the last preceding regular business day.

5.3 GOVERNMENTAL APPROVAL; STOCKHOLDER APPROVAL

Notwithstanding any other provision of the Plan to the contrary, an
Option granted pursuant to the Plan shall be subject to (a) obtaining all
necessary governmental approvals and qualifications of the Plan and the issuance
of Options and sale of Stock pursuant to the Plan and (b) obtaining stockholder
approval of the Plan.

SECTION 6. PURCHASE PRICE

The purchase price (the "Purchase Price") at which Stock may be acquired
in an Offering pursuant to the exercise of all or any portion of an Option
granted under the Plan (the "Offering Exercise Price") shall be 85% of the
lesser of (a) the fair market value of the Stock on the Offering Date of such
Offering and (b) the fair market value of the Stock on the Purchase Date. The
fair market value of the Stock on the Offering Date or on the Purchase Date
shall be the closing price for the Stock as reported for such day by the Nasdaq
National Market, the New York Stock Exchange or other trading market on which
the Company's Stock may then be traded (the "Exchange"). If no sales of the
Stock were made on the Exchange on such day, fair market value shall mean the
closing price for the Stock as reported for the next preceding day on which
sales of the Stock were made on the Exchange. If the Stock is not listed on an
Exchange, the Board shall designate an alternative method of determining the
fair market value of the Stock.

-5-
<PAGE> 6

SECTION 7. PARTICIPATION IN THE PLAN

7.1 INITIAL PARTICIPATION

An Eligible Employee shall become a Participant on the first Offering
Date after satisfying the eligibility requirements and delivering to the Plan
Administrator during the enrollment period established by the Plan Administrator
(the "Enrollment Period") a subscription (the "Subscription"):

(a) indicating the Eligible Employee's election to participate in the
Plan;

(b) authorizing payroll deductions and stating the amount to be deducted
regularly from the Participant's pay; and

An Eligible Employee who does not deliver a Subscription as provided
above during the Enrollment Period shall not participate in the Plan for that
Offering or for any subsequent Offering unless such Eligible Employee
subsequently enrolls in the Plan by filing a Subscription with the Company
during the Enrollment Period for such subsequent Offering. The Company may, from
time to time, change the Enrollment Period for any future Offering as deemed
advisable by the Plan Administrator, in its sole discretion, for the proper
administration of the Plan.

7.2 CONTINUED PARTICIPATION

A Participant shall automatically participate in the next Offering until
such time as such Participant withdraws from the Plan pursuant to Section 12.1
or 12.2 or terminates employment as provided in Section 13.

SECTION 8. LIMITATIONS ON RIGHT TO PURCHASE SHARES

8.1 NUMBER OF SHARES PURCHASED

The maximum number of shares of stock that may be offered to a
Participant on any Offering Date shall be equal to $25,000 divided by the fair
market value of one share of Stock of the Company on the applicable Offering
Date. Further, no Participant shall be entitled to purchase Stock under the Plan
(or any other employee stock purchase plan that is intended to meet the
requirements of Code Section 423 sponsored by the Company, a Parent Corporation
or a Subsidiary Corporation) with a fair market value exceeding $25,000,
determined as of the Offering Date for each

-6-
<PAGE> 7

Offering (or such other limit as may be imposed by the Code), in any calendar
year in which a Participant participates in the Plan (or other employee stock
purchase plan described in this Section 8.1).

8.2 PRO RATA ALLOCATION

In the event the number of shares of Stock that might be purchased by
all Participants in the Plan exceeds the number of shares of Stock available in
the Plan, the Plan Administrator shall make a pro rata allocation of the
remaining shares of Stock in as uniform a manner as shall be practicable and as
the Plan Administrator shall determine to be equitable. Fractional shares may
not be issued under the Plan unless the Plan Administrator determines otherwise
for future Offerings.

SECTION 9. PAYMENT OF PURCHASE PRICE

9.1 GENERAL RULES

Subject to Section 9.12, Stock that is acquired pursuant to the exercise
of all or any portion of an Option may be paid for only by means of payroll
deductions from the Participant's Eligible Compensation. Except as set forth in
this Section 9, the amount of compensation to be withheld from a Participant's
Eligible Compensation during each pay period shall be determined by the
Participant's Subscription.

9.2 CHANGE NOTICES

During an Offering, a Participant may elect to decrease, but not
increase, the amount withheld from his or her compensation by filing an amended
Subscription with the Company on or before the change notice date. The change
notice date shall initially be the seventh day prior to the end of the first pay
period for which such election is to be effective; provided, however, that the
Plan Administrator may change such change notice date from time to time. Unless
otherwise determined by the Plan Administrator for a future Offering, a
Participant may elect to increase or decrease the amount to be withheld from his
or her compensation for future Offerings; provided, however, that notice of such
election must be delivered to the Plan Administrator in such form and in
accordance with such terms as the Plan Administrator may establish for an
Offering.

9.3 PERCENT WITHHELD

The amount of payroll withholding for each Participant for purchases
pursuant to the Plan during any pay period shall be at least 1% but shall not
exceed 10% of the

-7-
<PAGE> 8

Participant's Eligible Compensation for such pay period. Amounts shall be
withheld in whole percentages only.

9.4 PAYROLL DEDUCTIONS

Payroll deductions shall commence on the first payday following the
Offering Date and shall continue through the last payday of the Offering unless
sooner altered or terminated as provided in the Plan.

9.5 MEMORANDUM ACCOUNTS

Individual accounts shall be maintained for each Participant for
memorandum purposes only. All payroll deductions from a Participant's
compensation shall be credited to such account but shall be deposited with the
general funds of the Company. All payroll deductions received or held by the
Company may be used by the Company for any corporate purpose.

9.6 NO INTEREST

No interest shall be paid on payroll deductions received or held by the
Company.

9.7 ACQUISITION OF STOCK

On each Purchase Date of an Offering, each Participant shall
automatically acquire, pursuant to the exercise of the Participant's Option, the
number of shares of Stock arrived at by dividing the total amount of the
Participant's accumulated payroll deductions for the Purchase Period by the
Purchase Price; provided, however, that the number of shares of Stock purchased
by the Participant shall not exceed the number of whole shares of Stock so
determined, unless the Plan Administrator has determined for any future Offering
that fractional shares may be issued under the Plan; and provided, further, that
the number of shares of Stock purchased by the Participant shall not exceed the
number of shares for which Options have been granted to the Participant pursuant
to Section 8.1.

9.8 REFUND OF EXCESS AMOUNTS

Any cash balance remaining in the Participant's account at the
termination of each Purchase Period shall be refunded to the Participant as soon
as practical after the Purchase Date without the payment of any interest;
provided, however, that if the Participant participates in the next Purchase
Period, any cash balance remaining in the Participant's account shall be applied
to the purchase of Stock in the new Purchase Period, provided such purchase
complies with Section 8.1.

-8-
<PAGE> 9

9.9 WITHHOLDING OBLIGATIONS

At the time the Option is exercised, in whole or in part, or at the time
some or all of the Stock is disposed of, the Participant shall make adequate
provision for federal and state withholding obligations of the Company, if any,
that arise upon exercise of the Option or upon disposition of the Stock. The
Company may withhold from the Participant's compensation the amount necessary to
meet such withholding obligations.

9.10 TERMINATION OF PARTICIPATION

No Stock shall be purchased on behalf of a Participant on a Purchase
Date if his or her participation in the Offering or the Plan has terminated on
or before such Purchase Date.

9.11 PROCEDURAL MATTERS

The Company may, from time to time, establish (a) limitations on the
frequency and/or number of any permitted changes in the amount withheld during
an Offering, as set forth in Section 9.2, (b) an exchange ratio applicable to
amounts withheld in a currency other than U.S. dollars, (c) 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 and (d) such other limitations or procedures as deemed advisable by
the Company in the Company's sole discretion that are consistent with the Plan
and in accordance with the requirements of Code Section 423.

9.12 LEAVES OF ABSENCE

During leaves of absence approved by the Company and meeting the
requirements of the applicable Treasury Regulations promulgated under the Code,
a Participant may elect to continue participation in the Plan by delivering cash
payments to the Plan Administrator on the Participant's normal paydays equal to
the amount of his or her payroll deduction under the Plan had the Participant
not taken a leave of absence. Currently, the Treasury Regulations provide that a
Participant may continue participation in the Plan only during the first 90 days
of a leave of absence unless the Participant's reemployment rights are
guaranteed by statute or contract.

-9-
<PAGE> 10

SECTION 10. STOCK PURCHASED UNDER THE PLAN

10.1 ESPP BROKER

If the Plan Administrator designates or approves a stock brokerage or
other financial services firm (the "ESPP Broker") to hold shares purchased under
the Plan for the accounts of Participants, the following procedures shall apply.
Promptly following each Purchase Date, the number of shares of Stock purchased
by each Participant shall be deposited into an account established in the
Participant's name with the ESPP Broker. Each Participant will be the beneficial
owner of the Stock purchased under the Plan and will have all rights of
beneficial ownership in such Stock. A Participant shall be free to undertake a
disposition of the shares of Stock in his or her account at any time, but, in
the absence of such a disposition, the shares of Stock must remain in the
Participant's account at the ESPP Broker until the holding period set forth in
Code Section 423 has been satisfied. With respect to shares of Stock for which
the holding period set forth above has been satisfied, the Participant may move
those shares of Stock to another brokerage account of the Participant's choosing
or request that a stock certificate be issued and delivered to him or her.
Dividends paid in the form of shares of Stock with respect to Stock in a
Participant's account shall be credited to such account. A Participant who is
not subject to payment of U.S. income taxes may move his or her shares of Stock
to another brokerage account of his or her choosing or request that a stock
certificate be delivered to him or her at any time, without regard to the Code
Section 423 holding period.

10.2 NOTICE OF DISPOSITION

By entering the Plan, each Participant agrees to promptly give the
Company notice of any Stock disposed of within the later of one year from the
Purchase Date and two years from the Offering Date for such Stock, showing the
number of such shares disposed of and the Purchase Date and Offering Date for
such Stock. This notice shall not be required if and so long as the Company has
a designated ESPP Broker.

SECTION 11. MARKET STANDOFF

In connection with the underwritten initial public offering by the
Company of its Stock, neither the Participant nor any beneficiary receiving
shares of Stock pursuant to Section 14.2 hereof shall sell, make any short sale
of, loan, hypothecate, pledge, grant any option for the purchase of, or
otherwise dispose of or transfer for value or otherwise agree to engage in any
of the foregoing transactions with respect to any Stock issued under the Plan
for a period of 180 days after the IPO Date.

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<PAGE> 11

In the event of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
Company's Stock effected as a class without the Company's receipt of
consideration, any new, substituted or additional securities distributed with
respect to the purchased Stock shall be immediately subject to the provisions of
this Section 11.

In order to enforce the limitations of this Section 11, the Company may
issue stop-transfer instructions to the ESPP Broker and/or the Company's
transfer agent until the end of the period ending 180 days after the IPO Date.

SECTION 12. VOLUNTARY WITHDRAWAL

12.1 WITHDRAWAL FROM AN OFFERING

A Participant may withdraw from an Offering by signing and delivering to
the Company's Plan Administrator a written notice of withdrawal on a form
provided by the Company for such purpose. Such withdrawal must be elected at
least ten days prior to the end of the Purchase Period for which such withdrawal
is to be effective or by any other date specified by the Plan Administrator for
any future Offering. If a Participant withdraws after the Purchase Date for a
Purchase Period of an Offering, the withdrawal shall not affect Stock acquired
by the Participant in any earlier Purchase Periods. Unless otherwise indicated,
withdrawal from an Offering shall not result in a withdrawal from the Plan or
any succeeding Offering therein. A Participant is prohibited from again
participating in the same Offering at any time upon withdrawal from such
Offering. The Company may, from time to time, impose a requirement that the
notice of withdrawal be on file with the Plan Administrator for a reasonable
period prior to the effectiveness of the Participant's withdrawal.

12.2 WITHDRAWAL FROM THE PLAN

A Participant may withdraw from the Plan by signing a written notice of
withdrawal on a form provided by the Company for such purpose and delivering
such notice to the Plan Administrator. Such notice must be delivered at least
ten days prior to the end of the Purchase Period for which such withdrawal is to
be effective or by any other date specified by the Plan Administrator for any
future Offering. In the event a Participant voluntarily elects to withdraw from
the Plan, the Participant may not resume participation in the Plan during the
same Offering, but may participate in any subsequent Offering under the Plan by
again satisfying the definition of Eligible Employee. The Company may impose,
from time to time, a requirement that the notice of withdrawal be on file with
the Plan Administrator for a reasonable period prior to the effectiveness of the
Participant's withdrawal.

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<PAGE> 12

12.3 RETURN OF PAYROLL DEDUCTIONS

Upon withdrawal from an Offering pursuant to Section 12.1 or from the
Plan pursuant to Section 12.2, the withdrawing Participant's accumulated payroll
deductions that have not been applied to the purchase of Stock shall be returned
as soon as practical after the withdrawal, without the payment of any interest,
to the Participant and the Participant's interest in the Offering shall
terminate. Such accumulated payroll deductions may not be applied to any other
Offering under the Plan.

SECTION 13. TERMINATION OF EMPLOYMENT

Termination of a Participant's employment with the Company for any
reason, including retirement, death or the failure of a Participant to remain an
Eligible Employee, shall immediately terminate the Participant's participation
in the Plan. The payroll deductions credited to the Participant's account since
the last Purchase Date shall, as soon as practical, be returned to the
Participant or, in the case of a Participant's death, to the Participant's legal
representative or designated beneficiary as provided in Section 14.2, and all of
the Participant's rights under the Plan shall terminate. Interest shall not be
paid on sums returned to a Participant pursuant to this Section 13.

SECTION 14. RESTRICTIONS ON ASSIGNMENT

14.1 TRANSFERABILITY

An Option granted under the Plan shall not be transferable and such
Option shall be exercisable during the Participant's lifetime only by the
Participant. The Company will not recognize, and shall be under no duty to
recognize, any assignment or purported assignment by a Participant of the
Participant's interest in the Plan, of his or her Option or of any rights under
his or her Option.

14.2 BENEFICIARY DESIGNATION

The Plan Administrator may permit a Participant to designate a
beneficiary who is to receive any shares and cash, if any, from the
Participant's account under the Plan in the event the Participant dies after the
Purchase Date for an Offering but prior to delivery to such Participant of such
shares and cash. In addition, the Plan Administrator may permit a Participant to
designate a beneficiary who is to receive any cash from the Participant's
account under the Plan in the event that the Participant dies before the
Purchase Date for an Offering. Such designation may be changed by the
Participant at any time by written notice to the Plan Administrator.

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<PAGE> 13

SECTION 15. NO RIGHTS AS STOCKHOLDER UNTIL SHARES ISSUED

With respect to shares of Stock subject to an Option, a Participant
shall not be deemed to be a stockholder of the Company, and he or she shall not
have any of the rights or privileges of a stockholder. A Participant shall have
the rights and privileges of a stockholder of the Company when, but not until, a
certificate or its equivalent has been issued to the Participant for the shares
following exercise of the Participant's Option.

SECTION 16. LIMITATIONS ON SALE OF STOCK PURCHASED UNDER THE PLAN

The Plan is intended to provide Stock for investment and not for resale.
The Company does not, however, intend to restrict or influence any Participant
in the conduct of his or her own affairs. A Participant, therefore, may sell
Stock purchased under the Plan at any time he or she chooses, subject to
compliance with any applicable federal and state securities laws. A Participant
assumes the risk of any market fluctuations in the price of the Stock.

SECTION 17. AMENDMENT OF THE PLAN

The Board may amend the Plan in such respects as it shall deem
advisable; provided, however, that, to the extent required for compliance with
Code Section 423 or any applicable law or regulation, stockholder approval will
be required for any amendment that will (a) increase the total number of shares
as to which Options may be granted under the Plan, (b) modify the class of
employees eligible to receive Options, or (c) otherwise require stockholder
approval under any applicable law or regulation.

SECTION 18. TERMINATION OF THE PLAN

The Plan shall continue in effect for 10 years after the date of its
adoption by the Board. Notwithstanding the foregoing, the Board may suspend or
terminate the Plan at any time. During any period of suspension or upon
termination of the Plan, no Options shall be granted; provided, however, that
suspension or termination of the Plan shall have no effect on Options granted
prior thereto.

SECTION 19. NO RIGHTS AS AN EMPLOYEE

Nothing in the Plan shall be construed to give any person (including any
Eligible Employee or Participant) the right to remain in the employ of the
Company or a Parent or Subsidiary Corporation or to affect the right of the
Company or a Parent or

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<PAGE> 14

Subsidiary Corporation to terminate the employment of any person (including any
Eligible Employee or Participant) at any time with or without cause.

SECTION 20. EFFECT UPON OTHER PLANS

The adoption of the Plan shall not affect any other compensation or
incentive plans in effect for the Company or any Parent or Subsidiary
Corporation. Nothing in this Plan shall be construed to limit the right of the
Company, any Parent Corporation or Subsidiary Corporation to (a) establish any
other forms of incentives or compensation for employees of the Company, a Parent
Corporation or Subsidiary Corporation or (b) grant or assume options otherwise
than under this Plan in connection with any proper corporate purpose, including,
but not by way of limitation, the grant or assumption of options in connection
with the acquisition, by purchase, lease, merger, consolidation or otherwise, of
the business, stock or assets of any corporation, firm or association.

SECTION 21. ADJUSTMENTS

21.1 ADJUSTMENT OF SHARES

In the event that, at any time or from time to time, a stock dividend,
stock split, spin-off, combination or exchange of shares, recapitalization,
merger, consolidation, distribution to stockholders other than a normal cash
dividend, or other change in the Company's corporate or capital structure
results in (a) the outstanding shares, or any securities exchanged therefor or
received in their place, being exchanged for a different number or kind of
securities of the Company or of any other corporation or (b) new, different or
additional securities of the Company or of any other corporation being received
by the holders of shares of Stock, then (subject to any required action by the
Company's stockholders), the Board or the Committee, in its sole discretion,
shall make such equitable adjustments as it shall deem appropriate in the
circumstances in (i) the maximum number and kind of shares of Stock subject to
the Plan as set forth in Section 4 and (ii) the number and kind of securities
that are subject to any outstanding Option and the per share price of such
securities. The determination by the Board or the Committee as to the terms of
any of the foregoing adjustments shall be conclusive and binding.
Notwithstanding the foregoing, a dissolution, liquidation, merger or asset sale
of the Company shall not be governed by this Section 21.1 but shall be governed
by Sections 21.2 and 21.3, respectively.

21.2 DISSOLUTION OR LIQUIDATION OF THE COMPANY

In the event of the proposed dissolution or liquidation of the Company,
the Offering then in progress shall be shortened by setting a new Purchase Date
(the

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<PAGE> 15

"New Purchase Date"), and shall terminate immediately prior to the consummation
of such proposed dissolution or liquidation, unless provided otherwise by the
Board. The New Purchase Date shall be a specified date before the date of the
Company's proposed dissolution or liquidation. The Board shall notify each
Participant in writing, at least 10 business days prior to the New Purchase
Date, that the Purchase Date for the Participant's Option has been changed to
the New Purchase Date and that the Participant's Option shall be exercised
automatically on the New Purchase Date, unless prior to such date the
Participant has withdrawn from the Offering or the Plan as provided in Section
12 hereof.

21.3 MERGER OR ASSET SALE OF THE COMPANY

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 corporation
of the successor corporation. In the event that the successor corporation
refuses to assume or substitute for the Option, the Offering then in progress
shall be shortened by setting a new Purchase Date (the "New Purchase Date"). The
New Purchase Date shall be a specified date before the date of the Company's
proposed sale or merger. The Board shall notify each Participant in writing, at
least 10 business days prior to the New Purchase Date, that the Purchase Date
for the Participant's Option has been changed to the New Purchase Date and that
the Participant's Option shall be exercised automatically on the New Purchase
Date, unless prior to such date the Participant has withdrawn from the Offering
or the Plan as provided in Section 12 hereof.

21.4 LIMITATIONS

The grant of Options will in no way affect the Company's right to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.

SECTION 22. REGISTRATION; CERTIFICATES FOR SHARES

The Company shall be under no obligation to any Participant to register
for offering or resale under the Securities Act of 1933, as amended, or register
or qualify under state securities laws, any shares of Stock. The Company may
issue certificates for shares with such legends and subject to such restrictions
on transfer and stop-transfer instructions as counsel for the Company deems
necessary or desirable for compliance by the Company with federal and state
securities laws.

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<PAGE> 16

SECTION 23. EFFECTIVE DATE

The Plan's effective date is the date on which it is approved by the
Company's stockholders.

-16-

<PAGE> 1

EXHIBIT 10.32

FINDER AGREEMENT

This agreement ("Agreement") is made and entered into this 6 day of
October, 1998 by and between Peregrine Capital, Inc., an Oregon corporation
("Finder") and G.I. Joe's, Inc., an Oregon corporation ("Company"). The
Agreement is as follows:

1. FINDER'S DUTIES AND OBLIGATIONS. The Finder will act as
Company's non-exclusive independent representative to locate, identify and
introduce businesses or owners of businesses that are of interest to Company as
acquisition or Investment candidates for transactions between such businesses
and Company ("Projects") to Company. In that regard, Finder will, among other
things, locate, identify and introduce owners of prospective Projects
("Prospects"), attend meetings with and assist in presentations to such
Prospects, review and assist in the negotiation and preparation of Project
contract documents ("Project Agreements") and maintain a continuing relationship
with Prospects and Projects. Company will have full control and discretion over
whether or not to offer a Project Agreement to any Prospect and over the actual
terms of any such Project Agreement and Project. Company reserves the right to
determine all terms and conditions of any proposed Project or Project Agreement
and to accept or reject, for any reason in Company's absolute discretion, any
proposed Project Agreement submitted through Finder.

2. COMPENSATION. For Project Agreements actually entered into and
consummated, during the term of this Agreement or for a period of one year after
the termination of this Agreement, between Company and any Prospect procured or
introduced to Company by Finder as defined in Section 4 of this Agreement,
Finder will be compensated by Company as follows:

a. Project Cash Consideration. For the Projects Finder
introduces to or procures for Company, Finder shall receive four percent (4%) of
the total gross amount of all fees and other cash consideration ("Cash
Consideration") actually paid by Company, or any Company affiliate, as a result
of or directly related to any Project or Project Agreement actually consummated;

b. Project Non-Cash Consideration. For the Projects Finder
introduces to or procures for Company, Finder shall receive from Company four
percent (4%) of the total gross amount of all non-cash consideration, including,
but not limited to non-cash compensation in the form of securities ("Non-Cash
Consideration") actually paid by Company, or any Company affiliate, as a result
of or directly related to any Project or Project Agreement actually consummated;

c. In the event that the Project Agreement provides that
all or any part of the Cash Consideration or Non-Cash Consideration be paid into
an escrow account or similar provision (the "Escrowed Portion"), then the amount
of Finder's compensation proportional to the Escrowed Portion shall not be
payable until the Escrowed Portion is released. If the Escrowed Portion is
released in installments, then a portion of Finder's compensation will be
payable in proportion to each installment released; and

Page 1 - Finder Agreement

<PAGE> 2

d. Finder's compensation shall be deemed earned and payable
to Finder upon payment of Cash Consideration or Non-Cash Consideration by
Company and, with respect to contingent or deferred payments, whether pursuant
to promissory notes or Non-Cash Consideration, if any, from time to time only
upon the payment thereof by Company to Project.

3. INDEPENDENT CONTRACTOR. Finder will perform Finder's duties
hereunder as an independent contractor and Finder is solely responsible for
Finder's own resources and conduct in performing such duties. This Agreement
does not create any relationship between Finder and Company other than
independent contractor. Finder is not an agent of Company and shall not hold
itself out as such to third parties. No agreement with any third party will bind
Company unless executed by an authorized officer of Company and Finder is not
authorized to make any representations to or agreements with any third party on
Company's behalf. Company has sole discretion to determine whether to enter into
any Project Agreement and all terms of any such Project Agreement. Finder will
pay Finder's own expenses and Company shall not be obligated to Finder in
respect of any costs or other out-of-pocket expenses, whether or not Finder
becomes entitled to compensation hereunder. It is understood that Finder is an
independent contractor and shall not be considered Company's agent for any
purposes whatsoever, and Finder is not granted any right or authority to assume
or create any obligation or liability, express or implied, on Company's behalf,
or to bind Company in any manner or thing whatsoever.

4. IDENTIFICATION OF PROSPECTIVE PROJECT. Finder shall provide
Company with a written identification of any potential Prospect that Finder
intends to introduce to Company. If a potential Prospect has previously been
identified to Company by any other representative, broker, finder or other
source, Company shall so inform Finder in writing not fewer than fourteen (14)
days after receipt from Finder of the written identification. If Company fails
to so inform Finder within the fourteen-day period, the potential Prospect will
be presumed to have been identified by Finder. Notwithstanding the foregoing, a
Prospect shall not be deemed a party identified or procured by Finder hereunder
for purposes of compensation of Finder unless and until the written disclosure
of the identity of such Prospect shall have been given by Finder and received by
Company for a period of not fewer than fourteen (14) days during the term of
this Agreement.

5. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between Finder and Company with respect to the subject matter hereof,
shall be governed by the laws of the State of Oregon and cannot be modified
orally.

6. TERMINATION. This Agreement shall terminate on October 31, 2003,
unless expressly extended by a writing signed by Company and Finder. Company
shall, nevertheless, recognize Finder as the finder for a Prospect in accordance
with the terms of this Agreement in respect of any Project identified or
procured by Finder or by an outside broker acting through Finder if (and only
if) (a) such Prospect was identified or procured by Finder (as defined in
Section 4 above) during the term of this Agreement and (b) the consummation of
the Project or any funding takes place within one year after the date of
termination of this Agreement. The Agreement may be terminated earlier by either
party upon the giving of at least thirty (30) days notice of intent to terminate
to the other party.

Page 2 - Finder Agreement
<PAGE> 3

7. ARBITRATION. Except as expressly provided elsewhere in this
Agreement or any Exhibit hereto, any controversy or claim arising out of or
relating to this Agreement, or the breach hereof or thereof, shall be resolved
by binding arbitration in accordance with the rules applicable to arbitration by
Arbitration Service of Portland, Inc. or any other private arbitration service
mutually acceptable to Company and Finder (except the rules relating to appeal),
as such rules shall exist at the date of the controversy or claim and except as
such rules may be modified herein or as otherwise agreed by the parties in such
controversy.

The forum for arbitration shall be Portland, Oregon and the
governing law for such arbitration shall be the laws of the State of Oregon.

Following thirty (30) days' written notice by any party of
intention to invoke arbitration, any dispute arising under this Agreement or
other exhibits hereto and not mutually resolved within such thirty (30) day
period shall be determined by a single arbitrator upon whom the parties agree
or, if the parties cannot agree on a single arbitrator within five (5) business
days following such thirty (30) day period, then by a board of three (3)
arbitrators, which arbitrator(s) shall be selected for each such controversy so
arising hereunder. If three (3) arbitrators are necessary, each party shall have
the right to pick one arbitrator and the two arbitrators so chosen shall have
the right to select a third arbitrator. Any party who is unable or unwilling to
so select an arbitrator in a timely manner, shall forfeit its right to
participate in the selection process. If a selected arbitrator is unable or
unwilling to act, or if for any other reason an appointment of the requisite
number or arbitrators cannot be made, then any party, on behalf of all the
parties, may request appointment of arbitrator(s) by the presiding judge of the
Multnomah County, Oregon Courts.

The arbitrator or arbitrators shall be guided, but not bound, by
the Rules of Evidence then in effect in the Circuit Courts of Oregon and by the
discovery rules of the Rules of Civil Procedure then in effect in the Circuit
Courts of Oregon. Any discovery shall be limited to information directly
relevant to the controversy or claim in arbitration.

The arbitrator or board of arbitrators shall determine the
matters submitted pursuant to the provisions of this Agreement and render a
decision thereon no later than sixty (60) days after such board (or single
arbitrator, as the case may be) has been appointed. The action of the sole
arbitrator, or of a majority of the members of the board of arbitrators, as the
case may be, shall govern and their decisions in writing shall be final,
nonappealable, and binding on the parties hereto.

Any decisions by the arbitrator or arbitrators shall include, a
written statement specifying the basis for the decision and the computation of
any monetary award. The prevailing party, as designated by the arbitrator or
arbitrators shall be awarded costs and attorneys fees as shall be determined by
the arbitrator or arbitrators. Judgment upon the arbitration award shall be
entered in the Multnomah County, Oregon courts.

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<PAGE> 4

IN WITNESS WHEREOF, The parties hereto have executed this Agreement as of the
date first set forth herein.

PEREGRINE CAPITAL, INC.

By: /s/ Roy Rose
----------------------------------
Roy Rose,
Chief Executive Officer

G.I. JOE'S, INC.

By: /s/ Norman P. Daniels
----------------------------------
Norman P. Daniels,
President

Page 4 - Finder Agreement

<PAGE> 1
EXHIBIT 10.33

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT is entered into this 24 day of
August, 1998, by and among JOE'S DIRECT, INC., an Oregon corporation ("Buyer");
and ATHLETICA, INC., an Oregon corporation ("Athletica"), GRAVITY GAMES, INC.,
an Oregon corporation ("Gravity Games") and TS HOLDING, INC., an Oregon
corporation ("TS") (Athletica, Gravity Games and TS are sometimes referred to
individually as "Seller" and collectively as "Sellers") and Douglas B. Spink and
Gregory Biggs (collectively, "Shareholders").

RECITALS:

A. Sellers are engaged in the business of operating a multi-title
catalog company focusing in outdoor related leisure activities. Athletica, TS
and Gravity Games collectively publish six separate catalogs related to outdoor
leisure activities (such business as conducted by Sellers or any Seller, as the
context requires, is hereinafter referred to as the "Business").

B. Subject only to the limitations and exclusions contained in
this Agreement, and on the terms and conditions hereinafter set forth, Sellers
wish to sell and Buyer wishes to purchase the assets of Sellers that relate to
the Business.

C. Shareholders are the majority stockholders of Sellers, except
for Gravity Games.

AGREEMENT:

NOW, THEREFORE, in consideration of the foregoing Recitals and
the agreements set forth herein, the parties agree as follows:

ARTICLE 1. - SALE OF ASSETS

1.1 ASSETS. At the Closing (as hereinafter defined), Sellers
shall sell, convey, transfer, assign and deliver to Buyer, and Buyer shall
purchase and acquire from Sellers, upon and subject to the terms and conditions
of this Agreement, all right, title and interest of Sellers in and to the
following, which, taken together and in the aggregate, are hereinafter referred
to as the "Assets":

(a) All of Sellers' fixed assets (the "Fixed Assets"),
including without limitation, machinery, equipment, tools,
tooling, software, computer hardware, storage media, electronic
devices, designs, drawings, schematics, blueprints,

<PAGE> 2

patterns, furniture, fixtures, leasehold improvements, vehicles,
accessories, and other personal property listed on Schedule
1.1(a) hereto, together with any replacements of or additions to
these items made in the ordinary course of business before the
Closing Date (as hereinafter defined).

(b) All of Sellers' accounts receivable on the Closing
Date (the "Accounts Receivable"), including without limitation,
all of the Accounts Receivable listed on Schedule 1.1(b) hereto
which remain uncollected on the Closing Date.

(c) All of Sellers' inventories of goods held by Sellers
on the Closing Date (i) as raw materials, (ii) as work in
process, (iii) for use or consumption in the production of
finished goods, and (iv) as finished goods (the "Inventory"),
including without limitation, the inventories listed on Schedule
1.1(c) hereto.

(d) All of Sellers' prepaid expenses such as security
deposits, utilities, rent and the like (the "Prepaid Expenses"),
including without limitation, the prepaid expenses listed on
Schedule 1.1(d) hereto.

(e) All of Sellers' cash, investment in stocks, bonds and
other marketable securities, except for those held by one of the
Sellers in another Selling entity.

(f) All of Sellers' sales literature, files, records and
customer lists.

(g) All of Sellers' technology and intellectual property
(the "Intellectual Property")listed on Schedule 1.1(g);
information relating to processes and know how used or held for
use in the Business; the names and assumed business names of the
Sellers and all registrations of, goodwill associated with and
rights to manufacture, sell, market and dispose of products
relating to the foregoing.

(h) Those real estate leases, equipment leases, purchase
contracts, sales contracts, pending catalog orders and other
agreements of any nature whatsoever to which any Seller is a
party or under which any Seller has or shall have any rights or
by which any Seller or any of the Assets are bound (the
"Contracts"), which are listed on Schedule 1.1(h) hereto or to
which any Seller becomes a party in the ordinary course of
business subsequent to the date hereof and prior to the Closing
Date and which Buyer elects to assume at the Closing (the
"Assumed Contracts").

(i) All of Sellers' licenses, permits, regulatory
approvals, franchises and authorizations (the "Permits") listed
on Schedule 1.1(i) hereto.

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<PAGE> 3

(j) All of Sellers' insurance policies ("Insurance
Policies") listed on Schedule 1.1(j) hereto.

(k) All other properties, rights and assets of Sellers
relating to the Business, whether tangible or intangible,
absolute, contingent or otherwise, in addition to those listed in
(a) through (j) above, except the Excluded Assets specified in
Section 1.2.

1.2 EXCLUDED ASSETS. The assets of Sellers listed in Schedule 1.2
(collectively, the "Excluded Assets") shall be excluded from the sale and
purchase under this Agreement.

ARTICLE 2. - ASSUMPTION OF LIABILITIES

2.1 ASSUMPTION OF LIABILITIES. At the Closing, Sellers shall
transfer and assign to Buyer, and Buyer shall assume and agree to pay, perform
and discharge all liabilities and obligations of Sellers which are specifically
set forth on Schedule 2.1, except any such liabilities and obligations
extinguished prior to the Closing Date (collectively, the "Assumed
Liabilities").

2.2 EXCLUDED LIABILITIES. Except for the Assumed Liabilities
Buyer does not assume or agree to assume or pay any obligation, liability,
indebtedness or commitment of any Seller known or unknown, absolute or
contingent, due or to become due and Seller shall pay, indemnify and hold Buyer
harmless for all such liabilities.

ARTICLE 3. - PURCHASE PRICE

3.1 PURCHASE PRICE. The purchase price (the "Purchase Price") for
the Assets is $5,500,000 subject to adjustments as provided in Article 4 below.

3.2 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid
as follows:

(a) $450,000 in cash at closing, of which $60,000 shall be
paid to Spink in consideration of his non-competition agreement
and $40,000 shall be paid to Biggs in consideration of his
non-competition agreement, and the balance shall be paid to the
Sellers in accordance with the allocation set forth in Schedule
3.2(f).

(b) $550,000 in cash on or before the earlier of December
1, 1998, shall be paid to the Sellers in accordance with the
allocation set forth in Schedule 3.2(f).

(c) A credit against the portion of the Purchase Price
paid in shares of G. I. Joe's, Inc. common stock in the amount of
the Assumed Liabilities as finally determined by the audit
provided in Section 4.1 below.

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<PAGE> 4

(d) The balance of the Purchase Price as finally
determined in accordance with Article 4, less the credit set
forth in Section 3.2(c) shall be paid in shares of G. I. Joe's,
Inc. common stock which shall be issued to Sellers in accordance
with the allocation set forth in Schedule 3.2(f) and delivered to
Sellers in accordance with the schedule of payments set forth on
Schedule 3.2(d); provided however, that such shares of stock
shall be subject to the Registration Rights Agreement from the
Closing Date. The shares of G. I. Joe's, Inc., common stock shall
be valued at $11.00 per share, or the actual initial public
offering ("IPO") price for G. I. Joe's, Inc. common stock if the
IPO price is less than $8.80 per share. All of the shares of G.
I. Joe's, Inc. common stock due to Sellers under this Agreement,
subject to adjustment under Article 4, shall be issued to Sellers
and held in escrow to be distributed to Sellers in accordance
with the terms of this Agreement.

(e) The cash and stock paid by Buyer to Sellers hereunder
shall be allocated between the Sellers in accordance with a
schedule to be provided by Sellers on or before the Closing Date
and attached to this Agreement as Schedule 3.2(f).

3.3 ALLOCATION OF PURCHASE PRICE. Buyer and Seller shall allocate
the Purchase Price among the Assets, and such allocation shall be attached as a
schedule to an Addendum to this Asset Purchase Agreement at Closing. Sellers and
Buyer will comply fully with the requirements of Section 1060 of the U.S.
Internal Revenue Code of 1986, as amended, and the regulations thereunder
relating to the allocation rules for certain applicable asset acquisitions, and
will use the allocation agreed to by the parties as the basis for completing
Treasury Form 8594.

3.4 SECURITY INTEREST. Buyer grants to Sellers a security
interest in all of the Assets to secure payment of the balance of the cash
portion of the Purchase Price due on December 1, 1998. Buyer shall execute and
deliver to Sellers at Closing, UCC financing statements, the form of which shall
be reasonably satisfactory to Sellers, which may be filed by Sellers in order to
perfect their security interest hereunder.

ARTICLE 4 - ADJUSTMENT TO PURCHASE PRICE

4. ADJUSTMENT TO PURCHASE PRICE. The Purchase Price shall be adjusted as
follows:

4.1 CURRENT AND FIXED ASSET VERIFICATION. Within 45 days after
closing Arthur Andersen, LLP shall prepare an inventory count and verify the
existence of the current and fixed assets, as of July 31, 1998 (the "Asset
Verification"). The inventory of the Sellers shall be valued at cost, and any
damaged, obsolete and unsaleable items of inventory shall be excluded. The fixed
assets shall be valued at cost, net of depreciation and amortization allowances.

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<PAGE> 5

4.2 INCREASED NET WORTH. If the Asset Verification shows a value
for current assets (cash, inventory, catalogs and prepaid expenses) and fixed
assets in excess of $600,000, the Purchase Price shall be increased in the
amount of the excess and added to the balance payable under Section 3.2(e).

4.3 DECREASED NET WORTH. If the Asset Verification shows a value
for current assets and fixed assets less than $600,000, the Purchase Price shall
be decreased in the amount of the deficit and deducted from payment under
Section 3.2(e).

ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF SELLERS

Except as otherwise described in Schedule 5 attached, Sellers and
Shareholders represent and warrant to Buyer as follows:

5.1 ORGANIZATION AND GOOD STANDING. Each Seller is a corporation
duly incorporated and organized and validly existing under the laws of the state
of Oregon. Each Seller is duly licensed or qualified as a foreign corporation,
in each other jurisdiction, if any, in which the nature of the business
transacted by it or the character of the properties owned or leased by it make
such licensing or qualification necessary. Each Seller has full power and
authority to own, lease and operate its properties, to carry on its business in
the manner and the places where such properties are now owned, leased or
operated and such business is now conducted and to execute, deliver and fully
perform its obligations under this Agreement and under each other agreement,
instrument, certificate and document to be executed and delivered pursuant
hereto by such Seller.

5.2 AUTHORIZATION; APPROVALS. The execution, delivery and
performance of this Agreement and each other agreement, instrument, certificate
and document to be executed and delivered pursuant hereto by Sellers have been
duly authorized by all requisite action, will not violate any provision of law
and will not violate any order of any court or other agency, the articles of
incorporation or bylaws of any corporate Seller, or any provision of any
indenture, agreement or other instrument to which any Seller is, or any Seller's
properties or assets are, bound or affected, or conflict with, result in a
breach of or constitute (with due notice or lapse of time or both) a default
under any such indenture, agreement or other instrument or result in

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<PAGE> 6

the creation of any lien, charge or encumbrance of any nature whatsoever upon
any of the Assets. No registration or filing with, or consent or approval of, or
other action by, any federal, state or other governmental agency or
instrumentality is or will be necessary for the valid execution, delivery and
performance by Sellers of this Agreement and each other agreement, instrument,
certificate and document to be executed pursuant hereto by Sellers.

5.3 VALIDITY. This Agreement and each other agreement and
instrument executed and delivered herewith by Sellers has been duly executed and
delivered by each Seller and constitutes the legal, valid and binding obligation
of each Seller, enforceable in accordance with its terms, except as
enforceability may be limited or effected by applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to or affecting the
rights or creditors and except as enforceability may be limited by rules of law
governing specific performance, injunctive relief or other equitable remedies.
When the Bill of Sale and Assignment Agreement (as defined in Section
8.2(h)(iii) has been executed and delivered by Sellers in accordance with this
Agreement, each will constitute the legal, valid and binding obligation of
Sellers, enforceable in accordance with its terms, subject to the exceptions as
to enforceability as set forth above.

5.4 TITLE TO THE ASSETS. The Assets constitute all of the
material properties, assets and business of Sellers, of every kind and
description, tangible and intangible, real, personal, or mixed, wherever
located, except the Excluded Assets. Except for software licenses, Sellers have
good and marketable title to all of the Assets and have the ability and the
right to convey, and shall on the Closing Date convey to Buyer, good and
marketable title to all of the Assets free and clear of any mortgages, pledges,
liens, encumbrances, charges, or title retention, conditional sale or other
security arrangements or agreements of any nature whatsoever. To the best of
Sellers' and Shareholders' knowledge, all of the Assets are in usable condition
in the ordinary course of the Business conducted by Sellers (and to be conducted
by Buyer), conform with all applicable ordinances, regulations, zoning,
environmental and other laws and do not conflict with any property or property
rights of others. No person or entity, other than Sellers and the equipment
lessors listed on Schedule 1.1(h), owns any equipment or other Assets or
property used or held for use in the conduct of the Business or necessary to the
operation of the Business.

5.5 FINANCIAL STATEMENTS. Sellers have furnished Buyer with
internally prepared balance sheets of Sellers as of July 31, 1998, (the
"Financials"). The Financials fairly present the financial position of Sellers
as of those dates and the results of operations, and have been prepared in
accordance with generally accepted accounting principles consistently applied,
except as noted therein. Sellers have also furnished Buyer with an unaudited
balance sheet of Sellers as of June 15, 1998, and the related operating
statements for the period then ended (the "Interim Statements").

5.6 SUBSEQUENT EVENTS. There has not been with respect to any
Seller, since July 31, 1998:

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<PAGE> 7

(a) Any material adverse change in the financial condition
of any Seller from that shown on the Interim Statements;

(b) Any damage or loss, whether covered by insurance or
not, materially and adversely affecting the Business, property,
assets or prospects of any Seller;

(d) Any sale, assignment or transfer of any of the Assets,
other than sales in the ordinary course of business;

(e) Any other event or condition materially and adversely
affecting the results of operations of the Business or financial
condition or prospects of any Seller.

5.7 NO UNDISCLOSED LIABILITIES. No Seller has any material
obligations or liabilities of any kind, fixed, accrued, absolute, contingent or
otherwise and whether due or to become due (including without limitation,
liabilities as guarantor or otherwise) which have not been disclosed to Buyer
and would adversely affect in any material respect the Assets or any Seller's
ability to transfer any of the Assets to Buyer on the terms and conditions set
forth herein. Sellers and Shareholders do not know of any material obligation
which adversely affects the Assets which has not been specifically disclosed in
this Agreement or in an exhibit or schedule delivered to Buyer under this
Agreement.

5.8 INVENTORIES. All items in the Inventory are the property of
Sellers and no item in the Inventory has been pledged as collateral or is held
by any Seller on consignment by others. All items in the Inventory are valued at
cost. All items in the Inventory are fit and suitable for the purposes for which
they were purchased or manufactured and to the best of Sellers knowledge are
usable and/or salable in the ordinary course of business.

5.9 INTELLECTUAL PROPERTY. Section 1.1(g) and Schedule 1.1(g)
hereto contain a complete and accurate list of the Intellectual Property owned
by each Seller. No licenses, sublicenses, covenants or agreements have been
granted or entered into by any Seller in respect of any such Intellectual
Property. Each Seller owns the entire right, title and interest in and to any
and all such Intellectual Property, except for rights held under software
licenses to Sellers as identified on Schedule 1.1(g). Each Seller owns its
Intellectual Property free and clear of all liens and encumbrances of any kind
or nature, and none of the Intellectual Property is currently being challenged
in any way, has lapsed or expired, or is involved in any pending or to Sellers
knowledge threatened interference proceeding. To the best of Sellers' and
Shareholders' knowledge, no Seller has made use of any Intellectual Property in
which any present or past employee of any Seller has or has claimed an interest,
and Sellers and Selling Shareholders do not know of any facts that could

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<PAGE> 8

reasonably be expected to give rise to such a claim. Except for the Intellectual
Property listed on Schedule 1.1(g), there are no patents, trademarks, service
marks, trade names, brand names, copyrights, licenses or other intellectual
property rights that are required for the conduct of the Business as currently
conducted. To the best of Sellers' and Shareholders' knowledge, the operations
of the Business, the use of Sellers' Fixed Assets, the manufacture, use and sale
of Sellers' products, and the use of the Intellectual Property in advertising or
other literature do not infringe the rights of others; and no Seller has been
advised of any claim of infringement of any patent, trademark, service mark,
trade name, brand name, copyright, license or other intellectual property right
of any other person or entity. There is no basis known to any Seller for
asserting any claim that any of the Intellectual Property is invalid or
unenforceable or has been wrongfully or fraudulently obtained.

5.10 CONTRACTS. Schedule 1.1(h) hereto contains a complete and
accurate list of the material Contracts to which any Seller is a party, under
which any Seller has or shall have any rights or by which any Seller or any of
the Assets are bound. None of the Contracts has been canceled or otherwise
terminated, and each of the Contracts is in full force and effect and
constitutes a binding obligation of all parties thereto. Except as set forth in
Schedule 1.1(h), there are no material existing defaults or events of default,
real or claimed, or events which with notice or lapse of time or both would
constitute a material default under any Contract. Except as set forth on
Schedule 1.1(h), each of the Contracts is assignable to Buyer without the
consent of any party other than a Seller and is enforceable in accordance with
its terms. No customer has prepaid any Seller for any duties or obligations of
the customer under any Contract, and no Seller has invoiced any customer for any
amount, except for goods to be delivered by a Seller on or before the Closing
Date. There exists no actual or to the best of Sellers knowledge, threatened
termination, cancellation or material limitation of or material modification to
or change in any of the Contracts or business relationships of any Seller with
any supplier. Except as disclosed on Schedule 1.1(h), there is no Contract in
effect between any Seller and (a) any person who is a current or former officer,
director or shareholder of any Seller, or (b) any individual who is related by
blood or marriage to any such current or former officer, director or
shareholder, or (c) any partnership, corporation or other entity that is
controlled by or under common control with any one or more of the foregoing.
Except as contemplated by this Agreement, each Seller's possession under each of
the real estate leases listed in the list of Contracts on Schedule 1.1(h) has
not been disturbed, nor has any claim been asserted against any Seller adverse
to its rights in these leasehold interests. With respect to each of these
leases, except as set forth on Schedule 1.1(h), each Seller identified on
Schedule 1.1(h) as the tenant of a particular lease (a) is the sole tenant
holding the entire leasehold interest free and clear of all liens, encumbrances
and obligations, (b) has good right and authority to assign that lease to Buyer
as of the Closing Date as herein provided, and (c) is not in default, and has
paid all rentals and other charges due or owing under, these leases. Schedule
1.1(h) contains a complete and accurate description of all the product warranty
policies and obligations of Sellers.

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5.11 PERMITS. Schedule 1.1(i) contains a complete and accurate
list of the Permits held by each Seller. Each Seller has all Permits from
federal, state, local and foreign governmental and regulatory authorities that
are necessary to conduct the Business of such Seller and are consistent with
such Seller's current operations. Each Seller holds the Permits free of any
claims or restrictions and has fulfilled and performed all of its obligations
with respect to the Permits and no event has occurred which allows, nor after
notice or lapse of time or both would allow, revocation or termination or would
result in any other impairment of the rights of the holder of any Permit. Except
as indicated on Schedule 1.1(i), all of the Permits are freely assignable and
transferable to Buyer without the consent of any third party, and such
assignment will not allow, nor after notice or lapse of time or both would
allow, revocation or termination thereof or would result in any impairment of
the rights of Buyer as the holder of any Permit.

5.12 INSURANCE. Sellers maintain Insurance Policies of the kind,
in the amounts and with the insurers set forth in Schedule 1.1(j). Each such
Insurance Policy is outstanding and in full force and effect. The beneficiary of
each such Insurance Policy is indicated on Schedule 1.1(j) and no such Policy,
or the future proceeds thereof, has been assigned to any other person or entity.
All premiums and other payments due from each Seller under or on account of any
such Insurance Policy have been paid. There is no act or failure to act which
has or might cause any such Insurance Policy to be canceled or terminated.

5.13 COMPLIANCE WITH LAW. Each Seller has complied and is in
compliance in all material respects with all applicable federal, state, local
and foreign laws, statutes, licensing requirements, rules and regulations, and
judicial or administrative decisions pertaining to the Business. There is no
order issued, investigation or proceeding pending, or to the best knowledge of
Sellers and Shareholders, threatened, or notice served with respect to any
violation issued by any federal, state, local or foreign court or governmental
agency or instrumentality to which any Seller, the Assets or the operations of
the Business of any Seller is subject.

5.14 LITIGATION. Except as set forth on Schedule 5.14, no Seller
has been informed in writing of any claim (product liability or otherwise),
arbitration or litigation (at law or in equity) affecting any Seller, or any
Assets, and there is no proceeding or investigation before any commission or
other administrative or regulatory authority pending or filed or to the best
knowledge of Sellers and Shareholders threatened against or affecting any Seller
or the Assets; and no Seller has any knowledge of any state of facts which any
Seller in good faith reasonably believes will or may give rise to any such
claim, arbitration, litigation, proceeding or investigation. No Seller is
subject to any judgment, order or decree entered in any lawsuit or proceeding
which may have an adverse effect on Buyer's use of the Assets.

5.15 TAXES. Each Seller has accurately prepared and duly filed
all federal, state, local and foreign tax returns and reports required to be
filed by it and duly paid all taxes and other governmental charges imposed upon
it for its properties, assets, income, franchises, licenses and sales. All
monies required to be withheld by each Seller from its employees for income
taxes,

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social security and unemployment taxes have been collected or withheld and
either paid to the respective governmental agencies, or with respect to taxes
not yet due, set aside in accounts for such purpose or accrued, reserved against
and entered upon the books of such Seller.

5.16 ENVIRONMENTAL MATTERS. In relation to any leased real
property for which the lease will be assigned to Buyer and except as set forth
on Schedule 5.16, each Seller who is a lessee under such lease represents:

(a) Such Seller has not received any written claim,
written complaint, written notice or written request for
information from any government authority alleging violation of
or asserting any exceedance or a noncompliance with any federal,
state, and local laws, rules and regulations relating to
environmental protection and pollution control ("Environmental
Laws") by such Seller.

(b) During the term of the Seller's lease of the real
property, Seller has not discharged, spilled, leaked, dumped or
buried any Hazardous Substances, as defined in Comprehensive
Environmental Response, Compensation, and Liability Act of 1980,
as amended ("CERCLA"), or disposed of Hazardous Wastes, as
defined in the Resource Conservation and Recovery Act ("RCRA"),
or any other pollutant or contaminant on such real property that
is likely to form the basis of any written claim by any
government authority seeking to impose liability for remedial
action under CERCLA or RCRA.

5.17 BROKERS, FINDERS. Except for Dynasty Capital ("Broker"), no
agent, broker, investment banker, person or firm acting on behalf of Sellers or
under the authority of any of them, is or will be entitled to any broker's or
finder's fee or any other commission or similar fee directly or indirectly in
connection with the transactions contemplated hereby. Seller shall pay all fees
and expenses due Broker in connection with this transaction and indemnify and
hold Buyer harmless therefrom.

5.18 NO UNTRUE STATEMENTS OR OMISSIONS; COMPLETE DISCLOSURE. No
representation or warranty made by any Seller in this Agreement, and no
schedule, exhibit, statement, certificate, agreement, instrument or other
writing furnished to Buyer by or on behalf of Sellers pursuant to this
Agreement, or in connection with the transactions contemplated hereby, contains
or will contain any untrue statement of a material fact or omits or will omit a
material fact necessary to make the statements herein and therein not
misleading. Sellers have affirmatively disclosed to Buyer all facts known to
Sellers which are material to the assets, operations, financial condition and
prospects of the Business as conducted by Sellers prior to the date hereof and
as proposed to be conducted by Sellers through the Closing Date.

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ARTICLE 6 - REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer hereby represents and warrants to Sellers that:

6.1 ORGANIZATION AND GOOD STANDING. Buyer is a corporation duly
incorporated and organized and validly existing under the laws of the State of
Oregon, and Buyer has full corporate power and authority to execute, deliver and
fully perform its obligations under this Agreement and under each other
agreement, instrument, certificate and document to be executed and delivered
pursuant hereto by Buyer.

6.2 AUTHORIZATION; APPROVALS. The execution, delivery and
performance of this Agreement and each other agreement, instrument, certificate
and document to be executed and delivered pursuant hereto by Buyer have been
duly authorized by all requisite corporate action, will not violate any
provision of law, and will not violate any order of any court or other agency,
the articles of incorporation or bylaws of Buyer or any provision of any
indenture, agreement or other instrument to which Buyer is, or Buyer's
properties or assets are, bound or affected, or conflict with, result in a
breach of or constitute (with due notice or lapse of time or both) a default
under any such indenture, agreement or other instrument. No registration or
filing with, or consent or approval of, or other action by, any federal, state
or other governmental agency or instrumentality is or will be necessary for the
valid execution, delivery and performance by Buyer of this Agreement and each
other agreement, instrument, certificate and document to be executed pursuant
hereto by Buyer.

6.3 VALIDITY. This Agreement and each other agreement and
instrument executed and delivered herewith by Buyer has been duly executed and
delivered by Buyer and constitutes the legal, valid and binding obligation of
Buyer, enforceable in accordance with its terms.

6.4 COMPLIANCE WITH LAW. Buyer has complied and is in compliance
in all material respects with all applicable federal, state, local and foreign
laws, statutes, licensing requirements, rules and regulations, and judicial or
administrative decisions pertaining to its business. There is no order issued,
investigation or proceeding pending, or to the best knowledge of Buyer,
threatened, or notice served with respect to any violation issued by any
federal, state, local or foreign court or governmental agency or instrumentality
to which Buyer is subject.

6.5 LITIGATION. Except as set forth on Schedule 6.5, Buyer has
not been informed in writing of any claim (product liability or otherwise),
arbitration or litigation (at law or in equity) affecting Buyer or its assets,
and there is no proceeding or investigation before any commission or other
administrative or regulatory authority pending or filed or to the best knowledge
of Buyer threatened against or affecting Buyer or its assets; and Buyer has no
knowledge of any state of facts which Buyer in good faith reasonably believes
will or may give rise to any such claim, arbitration, litigation, proceeding or
investigation. Buyer is not subject to any

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judgment, order or decree entered in any lawsuit or proceeding which may have an
adverse effect on Buyer's ability to perform its duties and obligations under
this Agreement.

6.6 TAXES. Buyer has accurately prepared and duly filed all
federal, state, local and foreign tax returns and reports required to be filed
by it and duly paid all taxes and other governmental charges imposed upon it for
its properties, assets, income, franchises, licenses and sales. All monies
required to be withheld by Buyer from its employees for income taxes, social
security and unemployment taxes have been collected or withheld and either paid
to the respective governmental agencies, or with respect to taxes not yet due,
set aside in accounts for such purpose or accrued, reserved against and entered
upon the books of such Buyer.

6.7 BROKERS, FINDERS. No agent, broker, investment banker, person
or firm acting on behalf of Buyer or under the authority of Buyer is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
directly or indirectly in connection with the transactions contemplated hereby.

6.8 NO UNTRUE STATEMENTS OR OMISSIONS; COMPLETE DISCLOSURE. No
representation or warranty made by Buyer in this Agreement, and no schedule,
exhibit, statement, certificate, agreement, instrument or other writing
furnished to Sellers by or on behalf of Buyer pursuant to this Agreement, or in
connection with the transactions contemplated hereby, contains or will contain
any untrue statement of a material fact or omits or will omit a material fact
necessary to make the statements herein and therein not misleading. Buyer has
affirmatively disclosed to Sellers all facts known to Buyer which are material
to the assets, operations, financial condition and prospects of the business
conducted by Buyer prior to the date hereof and as proposed to be conducted by
Buyer through the Closing Date.

ARTICLE 7 - OTHER AGREEMENTS

7.1 ACCESS. From the date hereof through the Closing Date,
Sellers will give Buyer's officers, key employees, counsel, accountants,
appraisers, and other representatives access to and the right to inspect, during
normal business hours: (a) the Assets, (b) any premises leased or otherwise
occupied by the Sellers in the conduct of the Business, and (c) the books,
records, tax returns, financial statements, leases, agreements, files and other
documents pertaining to the Sellers and the Business. In addition, from the date
hereof through the Closing Date, Sellers will make available to Buyer's
officers, key employees, counsel, accountants, appraisers and other
representatives such of the officers, directors, partners and key employees of
each of the Sellers as Buyer requests for the purpose of discussing matters
germane to Buyer's "due diligence" inquiry of the Sellers' Business. Buyer
agrees it will conclude its due diligence review within 20 days after the date
of this Agreement.

Except as permitted hereinafter, Buyer agrees to treat as
confidential and to advise its representatives to treat as confidential all due
diligence documents and information of the Sellers

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provided to Buyer, and Buyer hereby agrees and acknowledges that this covenant
of confidentiality will survive the execution hereof and will remain in full
force and effect. Buyer will be permitted to disclose to third parties all
information Buyer deems advisable to comply with applicable federal and state
securities laws. In the event this transaction is not consummated, Buyer agrees
that it will not use, transfer or disclose any of the information provided by
the Sellers and Shareholders in due diligence and will immediately return to
Sellers and Shareholders all originals and all copies of the documents and other
information obtained by Buyer from Sellers and Shareholders.

Buyer's satisfactory due diligence review and inspection shall
not be a condition to closing this sale transaction, and Buyer's sole remedy for
any problem discovered in due diligence shall be to reduce the Purchase Price to
be paid to Sellers hereunder in an amount which has a reasonable relationship to
the extent of the problem discovered in due diligence and which was not known to
Buyer prior to conducting its due diligence review.

7.2 ANNOUNCEMENTS. Sellers and Buyer will consult with each other
prior to any public announcement relating to the transactions contemplated
hereby, and will mutually approve the timing, content and dissemination of any
public announcement.

7.3 CONSENTS. Sellers will use their best efforts to obtain, at
their sole cost and expense, prior to the Closing Date, the consents or
approvals ("Consents") required by law or pursuant to contract, lease, permit,
policy or otherwise to consummate the sale of the Assets to Buyer, including
without limitation (i) the transfer and assignment of the Assumed Contracts to
Buyer, (ii) the transfer and assignment of the Permits to Buyer, and (iii) the
transfer and assignment of the Insurance Policies to Buyer. All such Consents
will be in form reasonably satisfactory to Buyer and will be obtained without
any cost or expense to Buyer and, without any adverse modification in the terms
of such Assumed Contracts, Permits, Insurance Policies or other instruments of
Sellers, to the extent permitted by law.

7.4 CONDUCT OF BUSINESS. From the date hereof through the Closing
Date, Sellers will:

(a) conduct the Business in a reasonable and prudent
manner in substantially the same manner that the Business is now
conducted;

(b) engage in no transaction out of the ordinary course of
business consistent with past practices;

(c) not use, encumber or sell any of the Assets other than
in the ordinary course of business consistent with past
practices;

(d) not enter into any agreement or transaction extending
beyond the Closing Date out of the ordinary course of business
consistent with past practices;

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(e) not purchase any Inventory which in the aggregate
exceeds thirty thousand dollars ($30,000.00) between the
execution of this Agreement and the Closing Date without Buyer's
prior written consent which shall not be unreasonably withheld;

(f) use their best reasonable efforts to preserve Sellers'
existing business organizations and all of Sellers' relations
with Sellers' customers, suppliers and lessors;

(g) not amend or modify any of the Contracts, or do any
act or omit to do any act, or knowingly permit any act or
omission to act, that would give rise to a default under any of
the Contracts;

(h) maintain all of the Permits in effect as of the date
hereof;

(i) maintain all of their Insurance Policies in effect as
of the date hereof;

(j) maintain the books and records of each Seller in the
usual, regular and ordinary manner, on a basis consistent with
past practices;

(k) conduct the Business in compliance with all applicable
material laws and regulations;

(l) not make any distribution to shareholders;

(m) not hire any new employees without Buyer's prior
written consent; and

(n) not pay any bonuses or make any salary or wage
increases, except those due and payable in the ordinary course of
business consistent with past practices.

(o) sellers will promptly notify Buyer in writing; (i) of
any material adverse change in the financial condition of
Sellers; (ii) any material impairment or loss of or damage to any
of the Assets; (iii) the institution of or the threat of
institution of legal proceedings against any Seller; or (iv) any
material change in the customer base of Sellers which would
affect the future earnings potential of the Business as conducted
by Sellers prior to the date hereof and as proposed to be
conducted by Sellers though the Closing Date.

7.5 TAXES. Sellers will pay, when due all taxes payable to the
federal, state, municipal and/or other governmental authorities with respect to
the Assets or the Business prior to the Closing Date and any taxes due as a
result of the sale of the Assets or the Business (whether or

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not assessed or due on the Closing Date). Sellers will use reasonable efforts to
provide to Buyer, as soon as practicable resale use certificates, exempt use
certificates or any other exemption certifications required to enable Buyer to
benefit from any sales and use or other local tax exemption applicable to an
isolated sale, bulk sale, casual sale or any related exemption from sales and
use or other local taxes.

7.6 RISK OF LOSS. The risk of loss, damage or destruction to the
Assets from fire or other casualty or cause, shall be borne by Sellers at all
times up to the time on the Closing Date that title to the Assets is actually
transferred to Buyer; and, subject to the provisions of this Section 7.6, it
shall be the responsibility of Sellers to repair or cause to be repaired and to
restore the Assets to their condition prior to any such loss, damage or
destruction. The proceeds of any claim for any such loss payable under any
Insurance Policy with respect thereto shall be used to repair, replace or
restore any such Asset to its former condition.

7.7 PAYABLES. Each Seller will satisfy on a timely basis all of
its accounts payable outstanding at the close of business on the Closing Date,
except those accounts payable included in the Assumed Liabilities.

7.8 FURTHER ASSURANCES. Sellers, on the one hand, and Buyer, on
the other hand, each will, at any time and from time to time after the Closing
Date, upon the request of the other, do, execute, acknowledge and deliver, or
will cause to be done, executed, acknowledged and delivered, all such further
acts, deeds, assignments, transfers, conveyances, powers of attorney, receipts,
acknowledgments, acceptances and assurances as may be reasonably required to
satisfy and perform the obligations of that party hereunder.

7.9 EMPLOYEES. Except for employment agreements with Douglas
Spink and Gregory Biggs, Buyer shall be under no obligation to employ all or any
of Sellers' employees, provided that Buyer may, if Buyer so elects, employ any
of Sellers' employees from and after the Closing Date without liability or
obligation to any Seller. Each Seller shall terminate the employment of all
employees of such Seller as of the Closing Date. Each Seller shall be solely
responsible to its employees for any claims for wages, fringe benefits, other
compensation, withholding, employment taxes (except those assumed under Section
1.4), vacation pay, termination pay, other severance pay or any claims or
liabilities arising from the employment of such employees or the termination of
employment by such Seller of such employees, and each Seller shall be
responsible for all claims and liabilities arising out of any and all retirement
plans and other employee benefit programs in connection with the employment
relationship between such Seller and its employees. Each Seller will use its
best efforts to assist Buyer in engaging the services of all employees of such
Seller which Buyer wishes to hire from and after the Closing Date.

7.10 CONTRACTS. Buyer will deliver to Sellers on or prior to the
Closing a list of the Assumed Contracts which Buyer will assume at the Closing.

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7.11 PRORATIONS. At the Closing, rents and other charges imposed
under leases assumed by Buyer, premiums on Insurance Policies assumed by Buyer,
and charges for electricity, water, gas, telephone, refuse collection, sewer
service and other similar utilities and services furnished to the Business will
be prorated between Sellers, on the one hand, and Buyer, on the other hand, on
the basis of the applicable accounting periods therefor.

7.12 NAME CHANGE; CEASE BUSINESS OPERATIONS. Immediately after
the Closing Date, Sellers shall change their corporate names. Sellers shall not
conduct any business after the Closing Date and shall maintain their corporate
existences solely for the purposes of holding the stock of G. I. Joe's, Inc.,
liquidating such stock and distributing such payments to their shareholders.

ARTICLE 8. - CLOSING AND CLOSING CONDITIONS

8.1 CLOSING. The closing (the "Closing") of the purchase and sale
of the Assets shall take place at the offices of Brownstein, Rask, Arenz,
Sweeney, Kerr & Grim LLP, 1200 SW Main St., Portland, Oregon 97205 at 10 a.m.,
on September 1, 1998, or on such other date and time as may be mutually agreed
upon by Buyer, Sellers. The date of the Closing is referred to herein as the
"Closing Date."

8.2 CONDITIONS TO OBLIGATIONS OF BUYER. All of the obligations of
Buyer under this Agreement are subject to the fulfillment prior to or at the
Closing of each of the following conditions, any one or more of which may be
waived in writing by Buyer in its sole discretion:

(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Sellers contained herein and in
each other agreement, instrument, certificate and document
delivered pursuant to the provisions hereof or in connection
herewith shall be true and correct on and as of the Closing Date
as of made on and as of such date.

(b) COMPLIANCE WITH AGREEMENT. Sellers shall have
performed and complied with all conditions and agreements
required by this Agreement to be performed or complied with by
them prior to or at the Closing.

(c) NO MATERIAL ADVERSE CHANGE. There shall not have been
any material adverse change in the Assets or in the Business or
financial condition of any Seller since the date hereof.

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(d) CONSENTS. Sellers shall have obtained all Consents
contemplated by Section 7.3 hereof in form and substance
reasonably satisfactory to Buyer in its sole discretion.

(e) APPROVALS. Buyer shall have obtained from its current
lending institutions all necessary approvals of the transactions
contemplated hereby.

(f) LEASES. Sellers, Buyer and Landlords shall have
executed and delivered a Lease Assignment in the from of Schedule
8.2(f) hereto (the "Lease Assignment").

(g) NONCOMPETITION AGREEMENT. Spink and Biggs shall have
executed and delivered a Noncompetition Agreement in the form of
Schedule 8.2(g) hereto (the "Noncompetition Agreement").

(h) CLOSING DELIVERIES. Sellers shall have delivered to
Buyer:

(i) A certificate executed by an executive officer
of each Seller dated as of the Closing Date, certifying in such
detail as Buyer may request to the fulfillment of the conditions
specified in Sections 8.2(a) through 8.2(c) hereof;

(ii) A certificate of the Secretary or an Assistant
Secretary of each Seller, dated as of the Closing Date,
certifying in such detail as Buyer may request (A) that attached
thereto is a true and complete copy of such Seller's articles of
incorporation as in effect on the Closing Date, (B) that attached
thereto is a true and complete copy of such Seller's bylaws as in
effect on the Closing Date, and (C) that attached thereto is a
true and complete copy of resolutions adopted by the Board of
Directors and shareholders of such Seller authorizing the
execution, delivery and performance of this Agreement, and each
other agreement, instrument, certificate and document furnished
pursuant hereto and that all such resolutions are still in full
force and effect and are all of the resolutions adopted in
connection with the transactions contemplated by this Agreement;

(iii) A Bill of Sale and Assignment Agreement in the form
attached hereto as Schedule 8.2(h)(iii) (the "Bill of Sale and
Assignment Agreement"), duly executed by Sellers;

(vi) Exclusive possession of the Assets;

(vii) The original executed copies of the Assumed
Contracts, Permits and Insurance Policies; and

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(viii) Any other agreements and documents that Buyer may
request at or prior to the Closing.

8.3 CONDITIONS TO OBLIGATIONS OF SELLERS. All of the obligations
of Sellers under this Agreement are subject to the fulfillment prior to or at
the Closing of each of the following conditions, any one or more of which may be
waived in writing by Sellers in their sole discretion:

(a) PURCHASE PRICE. Buyer shall have paid the cash portion
of the Purchase Price to be paid at Closing and issued the shares
of stock to be issued at Closing as provided in Section 3 above.

(b) ASSUMPTION OF LIABILITIES AGREEMENT. Buyer shall have
delivered to Sellers an Assumption of Liabilities Agreement in
the form attached hereto as Schedule 8.3(b) (the "Assumption of
Liabilities Agreement"), duly executed by Buyer.

(c) REGISTRATION RIGHTS AGREEMENT. Buyer shall have
delivered to Seller the duly executed Registration Rights
Agreement attached as Schedule 8.3(c).

(d) EMPLOYMENT AGREEMENT. Buyer shall have delivered to
Shareholders, Employment Agreements in accordance with Schedules
8.3(d)(i) and 8.3(d)(ii).

ARTICLE 9. - SURVIVAL OF REPRESENTATIONS,
WARRANTIES AND AGREEMENTS; INDEMNIFICATION

9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
Notwithstanding any investigation conducted at any time with regard to this
Agreement by or on behalf of any of the parties, all representations,
warranties, and agreements of each of the parties contained in this Agreement or
in any exhibit, schedule, agreement, instrument, certificate, list or other
document delivered pursuant hereto or in connection with the transactions
contemplated hereby shall survive the Closing Date for the periods of time set
forth in Sections 9.4(b) and 9.6(b).

9.2 INDEMNIFICATION. For purposes of Sections 9.3 and 9.5, with
respect to any party, "Damages" shall mean any and all losses, liabilities,
damages, demands, claims, suits, actions, judgments or causes of actions,
assessments, costs and expenses, including without limitation, interest,
penalties, attorneys' fees (in arbitration or at trial and on appeal), and all
expenses incurred in investigating, preparing for, defending against or settling
any litigation. In the event the claim for indemnification results from a suit
by a third party, the party seeking indemnification shall give the party from
whom indemnification is sought written notice of any commencement of any legal
action by such third party within thirty (30) days of receipt of written notice
by it of such legal action; provided, however, the failure to so notify such
party shall

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discharge such party from its liabilities and obligations hereunder only if and
to the extent that such party is prejudiced thereby. The party from whom
indemnification is sought may elect to control the defense of such action at its
expense and with counsel of its own choosing. To the extent a party so elects to
control the defense of an action, the other party shall cooperate with such
controlling party with respect thereto and shall not settle or compromise the
action without the agreement of such controlling party.

9.3 BUYER INDEMNIFICATION OF SELLERS. Buyer hereby agrees to
indemnify and hold harmless Sellers and Shareholders and their affiliates,
successors and assigns ("Seller Parties") from and against any and all Damages
asserted against, resulting to, imposed upon, or incurred or suffered by Sellers
or their affiliates, successors and assigns, directly or indirectly, as a result
of or arising from the following: (a) any and all inaccurate representations or
warranties made by Buyer in this Agreement or in any exhibit, schedule,
agreement, instrument, certificate, list or other document delivered pursuant
hereto or in connection with the transactions contemplated hereby; (b) Buyer's
failure to perform any of the Assumed Liabilities; or (c) Buyer's failure to
perform any of the assumed contracts.

9.4 LIMITATION OF BUYER INDEMNITY LIABILITY. Buyer's obligations
with respect to indemnity pursuant to Section 9.3 shall be limited as follows:

(a) Buyer's indemnity obligations shall be for the Seller
Parties' aggregate claims in excess of $25,000.

(b) Claims for indemnification must be submitted to Buyer
within three years from the Closing Date, except for breaches of
covenants which may require performance more than three years
after the Closing Date.

(d) The limitations of Buyer's indemnification liabilities
set forth in this paragraph shall not apply to claims for fraud,
intentional misrepresentation or for the failure to pay or
discharge any Assumed Liability or assumed contract or the breach
or inaccuracy of the representations contained in Sections 6.1,
6.2 or 6.3.

9.5 SELLERS AND SHAREHOLDERS INDEMNIFICATION OF BUYER. Sellers
and Shareholders hereby agree to indemnify and hold harmless Buyer and its
affiliates, successors and assigns ("Buyer Parties") from and against any and
all Damages asserted against, resulting to, imposed upon, or incurred or
suffered by Buyer or its affiliates, successors and assigns, directly or
indirectly, as a result of or arising from the following: (a) any obligation, or
liability, indebtedness or commitment of any Seller which is not expressly
assumed by Buyer hereunder; (b) any and all inaccurate representations or
warranties made by Sellers in this Agreement or in any exhibit,

19
<PAGE> 20

schedule, agreement, instrument, certificate, list, or other document delivered
pursuant hereto or in connection with the transactions contemplated hereby; or
(c) any and all breaches of covenants or agreements made by Sellers in this
Agreement or in any exhibit, schedule, agreement, instrument, certificate, list,
or other document delivered pursuant hereto or in connection with the
transactions contemplated hereby.

9.6 LIMITATION OF SELLERS AND SELLING SHAREHOLDERS INDEMNITY.
Sellers' and Shareholders' obligations with respect to indemnity pursuant to
Section 9.5 shall be limited as follows:

(a) Sellers' and Shareholders' indemnity obligations shall
be for the Buyer Parties' aggregate claims in excess of $25,000.

(b) Claims for indemnification must be submitted to
Sellers and Shareholders within three years from the Closing
Date, except for breaches of covenants which may require
performance more than three years after the Closing Date.

(d) The limitations of Sellers' and Selling Shareholders'
indemnification liabilities set forth in this paragraph shall not
apply to claims for fraud, intentional misrepresentation or the
breach or inaccuracy of the representations contained in Sections
5.1, 5.2 or 5.3.

20
<PAGE> 21

9.7 EXCLUSIVE REMEDY. The rights and remedies set forth in this
Section 9 shall be the exclusive rights and remedies granted to any party
hereunder for a breach of this Agreement by any party, except in cases involving
fraud or intentional misrepresentation and except for equitable remedies such as
specific performance or injunctive relief.

9.8 LIABILITY OF SELLERS AND SHAREHOLDERS. The liability of the
Sellers pursuant to Section 9.5 shall be limited to the Buyer Parties' claims
for Damages which relate to the particular Seller's Assets which have been sold
hereunder. The Sellers' liability pursuant to Section 9.5 shall not be joint or
several. The liability of the Shareholders pursuant to Section 9.5 shall be
joint and several as between themselves and as to the liability of any Seller.

ARTICLE 10. - MISCELLANEOUS

10.1 NOTICE. Any notice or other communication required or
permitted to be given pursuant to this Agreement shall be in writing and shall
be deemed given only if delivered by hand or sent by overnight courier or by
certified mail, return receipt requested, postage prepaid, and addressed as
follows:

If to Sellers to:

Douglas Spink
21641 NW Dairy Creek Road
Mountaindale, OR 97113

With a copy to :

Mark R. Wada
Farleigh, Wada & Witt, P.C.
121 S.W. Morrison, Suite 600
Portland, Oregon 97204

If to Buyer to:

JOE'S DIRECT, Inc
9805 Boeckman Road
Wilsonville, OR 97070

Attention: Norman Daniels

21
<PAGE> 22

With a copy to:

Terry DeSylvia
1200 SW Main Building
Portland, Oregon 97205

or at such other address as Sellers, on the one hand, and Buyer, on the other
hand, shall have last designated by notice to the other. Any notice given in the
manner specified above shall be deemed to have been delivered on the date of
receipt of such delivery at the address set forth above (or at such other
address designated pursuant hereto).

10.2 COMPLETE AND INTEGRATED AGREEMENT. This Agreement, the
Schedules and Exhibits (including the executed Agreements forms of which are
attached hereto as exhibits) hereto, and each other agreement and instrument
executed and delivered at the Closing constitute the entire agreement among the
parties with respect to the transactions contemplated hereby and supersede and
are in full substitution for any and all prior agreements and understandings
among the parties relating to such transactions.

10.3 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.

10.4 AMENDMENTS; WAIVERS. No modification, amendment,
termination, extension, renewal or waiver of any provision of this Agreement
shall be binding upon a party unless made in writing and signed by such party.

10.5 GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Oregon without regard to
the conflict of law provisions thereof.

10.6 ATTORNEYS' FEES. In the event of any action at law or suit
in equity in relation to this Agreement, the prevailing party, in addition to
all other sums which the other party may be called upon to pay, shall be
entitled to recover such additional sum for the prevailing party's attorneys'
fees incurred therein as the trial court or any appellate court adjudges
reasonable in that suit or action.

10.7 KNOWLEDGE. The words "knowledge" and "known" in this
Agreement refer to and include actual and constructive knowledge of a party. A
party will be deemed to have constructive knowledge of a particular matter if
such party could reasonably be expected to have actual knowledge of the matter
after taking into consideration such party's actual knowledge and business
experience and position to make a reasonable inquiry with respect to the matter.

22
<PAGE> 23

IN WITNESS WHEREOF, Sellers, Shareholders and Buyer have executed
and delivered this Agreement as of the date first above written.

SELLERS: BUYER:

ATHLETICA, INC.

By: /s/ Douglas B. Spink By: /s/ Norm Daniels
--------------------------------- -----------------------------------
DOUGLAS B. SPINK NORM DANIELS
Title: President Title: President

GRAVITY GAMES, INC.

By: /s/ Douglas B. Spink
---------------------------------
DOUGLAS B. SPINK
Title: President

TS HOLDINGS, INC.

By: /s/ Douglas B. Spink
---------------------------------
DOUGLAS B. SPINK
Title: President

SHAREHOLDERS:

/s/ Douglas B. Spink
- ------------------------------------
DOUGLAS B. SPINK

/s/ Gregory Biggs
- ------------------------------------
GREGORY BIGGS

23
<PAGE> 24

SCHEDULE 1.1(a)

FIXED ASSET SCHEDULE
AS OF 7/31/98

See Attached.

A detailed listing of Fixed Assets will be provided to Buyer prior to Closing.

<PAGE> 25

SCHEDULE 1.1(b)

ACCOUNTS RECEIVABLE SCHEDULE
AS OF 7/31/98

None

<PAGE> 26

SCHEDULE 1.1(c)

INVENTORY SCHEDULE
AS OF 7/31/98

<TABLE>
<S> <C>
Athletica $ 18,732.42

Gravity Games $ 17,541.56

Tidewater $ 0.00

TOTAL $ 36,273.98
</TABLE>

A detailed listing of inventory will be provided to Buyer prior to Closing.

<PAGE> 27

SCHEDULE 1.1(d)

PREPAID EXPENSES SCHEDULE
AS OF 7/31/98

<TABLE>
<S> <C> <C>
Athletica $17,064.25

Gravity Games $0.00

Tidewater $0.00

</TABLE>

<PAGE> 28

SCHEDULE 1.1(g)

INTELLECTUAL PROPERTY

CORPORATE NAMES:

Athletica, Inc.
Gravity Games, Inc.
TS Holding, Inc.

ASSUMED BUSINESS NAME:

Athletica Endurance

DOMAIN NAMES:

tidewaters.com
athletica.com
ggames.com

joedirect.com
joesdirect.com

SOFTWARE

ALL RIGHTS TO THE PEARL CODE, THE SOURCE CODE USED IN SHOPPING
CART ("CODE"), SUBJECT TO A LIMITED NON-TRANSFERRABLE LICENSE TO
CHRISTINE COLUMBUS, INC.

<PAGE> 29

SCHEDULE 1.1(h)

CONTRACTS/LEASE SCHEDULE
AS OF 7/31/98

Cornelius Park Business Park Lease-$1,620.00/Month through January 31,
1999 Pitney Bowes-Postage machine-$133.05/Quarter through ___________
G&W Leasing-$412.76/Month for 30 months OGI-Phone T-1- $1,100/Month for
36 months

Gravity Games, Inc.'s obligations under Agreement not to Compete and
Confidentiality Agreement with Mickey Kerbel, dated April 28, 1998, for
payment of $125,000; payments of $1,267.83 monthly (including interest
at 9.0% per annum) commencing June 1, 1998 for 15 years.

Approximately 40, non-exclusive Dealer/vendor contracts.

Short Term Advertising contracts; Sellers

<PAGE> 30

SCHEDULE 1.1(i)

PERMITS SCHEDULE
AS OF 7/31/98

None listed.

<PAGE> 31

SCHEDULE 1.1(j)

INSURANCE SCHEDULE
AS OF 7/31/98

Timberline Direct General Liability - Policy # American Economy 02BO708101-1,
3/23/98 to 3/23/99

<PAGE> 32

SCHEDULE 1.2

EXCLUDED ASSETS

None

<PAGE> 33

SCHEDULE 2.1

ASSUMED LIABILITIES
AS OF 7/31/98

See Attached.

<PAGE> 34

SCHEDULE 3.2(d)

STOCK PAYMENT SCHEDULE AND PERFORMANCE STANDARDS

The portion of the Purchase Price payable in common stock of G. I. Joe's, Inc.
shall be paid to Sellers in accordance with the following schedule:

1. 25% of the total common stock of G. I. Joe's, Inc. due to Sellers shall be
delivered on January 1, 1999, or the first business day thereafter. The delivery
of these shares of common stock shall not be subject to meeting any performance
standards.

2. 25% of the total common stock of G. I. Joe's, Inc. due to Sellers shall be
delivered on February 1, 1999. The delivery of these shares of common stock
shall not be subject to meeting any performance standards.

3. 25% of the total common stock of G. I. Joe's, Inc. due to Sellers shall be
delivered on the earlier of February 1, 2000, or February 1 of any subsequent
year, in which the First Performance Standard has been met by Buyer for the
prior fiscal year ending on January 31st. The "First Performance Standard" shall
mean that Buyer shall have earnings before interest, depreciation and
amortization, income taxes and bonus payments to Spink and Biggs of not less
than 10%of the Buyer's gross sales and the Buyer's gross sales are not less than
$5,500,000. It is the intent of the parties that if the First Performance
Standard is not met in the fiscal year ending January 31, 2000, then such
Standard may be met in the next or subsequent years and the payment set forth
hereunder shall be paid at such time.

4. 25% of the total common stock of G. I. Joe's, Inc. due to Sellers shall be
delivered on the earlier of February 1, 2001, or February 1 of any subsequent
year, in which the Second Performance Standard has been met by Buyer for the
prior fiscal year ending on January 31st. The "Second Performance Standard"
shall mean that Buyer shall have earnings before interest, depreciation and
amortization, income taxes and bonus payments to Spink and Biggs of not less
than 12%of the Buyer's gross sales and the Buyer's gross sales are not less than
$8,000,000. It is the intent of the parties that if the Second Performance
Standard is not met in the fiscal year ending January 31, 2001, then such
Standard may be met in the next or subsequent years and the payment set forth
hereunder shall be paid at such time.

<PAGE> 35

SCHEDULE 3.2(f)

CONSIDERATION ALLOCATION SCHEDULE

<TABLE>
<CAPTION>
ITEM ATHLETICS GRAVITY TIDEWATER TOTAL
GAMES
<S> <C> <C> <C> <C>

Covenant Not to Compete
Paid to Shareholder

9-1-98 $ $ $ $ 100,000.00
9-1-98 Cash $ 300,000.00 $ 20,000.00 $ 30,000.00 $ 350,000.00
12-1-98 Cash $ 400,000.00 $ 20,000.00 $ 130,000.00 $ 550,000.00
1-1-99 Stock $ 400,000.00 $ 40,000.00 $ 341,728.75 $ 781,726.75
2-1-99 Stock $ 400,000.00 $ 40,000.00 $ 341,728.75 $ 781,726.75
Stock #3 $ 400,000.00 $ 40,000.00 $ 341,728.75 $ 781,726.75
Stock #4 $ 400,000.00 $ 40,000.00 $ 341,728.75 $ 781,726.75
------------ ------------ ------------- -------------
$2,300,000.00 $ 200,000.00 $1,526,907.00 $4,126,907.00
============= ============= ============= =============
</TABLE>

<PAGE> 36

SCHEDULE 5

EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES OF SELLERS

5.1 None of Seller's are licensed or qualified as a foreign corporation
in any state other than the states of their organization.

5.4 The Inventory of Sellers is subject to the security interest
described in 5.8, below.

5.5 Sellers make no representation or warranty as to the financial
condition or operations of any business, the assets or stock of which was
acquired by any Seller within the six month period preceding the Closing Date,
for any period prior to acquisition by such Seller. The balance sheet dated July
31, 1998 provided by Sellers supercedes and replaces any other financial
information provided by any Seller or Shareholder, and no Seller or Shareholder
makes any representation or warranty with regard to any financial information
other than as set forth in the balance sheet dated July 31, 1998.

5.8 The inventory of all of the Sellers secures the $57,000 obligation
to Dynasty Capital disclosed in the balance sheet dated July 31, 1998.

5.9 No trade name or trademark (if any) of any Seller is registered with
the US Patent and Trademark Office.

5.10 The leases to which any Seller is a party are as follows:

Cornelius Park Business Park-$1,620/Month until January 31, 1999
Pitney Bowes+Postage Machine-133.05/Quarter
G&W Leasing-412.76/Month--30 months from_______.
OGI-Phone T-1--$1,100/Month-36 months from ______.

5.11 Sellers are not aware of any permits necessary or material to the
operation of their Business.

5.12 Sellers intend to cancel their insurance when deemed appropriate
after the Closing Date.

<PAGE> 37

SCHEDULE 5.14

LITIGATION SCHEDULE

None.

<PAGE> 38

SCHEDULE 5.16

ENVIRONMENTAL

None.

<PAGE> 39

Schedule 6.5

Buyer Litigation

None.

<PAGE> 40

SCHEDULE 8.2(f)

FORM OF LEASE ASSIGNMENT

See Attached.

<PAGE> 41

SCHEDULE 8.2(g)

NONCOMPETITION AGREEMENT

THIS AGREEMENT is entered into this 1st day of September, 1998, between
("Employee") and G. I. JOE'S, INC., an Oregon corporation ("Corporation").

RECITALS:

A. Employee is an officer and shareholder of ATHLETICA, INC., an Oregon
corporation ("Athletica"), GRAVITY GAMES, INC., an Oregon corporation ("Gravity
Games"), and TS HOLDING, INC., an Oregon corporation ("TS") sometimes
hereinafter referred to collectively as "Sellers").

B. Sellers and JOE'S DIRECT, INC., ("Buyer") have entered into that
certain Asset Purchase Agreement dated as of August 24, 1998 (the "Asset
Purchase Agreement"), pursuant to which Corporation has agreed to purchase
substantially all of the assets of Sellers.

C. Buyer has assigned to assignee all rights under the Asset Purchase
Agreement and Corporation has agreed to assume all Buyer's obligations under the
Asset Purchase Agreement.

D. Corporation and Employee have agreed to enter into an employment
agreement (the "Employment Agreement"), pursuant to which Corporation will hire
Employee as an employee on the closing of the transactions under the Asset
Purchase Agreement.

E. Employee expects to derive direct and material benefits from the
transactions contemplated by the Asset Purchase Agreement and the Employment
Agreement. Employee recognizes and acknowledges that the covenants contained in
this Agreement are essential to protect the business interests of Corporation
and are in integral part of, and arise out of, the transactions contemplated by
the Asset Purchase Agreement and the Employment Agreement and that Corporation
would not enter such Agreements but for such covenants. Employee is executing
and delivering this Agreement as a material inducement to Corporation to enter
into and consummate the transactions under the Asset Purchase Agreement and the
Employment Agreement.

AGREEMENT:

NOW, THEREFORE, in consideration of the consummation of the transactions
contemplated by the Asset Purchase Agreement, the consideration paid to Sellers
by Corporation, the employment under the Employment Agreement, the above
Recitals and the mutual agreements hereinafter set forth, the parties hereby
agree as follows:

1. DEFINITIONS. For purposes of this Agreement:

a. "Area" means worldwide.

PAGE 41 - NONCOMPETITION AGREEMENT

<PAGE> 42

b. "Competing Business" means any Entity engaging at any location
or locations within the Area in the business of catalog sales of goods and
merchandise of the type sold by Corporation or the Corporation's parent company,
G. I. Joe's, Inc., (limited however, to goods and merchandise sold through
catalogs) during the term of Employee's employment with Corporation.

c. "Entity" means any individual, corporation, partnership, firm,
joint venture, joint enterprise, association, joint-stock company, trust,
unincorporated organization, governmental or regulatory body or other similar
entity.

d. "Employee Group" means (i) Employee, (ii) all Entities that
are now or hereinafter, directly or indirectly through one or more
intermediaries, controlled by, in control of, or under common control with
Employee (collectively, the "Employee Affiliates"), and (iii) the officers,
directors, executives, agents and representatives (in whatsoever capacity) of
Employee or any of the Employee Affiliates. For purposes of this Agreement, each
of the foregoing is a "member of the Employee Group."

e. "Timberline Group" means ATHLETICA ENDURANCE, INC., an Oregon
corporation ("Athletica"), GRAVITY GAMES, INC., an Oregon corporation ("Gravity
Games"), and TIDEWATER SPECIALTIES, INC., an Oregon corporation ("Tidewater")
and Employee, (ii) all successors, assigns and purchasers of the foregoing,
(iii) any and all Entities that are now or hereafter, directly or indirectly
through one or more intermediaries, controlled by, in control of, or under
common control with any of the foregoing, and (iv) the officers, directors,
executives, agents and representatives (in whatsoever capacity) of any of the
foregoing. For purposes of this Agreement, each of the foregoing is a "member of
the Timberline Group."

f. "Proprietary Information" means all items of confidential
information or trade secrets regarding the business conducted by the Timberline
Group prior to the date hereof, which Proprietary Information is transferred to
Corporation under the Asset Purchase Agreement. Without limiting the generality
of the foregoing, Proprietary Information includes the following:

i. Customer lists, price lists, and other confidential
information relating to the marketing and distribution of the
Timberline Group's products;

ii. Information relating to processes, technology,
manufacturing equipment and know-how used or held for use in the
Timberline Group's business;

iii. Programs, plans and projections relating to present
or future development, expansion, promotion, marketing and
distribution of any products or services in the electronic
components business conducted by the Timberline Group prior to
the date hereof; and

iv. All notes, memoranda, correspondence, processes,
systems, and documents, and all computer programs, databases and
software relating to any of the foregoing.

PAGE 2 - NONCOMPETITION AGREEMENT

<PAGE> 43

"Proprietary Information" does not include:

i. Information which is now or later becomes generally
available to the public through no fault of any member of the
Employee Group, as long as the disclosure of such information,
if any, by a member of the Employee Group takes place after the
information has become generally available to the public; and

ii. Information which is publicly disclosed as required
by law or judicial process, after proper notice to Corporation.

2. COVENANTS.

2.1 NONCOMPETITION. Employee will not, directly or indirectly,
engage in any Competing Business on Employee's own behalf, or provide product
design, development, engineering, manufacturing, marketing, managerial,
supervisory or consulting services or assistance to, or lend money to or
purchase any debt instrument of, or own any equity interest in, any Competing
Business. Employee will not make any statement or do any act which causes any
existing or potential customer of Corporation (including without limitation, all
customers of the Timberline Group that are transferred to Corporation under the
Asset Purchase Agreement) to curtail or terminate its purchase of products
offered by Corporation, or which will in any way divert, diminish or prejudice
the business or goodwill of Corporation.

2.2 NONSOLICITATION. Employee will not solicit, divert or hire
away (or attempt to solicit, divert or hire away) to or for Employee or any
Entity, any employee of Corporation (including without limitation, all employees
of the Timberline Group that become employees of Corporation after the closing
of the transactions under the Asset Purchase Agreement) whether or not such
employee is a full-time or temporary employee, whether or not such employment is
pursuant to a written agreement and whether or not such employment is for a
determined period or is at will.

2.3 NONDISCLOSURE OF PROPRIETARY INFORMATION. Employee will not,
without the prior written consent of Corporation, cause, suffer or permit any
member of the Employee Group to disclose, divulge, communicate or otherwise make
known, directly or indirectly, to any person outside of Corporation, any
Proprietary Information.

2.4 NONUSE OF PROPRIETARY INFORMATION. Employee will not, without
the prior written consent of Corporation, cause, suffer or permit any member of
the Employee Group to make any use of the Proprietary Information for the
benefit of Employee or any Entity.

2.5 APPLICATION. Each of the covenants of Employee in this
Section 2 shall be applicable to actions and statements of Employee, whether
made or taken directly or indirectly, in an individual capacity or as an
officer, director, partner, executive, employee, manager, consultant,
independent contractor, agent, representative or otherwise of any Entity, alone
or in conjunction with any Entity, or in any other manner whatsoever.

PAGE 3 - NONCOMPETITION AGREEMENT

<PAGE> 44

2.6 TERM. Each of the covenants of Employee in this Section 2
shall commence on the date hereof and shall expire two (2) years from the date
Employee ceases to be employed by Corporation.

3. CROSS DEFAULT AND OFFSET.

3.1 CROSS DEFAULT. In the event any representation or warranty of
Employee or any member of the Employee Group contained in, or made pursuant to,
this Agreement or the Asset Purchase Agreement (collectively, the "Agreements"),
is inaccurate, or in the event Employee or any member of the Employee Group
breaches, or fails to perform, any covenant or agreement contained in, or made
pursuant to, any of the Agreements, such inaccuracy, breach or failure to
perform shall constitute a breach by Employee of both Agreements.

3.2 RIGHT OF OFFSET. Employee acknowledges and agrees that in the
event any representation or warranty of Employee or any member of the Employee
Group contained in, or made pursuant to, the Agreements is inaccurate, or in the
event Employee or any member of the Employee Group breaches, or fails to
perform, any covenant or agreement contained in, or made pursuant to, either of
the Agreements, Corporation shall be and hereby is authorized to offset and
deduct from any amounts owed to Sellers under the Asset Purchase Agreement, that
amount of cash which would then be required to put Corporation in the position
it would have been in had such representation or warranty been true, correct and
complete, or had such covenant been performed, complied with or fulfilled. The
right of offset granted to Corporation under this Section 3.2 shall be without
prejudice to, and in addition to, any and all other remedies or relief available
to Corporation at law or in equity.

4. MISCELLANEOUS.

4.1 REMEDIES. Employee acknowledges that Corporation will suffer
immediate and irreparable injury in the event of a breach by Employee of any
covenant contained in this Agreement. Accordingly, in the event of a breach or
threatened breach by Employee of any provision of this Agreement, Corporation
shall be entitled to an injunction restraining Employee from committing such
breach or threatened breach. Such remedy shall be in addition to any other
remedies to which Corporation may be entitled at law or in equity.

4.2 SEVERABILITY. Employee agrees that the covenants contained in
Section 2 of this Agreement were agreed to by Corporation as a part of the
transactions contemplated by the Asset Purchase Agreement; that Employee has
received good, adequate and valuable consideration for each of such covenants;
that each of the such covenants is reasonable and necessary to protect and
preserve the business interests of Corporation; that each of such covenants is
separate, distinct and severable not only from the other of such covenants but
also from the other and remaining provisions of this Agreement; that the
unenforceability of any such covenants shall not affect the validity or
enforceability of any other such covenants or any other provision or provisions
of this Agreement; and that if, in any judicial proceeding, a court refuses to
enforce any provision (or part thereof) included herein, such unenforceable
provision (or part) shall be deemed modified or eliminated from the provisions
hereof for the purpose of such proceeding to the extent necessary to permit the
enforcement of the remainder of this Agreement.

PAGE 4 - NONCOMPETITION AGREEMENT

<PAGE> 45

4.3 ATTORNEYS' FEES. In the event suit or action is brought to
enforce the provisions of this Agreement, the prevailing party shall be entitled
to reasonable attorneys' fees, both trial and appellate, in addition to its
costs and disbursements allowed by law.

4.4 ASSIGNMENT. This Agreement and the rights and obligations of
Corporation hereunder may be assigned by Corporation with notice to Employee and
shall inure to the benefit of, shall be binding upon (including without
limitation, Section 5 of the Employment Agreement), and shall be enforceable by
any such assignee. This Agreement and the rights and obligations of Employee
hereunder may not be assigned by Employee.

4.5 ENTIRE AGREEMENT. This Agreement embodies the entire
agreement of the parties hereto relating to the agreements set forth herein. All
prior understandings and agreements (including without limitation, Section 5 of
the Employment Agreement) relating to the agreements set forth herein are hereby
expressly terminated. No amendment or modification of this Agreement shall be
valid or binding upon either party unless made in writing and signed by the
parties hereto.

4.6 GOVERNING LAW. This Agreement shall be construed by reference
to the laws of the State of Oregon governing contracts made and to be performed
in such State.

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

JOE'S DIRECT, INC.,
AN OREGON CORPORATION

- ---------------------------- ----------------------------
, EMPLOYEE NORM DANIELS, PRESIDENT

PAGE 5 - NONCOMPETITION AGREEMENT

<PAGE> 46

SCHEDULE 8.2(h)(iii)

BILL OF SALE AND ASSIGNMENT AGREEMENT

FOR VALUE RECEIVED, ATHLETICA , INC., an Oregon corporation
("Athletica"), GRAVITY GAMES, INC., an Oregon corporation ("Gravity Games") and
TS HOLDING, INC., an Oregon corporation ("TS") (collectively, "Sellers"),
pursuant to the Asset Purchase Agreement (the "Asset Purchase Agreement") dated
as of August 24, 1998, by and among Sellers and JOE'S DIRECT,INC., an Oregon
corporation ("Buyer"), hereby sell, convey, transfer, assign and deliver to
Buyer and its successors and assigns, all of Sellers' right, title and interest
in and to the Assets (as defined in Section 1.1 of the Asset Purchase
Agreement).

The sale, conveyance, transfer, assignment and delivery by
Sellers to Buyer pursuant to this Bill of Sale and Assignment Agreement are
subject to all covenants, representations, warranties, conditions and other
terms set forth in the Asset Purchase Agreement.

IN WITNESS WHEREOF, Sellers have executed and delivered this Bill
of Sale and Assignment Agreement as of this 1st day of September, 1998.

SELLERS:

ATHLETICA, INC.

By:
-----------------------------------
DOUGLAS B. SPINK
Title: President

GRAVITY GAMES, INC.

By:
-----------------------------------
DOUGLAS B. SPINK
Title: President

TS HOLDING, INC.

By:
-----------------------------------
DOUGLAS B. SPINK
Title: President

<PAGE> 47

SCHEDULE 8.3(b)

ASSUMPTION OF LIABILITIES AGREEMENT

FOR VALUE RECEIVED, JOE'S DIRECT, INC. an Oregon corporation
("Buyer"), pursuant to the Asset Purchase Agreement (the "Asset Purchase
Agreement") dated as of August 24, 1998, by and among ATHLETICA , INC., an
Oregon corporation ("Athletica"), GRAVITY GAMES, INC., an Oregon corporation
("Gravity Games") and TS HOLDING, INC., an Oregon corporation ("TS")
(collectively, "Sellers") and Buyer, hereby accepts the assignment of, and
assumes and agrees to pay, perform and discharge the Assumed Liabilities (as
defined in Section 2.1 and listed in Schedule 2.1 of the Asset Purchase
Agreement) and to hold Sellers and Shareholders harmless therefrom.

The acceptance, assumption and agreement of Buyer pursuant to
this Assumption of Liabilities Agreement are subject to all covenants,
representations, warranties, conditions and other terms set forth in the Asset
Purchase Agreement.

IN WITNESS WHEREOF, Buyer has executed and delivered this Assumption of
Liabilities Agreement as of this ___________ day of ____________________, 1998.

"BUYER":

JOE'S DIRECT, INC.,
AN OREGON CORPORATION

BY:
-----------------------------------------
TITLE:
--------------------------------------

<PAGE> 48

SCHEDULE 8.3(c)

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (the "Agreement") is made and entered
into as of the 1st day of September, 1998, by and between G.I. Joe's, Inc., an
Oregon corporation (the "Company"), and the person, or entities, executing this
Agreement in the space provided on the signature page hereto (collectively, the
"Holder").

WHEREAS, Holder has agreed to accept registerable shares of the
Company's common capital stock (the "Stock") as partial payment of the Purchase
Price in the Asset Purchase Agreement dated August 24, 1998,(the "APA") between
Joe's Direct, Inc., as Buyer, a wholly owned subsidiary of Company, and
Athletica, Inc., Gravity Games, Inc., and TS Holdings, Inc.; and

WHEREAS, as additional consideration the Company desires to grant to
Holder registration rights with respect to the Stock;

NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the parties hereto agree as follows:

1. Definition of Certain Terms. The following terms shall have the
following meanings in this Agreement:

1.1 "Act" shall mean the Securities Act of 1933, as amended.

1.2 "Commission" shall mean the Securities and Exchange Commission.

1.3 "Holder" means any person or entity owning or having the right to
acquire Registrable Securities pursuant to the APA.

1.4 "Register," "registered," and "registration" shall mean a
registration effected by preparing and filing a registration statement in
compliance with the Act and the declaration or ordering of effectiveness of such
registration statement.

1.5 "Registrable Securities" shall mean (i) the Stock issuable in
accordance with the terms of the APA and (ii) any Common Stock of the Company
issued as (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of, the Stock, excluding in all cases,
however, any Stock sold by a person in a transaction in which such person's
rights under Section 8 are not assigned.

1.6 "Registration Expenses" shall mean all expenses incurred by the
Company in complying with this Agreement, including without limitation all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, and blue sky fees and expenses.

<PAGE> 49

1.7 "Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities of a Holder and all
fees and disbursements of counsel for such Holder.

2. Company Registrations.

2.1 If at any time the Company determines to register any of its capital
stock for sale to the general public solely for cash on a form that would also
permit sale of the Registrable Securities, either for its own account or the
account of a security holder or holders exercising demand registration rights,
the Company will each such time (i) promptly give to each Holder written notice
thereof and (ii) use its best efforts to include in such registrations and in
any related underwriting all Registrable Securities specified in a written
request by any Holder (which request shall state the intended method of
distribution of the Registrable Securities), received by the Company within 15
days after receipt of such written notice from the Company by any Holder, except
as set forth in Section 2.2 below.

2.2 If the registration of which the Company gives notice under this
Section 2 is for a registered public offering involving an underwriting, the
Company will so advise the Holders as a part of the written notice given such
Holders pursuant to Section 2.1. In such event the right of any Holder to
registration pursuant to this Agreement will be conditioned on such Holder's
participation in such underwriting and the inclusion of such Holder's shares in
the underwriting to the extent provided herein. All Holders proposing to
distribute shares through such underwriting will (together with the Company and
the other Holders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company. Notwithstanding any
other provision of this Section 2, if the underwriter of the offering determines
that marketing factors require a limitation on the number of shares to be sold
for the account of security holders, the Company may exclude all Registrable
Securities from, or limit the number of Registrable Securities to be included
in, the registration and underwriting. In making the decision to exclude or
limit the number of Registerable Securities Company shall use reasonable efforts
to allocate shares in the following order of priority: (1) shares being offered
by the Company; (2) shares to be issued in connection with obligations of the
Company incurred prior to the date of this Agreement, including, without
limitation, the plan of merger; and (3) pro rata among the Holder and other
holders whose shares are being registered therein according to the number of
shares requested to be registered by the Holder and other such holders.

If less than all Registrable Securities for which registration is sought
are to be included in the registration and underwriting, the number of
Registrable Securities included will be reduced pro rata among the Holders
requesting registration based on the number of Registrable Securities of such
Holders for which registration is sought.

3. Limits on Registrations. Notwithstanding any other provision of this
Agreement, the Company shall not be obligated to register any Registrable
Securities if it furnishes the Holder thereof a written opinion of counsel to
the Company that such Holder will be able to sell all the Registrable Securities
to any party that such Holder in good faith wishes to sell in a three-month
period pursuant to Rule 144 (or a comparable successor rule adopted by the
Commission).

PAGE 2--REGISTRATION RIGHTS AGREEMENT

<PAGE> 50

4 Indemnification.

4.1 The Company will indemnify each Holder distributing shares pursuant
to an underwriting provided for in Section 2, any officers, directors, or
partners of the Holder, if the Holder is an entity, and any person controlling a
Holder, to the extent shares of such Holder have been registered, qualified, or
for which compliance has been effected pursuant to this Section 5, and each
underwriter, if any, and each person who controls any under-writer, against all
claims, losses, damages, and liabilities or actions in respect thereof arising
out of or based on any untrue statement or alleged untrue statement of a
material fact contained in any prospectus, offering circular, or other document,
including any related registration statement, notification, or the like,
incident to any such registration, qualification or compliance, or based on any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse such Holder, each of its officers, directors, or partners, as the
case may be, and each person controlling such Holder, each such underwriter, and
each person who controls any such underwriter, for any legal and any other
expenses reasonably incurred by each such person so indemnified in connection
with investigating or defending any such claim, loss, damage, liability, or
action; provided, however, that the Company will not be liable in any such case
to the extent any such claim, loss, damage, liability or expense arises out of
or is based on any untrue statement or omission based on written information
furnished to the Company by such Holder or underwriter specifically for use in
the prospectus or offering circular.

4.2 Each Holder whose Registerable Securities are included in the
securities for which any such registration, qualification or compliance is being
effected will indemnify to the extent permitted by law the Company, each of its
directors and officers, each legal counsel and independent accountant of the
Company, each underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such underwriter
within the meaning of the Act, and each other shareholder whose shares are
included in such registration, and each of such other shareholder's officers and
directors and each person controlling such other shareholder, against all
claims, losses, damages, and liabilities or actions in respect thereof arising
out of or based on any untrue statement of a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse the Company, such shareholder, and such directors, officers, persons,
underwriters, or control persons for any legal or any other expenses reasonably
incurred by such persons in connection with investigating or defending any such
claim, loss, damage, liability, or action, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular, or other document in reliance on and in
conformity with written information furnished to the Company by the Holder
furnishing the same specifically for use therein; provided, however, that the
obligations of any indemnifying Holder hereunder will be limited to an amount
equal to the proceeds to such Holder from the sale of such Holder's shares in
such registration.

4.3 Each party entitled to indemnification under this Section 4 (the
"Indemnified Party") will give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and will
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that

PAGE 3--REGISTRATION RIGHTS AGREEMENT

<PAGE> 51

counsel for the Indemnifying Party, who will conduct the defense of such claim
or litigation, is approved by the Indemnified Party (whose approval will not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense; provided, that the Indemnified Party shall have
the right to retain one separate counsel, with reasonable fees and expenses to
be paid by the Indemnifying Party, if representation of the Indemnified Party by
the Indemnifying Party's counsel would be inappropriate due to actual or
potential conflicts of interest. No Indemnifying Party, in the defense of any
such claim or litigation, will, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation.

5. Expenses.

5.1 All Registration Expenses incurred in connection with a registration
pursuant to Section 2 will be borne by the Company.

5.2 All Selling Expenses will be borne by the Holder or Holders of the
securities so registered apportioned on a pro rata basis.

5.3 Notwithstanding any other provision of this Section 5, the
provisions of this Section 5 shall be deemed amended to incorporate and comply
with the provisions of any applicable state securities laws, regulations, and
administrative policies, and the rules of the National Association of Securities
Dealers, Inc. and stock exchanges upon which the Registrable Securities are or
will be eligible for listing.

6. Procedures. Whenever required under Section 2 to use its best efforts
to effect the registration of any of the Registrable Securities, the Company
will, as expeditiously as reasonably possible:

(a) prepare and file with the Commission a registration statement with
respect to such Registrable Securities and use its best efforts to cause
such registration statement to become and remain effective;

(b) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection
therewith as may be necessary to comply with the provisions of the Act
with respect to the disposition of all securities covered by such
registration statement;

(c) furnish to each Holder with respect to whom Registrable Securities
are included in such registration statement such numbers of copies of a
prospectus, including a preliminary prospectus, and such other documents
as the Holder reasonably may require to facilitate the disposition of
such Registrable Securities; and

(d) use its reasonable efforts to register and qualify the securities
covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as reasonably are appropriate for
the distribution of the securities covered by such registration
statement; provided, however, that the Company will not be required in
connection therewith or as a condition thereto to qualify to do business
or to file a general consent to service of process in any such state or
jurisdiction unless the

PAGE 4--REGISTRATION RIGHTS AGREEMENT

<PAGE> 52

Company is already subject to service in such jurisdiction; and, provide
further, that in connection with any proposed registration, the Company
will in no event be obligated to cause any such registration to remain
effective for more than 90 days.

7. Information from Holders. Each Holder whose shares are included in
any registration under Section 2 of this Agreement will furnish in writing to
the Company such information regarding such Holder and the distribution proposed
by such Holder as the Company may request in writing and as may be required in
connection with registration, qualification or compliance referred to in Section
2.

8. Assignment. Subject to compliance with the restrictions on transfer
of the Registerable Securities, the Registered Owner's registration rights under
this Agreement may be assigned by the Registered Owner to a transferee or
assignee of the Registerable Securities if the Company is given written notice
of the transfer, stating the name and address of the transferee or assignee and
identifying the securities with respect to which such registration rights are
being assigned; provide , however, that such assignment will be effective only
if immediately following such assignment the transferee or assignee holds at
least 50 percent of the Registrable Securities.

9. Stand-Off Agreement. No Holder who participates in the registration,
if so requested by the Company and an underwriter of securities of the Company,
will sell or otherwise transfer or dispose of any other securities of the
Company held by such Holder other than pursuant to the registration statement
during the 180-day period following and including the effective date of a
registration statement; provided, however, such Holder's agreement in this
Section 9 will only apply if all officers and directors of the Company enter
into similar agreements in writing in a form satisfactory to the Company and
such underwriter covering shares of Common Stock owned by such officers and
directors. The Company may impose stop transfer instructions with respect to the
securities subject to the restriction in this Section 9 until the end of the
180-day period.

10. Miscellaneous.

(a) Remedies. In the event of a breach by the Company of its obligations
under this Agreement, the Holder, in addition to being entitled to
exercise all fights granted by law, including recovery of damages, will
be entitled to specific performance of its rights under this Agreement.

(b) Agreements and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or
supplemented, unless such amendment, modification or supplement is in
writing and signed by the parties hereto.

(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery,
registered first-class mail, telex, or telecopies initially to the
address set forth below, and thereafter at such other address, notice of
which is given in accordance with the provisions of this of this Section
10(c):

PAGE 5--REGISTRATION RIGHTS AGREEMENT

<PAGE> 53

If to Holder to:

------------
Attention:

With a copy to :

Mark R. Wada
Farleigh, Wada & Witt, PC
121 S.W. Morrison Street, Ste. 600
Portland, OR 97204

If to Company to:

G.I. Joe's, Inc.
9805 Boeckman Road
Wilsonville, OR 97070

Attention: Norman Daniels

With a copy to:

Terry DeSylvia
1200 SW Main Building
Portland, Oregon 97205

All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; two business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; and when receipt is acknowledged, if
telecopied.

(d) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express
assignment. subsequent holders of the Registrable Shares subject to the
terms hereof.

(e) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.

(f) Headings. The headings in this Agreement are for convenience of
references only and shall not limit or otherwise affect the meaning
hereof.

PAGE 6--REGISTRATION RIGHTS AGREEMENT

<PAGE> 54

(g) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Oregon without reference to its
conflicts of law provisions.

(h) Severability In the event that any one or more of the provisions
contained herein, or the application hereof in any circumstance is held
invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provisions contained herein shall not be
affected or impaired thereby.

(i) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and
exclusive statement of this agreement and understanding of the parties
hereto in respect of the subject matter contained herein. There are not
restrictions, promises warranties or undertakings, other than those set
forth or referred to herein, concerning the registration rights granted
by the Company pursuant to this Agreement.

IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first written above.

COMPANY:
G.I. Joe's, Inc.

- ----------------------------------
By: Norman Daniels
Title: President

HOLDER:

By:
---------------------------------

Title:
------------------------------

PAGE 7--REGISTRATION RIGHTS AGREEMENT

<PAGE> 55

SCHEDULE 8.3(d)(i)

EMPLOYMENT AGREEMENT OF DOUGLAS SPINK

1. Parties. The parties to this Agreement are G. I. JOE'S, INC.
("Company") and DOUGLAS SPINK ("Employee").

2. Employment. Company employs Employee and Employee accept
employment on the terms and conditions set forth in this Agreement.

3. Term. The term of this Agreement shall begin September 1,
1998, and shall continue until January 31, 2004, unless sooner terminated as
provided herein.

4. Compensation. For all services rendered by Employee, Company
shall pay Employee:

(a) A base salary of $100,000.00 per year payable in
accordance with normal payroll schedules. Salary payment shall be subject to
withholding and all applicable taxes.

(b) An annual bonus equal to .6% of the Company's annual
sales, provided:

(i) The Company earns a net profit (as a % of
sales) before income taxes and bonus payments to Employee
and Gregory Biggs ("Net Profit") as follows:

(a) 10% for fye 1/31/2000;

(b) 12% fye 1/31/2001; and

(ii) Company's minimum sales are as follows:

a. $ 5,500,000 fye 1/31/2000

b. $ 8,000,000 fye 1/31/2001

c. $12,000,000 fye 1/31/2002

d. $20,000,000 fye 1/31/2003

e. $30,000,000 fye 1/31/2004

Bonus to be paid within thirty (30) days after computation of the Net Profit
Company's accountants for the prior fiscal year.

5. Benefits.

(a) Employee will be entitled to sick leave in a
reasonable amount.

<PAGE> 56

(b) Employee shall be entitled to such medical and
dental insurance, 401(k) contributions, holidays and other benefits as may be
provided by the Company from time to time to other employees.

6. Duties. Employee is engaged as the General Manager of the
Company with his duties and responsibilities to be such as are reasonable and
customary for such a position and as may be determined by the Board of
Directors. The precise services of Employee may be extended or curtailed by the
Company from time to time.

7. Extent of Services. Employee shall devote his entire time,
attention and energies to the Company's business and shall not during the term
of this Agreement be engaged in any other business activity which requires the
devotion of a material amount of Employee's time, attention or energies.
However, Employee may invest his assets in such form or manner as will not
require his services in the operations of the affairs of the companies in which
such investment is made.

8. Disclosure of Information. Employee acknowledges that in
connection with his employment Employee will have access to certain confidential
and proprietary information which is a special and unique asset of the Company's
business. Employee will not during or after the term of his employment disclose
such information to any person, firm, corporation, association or other entity
for any reason or purpose whatsoever. In addition to any other remedies, Company
shall be entitled to an injunction restraining Employee from disclosing in whole
or in part such information.

9. Expenses. Employee may incur reasonable expenses for promoting
the Company's business, including expenses for entertainment, travel and similar
items. Company will reimburse Employee for such expenses upon Employee's
periodic presentation of an itemized account of such expenditures.

10. Vacations. Employee shall be entitled each year to a vacation
of three weeks during which time his compensation shall be paid in full.
Vacation time must be used each contract year. Employee shall receive no
compensation for unused vacation time, except on termination in accordance with
paragraph 12(a)(1) below.

11. Termination Without Cause.

(a) Company may, without cause, terminate this Agreement
at any time upon written notice to Employee. In the event of termination without
cause, the Company shall continue to be obligated to pay to Employee to the end
of the contract term his base salary as provided in paragraph 4(a), plus the
average annual bonus which Employee earned under paragraph 4(b) prior to the
date of his termination. Said base salary to continue to be paid monthly and the
bonus paid annually, less all amounts required to be withheld and deducted. In
addition, Employee shall receive the following:

(1) Accrued, but unused vacation prorated to the
date of termination (said sum to be payable on termination).

<PAGE> 57

(2) Any bonus to which Employee may be entitled
under the terms of paragraph 4(b) prorated to the date of
termination payable within thirty (30) days of the close of the
Company's fiscal year.

(b) In the event of a sale of the Company, if the
purchaser employs or offers to employ Employee to perform duties similar to
those Employee provided to Company prior to the sale, any compensation paid to
the Employee (or which would have been paid to the Employee had the Employee
accepted the employment offer) shall be credited to any amounts due to Employee
under the preceding paragraph.

(c) Employee may terminate his employment at any time on
sixty (60) days written notice to Company. Upon receipt of such notice, Company
may immediately terminate Employee without payment of any compensation other
than amounts due as of the date of termination.

12. Termination for Cause. This Agreement may be terminated at
any time by Company for just cause without payment of any compensation other
than amounts owing as of the date of termination. For purposes of this
Agreement, just cause shall be limited to the following:

(a) Employee's failure or refusal after written notice to
comply with the reasonable policy standards and regulations of the Company

(b) Employee's failure to perform his regularly assigned
duties as established from time to time in a reasonable manner, consistent with
his salary, benefits and the expertise an employer would reasonably expect from
a General Manager for a business of the size and type conducted by Company.

(c) If Employee is guilty of fraud, dishonesty or other
acts of moral turpitude in the performance of his duties on behalf of the
Company.

(d) Employee's death or inability to perform the majority
of his usual and customary duties for a period of 90 days or more.

13. Waiver of Breach. The waiver by Company of a breach of any
provision of this Agreement by Employee shall not operate or be construed as a
waiver of any subsequent breach by Employee. No waiver shall be valid unless in
writing and signed by an authorized officer of Company.

14. Assignment. Employee acknowledges that the services to be
rendered by him are unique and personal. Accordingly, Employee may not assign
any of his rights or delegate any of his duties or obligations under this
Agreement.

15. Entire Agreement. This Agreement contains the entire
understanding of the parties. It may not be changed orally but only by an
agreement in writing signed by the parties against whom enforcement of any
waiver, change, modification, extension or discharge is sought.

<PAGE> 58

16. Attorney Fees. In the event of suit or action related to or
arising out of this Agreement or the employment of Employee by Company, the
prevailing party shall be entitled to its reasonable attorney fees at trial or
upon appeal.

17. Arbitration. In the event of any dispute or disagreement
related or arising from this Agreement or Employee's employment with the
Company, the dispute shall be heard first by mediation and in absence of
settlement, by arbitration pursuant to ORS Chapter 36. The prevailing party of
such arbitration shall be entitled to recover in addition to any other costs or
award their reasonable attorney fees.

DATED September 1, 1998.

G. I. JOE'S, INC. "EMPLOYEE"

By:
----------------------------- ------------------------------
NORM DANIELS, PRESIDENT DOUGLAS SPINK

<PAGE> 59

SCHEDULE 8.3(d)(ii)

EMPLOYMENT AGREEMENT OF GREGORY BIGGS

1. Parties. The parties to this Agreement are G. I. JOE'S, INC.
("Company") and GREGG BIGGS ("Employee").

2. Employment. Company employs Employee and Employee accept
employment on the terms and conditions set forth in this Agreement.

3. Term. The term of this Agreement shall begin September 1,
1998, and shall continue until January 31, 2004, unless sooner terminated as
provided herein.

4. Compensation. For all services rendered by Employee, Company
shall pay Employee:

(a) A base salary of $80,000.00 per year payable in
accordance with normal payroll schedules. Salary payment shall be subject to
withholding and all applicable taxes.

(b) An annual bonus equal to .4% of the Company's annual
sales, provided:

(i) The Company earns a net profit (as a % of
sales) before income taxes and bonus payments to Employee
and Douglas Spink ("Net Profit") as follows:

(a) 10% for fye 1/31/2000;

(b) 12% fye 1/31/2001; and

(ii) Company's minimum sales are as follows:

a. $ 5,500,000 fye 1/31/2000

b. $ 8,000,000 fye 1/31/2001

c. $12,000,000 fye 1/31/2002

d. $20,000,000 fye 1/31/2003

e. $30,000,000 fye 1/31/2004

Bonus to be paid within thirty (30) days after computation of the Net Profit
Company's accountants for the prior fiscal year.

5. Benefits.

(a) Employee will be entitled to sick leave in a
reasonable amount.

<PAGE> 60

(b) Employee shall be entitled to such medical
and dental insurance, 401(k) contributions, holidays and other benefits as may
be provided by the Company from time to time to other employees.

6. Duties. Employee is engaged as Operations Manager of the
Company with his duties and responsibilities to be such as are reasonable and
customary for such a position and as may be determined by the Board of
Directors. The precise services of Employee may be extended or curtailed by the
Company from time to time.

11. Termination Without Cause.

(1) Accrued, but unused vacation prorated to the
date of termination (said sum to be payable on
termination).

<PAGE> 61

(2) Any bonus to which Employee may be entitled
under the terms of paragraph 4(b) prorated to the date of
termination payable within thirty (30) days of the close
of the Company's fiscal year.

(a) Employee's failure or refusal after written notice to
comply with the reasonable policy standards and regulations of the Company.

(b) Employee's failure to perform his regularly assigned
duties as established from time to time in a reasonable manner, consistent with
his salary, benefits and the expertise an employer would reasonably expect from
an Operations Manager for a business of the size and type conducted by Company.

(c) If Employee is guilty of fraud, dishonesty or other
acts of moral turpitude in the performance of his duties on behalf of the
Company.

(d) Employee's death or inability to perform the majority
of his usual and customary duties for a period of 90 days or more.

<PAGE> 62

DATED September 1, 1998.

G.I. JOE'S, INC. "EMPLOYEE"

By:
------------------------------ ------------------------------
NORM DANIELS, PRESIDENT GREGG BIGGS
<PAGE> 63
ADDENDUM TO ASSET PURCHASE AGREEMENT

THIS ADDENDUM TO ASSET PURCHASE AGREEMENT is entered into this 1st day
of September, 1999, by and among JOE'S DIRECT, INC., an Oregon corporation
("Buyer"); and ATHLETICA, INC., an Oregon corporation ("Athletica"), GRAVITY
GAMES, INC., an Oregon corporation ("Gravity Games"), and TS HOLDING, INC., an
Oregon corporation ("TS") (Athletica, Gravity Games and TS are sometimes
referred to individually as "Seller" and collectively as "Sellers") and Douglas
B. Spink and Gregory Biggs (collectively, "Shareholders").

On August 24, 1998, the parties executed and delivered an Asset Purchase
Agreement (the "Agreement").

NOW THEREFORE, the parties agree as follows:

1. Defined Terms. Unless given a different meaning herein, a capitalized
terms used in this Addendum to Asset Purchase Agreement ("Addendum") shall have
the meanings ascribed to them in the Agreement.

2. Continuing Effectiveness. Except as expressly modified herein, all of
the terms, conditions, covenants and exhibits set forth in the Agreement remain
in full force and effect among the parties.

3. Closing Date. The Closing Date is September 1, 1998.

4. Closing Date Schedules. The following Schedules are attached hereto
and incorporated in this Addendum and the Agreement by this reference:

(a) Schedule 3.2(f) - Allocation of Purchase Price Among Sellers

(b) Schedule 3.3 - Allocation of Purchase Price Among Assets

The following Schedules replace and supersede the Schedules delivered in
conjunction with the signing of the Agreement:

(d) Schedule 2.1 - Assumed Liabilities

(e) Schedule 5 - Exceptions to Representations and Warranties of Sellers

Page 1
<PAGE> 64

5. Deliveries at Closing. Attached hereto are the detailed listing of
Fixed Assets which is part of Schedule 1.l(a) and the detailed inventory list
which is part of Schedule 1. 1(c).

6. Amendment of Section 3.2(d) and 3.2(e). In the event an adjustment to
the Purchase Price is made pursuant to Section 4 of the Agreement, the entire
amount of the adjustment shall be allocated to TS.

7. Amendment of Section A-1. In the third fine of Section 4.1 of the
Agreement, the words "July 31, 1998" are replaced with "September 1, 1998."

IN WITNESS WHEREOF, the parties have executed this Addendum as of the
date first written above.

BUYER:

JOE'S DIRECT, INC.

By: /s/ Norm Daniels
------------------------------------------
Norm Daniels, President

SELLERS

ATHLETICA, INC.

By: /s/ Douglas B. Spink
------------------------------------------
Douglas B. Spink, President

GRAVITY GAMES, INC

By: /s/ Douglas B. Spink
------------------------------------------
Douglas B. Spink, President

Page 2
<PAGE> 65

TS HOLDINGS, INC

By: /s/ Douglas B. Spink
------------------------------------------
Douglas B. Spink, President

SHAREHOLDERS:

DOUGLAS B. SPINK

/s/ Douglas B. Spink
---------------------------------------------

GREG BIGGS

/s/ Greg Biggs
---------------------------------------------

Page 3
<PAGE> 66
SCHEDULE 1.1(H)

CONTRACTS/LEASE SCHEDULE
AS OF 7/31/99

Cornelius Park Business Park Lease-$1740.00/Month through January 31, 1999
Pitney Bowes-Postage machine-$133.05/Quarter through January 2001
OGI-Phone T-1- $1,100/Month for 36 months
Sanwa Leasing-DIM 200 Computer SIN 83 LKL- S 171.97/month 36 month lease.
Sanwa Leasing-DELL Pentium S/N 88TFK-$448.60/month; 36 month lease.
Dell Leasing-XPS 200s S/N COC4M- $113.95/month; 36 month lease.

Gravity Games, Inc.'s obligations under Agreement not to Compete and
Confidentiality Agreement with Mickey Kerbel, dated April 28, 1999, for payment
of $125,000; payments of $1,267.93 monthly (including interest at 9.0% per
annum) commencing June 1, 1998 for 15 years.

Approximately 40, non-exclusive Dealer/vendor contracts.

Short Term Advertising contracts; Sellers

Page 4
<PAGE> 67

SCHEDULE 2.1

ASSUMED LIABILITIES

The Accounts Payable which comprise the Assumed Liabilities as of the
Closing Date are attached hereto. An updated listing of the other Assumed
Liabilities is attached hereto, and this Schedule replaces and supersedes the
Schedule 2.1 attached to the Agreement.

Page 5
<PAGE> 68

SECTION 2.1

ASSUMED LIABILITIES
AS OF 8/15/1998

NOTES

<TABLE>
<CAPTION>
Debtor Amount Rate Term
- ------ ------ ---- ----
<S> <C> <C> <C>
Mickey Kerbel $126,539.71 9.0% 15 Years
SPROCOR $259,146.42 Closing
Dynasty Capital $ 57,000.00 Due 11/28/98
GI Joes $100,000.00 On Closing

LEASES
Postage Machine $133.05/quarter 48 months
CTL Management $1740.00/month 6 months
OGI - Phone T-I $1100/Month 36 Months
</TABLE>

Sanwa Leasing - DIM 200 Computer S/N 83LKL - 171.97/Month 36 Months Lease
002-207506-000

Sanwa Leasing - DELL Pentium S/N 88TFK - $448.6/Month 36 Months Lease
002-1210300-000

Dell Leasing - XPS 200s S/N COC4M - 113.95/Month 36 Months lease
#001-4487827-002

ALL Accounts Payable - See attached listings.

<TABLE>
<S> <C>
CREDIT CARD DEBT
First North American $2,770.33
CitiBank $6,555.89
Banc One Visa $9,650.56
Platinum Plus $10,297.11
Corporate American Express $7,525.38

OTHER LIABILITIES
Due to Tom King $14,904.96
Due to Greg Biggs $23,000.00
Due to Doug Spink $20,466.56
Due to Barry Uphoff $30,000.00
</TABLE>

Page 6
<PAGE> 69

ATHLETICA
A/P AGING SUMMARY
AS OF AUGUST 31, 1998

<TABLE>
<CAPTION>
Current 1-30 31-60 61-90 > 90 TOTAL
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Airborne Express 0.00 58.00 0.00 226.06 165.67 449.73
Aloha Garbage 0.00 26.85 26.85 0.00 0.00 53.70
AT&T Wireless 0.00 209.42 0.00 0.00 0.00 209.42
Brick Robbins 0.00 0.00 0.00 8,486.00 8,486.00 8,614.00
Catalog Creatives 6,160.00 3,840.00 0.00 0.00 0.00 12,120.00
Champion Nutrition 0.00 0.00 1,762.58 2.00 2.00 1,764.58
Clif Bar, Inc. 0.00 0.00 1,357.07 0.00 0.00 1,789.07
Competitor / City Sports 0.00 0.00 150.00 0.00 0.00 300.00
Country Companies 0.00 129.50 0.00 0.00 0.00 129.50
Crystal Springs 0.00 35.70 5.95 0.00 0.00 84.10
Dell Computer 0.00 3.80 0.00 0.00 0.00 3.80
DM News 0.00 0.00 178.00 75.00 75.00 253.00
DMA 0.00 1,250.00 0.00 0.00 0.00 1,250.00
Enron 0.00 0.00 33.41 0.00 0.00 33.41
Executive Program 0.00 100.27 0.00 24.89 24.89 125.16
Eyescream Interactive, Inc. 0.00 0.00 0.00 0.00 0.00 3,375.00
Farleigh, Wada & Witt, PC 0.00 3,597.32 2,593.94 0.00 0.00 7,430.57
Federal Express 0.00 90.75 185.50 0.00 0.00 276.25
Greg Biggs 0.00 3,915.00 13,453.11 3,340.97 3,340.97 29,160.93
GTE 0.00 0.00 502.19 0.00 0.00 1,518.29
Harrison Publishing Co. 0.00 0.00 0.00 72.50 72.50 72.50
Imagina, Inc. 0.00 0.00 35.00 0.00 0.00 420.00
Internutria Sports 0.00 0.00 0.00 4,039.90 4,039.90 4,039.90
Iron man Magizine 0.00 49.97 0.00 0.00 0.00 49.97
Kathleen Lambert 0.00 0.00 0.00 3,920.00 3,910.00 3,910.00
Kick 0.00 300.00 300.00 0.00 0.00 900.00
LeBoeuf, Lamb, Green & MacRae 0.00 13,621.28 0.00 3,726.24 3,726.24 17,347.52
Library Of Science 0.00 334.54 0.00 144.62 144.62 479.16
Lori Ann Reif 0.00 0.00 0.00 1.400.00 1,400.00 1,400.00
Lycos 0.00 0.00 0.00 1,636.00 1,636.00 1,636.00
Matrix Communications 0.00 108.00 0.00 0.00 0.00 108.00
Mellon First United Leasing 0.00 0.00 9,867.73 0.00 0.00 9,867.73
MNY 0.00 0.00 0.00 -1.05 0.00 -1.05
Multnomah County 0.00 0.00 12.00 0.00 0.00 12.00
Neal Wozniak 0.00 0.00 1,440.00 3,690.00 0.00 5,130.00
NW Natural 0.00 0.00 6.00 0.00 0.00 6.00
Offices Inc. 0.00 240.00 0.00 0.00 0.00 240.00
Omnipack 0.00 0.00 31.91 0.00 0.00 -31.91
On Time Delivery Service 0.00 0.00 27.10 0.00 0.00 27.10
Oregon Road Tunners Club 0.00 0.00 0.00 0.00 70.00 70.00
Peace Bridge Brokerage 0.00 9.35 0.00 0.00 78.79 88.14
Pioneer Printing 0.00 0.00 199.50 0.00 0.00 199.50
Pitney Bowes 0.00 135.75 45.90 0.00 135.75 317.40
Power Bar 0.00 0.00 2,268.00 1,207.68 0.00 3,475.68
PR Ironman Bar 0.00 0.00 1,359.94 0.00 0.00 1,359.94
Purchase Power 0.00 15.00 0.00 0.00 0.00 15.00
Purolator 0.00 0.00 0.00 0.00 45.00 45.00
Rainbow Publications 0.00 0.00 0.00 0.00 32.00 32.00
Running Commentary 0.00 0.00 19.00 0.00 0.00 19.00
Russell & Associates 0.00 0.00 0.00 0.00 400.00 400.00
Sanwa Leasing 0.00 0.00 182.89 0.00 0.00 182.89
SCOR Report 0.00 0.00 280.00 0.00 0.00 280.00
</TABLE>

Page 7
<PAGE> 70

<TABLE>
<CAPTION>
Current 1-30 31-60 61-90 > 90 TOTAL
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sports Street Marketing 0.00 0.00 2,334.33 0.00 0.00 2,334.33
Sprint 0.00 0.00 915.69 106.67 171.60 1,193.96
sprint pcs 0.00 218.22 0.00 0.00 0.00 218.22
The Business Journal 0.00 0.00 0.00 68.00 0.00 68.00
The Oregonian 0.00 125.88 117.21 278.37 0.00 521.46
Triathlete 0.00 820.71 793.60 1,109.32 687.95 3,411.58
Ultrarunning 0.00 0.00 115.00 0.00 115.00 230.00
United Healthcare 0.00 1,008.52 0.00 0.00 0.00 1,008.52
UPS 0.00 848.69 1,607.50 954.88 0.00 3,411.07
Upside 0.00 0.00 29.95 0.00 0.00 29.95
US West 647-2097 Athletica 0.00 0.00 52.24 0.00 0.00 52.24
US West Home Office 0.00 582.87 311.42 0.00 0.00 874.29
Vida Morkunas and Associates 0.00 0.00 0.00 0.00 3,557.16 3,557.16
Wall Street Journal 0.00 0.00 0.00 0.00 474.00 474.00
-------- -------- -------- -------- -------- ---------
TOTAL 6,160.00 31,655.39 42,538.69 25,279.64 32,791.04 138,422.76
======== ========= ========= ========= ========= ==========
</TABLE>

Page 8
<PAGE> 71

GRAVITY GAMES, INC.
A/P AGING SUMMARY
AS OF AUGUST 31, 1998

<TABLE>
<CAPTION>
Current 1-30 31-60 61-90 > 90 TOTAL
-------- -------- ------ ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
AT&T LD 1,715.50 00.0 00.0 00.0 00.0 1,715.57
IMAGINA 00.0 00.0 55.00 00.0 00.0 55.00
Kastel 1,198.00 00.0 00.0 00.0 00.0 1,198.00
Norwest Business Credit 1 00.0 2,000.00 00.0 00.0 00.0 2,000.00
RHYDE SKS PRODUCTS 00.0 00.0 129.31 00.0 00.0 129.31
Stoel Rives LLP 00.0 00.0 249.00 00.0 00.0 249.99
Sunshine Distribution 00.0 1,321.80 00.0 00.0 00.0 1,321.00
Willamette Week
Classifieds 47.70 00.0 00.0 00.0 00.0 47.70
-------- -------- ------ ---- ---- --------
TOTAL 2,961.27 3,321.80 434.30 00.0 00.0 6,717.37
======== ======== ====== ==== ==== ========
</TABLE>

Page 9
<PAGE> 72

TIDEWATER SPECIALTY
A/P AGING SUMMARY
AS OF AUGUST 31, 1998

<TABLE>
<CAPTION>
Current 1-30 31-60 61-90 > 90 TOTAL
------- ------ --------- ----- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
LeBoeuf, Lamb, Green & MacRae 00.0 00.0 11,944.06 00.0 00.0 11,944.06
Network Solutions 00.0 105.00 00.0 00.0 00.0 105.00
---- ------ --------- ---- ---- ---------
TOTAL 00.0 105.00 11,944.06 00.0 00.0 12,049.06
==== ====== ========= ==== ==== =========
</TABLE>

Page 10
<PAGE> 73

SCHEDULE 3.2(F)

ALLOCATION OF PURCHASE PRICE AMONG SELLERS

<TABLE>
<CAPTION>
ITEM ATHLETICA GRAVITY GAMES TS TOTAL
---- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
9-1-98 Non-Compete $ -- $ -- $ -- $ 100,000.00
9/1/98 Cash $ 300,000.00 $ 20,000.00 $ 30,000.00 $ 350,000.00
12-1-98 Cash $ 400,000.00 $ 20,000.00 $ 130,000.00 $ 550,000.00
1-1-99 Stock $ 400,000.00 $ 40,000.00 $ 478,738.75 $ 918,738.75
2-1-99 Stock $ 400,000.00 $ 40,000.00 $ 478,738.75 $ 918,738.75
Stock #3 $ 400,000.00 $ 40,000.00 $ 478,738.75 $ 918,738.75
Stock #4 $ 400,000.00 $ 40,000.00 $ 478,738.75 $ 918,738.75
------------- ----------- ------------- -------------
$2,300,000.00 $200,000.00 $2,074,955.00 $4,674,955.00
============= =========== ============= =============
</TABLE>

Page 11
<PAGE> 74

SCHEDULE 3.3

ALLOCATION OF PURCHASE PRICE AMONG THE ASSETS

<TABLE>
<CAPTION>
ITEM ATHLETICA GRAVITY GAMES TS TOTAL
---- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Current Assets $ 35,796.67 $ 17,541.56 $ -- $ 53,338.23
Fixed Assets $ 55,314.14 $ 5,492.92 $ -- $ 60,807.07
Goodwill/Lists $ -- $ 185,000.00 $ 300,000.00 $ 465,000.00
Goodwill $2,208,889.19 $ 11,965.51 $1,774,955.00 $3,995,809.70
------------- ------------- ------------- -------------
$2,300,000.00 $ 200,000.00 $2,074,955.00 $4,574,955.00
============= ============= ============= =============
</TABLE>

Page 12
<PAGE> 75

SCHEDULE 5

EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES OF SELLERS

5.1 None of Seller's are licensed or qualified as a foreign corporation
in any state other than the states of their organization.

5.4 The Inventory of Sellers is subject to the security interest
described in 5.8, below.

5.5 Sellers make no representation or warranty as to the financial
condition or operations of any business, the assets or stock of which was
acquired by any Seller within the six month period preceding the Closing Date,
for any period prior to acquisition by such Seller. The balance sheet dated July
31, 1999 provided by Sellers supersedes and replaces any other financial
information provided by any Seller or Shareholder, and no Seller or Shareholder
makes any representation or warranty with regard to any financial information
other than as set forth in the balance sheet dated July 31, 1998.

5.8 The inventory of all of the Sellers secures the $57,000 obligation
to Dynasty Capital disclosed in the balance sheet dated July 31, 1998,

5.9 No tradename or trademark (if any) of any Seller is registered with
the US Patent and Trademark Office.

5.10 The leases to which any Seller is a party are as follows:

Cornelius Park Business Park-$1,620/Mouth until January 31, 1999
Pitney Bowes-Postage Machine-133.05/Quarter
OGI-Phone T-1--$1,100/Month-3 6 months.
Sanwa Leasing-DM 200 Computer SIN 83 LKL- $171.97/month 36 month lease.
Sanwa Leasing-DELL Pentium SIN 88TFK- $448.60/month, 36 month lease.
Dell leasing- NPS 200s, S/N COC4M- $113.95/month- 36 month lease.

5.11 Sellers are not aware of any permits necessary or material to the
operation of their Business.

5.12 Sellers intend to cancel their insurance when deemed appropriate
after the Closing Date.

Page 13
<PAGE> 76

SECOND ADDENDUM TO ASSET PURCHASE AGREEMENT

THIS SECOND ADDENDUM TO ASSET PURCHASE AGREEMENT ("Second Addendum") is
entered into effective as of the 1st day of December, 19998, by and among G.I.
JOE'S, INC., an Oregon corporation ("Buyer"), as assignee of Joe's Direct, Inc.,
and ATHLETICA, INC., an Oregon corporation ("Athletica"), GRAVITY GAMES, INC.,
an Oregon corporation ("Gravity Games"), and TS HOLDING, INC., an Oregon
corporation ("TS") (Athletica, Gravity Games and TS are sometimes referred to
individually as "Seller" and collectively as "Sellers") and Douglas B.
Spink and Gregory Biggs (collectively "Shareholders").

On August 24, 1998, the parties executed and delivered an Asset Purchase
Agreement (the "Agreement"). On September 1, 1998, the parties executed and
delivered an Addendum to Asset Purchase Agreement (the "Addendum"). The parties
desire to amend the Agreement and Addendum on the terms set forth herein.

NOW THEREFORE, the parties agree as follows:

1. Defined Terms.Unless given a different meaning herein, all
capitalized terms used in this Second Addendum to Asset Purchase Agreement shall
have the meanings ascribed to them in the Agreement and Addendum.

2. Continuing Effectiveness. Except as expressly modified herein, all of
the terms, conditions, covenants and exhibits set forth in the Agreement and
Addendum remain in full force and effect among the parties.

3. December 1, 1998, Payment. Pursuant to Section 3.2(b) of the
Agreement, Buyer agreed to pay to Sellers the sum of $550,000 in cash on or
before December 1, 1998. The parties hereto agree that Buyer shall pay the sum
of $350,000 in cash on or before December 1, 1998, and Buyer will pay the sum of
$200,000 in cash on or before January 3, 1999.

4. Adjustment of Value of Stock. Pursuant to Section 3.2(d) of the
Agreement, the value of the shares of G. I. Joe's, Inc.'s, common stock which
will be issued to Sellers in payment of the balance of the Purchase Price is
based on a value of $11.00 per share, or the actual IPO price for such stock if
the IPO price is less than $8.80 per share. In the event the IPO occurs after
any shares of common stock of Buyer have been issued to Sellers in payment of
the Purchase Price and the IPO prices is less than $8.80 per share, Buyer shall
promptly issue and deliver to Sellers sufficient additional shares of common
stock of Buyer in order to adjust the prior installment payments made to Sellers

PAGE 1 - SECOND ADDENDUM TO ASSET PURCHASE AGREEMENT

<PAGE> 77

in stock of Buyer based upon the actual IPO price for such stock. Such stock
valuation shall then also be used for any future payments of the Purchase Price
to be made in stock of Buyer.

5. Schedule 3.2(d). Amend Schedule 3.2(d) of the Agreement as follows:

5.1 The First Performance Standard as defined in paragraph (3) of
Schedule 3.2(d) shall be amended to read as follows:

"The First Performance Standard" shall mean the Catalog and
Internet Sales Division of Joe's (the "Division") shall have
earnings before interest, depreciation, amortization, income
taxes and bonus payments to Spink and Biggs of not less than ten
percent (10%) of the Division's gross sales and the Division's
gross sales are not less than $5,500,000."

5.2 The Second Performance Standard as defined in paragraph (4)
of Schedule 3.2(d)(4) shall be amended to read as follows:

"The Second Performance Standard" shall mean the Division shall
have earnings before interest, depreciation, amortization, income
taxes and bonus payments to Spink and Biggs of not less than
twelve percent (12%) of the Division's gross sales and the
Division's gross sales are not less than $8,000,000."

6. Employment Agreement of Douglas Spink. Paragraph 4(b) of the
Employment Agreement (Schedule 8.3(d)(i)) shall be amended to read as follows:

"An annual bonus equal to .6% of the Company's Annual Catalog and
Internet Sales Division (the "Division"), provided:

(i) The Division earns a net profit (as a percentage of
Division sales) before income taxes and bonus payments to
Employee as follows:

(a) 10% for fye 1/31/2000;

(b) 12% for fye 1/31/2001; and

(ii) The Division's minimum sales are as follows:

(a) $5,500,000 fye 1/31/2000;

PAGE 2 - SECOND ADDENDUM TO ASSET PURCHASE AGREEMENT

<PAGE> 78

(b) $8,000,000 for fye 1/31/2001;

(d) $20,000,000 fye 1/31/2003; and

(e) $30,000,000 fye 1/31/2004.

Bonus to be paid within thirty (30) days after computation of the
Division's net profits by Company's accountants for the prior
fiscal year.

IN WITNESS WHEREOF, the parties have executed this Second Addendum as of
the date first written above.

ALPHACO, INC. BETACO, INC.
(FNA GRAVITY GAMES, INC.) (FNA TS HOLDING, INC.)

By:__________________________ By:___________________________
DOUGLAS SPINK, President DOUGLAS SPINK, President

ZETACO, INC. G.I. JOE'S, INC.
(FNA ATHLETICA, INC.)

By:__________________________ By:___________________________
DOUGLAS SPINK, President NORM DANIELS, President

_____________________________ ___________________________________
DOUGLAS SPINK, Shareholder GREGORY BIGGS, Shareholder

PAGE 3 - SECOND ADDENDUM TO ASSET PURCHASE AGREEMENT

<PAGE> 1

EXHIBIT 10.35

LEASE

THIS LEASE is made this 15th day of December, 1998, by and between
ISSAQUAH ASSOCIATES, a Washington limited partnership ("Landlord"), and G.I.
JOE'S, INC., an Oregon corporation ("Tenant").

RECITALS

A. Landlord is the owner of good and marketable fee simple title in and
to certain real property situated in Issaquah, King County, Washington, being
more particularly described on EXHIBIT A attached hereto and made a part hereof,
upon which real property Landlord currently operates a shopping center known as
Town and Country Square Shopping Center (the "Shopping Center") substantially as
shown on the site plan attached hereto as EXHIBIT B and made a part hereof (the
"Site Plan").

B. Landlord has constructed upon a certain portion of land within the
Shopping Center, as outlined in red on the Site Plan (the "Land"), a certain
building containing an agreed-upon floor area of forty-two thousand five hundred
thirty-five (42,535) square feet (the "Building").

C. Landlord desires to lease to Tenant, and Tenant desires to lease from
Landlord, the Land and the Building, including the loading dock and trash
compactor areas adjacent to or used in connection with the Building (the "Leased
Premises"), in order to operate a G.I. Joe's store on the Leased Premises.

NOW, THEREFORE, in consideration of the aforementioned recitals which
are incorporated herein, and the mutual covenants, promises and agreements
hereinafter set forth, Landlord hereby grants, demises and leases to Tenant, and
Tenant hereby accepts, acquires and leases from Landlord, the Leased Premises,
together with a nonexclusive and perpetual easement in, through and over all
parking areas, all access areas and any Common Areas (as defined in Section 31.1
hereof) of the Shopping Center, as shown on the Site Plan, for parking and
pedestrian and vehicular ingress to and egress from the Leased Premises to the
public streets and/or highways adjacent to the Shopping Center, at all times,
for Tenant and its customers, invitees, guests and employees and for all trucks,
automobiles and other vehicles delivering merchandise to the Leased Premises, in
common with other occupants of the Shopping Center.

Page 1
<PAGE> 2

AGREEMENT

1. TERM

1.1 INITIAL TERM

The initial term of this Lease shall be fifteen (15) years, beginning on
the Lease Commencement Date (as hereinafter defined) and ending fifteen (15)
years thereafter; provided, however, if the Lease Commencement Date would
otherwise be a date other than the first day of the month, the Lease
Commencement Date shall be the first day of the following month.

1.2 LEASE COMMENCEMENT DATE

The Lease Commencement Date of the initial term of this Lease shall be
August 1, 1999, and Tenant shall use reasonable efforts to open for business by
the Lease Commencement Date; provided, however, if the date on which the Leased
Premises are opened for business is delayed due to any act or omission of
Landlord, avoidable and unavoidable casualties (except those intentionally
caused by Tenant), severe weather, strikes, lockouts, unavailability of
materials, governmental restrictions or any other causes beyond Tenant's
control, then the Lease Commencement Date shall be extended by a period equal to
such delay. Notwithstanding the foregoing, the Lease Commencement Date shall be
postponed for a period not exceeding three (3) months at Tenant's option if the
Lease Commencement Date would otherwise occur in November, December or January,
in which event the Lease Commencement Date shall be a date not later than
February 1. Tenant shall have possession of the Premises upon execution and
delivery of this Lease, subject to the terms hereof. In the event Tenant opens
for business prior to August 1, 1999, the Lease Commencement Date shall be
deemed to be August 1, 1999.

1.3 OPTION TO RENEW

Provided that Tenant is not then in default under the terms of this
Lease, Tenant shall have the option to renew this Lease for four (4) additional
periods of five (5) years each from and after the date of expiration of the
initial term hereof, or any renewal terms hereof, upon the same terms, covenants
and conditions herein set forth, except for rent which shall be determined
pursuant to the schedule hereinafter set forth. Landlord shall give written
notice to Tenant not earlier than one year in advance of expiration of the
initial term or extended term, as the case may be, and ask whether Tenant
intends to exercise its renewal option. If Landlord fails to provide

Page 2
<PAGE> 3

this notice, the time period for Tenant's exercise of the option to extend the
term shall be extended for six (6) months from the date Landlord gives Tenant
such notice. If Tenant elects to exercise said option to renew, Tenant shall do
so by giving Landlord written notice prior to the end of the term or extended
term, as the case may be or within six (6) months of Landlord's notice to Tenant
of the expiration of the term or extended term of the Lease, whichever is later.
Tenant's written notice to Landlord exercising the option to renew shall be
sufficient to make this Lease binding for the renewal term without further act
of the parties.

2. BASE RENT

Tenant shall pay to Landlord each month, as base rent ("Base Rent") for
the Leased Premises, the following:

<TABLE>
<CAPTION>
LEASE YEARS AMOUNT PER MONTH
<S> <C>
1 through 5 $36,331.98
6 through 10 $39,982.90
11 through 15 $43,988.28
16 through 20 (Option Period 1) $48,383.56
21 through 25 (Option Period 2) $53,239.64
26 through 30 (Option Period 3) $58,556.52
31 through 35 (Option Period 4) $64,405.08
</TABLE>

The Base Rent shall be paid, in advance, on or before the first day of
each calendar month beginning on the Rent Commencement Date and on the first day
of each month thereafter during the term of this Lease. The Rent Commencement
Date shall be August 1, 1999 unless the Lease Commencement Date is postponed as
provided in Section 1.2 above, in which event the Rent Commencement Date shall
be the date on which Tenant opens for business. If Tenant postpones the Lease
Commencement Date because it would otherwise occur in November, December or
January, the Rent Commencement Date shall be the date Tenant opens for business
or February 1, whichever first occurs. If due to a postponement of the Lease
Commencement Date, Tenant opens for business on a day other than the first day
of the month, the Base Rent will be prorated for the month in which the opening
occurs on a 365 day basis and shall be due and payable on opening.
Notwithstanding the foregoing, in the event Tenant opens for business prior to
August 1, 1999, Tenant shall not commence paying rent until the Rent
Commencement Date.

Page 3
<PAGE> 4

3. PERCENTAGE RENT

3.1 GROSS SALES

Tenant agrees, within sixty (60) days after the end of each fiscal year
of Tenant (February 1 through January 31), commencing at the end of Tenant's
fiscal year beginning on February 1 of the year immediately following the Rent
Commencement Date, to determine and report to Landlord Tenant's gross sales from
its use or occupancy of the Leased Premises ("Gross Sales"). The term "Gross
Sales" shall exclude any sales to employees under company plans, transfers of
merchandise between G.I. Joe's stores, receipts from the sale of event tickets
(except that portion of such sales representing commissions or fees received by
Tenant or its affiliates), the amount of returns and refunds, discounts actually
made or given in the ordinary course of business, carrying charges included in
the selling price on conditional sales contracts, financing charges on credit
card sales where the financing charge is not collected at the Leased Premises,
and the amount of any sales tax or other excise tax imposed upon said sales and
charges if such sales tax, excise tax or similar tax is billed to the purchaser
as a separate item, but, except as excluded above, shall include, among other
things, all gross income, fees or commissions from any other operations in, at
or upon the Leased Premises, all deposits received by Tenant at the Leased
Premises and not refunded, all orders received at the Leased Premises by
telephone or mail due to catalog or other canvassing methods, and the selling
price of all goods, wares and merchandise sold, leased or licensed or services
rendered in, on or from the Leased Premises or Tenant's activities in the
Shopping Center, directly by Tenant or through its sublessees, licensees and
concessionaires. The percentage rent shall be equal to one and one-half percent
(1.5%) of Gross Sales less the Base Rent during each fiscal year of Tenant
occurring during the term of this Lease, including any renewal periods. Tenant
agrees to pay Landlord such percentage rent (if any is due), as additional rent,
May 1 of each lease year commencing at the end of the first fiscal year of
Tenant which starts after the Rent Commencement Date. Percentage rent for any
lease month occurring after the Rent Commencement Date but prior to the start of
Tenant's first fiscal year shall be prorated on the basis of, and paid at the
same time as, the percentage rent payable during such first fiscal year.
Furthermore, in the event the term of this Lease ends on a date other than the
ending date of Tenant's fiscal year, percentage rent for that fiscal year shall
be prorated on the basis of percentage rent paid by Tenant in the previous
fiscal year and shall be paid to Landlord within thirty (30) days of the end of
the term or extended term of this Lease.

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3.2 GROSS SALES RECORDS

For the purpose of ascertaining the amount of such Gross Sales for any
fiscal year as hereinabove provided Tenant and its sublessees, licensees and
concessionaires will keep accurate books of account that clearly and accurately
show all Gross Sales and maintain an accurate accounting system in such manner
that it can be checked and audited by a competent accountant for a period of
four (4) years. Landlord shall have reasonable access to such books, accounts,
records and reports of Tenant pertaining to its business conducted at said
location and the business of any of its sublessees, licensees and
concessionaires, and Tenant shall permit Landlord or agents of Landlord to
inspect the same at all reasonable times during normal business hours. Upon ten
(10) days' prior written notice to Tenant, Landlord may, once in any lease year,
during reasonable business hours, cause an audit of the business of Tenant
relating to sales from the Leased Premises during any of the preceding three (3)
years to be made by an independent certified public accountant selected by
Landlord and approved by Tenant, and if the statement of Gross Sales previously
made to Landlord for any of the previous three (3) years shall be found to be
understated or overstated, then and in that event there shall be an adjustment,
and one party shall pay to the other, on demand, such sums as may be necessary
to settle in full the accurate amount of said percentage rent that should have
been paid to Landlord for the period or periods covered by such statement or
statements. If said audit shall disclose an understatement of greater than three
percent (3%) of the amount of Gross Sales reported by Tenant for the period of
said audit, then Tenant shall immediately pay to Landlord the reasonable cost of
such audit; otherwise, the cost of such audit shall be paid by Landlord.

3.3 NO JOINT VENTURE

Landlord is not, by virtue of this Section 3, a partner or joint
venturer with Tenant in connection with the business carried on under this
Lease, and Landlord shall have no obligation with respect to Tenant's debts or
other liabilities, and no interest in Tenant's profits.

4. PAYMENT OF RENT

Except as expressly provided herein, all rental payments provided for
herein shall be made by check payable to Landlord in U.S. dollars, without
deduction or offset, and paid to Landlord as follows:

c/o Overlake Management Co.
1200 - 112th Avenue N.E., Suite C-185
Bellevue, WA 98004

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or other such place as Landlord may designate by written notice to Tenant.

5. TAXES

Tenant shall pay, as additional rent, before any fine, penalty, interest
or cost may be added thereto for the nonpayment thereof, all ad valorem taxes,
assessments, and other governmental levies and charges of any kind which are
assessed or imposed upon the Leased Premises, including both the land and
improvements thereon, or any part thereof, or which become payable during the
term of this Lease and any extensions hereof. In the event the Leased Premises
are not assessed and taxed separately from the Shopping Center, then Tenant
shall pay its pro rata share of such taxes and assessments of the Shopping
Center as provided in Section 31.3 hereof provided, however, Landlord shall use
its best efforts to segregate the Leased Premises as a separate tax parcel. In
the event that any assessments are levied, Landlord shall elect, if permitted to
do so, to pay the amount of such assessments in installments. In such event,
Tenant shall pay when due only the amount of such installments falling due
during the term of this Lease. All taxes and assessments that are assessed prior
to but payable in whole or in installments after the Lease Commencement Date and
all taxes and assessments that are assessed during the term but payable in whole
or in installments after the end of the term shall be adjusted and prorated so
that Landlord shall pay its prorated share for the periods prior and subsequent
to the term of this Lease, and Tenant shall pay its prorated share for the term
of this Lease.

6. USE

Tenant may use the Leased Premises for the primary purposes of the sale
of sporting goods, outdoor and active apparel, footware, after-market automobile
and truck parts, supplies and accessories, ticket sales and merchandise
incidental to the foregoing and for the secondary purpose of the sale of
unrelated merchandise, provided the sale area of such unrelated merchandise does
not exceed one thousand (1,000) square feet for each category of such
merchandise. Tenant shall use the Leased Premises for no other primary purpose
during the term of this Lease without the written consent of Landlord, which
consent shall not be unreasonably withheld or delayed. Except for the premises
presently leased to Rite-Aid Pharmacy, Landlord shall not permit any other
Tenant in the Shopping Center to use its premises for the sale of sporting goods
or automobile or truck parts, supplies and accessories unless the merchandise
occupies no more than ten percent (10%) of such tenant's sales area or two
thousand five hundred (2,500) square feet, whichever is less. Tenant's use shall
at all times comply with noncompete restrictions in leases of other Shopping
Center tenants which were recorded prior to October 30, 1998 and with that
certain

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Declaration of Restrictive Covenants between Landlord and Safeway Inc.,
dated ________________ and recorded under King County Recording No.
_____________________ (the "Safeway Covenant"). Tenant may conduct sidewalk and
parking lot sales and special promotions from time to time.

7. COMPLIANCE WITH LAWS

Tenant shall neither make nor knowingly permit any unlawful use of the
Leased Premises, or any portion thereof, which will, in any way, tend to create
a nuisance or to disturb any persons in the Shopping Center, or to unduly create
or cause a fire hazard, or to increase the fire insurance on the Leased
Premises, or to permit any nuisance which shall in any manner be a violation of
the statutes and laws of the United States, the State of Washington or the laws
and ordinances of any political subdivision thereof. Tenant covenants and agrees
to comply with all applicable rules, orders, notices and regulations of any
municipal, state or other authority respecting the Leased Premises.

8. WASTE

Tenant agrees to keep and maintain all of the Leased Premises in a clean
and sanitary condition and not to suffer or permit any strip or waste thereof.

9. UTILITIES

Tenant shall pay for all heat, light, power, water, sewage, garbage and
other services or utilities used by Tenant on the Leased Premises and shall pay
the charges therefor as the same become due. Landlord shall not be liable for
the quality, quantity, failure or interruption of any utility service to the
Leased Premises.

10. REPAIRS

Landlord shall maintain, repair and replace when necessary the roof
structure and roof drainage systems, floor slab, exterior walls, foundation and
structural members of the Building, the utility lines to the point of connection
to the Leased Premises and the sidewalk. Except for the foregoing and repairs
due to damage by fire or other insured peril or condemnation, Landlord shall not
be required to make any repairs, alterations, or improvements to or upon the
Leased Premises during the term of this Lease. Except for repairs to be made by
Landlord, Tenant shall maintain the roof membrane, floor covering, ceiling,
Building lighting, interior finish, doors, windows, plumbing fixtures, sprinkler
systems and alarms, plumbing, electrical and utility services from the point of
connection at the Leased Premises, heating and cooling systems and other
equipment or appliances used for the exclusive benefit of

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Tenant, in good order and repair during the term of this Lease at Tenant's own
cost and expense, reasonable wear and tear, fire and other causes beyond
Tenant's reasonable control excepted. If either party refuses or neglects to
make repairs as required as soon as reasonably possible after written notice
describing the proposed repairs and the estimated cost thereof, the other party,
at its option, may make such repairs, and, upon completion of the repairs and
presentation of a bill therefor, the cost of such repairs shall be deemed
additional rent if paid by Landlord, or deducted from rent if paid by Tenant.

11. INSPECTIONS

Tenant agrees to permit Landlord and Landlord's agents to enter upon the
Leased Premises or any part thereof at all reasonable times during normal
business hours upon reasonable advance notice to Tenant and for any reasonable
purpose, including examining the condition of the Leased Premises and making
repairs which Landlord is either required or may desire to make to the Leased
Premises, provided that such entry does not unreasonably interfere with Tenant's
use and enjoyment of the Leased Premises.

12. ALTERATIONS

Except as provided in Section 29.1 hereof, Tenant may make alterations
to the interior of the Leased Premises without Landlord's consent. Tenant shall
make no structural alterations to the Leased Premises without the prior written
consent of Landlord, which consent shall not be unreasonably withheld or
delayed. All trade fixtures and other fixtures not referred to above, and all
machinery, equipment and/or other items of personal property placed in or upon
the Leased Premises by Tenant and paid for by Tenant may be removed by Tenant at
any time. All other improvements made to the Leased Premises during the term of
this Lease shall become the property of Landlord and surrendered with the Leased
Premises at the expiration or earlier termination of this Lease.

13. MECHANICS' LIENS

Tenant shall not suffer or permit any mechanic's lien to be filed
against the fee of the Leased Premises or against Tenant's leasehold interest in
said premises by reason of work, labor, services or materials supplied or
claimed to have been supplied to Tenant or anyone holding the Leased Premises or
any part thereof through or under Tenant, and nothing contained in this Lease
shall be deemed or construed in any way as constituting the consent or request
of Landlord, express or implied, by inference or otherwise, to any contractor,
subcontractor, laborer or materialman for the

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performance of any labor or the furnishing of any materials for any specific
improvement, alteration or repair of or to the Leased Premises or any part
thereof, or as giving Tenant any right, power or authority to contract for or
permit the rendering of any services or the furnishing of any materials that
would give rise to the filing of any mechanic's lien against the fee of the
Leased Premises. If any such mechanic's lien shall at any time be filed against
the Leased Premises, Tenant shall cause the same to be discharged of record or
"bonded over" in a manner reasonably satisfactory to Landlord within ninety (90)
days after the date of filing the same.

14. INSURANCE

14.1 LANDLORD'S POLICIES

Landlord shall, at all times during the term of this Lease, maintain
with insurers authorized to issue insurance in the State of Washington, the
following policies of insurance in effect with respect to the Leased Premises
and the Shopping Center:

14.1.1 PROPERTY

Fire, lightning, hail, windstorm and such other normally insured perils
included under a policy of property/casualty insurance, with endorsements for
earthquake, earth movement and flood if in a flood hazard zone, in the amount of
one hundred percent (100%) of the full replacement cost of the Building (except
for Tenant's improvements) with a so-called "agreed value" endorsement, naming
Tenant, Landlord and any mortgagee or beneficiary under any first mortgage or
first deed of trust, as additional insureds or loss payees, as their interests
may appear.

14.1.2 LIABILITY

Comprehensive general liability insurance, of no less than Five Million
Dollars ($5,000,000) combined single-limit coverage, naming Tenant as an
additional insured thereunder. The limits of such policy shall be reviewed each
five (5) years and increased as commercially reasonable, but no less than
increases in the Consumer Price Index.

14.2 TENANT'S POLICIES

Tenant shall at all times during the term of this Lease maintain, with
insurers authorized to issue insurance in the State of Washington, comprehensive
general liability insurance of no less than Five Million Dollars ($5,000,000)
combined single-limit coverage for the Leased Premises, naming Landlord as an
additional insured. The limits of such policy shall be reviewed each five (5)
years and increased as

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commercially reasonable, but no less than increases in the Consumer Price Index.
Tenant shall be responsible for insuring or self-insuring its improvements to
the Leased Premises and its inventory and equipment. Landlord shall have no
liability for damage to Tenant's improvements to the Leased Premises or Tenant's
inventory or equipment from fire, lighting, hail, windstorm and such other
perils insured or normally insurable under a policy of property/casualty
insurance, including earthquake and earth movement, flood and sprinkler damage.

14.3 WAIVER OF SUBROGATION/CERTIFICATES

All such policies, to the extent obtainable, shall provide for waiver of
subrogation against Landlord and Tenant and shall contain an agreement by the
insurers that such policies shall not be canceled without at least thirty (30)
days' prior written notice to Landlord and Tenant and to any such mortgagee or
beneficiary named as a loss payee or an additional insured thereunder. The
original of such policy or policies shall remain in possession of the primary
insured; provided, however, that the additional insured shall have the right to
receive a certificate evidencing such insurance or, upon written demand, a
duplicate policy or policies of any such insurance.

15. DAMAGE OR DESTRUCTION

15.1 PARTIAL DAMAGE

If the Leased Premises are partially damaged by fire or other peril
against which Tenant is insured and are rendered partially untenantable thereby,
but such damage does not unreasonably impair Tenant's use or occupancy of the
Leased Premises, then Landlord shall, at Landlord's own expense, using any
proceeds of insurance payable on account of such loss, promptly cause the damage
to be repaired, and the rent shall be abated in proportion to the portion of the
Premises rendered unusable for Tenant's business.

15.2 TOTAL DESTRUCTION

If the Leased Premises are destroyed or damaged by fire or other peril
and are rendered wholly untenantable thereby, or such damage unreasonably
impairs Tenant's use or occupancy thereof, Landlord shall, as promptly as
possible after the occurrence of such damages or destruction, repair or replace
the damaged improvements so as to be in the same condition as before such damage
and destruction, to the extent of available proceeds of insurance. If the damage
and destruction occurs within the last five years of the initial or any option
term, or if the available proceeds are insufficient

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to enable Landlord to repair or replace the damaged improvements to the
condition existing prior to such damage or destruction and Landlord elects not
to contribute its own funds for the completion of the repairs, then Tenant may,
at its option, terminate this Lease. Rent and other sums payable by Tenant under
this Lease shall be totally abated from the date of destruction until Landlord
completes such repairs and Tenant reopens for business.

15.3 TENANT'S IMPROVEMENTS

Tenant shall be responsible for repair or replacement of its
improvements in the event of partial destruction under Section 15.1 above or in
the event Landlord makes the repairs or replacements pursuant to Section 15.2
above, unless Tenant terminates this Lease as therein provided.

16. CONDEMNATION

16.1 COMPLETE TAKING

If a condemning authority takes all the Leased Premises, or a portion
thereof sufficient to render the remaining premises reasonably unsuitable for
the use which Tenant was making of the Leased Premises prior to such taking,
then this Lease shall terminate as of the date title vests in the condemning
authority, and the proceeds from the condemnation shall be apportioned between
Landlord and Tenant in proportion to Landlord's unamortized investment in the
Building and Tenant's unamortized investment in Tenant's improvements to the
Leased Premises.

16.2 PARTIAL TAKING

If a portion of the Leased Premises is taken and the remaining premises
are reasonably suitable for the use Tenant was making of the Leased Premises
prior to such taking, then this Lease shall continue, and the value of all of
Tenant's improvements to the Leased Premises plus that portion of the proceeds
of condemnation reasonably required to make the premises suitable for Tenant's
continued use in a condition as comparable as reasonably practicable to that
existing at the time of condemnation shall be allocated to Tenant and applied by
Tenant for such purpose. All the balance of the award shall be allocated to
Landlord. Rent shall be abated to the extent the Leased Premises are
untenantable during the period of alteration and repair. As of the date title
vests in the condemning authority, the Base Rent due hereunder shall be reduced
commensurately with the amount of the award allocated to Landlord.

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16.3 COMMON AREAS

In the event any of the Common Areas are taken such that parking for the
Leased Premises, or access or visibility to or from the Leased Premises to a
publicly dedicated street or highway, is materially impaired, then if such
taking (a) renders the Leased Premises reasonably unsuitable for the use which
Tenant was making thereof prior to such taking, then such taking shall be deemed
a complete taking, as described in Section 16.1 hereof, and administered in
accordance with the provisions thereof or (b) leaves the Leased Premises
reasonably suitable for the use which Tenant was making thereof prior to such
taking, then such taking shall be deemed a partial taking and any award payable
thereby shall be paid to Landlord, and Landlord shall be obligated to restore
the balance of the Common Areas to the same condition and utility, as reasonably
practicable, as existed immediately prior to such taking.

16.4 SALE IN LIEU OF CONDEMNATION

For purposes of this Lease, a taking by a condemning authority shall
include any purchase or other acquisition in lieu of condemnation.

17. INDEMNIFICATION OF LANDLORD

Tenant shall indemnify, defend and hold Landlord harmless from liability
and claims for damages by reason of any injury to any person or persons,
including Tenant, or property, upon or in any way connected with the Leased
Premises during the term of this Lease, any renewal hereof or any occupancy
hereunder, except for the negligence or willful misconduct of Landlord or its
employees or agents. Tenant shall have the right, in the name of Landlord, to
contest the validity of any and all such claims, of any kind or character and by
whomsoever claimed, and, at Tenant's expense, to defend, settle and/or
compromise any and all such claims.

18. QUIET ENJOYMENT

Provided that Tenant keeps, observes and performs all the covenants,
agreements, conditions and provisions herein to be kept, observed or performed
by Tenant, Landlord covenants and warrants that Tenant shall, at all times
during the term and extended term hereof, have the peaceable, quiet and
exclusive enjoyment of the Leased Premises, to have and hold the same during the
term and extended term hereof.

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19. SUBORDINATION, NONDISTURBANCE AND ATTORNMENT

Upon written request or notice by Landlord or any first mortgagee or
beneficiary under a first deed of trust of Landlord encumbering the Shopping
Center, the Leased Premises or the Common Areas, Tenant agrees to subordinate
its rights under this Lease to the lien of any such first mortgage or deed of
trust, and to any and all advances to be made thereunder, and to the interest
thereon, and all renewals, replacements and extensions thereof, provided the
mortgagee or beneficiary named in said mortgage or deed of trust shall agree to
recognize this Lease of Tenant and shall further agree not to disturb this Lease
or any rights of Tenant hereunder in the event of foreclosure or Trustee's sale,
if Tenant is not in default hereunder. Tenant also agrees that any such first
mortgagee or beneficiary may elect to have this Lease made prior to the lien of
its mortgage or deed of trust, and in the event of such election and upon
notification by such mortgagee or beneficiary to Tenant to that effect, this
Lease shall be deemed prior in lien to the said mortgage or deed of trust,
whether this Lease is dated prior to or subsequent to the date of said mortgage
or deed of trust. Tenant agrees that, upon the request of Landlord or any
mortgagee or any beneficiary named in such mortgage or deed of trust, Tenant
will execute and deliver an instrument confirming such purposes. Tenant, in the
event of the sale or assignment of Landlord's interest in the Shopping Center or
in the event of any proceedings brought for the foreclosure of such mortgage or
deed of trust, or in the event of the exercise of the power of sale under any
such deed of trust, shall attorn to and recognize such purchaser, mortgagee or
beneficiary as Landlord under this Lease. Landlord shall obtain nondisturbance
and attornment agreements in which the holders of all existing mortgages and
deeds of trust on the Leased Premises agree not to disturb this Lease or any
rights of Tenant hereunder in the event of foreclosure or Trustee's sale, if
Tenant is not in default hereunder.

20. DEFAULTS

20.1 DEFAULTS DEFINED

The following events shall be deemed to be events of default by Tenant
under this Lease:

(a) If Tenant shall fail to pay any installments of rent, or any
other charge designated herein to be paid as rent, on the date that same is due,
and such failure shall continue for a period of ten (10) days after Landlord
gives Tenant written notice thereof.

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(b) If Tenant shall fail to comply with any term, condition or
covenant of this Lease, other than the payment of rent, and shall not cure such
failure within thirty (30) days after written notice thereof to Tenant; or if
such failure cannot reasonably be cured within the said thirty (30) days, Tenant
shall not have commenced to cure such failure within thirty (30) days after
written notice thereof by Landlord to Tenant and Tenant shall not with
reasonable diligence and good faith proceed in the curing of such failure.

(c) If Tenant shall become insolvent or shall make an assignment
for the benefit of creditors, or if Tenant files a petition under any chapter of
the U.S. Bankruptcy Code seeking to be adjudicated a bankrupt, or if any other
party files a petition under any section of the U.S. Bankruptcy Code seeking to
have Tenant adjudicated a bankrupt and Tenant fails to have such petition
dismissed within ninety (90) days of filing, or if a receiver or beneficiary
shall be appointed for all or substantially all the assets of Tenant.

20.2 REMEDIES

Upon the occurrence of any of the foregoing events of default, Landlord
shall, without any notice or demand whatsoever, have the option to:

(a) Without terminating this Lease, enter upon and take
possession of the Leased Premises and expel or remove Tenant and any other
person who may be occupying said premises or any part thereof, and attempt to
relet the premises and receive rent therefor; and Tenant agrees to pay to
Landlord, on demand, any deficiency that may arise by reason of such reletting,
and all other loss or damage which Landlord may suffer, including, without
limitation, reasonable alterations to the Leased Premises, reasonable brokerage
and marketing expenses, reasonable attorneys' fees and any concessions granted a
new tenant of the Leased Premises.

(b) Terminate this Lease and enter upon and take possession of
the Leased Premises and expel or remove Tenant and any other person who may be
occupying said premises or any part thereof, and demand and receive from Tenant,
in lump sum, damages in the amount by which the rent provided for herein for the
entire remainder of the term discounted to its present cash value at the time of
such reentry exceeds the fair rental value of the Leased Premises for the
remainder of the term as of the time of said reentry discounted to its present
cash value, plus any and all other loss or damage which Landlord may suffer,
including, without limitation, reasonable alterations to the Leased Premises,
brokerage and marketing expenses, reasonable attorneys' fees and any concessions
granted a new tenant of the Leased Premises.

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(c) Enter upon the Leased Premises and do whatever Tenant is
obligated to do under the terms of this Lease, and Tenant agrees to reimburse
Landlord, on demand, for expenses which Landlord may incur in thus effecting
compliance with Tenant's obligations under this Lease, and Tenant further agrees
that Landlord shall not be liable for any damage resulting to Tenant from such
action caused by Landlord, except for damage caused by Landlord's gross
negligence or willful misconduct.

20.3 REMEDIES CUMULATIVE

Landlord may pursue any of the foregoing remedies singly or cumulatively
and in addition any other remedies provided by law; pursuit of any remedy herein
provided shall not constitute a forfeiture or waiver of any rent due to Landlord
hereunder or of any damages accruing to Landlord by reason of the violation of
any of the terms, conditions and covenants herein contained; no termination or
cancellation shall include a cancellation of Tenant's obligations hereunder for
any deficiency or damage upon reletting subsequent to said termination or
cancellation, such obligations being independent and such covenants surviving
said termination or cancellation.

21. SURRENDER

Upon the expiration of the term of this Lease or any sooner termination
hereof, Tenant covenants and agrees that Tenant shall, without notice, promptly
and peaceably surrender possession of the Leased Premises to Landlord, broom
clean, in as good a condition as at the time of Tenant's entry thereon,
reasonable wear and tear, and damage from causes beyond Tenant's reasonable
control excepted.

22. HOLDOVER

If Tenant shall hold over and remain in possession of the Leased
Premises after the expiration of the term or extended term herein granted,
Tenant shall remain bound by all the terms, covenants and agreements hereof,
except that such holding over shall be construed to be a tenancy from month to
month which may be terminated at any time by Landlord or Tenant upon thirty (30)
days' written notice.

23. WAIVER

Any waiver of any breach of covenants herein contained to be kept and
performed hereunder shall not be deemed or considered as a continuing waiver and
shall not operate to bar or prevent Landlord or Tenant from declaring a default
for any succeeding breach, either of the same condition or covenant or
otherwise. The acceptance of rent by Landlord hereunder shall never be construed
to be a waiver of

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any term of this Lease. No payment by Tenant or receipt by Landlord of a lesser
amount than shall be due according to the terms of this Lease shall be deemed or
construed to be other than on account of the earliest rent due.

24. NOTICES

All notices required or permitted to be given hereunder shall be in
writing and shall be deemed given when received in the event of personal service
or by facsimile or three (3) days after deposit in the U.S. mail, postage
prepaid, certified or registered, return receipt requested and addressed as
follows:

If to Landlord: Issaquah Associates
c/o Overlake Management Co.
1200 - 112th Avenue N.E., Suite C-185
Bellevue, WA 98004
Facsimile No. (425) 646-9775

If to Tenant: G.I. Joe's, Inc.
9805 Boeckman Road
Wilsonville, Oregon 97070
Attn.: Norm Daniels, President
Facsimile No. (503) 682-7200

with a copy to: Martin Peterson & Associates
110 Cherry Street, Suite 200
Seattle, Washington 98108
Attn.: Martin L. Peterson
Facsimile No. (206) 628-0400

with a copy to: Edward W. Kuhrau
Perkins Coie
1201 Third Avenue, 40th Floor
Seattle, Washington 98101-3099
Facsimile No. (206) 583-8500

The foregoing addresses may be changed by written notice given in accordance
with the terms of this Section 24.

25. ATTORNEYS' FEES

In the event any action or suit or proceeding is brought to collect the
rent due or to become due hereunder, or any portion thereof, or any other
monetary obligation

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hereunder, or to obtain possession of the Leased Premises, or to enforce
compliance with this Lease, or for failure to observe any of the covenants of
this Lease, the prevailing party in such suit, action or proceeding may recover
from the other party herein such sum or sums as the trial and/or appellate court
may adjudge reasonable as attorneys' fees to be allowed in said suit, action or
proceeding, or appeal therefrom, in addition to their costs and disbursements,
excepting, however, attorneys' fees and costs in connection with any arbitration
provided for in this Lease.

26. MODIFICATION

The terms and conditions of this Lease shall be incapable of
modification, change or amendment, except in writing and bearing the separate
signatures in execution thereof by the parties hereto or their successors in
interest.

27. RECORDATION/SUPPLEMENT

This Lease shall not be recorded except by agreement of both parties,
but, upon request by either party, the parties shall execute a short form of
this Lease, in form suitable for recording, which shall contain the description
of the Leased Premises, the provisions relating to the term of this Lease,
including all renewals hereof, and a reference to this Lease. Landlord and
Tenant shall execute a supplement to this Lease setting forth the Lease
Commencement Date and the Rent Commencement Date.

28. BINDING EFFECT

This Lease shall be binding upon the parties hereto, their legal
representatives, heirs and successors and, as far as this Lease is assignable by
the terms hereof, the assigns of such parties. The words "Landlord" and
"Tenant," wherever used in this Lease, shall apply equally and be binding
jointly and severally upon all Landlords and Tenants, whether one or more, and,
together with the accompanying verbs and pronouns, shall apply to all persons,
firms or corporations who may be or become parties as Landlords or Tenants
hereto.

29. TENANT'S IMPROVEMENTS

29.1 PLANS AND SPECIFICATIONS

Landlord shall use best efforts and due diligence to deliver possession
of the Leased Premises to Tenant on or before January 1, 1999 so that Tenant may
construct its improvements and remodel. Tenant shall have a licensed architect
prepare plans and specifications for remodeling the Building and constructing
Tenant's improvements therein. The plans and specifications, once complete,
shall be

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delivered to Landlord for review. Landlord shall, upon receipt thereof, promptly
review and comment upon the same to Tenant. Tenant shall cooperate with Landlord
and incorporate Landlord's reasonable comments into the final plans and
specifications (the "Plans and Specs"), which shall be completed by March 1,
1999. In the event Landlord and Tenant cannot agree on the Plans and Specs by
such date, then Tenant may terminate this Lease.

29.2 SIGNS

Tenant shall design, construct and install, at its own cost and in
compliance with all laws, exterior signage for the identification of its
business. Tenant shall have the right to place its sign on the existing Shopping
Center pylons in the space formerly occupied by the sign for Safeway and on
future pylon signs on the same basis as other tenants in the Shopping Center.

29.3 CONSTRUCTION OF TENANT'S IMPROVEMENTS

Upon approval of the Plans and Specs, Tenant shall apply for a building
permit and, upon issuance thereof, shall commence and complete construction, at
its own expense, of Tenant's improvements of the Building, substantially in
accordance with the Plans and Specs. Said construction will be prosecuted with
due diligence and Tenant will use due diligence and reasonable efforts to stock
the Leased Premises and open for business by a date not later than the Lease
Commencement Date.

30. HAZARDOUS SUBSTANCES

30.1 LANDLORD'S REPRESENTATION

Landlord represents and warrants to Tenant that hazardous substances
have not been stored or disposed of on or in the Leased Premises or the Shopping
Center. Furthermore, Landlord covenants with Tenant that it shall not generate,
store or discharge any hazardous substances in the Shopping Center, nor (by
lease or by contract which Landlord shall enforce) permit the same by any third
party.

30.2 TENANT'S COVENANTS

Tenant covenants with Landlord that hazardous substances shall not be
unlawfully generated or disposed of in the Building or on the Leased Premises by
Tenant, nor shall the same be unlawfully transported to or over the Building or
the Leased Premises by Tenant. Tenant also covenants that any hazardous
substances sold by Tenant in lawful containers or used by Tenant in connection
with its business, such as cleaning agents and the like, shall be used and
stored only in accordance with

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applicable laws and regulations. Landlord has the right, from time to time,
during normal business hours upon advance notice, to enter the Leased Premises
at reasonable times to conduct tests so as to monitor Tenant's compliance with
the foregoing covenants.

30.3 DEFINITION

"Hazardous substances" shall be interpreted broadly to mean any
substance, waste or material defined or designated as hazardous or toxic waste,
hazardous or toxic material, hazardous, toxic or radioactive substance or other
similar term by any federal, state or local environmental law, regulation or
rule presently in effect or promulgated in the future, as such laws, regulations
or rules may be amended from time to time, and it shall be interpreted to
include, but not be limited to, asbestos.

30.4 VIOLATIONS

In the event of any violation of law by Tenant in regard to hazardous
substances and failure of Tenant to promptly cure the same after reasonable
notice from Landlord, Landlord, in addition to all other remedies provided
herein, shall have the right to cure the violation and add all costs and
expenses associated with such cure (including reasonable attorneys' fees) as
additional rent, which additional rent will be due and payable by Tenant
immediately after Tenant receives notice thereof. Furthermore, in the event of
an illegal and substantial release of hazardous substances, Tenant shall
immediately notify Landlord.

30.5 MUTUAL INDEMNIFICATION

Landlord and Tenant shall indemnify, defend and hold harmless the other
from any breach of these representations, warranties or covenants for any
claims, judgments, damages, penalties, fines, costs (including cleanup costs,
environmental consultant's fees and reasonable attorneys' fees), liabilities or
losses (including, without limitation, the diminution in the value of the Leased
Premises, damages for the loss or restriction on the use, marketability or any
other amenity of the Building or the Leased Premises) which arise during or
after the term of this Lease as a result of release, discharge or contamination
of the Leased Premises by any hazardous substances.

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31. COMMON AREAS

31.1 DEFINED

For purposes of this Lease, "Common Areas" shall mean all areas of the
Shopping Center outside the exterior walls of the buildings located thereon
which are not reserved for the exclusive use of Landlord, Tenant or any other
tenant or occupant of the Shopping Center. Common Areas shall include automobile
parking areas, access roads, driveways, sidewalks, pedestrian walkways and
stairways, landscaped areas and utility lines and systems. Common Areas shall
not include the interior space of any building located in the Shopping Center or
any area immediately appurtenant to such building which is reserved for the
exclusive use of such building, such as loading docks.

31.2 LANDLORD'S OBLIGATIONS

Landlord shall, at all times during the term of this Lease, keep the
Common Areas in good maintenance and repair, and shall

(a) maintain suitable means of illumination sufficient to
illuminate the parking areas during all twilight and night hours that Tenant's
store is open for business and is in operation;

(b) maintain and keep the parking areas, driveways, sidewalks and
access roads in good condition and repair, with a hard surface pavement and
properly striped;

(c) clean and remove debris and, where reasonably practicable,
ice and snow from the parking areas, driveways and access roads;

(d) clean and maintain sidewalks and other pedestrian walkways
and stairways and remove debris and, where reasonably practicable, ice and snow
therefrom; provided, however, that Tenant shall keep the sidewalk immediately in
front of the Leased Premises clean and free from debris, ice and snow;

(e) maintain and keep in good condition all landscaping and
irrigation systems;

(f) maintain all pylon signs;

(g) keep the exterior of all buildings in the Shopping Center in
good repair and paint as necessary;

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(h) maintain all other portions of the Common Areas in good order
and repair; and

(i) obtain and maintain insurance insuring both Landlord and
Tenant as herein provided.

31.3 TENANT'S PRO RATA SHARE

(a) Beginning on the Rent Commencement Date, Tenant shall pay to
Landlord, in the manner provided below, Tenant's pro rata share of Landlord's
actual costs of maintaining and operating the Common Areas during the term of
the Lease. "Actual costs of maintaining and operating the Common Areas" shall be
limited only to items of expense, and not capitalized, as determined under
generally accepted accounting principles and shall include, but not be limited
to, the following: all necessary amounts paid by Landlord as actual costs for
maintaining and repairing the Common Areas, including, without limitation,
cleaning; snow and ice removal; costs and expenses of planting, replanting and
replacing flowers, shrubs and landscaping; water and sewage charges for the
Common Areas; maintenance, repair and replacement of lights, light standards,
utility systems, electricity, drainage systems and other utility charges;
repair, maintenance and upkeep of the parking areas, driveways, access roads,
sidewalks and pedestrian walkways, including the costs of paving, repaving,
surfacing, resurfacing, striping and restriping the same; operation and
maintenance of signs for the Shopping Center or rental for such signs if leased;
installation, replacement, repair and maintenance of traffic control and
directional signs and devices; premiums for insurance as herein provided;
existing and future real property taxes and assessments (in the event such
assessments are assessed, Landlord shall elect, if permitted to do so, to pay
the amount of such assessments in installments, and, thereafter, only the amount
of the installment paid shall be included in the actual costs of maintaining and
operating the Common Areas); personal property taxes on equipment and materials
used to maintain the Common Areas; and policing the Common Areas, including
controlling trespassing, picketing, demonstrations, assemblies, vandalism and
thefts and affording security and fire protection therefor. "Actual costs of
maintaining and operating the Common Areas" shall also include an administrative
fee of ten percent (10%) of the above-described costs; provided, that, in
computing said administrative fee, all capital items and all replacement items
in excess of Ten Thousand Dollars ($10,000) per annum, real estate taxes and
assessments and insurance premiums shall be excluded. Items of expense shall not
include management fees, depreciation, reserves for replacement or items of
capital improvements exceeding Ten Thousand Dollars ($10,000) per annum without
Tenant's prior written consent. Landlord agrees to expend only the monies
reasonably necessary for such operation and maintenance in order to keep the

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Common Areas in good repair and clean condition and to operate the same on a
nonprofit basis. Costs attributable to a contract between Landlord and an
affiliated party shall not be included, unless that contract is previously
approved in writing by Tenant.

(b) Tenant's pro rata share of the necessary actual costs of
maintaining and operating the Common Areas limited as provided above shall be a
percentage computed by dividing the interior floor area of the Leased Premises,
which is hereby agreed to be forty-two thousand five hundred thirty-five
(42,535) square feet at the Lease Commencement Date, by the total floor area of
all buildings in the Shopping Center. At the Lease Commencement Date, Tenant's
pro rata share is as follows: 25.7% of the actual costs of maintaining and
operating the Common Areas as described in Section 31.1, except real estate
taxes and assessments and insurance premiums; 25.7% of real estate taxes and
assessments and casualty/property insurance premiums including earthquake
coverage; and 25.7% of liability insurance premiums. If Tenant approves a change
in the Site Plan which increases or decreases the floor area of the Building
relative to the aggregate floor area of the other buildings to be constructed in
the Shopping Center, then Tenant's pro rata share shall be adjusted accordingly.

(c) The annual charge to Tenant shall be paid in monthly
installments, in advance, at the time of the Base Rent payment, in an amount
reasonably estimated by Landlord. On or before April 1 of each calendar year
(and within ninety (90) days after the termination of this Lease), Landlord
shall furnish Tenant with a statement in reasonable detail of the actual costs
of maintaining and operating the Common Areas actually paid or incurred by
Landlord during such period, and, thereupon, there shall be an adjustment
between Landlord and Tenant, with payment to or repayment by Landlord, as
required, so that Landlord shall receive the entire amount of Tenant's pro rata
share of such costs for such period.

31.4 AUDIT OF COMMON AREA EXPENSES

Tenant shall have the right at all reasonable times to examine the books
and records of Landlord relating to the Common Areas expense or to audit the
same. In the event an audit or review should show an error in the Common Areas
expense or the allocation thereof to Tenant exceeding (3%) in any calendar year,
Landlord shall reimburse Tenant the cost of such audit or review.

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31.5 RULES AND REGULATIONS

The Common Areas will be maintained for the common use of all lessees
and sublessees of Landlord, their customers, visitors, employees, business
invitees and licensees and persons dealing with lessees, sublessees and
Landlord. Neither Tenant nor Landlord shall do any act to unreasonably prevent
or obstruct such common use and free ingress to and egress from the Common
Areas; provided, however, that Landlord may make such rules and regulations
governing the use of the Common Areas as may be reasonably necessary to regulate
the use of such Common Areas, and may restrict the use of or access to any
portion of the Common Areas when such restriction is necessary or advisable for
purposes of security or safety, or for the construction, reconstruction, repair,
maintenance or preservation of the Common Areas or any buildings located in the
Shopping Center. Notwithstanding anything to the contrary herein contained,
Tenant shall have the right to use the sidewalk in front of the Building and/or
certain portions of the parking areas, from time to time, for sidewalk sales,
parking lot sales, special events, or product demonstrations.

32. COVENANT OF ACCESS AND VIEW

Landlord covenants that the Leased Premises shall not be denied access
to, or have the view unreasonably obstructed from, any publicly dedicated street
or highway adjoining the Shopping Center, except as shown on the Site Plan.

33. ASSIGNMENT AND SUBLETTING

Tenant may, without the prior written consent of Landlord, license any
concession or sublet any portion at the Leased Premises not exceeding two
thousand five hundred (2,500) square feet to any single concessionaire or
subtenant, so long as the primary use of the Leased Premises is not changed and
so long as such concessionaire or subtenant agrees to observe the Safeway
Covenant. Tenant may also assign all of its interest under this Lease, or sublet
all or any portion of the Leased Premises, if the proposed assignee or sublessee
has a net worth greater than or equal to Tenant on the date hereof and the use
of the Leased Premises by the proposed assignee or sublessee shall be for a
primary purpose or purposes then permitted under this Lease. Tenant may, in all
other cases, assign all of its interest under this Lease, or sublet all or any
part of the Leased Premises, only with the prior written consent of Landlord,
which consent shall not be unreasonably withheld or delayed.

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34. ZONING; PERMITTED USES

Landlord hereby represents and warrants to Tenant that the use of the
Leased Premises as a G.I. Joe's store does not breach any protective covenants,
agreements or exclusivity rights granted by Landlord to other tenants in the
Shopping Center or binding upon the Leased Premises, which were not recorded as
of October 30, 1998.

35. STRUCTURE

Landlord represents and warrants to Tenant that the structural elements
of the Building, including the roof and floor slab, are in good condition and
repair, ready for construction of Tenant's improvements, except as disclosed in
writing to Tenant prior to execution of this Lease.

36. ASSESSMENTS

Landlord represents and warrants to Tenant that it has no actual
knowledge of any pending tax assessments or formation of special taxing
districts affecting the Shopping Center.

37. BROKERAGE

Landlord and Tenant agree that neither has dealt with any broker other
than Martin Peterson & Associates with respect to the negotiation or execution
of this Lease. Landlord covenants and agrees to pay to Martin Peterson &
Associates One Hundred Six Thousand Three Hundred Twenty Seven and 50/100
Dollars ($106,327.50) commission, one half to be paid upon receipt of an invoice
following the execution of this Lease and the balance to be paid upon receipt of
an invoice following Tenant opening for business. Furthermore, Landlord shall
indemnify, defend and hold harmless Tenant from and against any loss, damage,
claim, cost or expense which Tenant may incur as the result of a failure by
Landlord to pay such brokerage commissions.

38. ESTOPPELS

Landlord or Tenant shall, at any time and from time to time, upon not
less than ten (10) business days' prior written notice from the other, execute,
acknowledge and deliver to Landlord or Tenant, as the case may be, a statement
in writing (a) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease as so modified is in full force and effect) and the date to
which the rental and other charges are paid in advance, if any; (b)
acknowledging that, to Landlord's or Tenant's knowledge, there

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are no uncured defaults on the part of Landlord or Tenant, as the case may be,
or specifying such defaults if any are claimed; and (c) setting forth the date
of commencement of rents and expiration of the term hereof. Any such statement
may be relied upon by the prospective purchaser or encumbrancer of all or any
part of the Shopping Center.

39. SURVEY

Landlord promptly shall furnish to Tenant a copy of Landlord's as-built
survey of the Leased Premises.

40. CONFIGURATION OF SHOPPING CENTER

Landlord shall at all times, and from time to time, have the right and
privilege of making changes to the configuration of the Shopping Center,
including the size and location of building pads, Common Areas and parking
areas, the location and relocation of driveways, entrances, exits and parking
spaces, the direction and flow of traffic, the installation of prohibited areas,
landscaped areas, and all other facilities thereof, so long as no such
reconfiguration (a) materially impairs access to or from, or visibility of the
Leased Premises from, any publicly dedicated street or highway, (b) materially
reduces the amount or location of parking available for the Leased Premises, or
(c) materially increases Tenant's pro rata share of the actual costs of
maintaining and operating the Common Areas.

41. ARBITRATION

All disputes between Landlord and Tenant under this Lease, other than
nonpayment of rent, shall be arbitrated and decided by a single arbitrator
mutually agreed to by the parties under such terms as the parties may agree
upon. If the parties cannot agree upon an arbitrator or the terms of
arbitration, either party may apply to the American Arbitration Association for
appointment of a qualified, disinterested arbitrator and the arbitration will be
conducted pursuant to the commercial rules of the American Arbitration
Association. All costs of the arbitrator shall be shared equally by Landlord and
Tenant.

42. OPERATING COVENANT

Tenant covenants that it will not cease operation in the Leased Premises
for any period exceeding sixty (60) days in any one-year period, excluding
periods in which operations are discontinued for remodeling or repair following
damage from casualty loss or loss of utilities, parking or access to the
Shopping Center or Leased Premises. In the event one or more tenants comprising
a combined total of sixty

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thousand (60,000) square feet or more of gross floor area in the Shopping Center
cease operating, then Tenant shall have the right to cease operating until such
tenant or tenants reopen for business.

43. TITLE INSURANCE

Landlord shall obtain the issuance of a leasehold policy of title
insurance issued by First American Title Insurance Company subject only to the
exceptions set forth in its preliminary commitment No. 394081-5K dated October
30, 1998 and such other exceptions as Tenant may approve, except, however,
Landlord shall cause the Lease to Safeway Stores, Incorporated to be deleted as
an exception. Tenant shall pay the premium on the title policy.

44. EFFECTIVE DATE

Notwithstanding the references herein to the Lease Commencement Date and
the Rent Commencement Date, this Lease shall not become binding upon Landlord
and Tenant until Landlord and Safeway Inc. enter into an agreement terminating
Safeway's lease of the Leased Property and Landlord delivers possession of the
Leased Premises to Tenant; provided, however, if Landlord and Safeway Inc. fail
to

enter into an agreement terminating Safeway Inc.'s tenancy by midnight December
31, 1998, this Lease shall, at Tenant's option, become null and void.

IN WITNESS WHEREOF, the parties have executed this instrument as of the
date first above written.

LANDLORD: TENANT:

ISSAQUAH ASSOCIATES, G.I. JOE'S, INC., an Oregon
a Washington limited partnership corporation

By ________________________________
By _______________________________ Norman Daniels
John Y. Sato President
General Partner

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STATE OF WASHINGTON )
) ss.
COUNTY OF KING )

On this _____ day of _________________, 1998, before me, the
undersigned, a Notary Public in and for the State of Washington, duly
commissioned and sworn, personally appeared John Y. Sato, to me known to be the
person who signed as the general partner of ISSAQUAH ASSOCIATES, a Washington
limited partnership that executed the within and foregoing instrument, and
acknowledged said instrument to be the free and voluntary act and deed of said
limited partnership for the uses and purposes therein mentioned, and on oath
stated that he was authorized to execute said instrument on behalf of the
limited partnership.

IN WITNESS WHEREOF, I have hereunto set my hand and official seal the
day and year first above written.

____________________________________
(Signature of Notary)

(SEAL)

____________________________________
(Print or stamp name of Notary)

NOTARY PUBLIC in and for the State
of Washington, residing at ________.
My Appointment Expires: _______.

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STATE OF OREGON )
) ss.
COUNTY OF CLACKAMAS )

On this ____ day of ____________, 1998, before me, the undersigned, a
Notary Public in and for the State of Oregon, commissioned and sworn, personally
appeared Norm Daniels, to me known to be the person who signed as President of
G.I. JOE'S, INC., the corporation that executed the within and foregoing
instrument, and acknowledged said instrument to be the free and voluntary act
and deed of said corporation for the uses and purposes therein mentioned, and on
oath stated that he was duly elected, qualified and acting as said officer of
the corporation, that he was authorized to execute said instrument and that the
seal affixed, if any, is the corporate seal of said corporation.

IN WITNESS WHEREOF, I have hereunto set my hand and official seal the
day and year first above written.

____________________________________
(Signature of Notary)

(SEAL)

____________________________________
(Print or stamp name of Notary)

NOTARY PUBLIC in and for the State
of Oregon, residing at __________.
My Appointment Expires: _______.

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EXHIBIT A
TO
LEASE

TOWN AND COUNTRY SQUARE SHOPPING CENTER
G.I. JOE'S, INC.
[LEGAL DESCRIPTION OF SHOPPING CENTER]

ALL Situate in the County of King, State of Washington.

<PAGE> 30

EXHIBIT B

[SITE PLAN]

<PAGE> 1
EXHIBIT 10.36

SUBLEASE

BY AND BETWEEN

FADCO, LLC,
A DELAWARE LIMITED LIABILITY COMPANY

"SUBLANDLORD"

AND

G.I. JOE'S, INC.,
AN OREGON CORPORATION

"SUBTENANT"

JAMES VILLAGE SHOPPING CENTER
LYNWOOD, WASHINGTON

<PAGE> 2

<TABLE>
<S> <C>
RECITALS .................................................................. 1

1. FUNDAMENTAL LEASE PROVISIONS ....................................... 2

2. SUBLEASE ........................................................... 4

3. TERM; CONDITION. ................................................... 9

4. RENT. .............................................................. 11

5. CONDITION OF PREMISES; CONSTRUCTION; OPENING. ...................... 12

6. USE OF PREMISES. ................................................... 15

7. COMMON AREAS. ...................................................... 18

8. TAXES. ............................................................. 19

9. UTILITIES. ......................................................... 19

10. MAINTENANCE AND REPAIR; ALTERATIONS. ............................... 20

11. INSURANCE, WAIVERS, MDEMNIFICATION. ................................ 21

12. DAMAGE AND DESTRUCTION, CONDEMNATION ............................... 24

13. ASSIGNMENT AND SUBLEASE. ........................................... 25

14. DEFAULT. ........................................................... 27

15. LIMITATION OF LIABILITY. ........................................... 32

16. SUBLANDLORD'S ENTRY ON PREMISES. ................................... 32

17. SUBORDINATION. ..................................................... 33

18. WAIVER. ............................................................ 34

19. SALE OR TRANSFER OF PREMISES. ...................................... 34

20. SURRENDER OF PREMISES. ............................................. 35

21. HOLDING OVER. ...................................................... 35

22. ESTOPPEL CERTIFICATES; FINANCIALS. ................................. 35

23. DEFINITIONS. ....................................................... 36
</TABLE>

<PAGE> 3

<TABLE>
<S> <C>
24. MISCELLANEOUS. ..................................................... 38
</TABLE>

<PAGE> 4
SUBLEASE

THIS SUBLEASE ("Sublease") is entered into as of this ____ day of
________, 19_ (the "Execution Date"), between FADCO, LLC, a Delaware limited
liability company ("Sublandlord) and G.I. JOE'S, INC., an Oregon corporation
("Subtenant").

RECITALS

A. Sublandlord shall be the successor tenant under a certain Lease
Agreement dated April 25, 1990 (the "Original Prime Lease") between James
Village Lynnwood, Inc., a Washington corporation, successor-in-interest to
Pacific Coast Properties, Inc., a Washington corporation, as landlord ("Prime
Landlord"), and Ernst Home Center, Inc., a Washington corporation, as tenant
("Prime Tenant") under which Prime Landlord leased to Prime Tenant certain real
property and improvements located in the James Village Shopping Center (the
"Shopping Center"), in the City of Lynnwood, County of Snonomish, State of
Washington, and legally described in Exhibit A of the Original Prime Lease. The
Original Prime Lease has been modified by that First Amendment to Lease
Agreement dated June 8, 1990, that Second Amendment to Lease Agreement dated
June 14, 1991, and that Third Amendment to Lease Agreement March 27, 1992 (the
"Prime Lease Amendments"). The Original Prime Lease and the Prime Lease
Amendments are collectively referred to herein as the "Prime Lease" and are
attached hereto as Exhibit A; the premises leased thereunder are referred to
herein as the "Master Premises." Except as otherwise provided, defined terms
herein shall have the same meaning as such terms under the Prime Lease.

B. Upon entry of the Court Order (as defined in Paragraph 33(b)(1)
below) and the recordation of that certain Assumption and Assignment of Lease
referenced therein, all right, title and interest of the Prime Tenant under the
Prime Lease will be assigned to Sublandlord.

C. Pursuant to the terms and conditions of this Sublease, Sublandlord
desires to sublease to Subtenant and Subtenant wishes to sublease from
Sublandlord (1) the land and the approximately Forty-Five Thousand and
Eighty-Two (45,082) square foot building (the "Original Building"), and (2) the
approximately Seventeen Thousand Seventeen (17,017) square foot outside area
adjacent thereto (the "Original Outside Area"). Subtenant intends to construct
upon Seven Thousand Seven Hundred and Sixty-Eight (7,768) square feet of the
Original Outside Area an expansion of the Original Building, whereupon there
shall be Fifty-Two Thousand Eight Hundred and Fifty (52,850) square feet of
building (the "Building") and Nine

PAGE 1

<PAGE> 5
Thousand Two Hundred and Forty-Nine (9,249) square feet of outside area (the
"Outside Area"). Such Building and Outside Area are collectively referred to
herein as the "Demised Premises." The Demised Premises are more particularly
depicted on Exhibit B (the "Site Plan") attached hereto and made a part hereof.

D. This Sublease selectively incorporates provisions of the Prime Lease.
Where a particular provision of the Prime Lease is "incorporated and made a part
hereof', or words of similar import, that Prime Lease provision, as amended by
any amendments thereto, becomes a part of this Sublease as though it were fully
set forth in the body of this Sublease, but with the references therein to
"Landlord" and "Tenant" referring instead to Sublandlord and Subtenant,
respectively (unless otherwise stated), the references to the "Leased Premises"
referring to the Demised Premises and the references therein to "Lease"
referring instead to this Sublease. Any terms or words in Prime Lease paragraphs
which are incorporated into this Sublease shall have the same meaning as those
terms and words in the Prime Lease and an interpretation of the meaning of such
terms or words under the Prime Lease shall be binding upon Sublessor and
Sublessee under this Sublease.

NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and other good and Valuable consideration, the parties do hereby for
themselves and their successors and assigns, covenant and agree as follows:

1. FUNDAMENTAL LEASE PROVISIONS

The following Fundamental Lease Provisions constitute an integral part
of this Sublease, and each reference herein to the Fundamental Lease Provisions
shall mean the provisions set forth in this Section 1. In the event of any
conflict between the Fundamental Lease Provisions and the remainder of the
Sublease, the latter shall control.

<TABLE>
<S> <C>
Address of Sublandlord: FADCO, LLC
3236 Stone Valley Road West, Suite 230
Alamo, CA 94507
Attn: Donald F. Gaube
Telephone: (510) 838-0604
Facsimile: (510) 838-0851
Copy to: Farallon Capital Management, LLC
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
Attn: Stephen L. Millham
</TABLE>

PAGE 2

<PAGE> 6
<TABLE>
<S> <C>
Telephone: (415) 421-2132
Facsimile: (415) 421-2133
Address of Subtenant: G.I.JOE'S, INC.
9805 Boeckman Road
Wilsonville, OR 97070
Telephone: (503) 682-2242
Address of Demised Premises 19310 60th Avenue SW
(excluding Garden Area): Lynnwood, WA 98036
Demised Premises Floor Area: Approximately 52,850 square feet
Permitted Use of Demised Premises: Subject to the provisions of Section 6.2, for the
sale at retail of (i) sporting and outdoor goods and
equipment (including recreational boats and boat
trailers, and, to the extent and in the manner
required by Law, firearms and related equipment and
supplies), and outdoor, sports and athletic apparel
and footwear; (ii) aftermarket parts, supplies, and
related accessories for automobiles, recreational
vehicles and trucks, and, as incidental thereto, the
installation of automotive and marine accessories,
including, without limitation, batteries, luggage
racks, and boat trailer accessories (such as trailer
tires) only within the boundaries of the Demised
Premises, and vehicles, trailers, and other items on
which such installations are to occur are not to be
parked overnight in the Common Area; and (iii) the
sale at retail, in no more than 2,500 square feet of
the sales area in the Demised Premises, of portable
electronic, cellular and other communications, audio
and video equipment and accessories.
Primary Term: Commencing on the Commencement Date and ending on the
earlier of (i) the twelfth (12th) anniversary of the
Commencement Date or April 10, 2011.
Option to Extend: Four (4) at five (5) years each and, if applicable,
one (1) Additional Option.
Actual Commencement Date: _____________, 199__.
Commencement Date: The date of Sublandlord's delivery of sole and
</TABLE>

PAGE 3

<PAGE> 7
<TABLE>
<S> <C>
exclusive possession of the Demised Premises to
Subtenant.
Scheduled Commencement Date: August 1, 1998.
Rent Commencement Date: The earlier of (i) the date Subtenant opens for
business in the Demised Premises or (ii) ninety (90)
days after the Commencement Date.
Minimum Monthly Rent: Period Minimum Monthly Rent
Rent Commencement Date
("RCD") [or Revised Rent Commencement Date, if
applicable] through the day
immediately preceding the fifth
(5th) anniversary of the RCD. The
fifth (5th) anniversary of the RCD
through the day immediately
preceding the tenth (10th)
anniversary of the RCD. The tenth
(10th) anniversary of the RCD
through the end of the Primary
Term. $63,948.50 Additional Option
$63,948.50 First Five-Year Option
$70,334.54 Second Five-Year Option
$77,381.21 Third Five-Year Option
$85,132.54 Fourth Five-Year Option
$93,632.58
Percentage Rent: See Section 4.2
Subtenant's Percentage Share: 100%
Security Deposit: None
Subtenant's Minimum Liability $2,000,000
Insurance:
Definitions: Unless otherwise provided, those terms set forth in
Section 23 below.
</TABLE>

2. SUBLEASE

2.1 Demise.

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(a) In consideration of the rents to be paid and the covenants
and agreements to be performed and observed by Subtenant, Sublandlord hereby
subleases to Subtenant, and Subtenant hereby subleases and hires from
Sublandlord, the Demised Premises.

(b) Sublandlord shall have, and hereby reserves the right, to
locate, both vertically and horizontally, install, maintain, use, repair and
replace, pipes, utility lines, ducts, conduits, flues, refrigerant lines,
drains, sprinkler mains and valves, access panels, wires and structural elements
leading through the Demised Premises to and from the remainder of the Master
Premises and/or the Common Area in locations which will not materially interfere
with Subtenant's use of the Demised Premises.

(c) At anytime within one (1) year after the completion of
Tenant's Work, Sublandlord may measure the Floor Area of the Demised Premises to
determine the correct dimensions. If Sublandlord's measurements reveal a Floor
Area which is different from fifty-two thousand eight and fifty (52,850) square
feet or an Outside Area with dimensions other than nine thousand two hundred
forty nine (9,249) square feet, Subtenant shall have the right to dispute
Sublandlord's measurement, in which event either (a) Sublandlord and Subtenant
shall mutually agree on the Floor Area of the Building and the dimensions of the
Outside Area, or (b) Sublandlord and Subtenant shall agree to have such spaces
measured by an independent architect mutually acceptable to Sublandlord and
Subtenant, at Subtenant's expense, in which event Sublandlord and Subtenant
agree to abide by such measurement. Upon the determination of the actual Floor
Area of the Building and the dimensions of the Outside Area, the Minimum Monthly
Rent, Subtenant's Percentage Share, and all charges payable by Subtenant
hereunder which are based on the Floor Area of the Building shall be adjusted to
reflect the actual Floor Area of the Building and the dimensions of the Outside
Area. If neither Sublandlord nor Subtenant causes its architect to measure the
Building in accordance with this Paragraph 2. 1 (c), the parties shall be deemed
to have accepted the size of the Building as fifty-two thousand eight hundred
fifty (52,850) square feet of Floor Area and the dimensions of the Outside Area
as nine thousand two hundred forty nine (9,249) square feet.

2.2 Prime Lease.

(a) Subtenant acknowledges that Subtenant's rights to the Demised
Premises are subject to and subordinate to the Prime Lease and those various
covenants, conditions and restrictions, easements and other matters of record
affecting the Prime Lease, Demised Premises and other parts of the Shopping
Center as fisted

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on Exhibit C (the "Permitted Exceptions"). Accordingly, if the Prime Lease
terminates then this Sublease shall terminate (except as otherwise provided in
any agreement between Prime Landlord and Subtenant) and Sublandlord shall have
no liability therefor, unless such termination occurs because of a breach of
Sublandlord's obligations under this Sublease. If the Prime Lease terminates
because of any default by Sublandlord thereunder, Subtenant shall, at the
election of the Prime Landlord, attorn to and recognize Prime Landlord as
Sublandlord under this Sublease; provided that Prime Landlord has executed, no
later than one (1) month after the Execution Date, a nondisturbance agreement in
form and substance reasonably acceptable to Subtenant.

(b) Except as expressly provided herein, if Subtenant desires to
take any action, and the Prime Lease would require that Sublandlord obtain Prime
Landlord's consent before undertaking any such action, Subtenant shall not
undertake the same without Prime Landlord's prior written consent, provided,
that upon Subtenant's request, Sublandlord shall diligently and promptly use its
reasonable efforts to obtain Prime Landlord's consent to any such action.

(c) Sublandlord shall pay each installment of minimum rental and
any other sum when the same is due and payable under the terms of the Prime
Lease and will duly observe and perform every term and condition of the Prime
Lease to the extent that such term and condition is not provided in this
Sublease to be observed or performed by Subtenant, except to the extent that any
failure to so pay or to observe or perform shall have resulted, directly or
indirectly, from any default by Subtenant hereunder (including, without
limitation, the failure of Subtenant to pay any amount of the Minimum Monthly
Rent or Additional Rent due hereunder). Sublandlord shall provide Subtenant with
a copy of any notice given to Sublandlord by Prime Landlord under the Prime
Lease, such notice to be delivered within two (2) business days after
Sublandlord's receipt of such notice. Sublandlord will also give Subtenant a
copy of any notice given by Sublandlord to Prime Landlord under the Prime Lease
concurrently with the delivery of such notice to Prime Landlord.

(d) At any time and from time to time, Subtenant may, but shall
not be oblige to, make any payment or take any action necessary to cure a
default by Sublandlord under the Lease provided Subtenant has notified
Sublandlord in writing that Subtenant elects to cure default and within two (2)
days after Sublandlord's receipt of such notice, with respect to a monetary
default, and ten (10) days after Sublandlord's receipt of such notice, with
respect to all other defaults, Sublandlord has not either cured such default or
provided evidence reasonably acceptable to subtenant that such default will be
cured before the expiration of the applicable cure period. In the event
Subtenant elects to cure such default as permitted

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herein, the amount of any such payment or the cost of any such action which is
paid or incurred by Subtenant in good faith, including reasonable attorney's
fees, shall be treated as a sum of money advanced by Subtenant to Sublandlord
and shall be repayable by Sublandlord to Subtenant on demand provided Subtenant
has delivered to Sublandlord with such demand a written accounting setting forth
the itemized amounts expended by Subtenant accompanied by copies of actual
supporting invoices documenting the cost, fees and expenses incurred.

(e) Subtenant acknowledges that (i) except as expressly provided
in this Sublease, Sublandlord (x) does not assume and shall not have any of the
obligations or liabilities of the Prime Landlord under the Prime Lease and (y)
is not making the representations or warranties, if any, made by the Prime
Landlord in the Prime Lease, and (ii) Sublandlord's ability to satisfy certain
of its duties and obligations under this Sublease are conditioned upon the full
and timely performance of the Prime Landlord's obligations under the Prime Lease
and Sublandlord is unwilling to accept any liability whatsoever to Subtenant or
any diminution in its rights under this Sublease as a consequence of Prime
Landlord's failure to perform under the Prime Lease except to the extent
Sublandlord's failure inhibits or prohibits the performance of Subtenant's
obligations or rights hereunder. Notwithstanding the foregoing, if Prime
Landlord defaults on the performance or observance of any of Prime Landlord's
obligations under the Prime Lease, Sublandlord shall, at Sublandlord's election,
(a) make demand of Prime Landlord to obtain performance of Prime Landlord's
obligations (which performance shall be at Sublandlord's reasonable cost and
expense), and if requested in writing by Subtenant, commence and prosecute legal
proceedings (also at Sublandlord's cost and expense) in the name of Sublandlord
or otherwise against Prime Landlord with counsel reasonably satisfactory to
Subtenant and/or (b) assign to Subtenant all of Sublandlord's rights and
benefits under the Prime Lease which are assignable under the Prime Lease or
otherwise to enforce, at Subtenants reasonable cost and expense (subject however
to reimbursement if Sublandlord is entitled to and obtains reimbursement
therefor from Prime Landlord under the terms of the Prime Lease), the
obligations of Prime Landlord under the Prime Lease to the extent necessary to
cause Prime Landlord to cure such default. Notwithstanding clause (b) of the
immediately preceding sentence, Subtenant shall not have the right to terminate
the Prime Lease. Sublandlord and Subtenant agree to discuss such enforcement
proceedings with one another, in good faith, but such proceeding shall be
approved by Sublandlord, which approval shall not be unreasonably withheld,
conditioned or delayed. Any amount of recovery obtained by Subtenant, if
Subtenant enforces Sublandlord's rights under clause (b) of the first sentence
of this subparagraph (e), shall be the property of Subtenant to the extent that
such recovery pertains solely to the Demised Premises.

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(f) Sublandlord shall not modify the Prime Lease or consent to
the modification or creation of any Permitted Exception in any respect which
adversely affects Subtenant, this Sublease or the Demised Premises, or surrender
the Prime Lease, without the prior written consent of Subtenant, which consent
may be granted or withheld in Subtenant's reasonable discretion, and any such
modification or surrender made without such consent shall be null and void and
shall have no effect on the rights of Subtenant under this Sublease. Sublandlord
agrees that if pursuant to the terms of the Prime Lease or otherwise,
Sublandlord shall have the right to cancel or terminate the Prime Lease, then
Sublandlord shall only exercise such rights in accordance with, and only in
accordance with, the written direction of Subtenant.

(g) Subtenant hereby assumes and agrees to perform for the
benefit of Sublandlord and Prime Landlord, each and every present and future
obligation and duty of Sublandlord under the Prime Lease and the Permitted
Exceptions, as amended with respect to the Demised Premises in accordance with
subparagraph 2.2(f) above, except as follows: (a) Sublandlord, not Subtenant,
shall be responsible for paying minimum rental due under the Prime Lease to
Prime Landlord; and (b) to the extent said obligations or duties arise or relate
to a period (i) after the Term and not in connection with acts or omissions
during the Term; or (ii) before the Execution Date. Subtenant shall not do,
suffer or permit anything to be done which could result in a default under the
Prime Lease or could result in the cancellation or termination of the Prime
Lease. Subtenant shall indemnify, defend and hold harmless Sublandlord from and
against all Claims imposed upon or incurred by or assessed against Sublandlord
by reason of any violation or breach of this Sublease by Subtenant or any of its
Authorized Representatives which has resulted, directly or indirectly, in a
breach of the Prime Lease. Sublandlord shall indemnify, defend and hold harmless
Subtenant from and against all Claims imposed upon or incurred by or assessed
against Subtenant by reason of any violation or breach of this Sublease by
Sublandlord or any of its Authorized Representatives which has resulted,
directly or indirectly, in a breach of the Prime Lease.

2.3 Sublandlord's Representations and Warranties. As of the Execution
Date, Sublandlord represents and warrants to Subtenant as follows:

(a) Attached hereto as Exhibit A is a true, correct and complete
copy of the Prime Lease; the Prime Lease is in full force and effect and neither
Prime Landlord nor Sublandlord, to Sublandlord's actual knowledge, is in default
of any of their respective obligations under the Prime Lease.

(b) Sublandlord has no actual knowledge of any pending or
threatened condemnation or eminent domain proceedings with respect to the Master

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Premises. Sublandlord has no actual knowledge that the Master Premises are in
violation of Law, including any Laws relating to Hazardous Substances in, on or
about the Master Premises.

(c) To Sublandlord's actual knowledge, there is no Hazardous
Substance in, on or about the Master Premises, except as otherwise disclosed in
the Environmental Site Assessment.

(d) Subject to the receipt of the Prime Landlord's consent and
the entry of the Court Order and said order becoming final and non-appealable
(i) the execution and performance of this Sublease by Sublandlord will not
violate or cause a default under any agreement, instrument, or other transaction
to which Sublandlord is a party or by which Sublandlord and/or the Master
Premises are bound and (ii) Sublandlord has full right and power to execute and
perform this Sublease and to grant the estate demised herein.

(e) To Sublandlord's actual knowledge, attached hereto as Exhibit
C is a true and complete list of all Permitted Exceptions.

3. TERM; CONDITION.

3.1 Period. The primary term of this Sublease (the "Primary Term") shall
be for the period specified in the Fundamental Lease Provisions, unless sooner
terminated pursuant to other provisions hereof.

3.2 Extension Options.

(a) Except as set forth in subparagraph 3.2(b) below, Sublandlord
hereby grants to Subtenant four (4) successive options to extend the Primary
Term for additional consecutive periods of five (5) years each, commencing on
the expiration of the Primary Term or the immediately preceding option term, as
the case may be, subject to all of the provisions of this Sublease (the "Option
Term). Subtenant may exercise its option to so extend the Term only by
delivering written notice to Sublandlord of Subtenant's election to so extend
the Term (an "Extension Option Notice"), no later than two hundred seventy (270)
days and no earlier than eighteen (18) months prior to the expiration of the
Primary Term or the then current option period. Notwithstanding anything to the
contrary herein, Subtenant's exercise of an option shall be null and void if at
the time of the exercise of such option or the commencement of such option term,
Subtenant is in material default under this Sublease after notice and the lapse
of any cure period. Further, Subtenant's right to exercise an option shall be
conditioned upon Subtenant's exercise of all prior options. All references in
this Sublease to "Term" shall mean the Primary Term and, upon the

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exercise of any option pursuant to this Paragraph 3.2, the Primary Term as
extended by any such option.

(b) Notwithstanding anything to the contrary set forth herein, if
the Primary Term ends prior to April 10, 2011, then Subtenant shall have an
additional option ("Additional Option") to extend the Primary Term for the
period from the end of the Primary Term to and including April 10, 2011. Such
option shall be exercised prior to any other option set forth in Section 3.2(a)
above and shall be exercised in accordance with the terms of Section 3.2 (a)
above.

3.3 Conditions Precedent to Obligations. The obligations of the parties
under this Sublease are expressly conditioned upon the fulfillment of each and
all of the conditions precedent set forth in this Paragraph 3.3 within sixty
(60) days after the Execution Date (or such other period as may be expressly
provided). If any condition remains unsatisfied following the expiration of the
applicable period, then the party for whose benefit such condition is imposed
shall have the right to terminate this Sublease by written notice to the other
party, delivered to such other party within five (5) days after the expiration
of the applicable period, provided the condition giving rise to such termination
has not failed to occur because of a breach of this Sublease by the terminating
party.

(a) For Subtenant's benefit,

(i) Subtenant's receipt from First American Title Insurance
Company of a Commitment to issue a Leasehold Owner's Policy of Title Insurance
(which policy shall be paid for 15y Sublandlord) in the amount of Five Hundred
Thousand Dollars ($500,000.00) insuring Subtenant's interest in the Demised
Premises, subject only to the standard general exceptions required by the title
company and the Permitted Exceptions; and

(ii) For Subtenant's benefit, the receipt of a fully executed and
acknowledged nondisturbance, estoppel and attornment agreement in the form
attached as Exhibit D from the Prime Landlord.

(b) For the benefit of both Sublandlord and Subtenant,

(1) the entry on or before the Commencement Date of a Stipulated
Order by the United States Bankruptcy Court, Western District of Washington at
Seattle (Action No. 96-10129) (the "Court Order") in substantially the same form
as Exhibit E attached hereto and made a part hereof Subtenant acknowledges that
while Sublandlord shall use reasonable efforts to effect such Court Order, entry
of the Court Order is conditioned upon various events outside

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Sublandlord's reasonable control and Sublandlord shall have no liability to
Subtenant hereunder in the event such Court Order is not entered for any reason
other than a breach of the Court Order by Sublandlord.

(2) the Actual Commencement Date has occurred on or before March
1, 1999.

3.4 Commencement of Term. Sublandlord shall use its reasonable best
efforts to cause the Commencement Date to occur on or before the Scheduled
Commencement Date specified in the Fundamental Lease Provisions. However, this
Sublease shall not be void or voidable, nor shall Sublandlord or its Authorized
Representatives have any liability to Subtenant, by reason of Sublandlord's
failure to deliver the Demised Premises by the Scheduled Commencement Date
specified in the Fundamental Lease Provisions. Postponement of Subtenant's
rental obligation before delivery of possession of the Demised Premises shall be
Subtenants exclusive remedy and in sole satisfaction of all claims Subtenant
might otherwise have by reason of Sublandlord's failure to deliver the Demised
Premises by the Scheduled Commencement Date. Once the Commencement Date is
determined, Sublandlord shall confirm such Commencement Date by written notice
to Subtenant, and Sublandlord is hereby authorized by Subtenant to insert in the
Fundamental Lease Provision the Actual Commencement Date.

4. RENT.

4.1 Minimum Monthly Rent.

(a) Subtenant shall pay to Sublandlord as minimum monthly rent
during the Term, without deduction, setoff, prior notice or demand, the sum
specified in the Fundamental Lease Provisions, in advance, on the first day of
each month commencing on the Rent Commencement Date ("Minimum Monthly Rent").
Minimum Monthly Rent for the first month shall be paid on the Rent Commencement
Date even if such date is not the first day of a month. Minimum Monthly Rent for
any partial month shall be prorated at the rate of 1/30th of the Minimum Monthly
Rent per day. All rent shall be paid to Sublandlord at the address to which
notices to Sublandlord are given.

(b) Notwithstanding anything to the contrary set forth in this
Sublease, Sublandlord shall have the right, at Sublandlord's option to be
exercised in Sublandlord's sole discretion, upon written notice to Subtenant
("Sublandlord's Rent Notice'), to require Subtenant to commence paying Minimum
Monthly Rent prior to the Rent Commencement Date, commencing on the date set
forth in Sublandlord's Rent Notice, but in no event prior to the first day of
the calendar month immediately

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subsequent to the date of Sublandlord's Rent Notice. Subtenant shall thereupon
commence paying Minimum Monthly Rent on such revised date ("Revised Rent
Commencement Date"). In consideration thereof, the Construction Allowance shall
be increased By the additional amount of Minimum Monthly Rent ("Increased
Allowance") payable by Subtenant for the period between the Revised Rent
Commencement Date and the Rent Commencement Date. Sublandlord shall pay such
Increased Allowance to Subtenant simultaneously with the Sub landlord's Rent
Notice.

4.2 Percentage Rental. In addition to the Minimum Monthly Rent,
Subtenant shall pay to Sublandlord a "Percentage Rental" in accordance with
Paragraph 3 of the Second Article of the Prime Lease. Paragraph 3 of the Second
Article of the Prime Lease is incorporated herein Subtenant shall deliver to
Sublandlord a statement certified by Subtenant to be correct showing the total
gross sales by calendar months during such Lease Year, together with any
Percentage Rental which is due for such period. The certified statement shall be
delivered, and the Percentage Rental shall be payable and delivered, to
Sublandlord at the place and in the manner specified in Paragraph 4.1 but at
least five (5) days before the date that Sublandlord is required to deliver
Percentage Rental and such a statement to the Prime Landlord under the Prime
Lease. Paragraph 5 of the Second Article of the Prime Lease is incorporated
herein and made a part of this Sublease.

5. CONDITION OF PREMISES; CONSTRUCTION; OPENING.

5.1 Acceptance By Subtenant. Subtenant shall accept possession of the
Demised Premises, in an "as is" condition with "all faults" as to all matters,
including the following: physical condition; size or dimensions of the Demised
Premises (subject to Section 2.1(c)); feasibility, desirability or
convertibility of the Demised Premises into any particular use; and the zoning,
building and land use restrictions applicable to the Demised Premises. Subtenant
acknowledges and agrees that Subtenant has conducted its own due diligence
regarding the Demised Premises and that there have been no representations,
warranties or promises to Subtenant by Sublandlord, or its Authorized
Representatives, with respect to the same.

5.2 Subtenant's Work. Upon the Commencement Date Subtenant shall
commence and thereafter diligently prosecute to completion Subtenant's Work in
accordance with Exhibit F attached hereto and made a part hereof and the
Construction Provisions attached hereto and made a part hereof as Exhibit H.
Subtenant shall substantially complete Subtenant's Work on or before ninety (90)
days after the Commencement Date. Subtenant shall be responsible for applying
for and obtaining all permits and government approvals that may be needed to
permit

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Subtenant to construct the Subtenant's Work and to occupy and use the Demised
Premises for the Permitted Use.

Subtenant's Work shall be constructed at Subtenant's sole cost and
expense, subject to the Construction Allowance pursuant to Paragraph 5.4 below.

5.3 Opening Date. Subtenant shall initially open for business to the
public from the Demised Premises no later than March 1, 1999.

5.4 Construction Allowance.

(a) Sublandlord shall furnish Subtenant a construction allowance
for S at the Demised Premises of Five Hundred Thousand and no/100 Dollars
($500,000) ("Allowance") provided that in no event shall the Construction
Allowance exceed the actual cost of the improvement work by Subtenant at the
Demised Premises.

(b) In accordance with the provisions of subparagraph 5.4 (c)
below, Subtenant shall from time to time during the course of construction of
Subtenant's Work, but not more frequently dm once per month, submit to
Sublandlord an application for payment of a portion of the Construction
Allowance (an "Application for Payment") setting forth the amount of all costs
and expenses which have been incurred to the date of such statement in respect
of the actual costs of Subtenant's Work (excluding amounts previously reimbursed
to Subtenant or otherwise paid by Sublandlord pursuant to previous statements),
in form reasonably satisfactory to Sublandlord, together with the following
(herein called "Draw Documents"): (i) an appropriate sworn contractor's
statement; (ii) appropriate waivers of lien and affidavits (both the form and
content of such waivers of hen and affidavits shall be subject to the reasonable
approval of Sublandlord); and (iii) for the last draw only, a certificate of
substantial completion by Subtenant's architect certifying that Subtenant's Work
has been substantially completed in accordance with the Final Plans. Sublandlord
shall cause to be paid to Subtenant or, if direct payment is to be made, the
appropriate contractors, the full amount shown on the Draw Documents within
thirty (30) days after Sublandlord's receipt thereof; provided, (i) the Draw
Documents are complete (and, if the Draw Documents are not complete, payment
shall be made for such portion as is supported by complete Draw Documents), (ii)
Sublandlord has approved the same, such approval not be unreasonably withheld,
delayed or denied, and (iii) Subtenant is not in default of the Sublease.
Sublandlord reserves the right, for reasonable cause, to make or cause to be
made direct payments to contractors from time to time rather than by making
payment or causing payments to be made by reimbursement of Subtenant. A final
disbursement (to recover final

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payment, including retainage) shall be made by Sublandlord upon the satisfaction
of the requirements of Subparagraph 5.4(c) below, upon the issuance of a
certificate of occupancy (in form and substance satisfactory to Sublandlord)
issued by the applicable governmental authorities, upon Subtenant having opened
for business in the Demised Premises, upon Subtenant not being in default of the
Sublease, and upon the delivery to Sublandlord of a reproducible copy of "as
built" plans and specifications for Subtenant's Work in the Demised Premises
prepared and certified by Subtenant's architect. Such final disbursement shall
be made within thirty (30) days after all of said requirements have been
satisfied, provided that Subtenant is not in default under the Sublease on the
date of such disbursement.

1. An Application for Payment, in triplicate using AIA Form G702
prepared by Subtenant's general contractor and approved in writing by
Subtenant and Subtenant's architect or, with respect to work not
performed under the general contract, prepared by Subtenant and approved
by Subtenant's architect, showing in complete detail the total amount
due for the contract, the amounts due for work completed at the job site
through the twenty-fifth (25th) day of the preceding calendar month and
for which payment is requested, and the balance due to complete the
contract. Each Application for Payment shall provide for a 10% retainage
(including 10% retainage on amounts due the general contractor
thereunder) up to an amount equal to said retainage to be withheld until
final payment is made. Notwithstanding the foregoing, retainage for any
subcontractor may be reduced to five (5%) percent at such time as
Subtenant has verified that ninety (90%) percent of its work has been
completed, and all retainage to such subcontractor may be paid within
thirty (30) days after Subtenant's acceptance of such subcontractor's
work provided Subtenant's architect has certified completion and
appropriate waivers of lien have been provided. Each Application for
Payment (including final payment) shall be in such form and detail and
supported by such evidence of (and representations and/or certifications
with respect to) its correctness and of Subtenant's or the general
contractor's right to payment as the Sublandlord may reasonably require.
Each Application for Payment (including final payment) shall be
accompanied by the Draw Documents and by supporting waivers of lien, a
general contractor's sworn statement (all in form and substance
satisfactory to Sublandlord), and such other releases, receipts,
affidavits, and other documents (including, without limitation, waivers
of lien and

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sworn statements from subcontractors, materialmen and suppliers making
application for payment through the general contractor) as Sublandlord,
and/or Sublandlord's lender, if any, shall reasonably require.

2. A certificate of substantial completion for work done to date issued
by Subtenant's architect for the benefit of Sublandlord, Sublandlord's
lender, if any, and Subtenant, together with such other certifications
from Subtenant's architect as Sublandlord and Sublandlord's mortgagee,
if any, may reasonably require.

3. A certificate executed by Subtenant to the effect that (i) all sums
being requested for disbursement are properly due and owing for actual
costs of Subtenant's Work, and (ii) all conditions and requirements for
such disbursement provided for herein have been satisfied.

(d) Subtenant will keep accurate books of account showing all
actual costs of Subtenant's Work incurred hereunder, which books of account and
all supporting data shall at all reasonable times be open for inspection by
Sublandlord and its Authorized Representatives, and shall be retained and
available for reference for a period of at least two (2) years after the
Subtenant's Work has been completed.

(e) Without limitation to any other rights or remedies
Sublandlord may have on account thereof, if at the time Sublandlord is prepared
to pay all or any portion of the Construction Allowance, Subtenant owes
Sublandlord any sums under the Sublease, Sublandlord may, at its election, pay
the Construction Allowance but deduct therefrom the amount of any such sums owed
by Subtenant.

(f) If the Term should end prior to the scheduled expiration date
due to a default by Subtenant; Subtenant shall pay Sublandlord, within sixty
(60) days after the effective date of the early termination, the unamortized
portion of the Construction Allowance, using a straight-line amortization over
the Term.

6. USE OF PREMISES.

6.1 Use. Subtenant shall use the Demised Premises solely for the use
specified in the Fundamental Lease Provisions and for no other use without
Sublandlord's prior consent, which consent shall not be unreasonably withheld
but shall be subject to the terms of the Prime Lease and to obtaining the prior
consent of the Prime Landlord.

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6.2 Limitations on Use. Subtenant shall use the Demised Premises for the
purpose permitted by Paragraph 6.1 strictly in accordance with the following:

(a) Cancellation of Insurance. Subtenant shall not do, bring, or
keep anything in or about the Demised Premises that will cause a cancellation of
any insurance covering the Demised Premises, provided that if Subtenant causes
insurance procured by Subtenant to be canceled, and if such cancellation was not
caused by the willful misconduct or gross negligence of Subtenant, Subtenant
shall not be in violation of this provision if Subtenant replaces such insurance
with comparable insurance within five (5) days after such cancellation.

(b) Compliance with Laws. Subtenant shall comply with all Laws
concerning the Demised Premises or Subtenant's use of the Demised Premises,
including, without limitation, the obligation, at Subtenant's cost, to alter,
maintain, or restore the Demised Premises and all structural elements thereof
(but only to the extent the Prime Tenant under the Prime Lease is obligated to
alter, maintain or restore such structural elements under the Prime Lease) in
compliance with all Laws relating to the condition, use, or occupancy of the
Demised Premises during the Term.

(c) Waste, Nuisance. Subtenant shall not use or permit the
Demised Premises to be used in any manner that will constitute waste, nuisance,
or unreasonable annoyance to other tenants in the Shopping Center (including,
without limitation, the use of loudspeakers or sound or light apparatus that can
be heard or seen outside the Demised Premises in more than a de minimis degree).
No machinery, apparatus, or other appliance shall be used or operated in or on
the Demised Premises that will in any manner injure, vibrate, shake, or
otherwise damage the Demised Premises and/or the Shopping Center.

(d) Operations. Subtenant shall not use or permit the Demised
Premises to be used for any use which is excluded or prohibited in Paragraph 4
of the Sixth Article of the Prime Lease, as amended, including but not limited
to the prohibition of a use as an automotive maintenance or repair facility;
provided, however, that Subtenant shall be permitted to sell recreational boats
and boat trailers if such use is consented to in writing by Prime Landlord and
Albertson's, Inc. Subtenant shall not conduct or operate or permit to be
conducted or operated on the Demised Premises any secondhand store, auction,
distress or fire sale, or going-out-of-business sale, or continuous discount
operation.

6.3 Hazardous Substances.

(a) Reportable Uses Require Consent. Subtenant shall not engage
in any activity in, on or about the Demised Premises which constitutes a

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Reportable Use of Hazardous Substance without the express prior written consent
of Sublandlord and Prime Landlord and compliance in a timely manner (at
Subtenants sole cost and expense) with all applicable Laws. Notwithstanding the
foregoing, Subtenant may, without Sublandlord's prior consent but in compliance
with all applicable Laws, use any ordinary and customary materials reasonably
required to be used by Subtenant in the normal course of Subtenant's business
permitted in the Building, so long as such use is not a Reportable Use. In
addition, Sublandlord may (but without any obligation to do so) condition its
consent to the use or presence of any Hazardous Substance, activity or storage
tank by Subtenant upon Subtenant's giving Sublandlord such additional assurances
as Sublandlord, in its reasonable discretion, deems necessary to protect itself,
the public, the Demised Premises, the Shopping Center and the environment
against damage, contamination or injury and/or liability therefrom or therefor.

(b) Duty to Inform. If Subtenant knows, or has reasonable cause
to believe, that a Hazardous Substance, or a condition involving or resulting
from same, has come to be located in, on, under or about the Demised Premises,
other than as previously consented to by Sublandlord, Subtenant shall
immediately give written notice of such fact to Sublandlord, Subtenant shall
also immediately give Sublandlord a copy of any statement, report, notice,
registration, application, permit, business plan, license, claim, action or
proceeding given to, or received from, any governmental authority or private
party, or persons entering or occupying the Demised Premises, concerning the
presence, spill, release, discharge of, or exposure to, any Hazardous Substance
or contamination in, on, or about the Demised Premises, including but not
limited to all such documents as may be involved in any Reportable Uses
involving the Demised Premises.

(c) Indemnification. Subtenant shall indemnify, protect, defend
and hold Prime Landlord, Sublandlord, their Authorized Representatives and
lenders, harmless from and against any and all loss of rents, Claims and
penalties arising out of or involving any Hazardous Substance or storage tank
brought onto the Demised Premises, or the Shopping Center by or for Subtenant or
under Subtenant's control. Subtenant's obligations under this Paragraph 6.3
shall include, but not be limited to, the effects of any contamination or injury
to person, property or the environment created or suffered by Subtenant, and the
cost of investigation (including consultants and attorney's fees and testing),
removal, remediation, restoration and/or abatement thereof, or of any
contamination therein involved, and shall survive the expiration or earlier
termination of this Sublease. No termination, cancellation or release agreement
entered into by Sublandlord and Subtenant shall release Subtenant from its
obligations under this Sublease with respect to Hazardous Substances or

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storage tanks brought onto the Demised Premises by Subtenant, unless
specifically so agreed by Sublandlord in writing at the time of such agreement.

6.4 No Continuous Operation. Notwithstanding any other provision of this
Sublease, but subject to Subtenant's obligation to open the Demised Premises
pursuant to Paragraph 6.4, Subtenant does not covenant or agree to any
obligation to continuously use or operate the Demised Premises during the Term,
and nothing in this Sublease shall be deemed to impose any obligation of
continuous use or operation on Subtenant. If a retail business is not being
operated at the Demised Premises for a period of ninety (90) consecutive days or
more (excluding periods of damage or related repairs), then Sublandlord shall
have the right, but not the obligation, to terminate this Sublease upon delivery
of written notice to Subtenant ("Sublandlord Termination Notice"), provided said
notice is received by Subtenant prior to the recommencement of the operation of
a retail business. The termination shall be effective thirty (30) days after
receipt of Sublandlord's Termination Notice. Notwithstanding the foregoing,
Subtenant shall have the right to nullify Sublandlord's Termination Notice by
delivering written notice to Sublandlord ("Subtenant's Reopening Notice") within
fifteen (15) days after receipt of Sublandlord's Termination Notice that
Subtenant shall reopen for business and Subtenant in good faith does open the
Demised Premises for business to the public within ninety (90) days after the
delivery of Subtenant's Reopening Notice. This termination right shall not apply
during, or with respect to, times when the Demised Premises are untenantable by
reason of fire or other casualty.

6.5 Signs. Subject to obtaining the prior consent of Prime Landlord
under the Prime Lease, Subtenant shall have the right to occupy the existing
Ernst position on each of the two pylon signs referred to in Paragraph 2 of the
Sixth Article of the Prime Lease, provided Subtenant pays to Prime Landlord the
rental required under Paragraph 2 of the Sixth Article of the Prime Lease.
Subject to the terms of the Prime Lease, Subtenant shall have the right to
maintain and/or replace any signs on the Demised Premises as Subtenant may
desire for the advertisement of its business. Notwithstanding the foregoing, all
of Subtenant's exterior signs shall be subject to Sublandlord's prior written
approval as to design, location, size and type, which approval shall not be
unreasonably withheld. During the Term, Subtenant shall not be required to
remove its sign unless required by Law or the Prime Lease or unless the same are
in need of repair or replacement. Subtenant shall maintain all such signs, at
Subtenants sole cost and expense, in good operating condition and repair and
shall remove all signs and appliques upon the expiration or sooner termination
of this Sublease, together with the repair of any damage caused thereby.

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<PAGE> 22
7. COMMON AREAS.

7.1 Description of Common Areas. The term "Common Areas" means all are
facilities that are provided and designated under the Prime Lease for the
general use and convenience of Sublandlord, as the Prime Tenant, and other
tenants of the Shopping Center including, pedestrian walkways, parking areas,
driveways and roads.

7.2 Subtenant's Right to Use. Subject to Paragraph 7.3, below, and the
terms of the Prime Lease, Sublandlord grants to Subtenant and its Authorized
Representatives those nonexclusive rights which are granted to Sublandlord under
the Prime Lease to use the Common Areas during the Term. In connection
therewith, the seventh sentence of the Sixteenth Article of the Prime Lease is
incorporated herein and made a part hereof. Sublandlord reserves to itself the
right to use the Common Areas, together with others who are entitled to use the
Common Areas, subject to the provisions of this Sublease. Subtenant shall keep
the Common Areas free and clear of any obstructions created or permitted by
Subtenant or resulting from Subtenant's operations.

7.3 Maintenance and Management of Common Area. Subtenant acknowledges
that pursuant to the Fourth Article, Seventeenth Article and other Articles of
the Prime Lease, Prime Landlord has various duties and obligations to operate,
maintain, repair, insure and replace the Common Area and that Sublandlord has no
such duty or obligation under this Sublease. Subtenant shall pay to Sublandlord
Subtenant's Percentage Share of all costs and expenses incurred by or payable to
Prime Landlord under the Prime Lease to operate, maintain, repair, insure and
replace the Common Area to the extent that such costs are required to be paid by
Sublandlord as the Prime Tenant under the Prime Lease. Such costs shall be paid
by Subtenant to Sublandlord as and when such costs are required to be paid by
Sublandlord to Prime Landlord under the Prime Lease.

8. TAXES.

8.1 "Real Estate Taxes" Defined. The term "Real Estate Taxes" shall mean
all of those taxes, levies, assessments, charges or other similar costs required
to be paid by Sublandlord as the Prime Tenant under the Prime Lease, including
Section (2) of the Second Article thereof.

8.2 Payment of Real Estate Taxes. Subtenant shall pay to Sublandlord
Subtenant's Percentage Share all Real Estate Taxes as and when such taxes are
required to be paid by Sublandlord to Prime Landlord under the Prime Lease.

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8.3 Personal Property Taxes. Subtenant shall pay before delinquency all
taxes, assessments, license fees, and other charges (collectively, "Taxes") that
are levied or assessed against Subtenant during the Term, including, but not
limited to, Taxes levied or assessed against Subtenant's leasehold interest or
Subtenant's Personal Property, Alterations, Subtenant's Work, or Subtenant's
Trade Fixtures installed or located in or on the Demised Premises. On demand by
Sublandlord, Subtenant shall furnish Sublandlord with satisfactory evidence of
these payments.

9. UTILITIES.

Subtenant shall make all arrangements for and pay for all utilities and
services furnished to or used by it, including, without limitation, gas,
electricity, water, telephone service, and trash collection, and for all
connection charges. If the Demised Premises are not separately metered,
Subtenant shall pay a portion of such charges and fees to Sublandlord within ten
(10) days after Sublandlord has delivered notice to Subtenant specifying the
portion of such charges allocable to the Demised Premises. If any such charges
are not paid when due, Sublandlord may, after notice to Subtenant, pay the same,
and any amount so paid by Sublandlord shall thereupon become due to Sublandlord
from Subtenant as additional rent together with interest thereon at the Overdue
Rate. Sublandlord shall not be liable in damages or otherwise for any failure or
interruption of any utility service being furnished to the Demised Premises and
no such failure or interruption shall entitle Subtenant to an abatement of rent
or to terminate this Sublease. In the event of such interruption by the utility
service provider, Sublandlord shall, upon Subtenant's written request and
without additional cost to Sublandlord, cooperate with Subtenant in seeking from
the utility service provider restoration of the utility service.

10. MAINTENANCE AND REPAIR; ALTERATIONS.

10.1 Sublandlord's Obligations and Subtenant's Maintenance. Subtenant
hereby acknowledges and agrees that pursuant to the Fourth Article of the Prime
Lease Prime Landlord has no duties and obligations to maintain and repair any
part of the Demised Premises except as otherwise set forth in the Fourth Article
of the Prime Lease, and that any and all duties or obligations with respect
thereto as set forth in the Fourth and Fifth Articles of the Prime Lease shall
be undertaken by Subtenant.

10.2 Construction of Alterations. Except as provided in Paragraph 5.2
above, Subtenant shall not make any Alterations to the Demised Premises without
Sublandlord's and Prime Landlord's prior written consent, which consent shall
not be unreasonably withheld, conditioned or delayed. Notwithstanding the
foregoing, Subtenant shall have the right (a) to place or install in the Demised
Premises such

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<PAGE> 24
fixtures and equipment as Subtenant shall deem desirable for the conduct of bus
therein and to select the paint color it desires for the interior of the Demised
Premises, and Prime Landlord so consents, to make such further Alterations as
Subtenant reasonably d necessary to operate the Demised Premises as a G. I.
Joe's store consistent with standards apply to other such stores in comparable
locations in the United States. Any such Alterations shall be performed in
accordance with the terms and conditions of Exhibit H. Any Alterations made
remain on and be surrendered with the Demised Premises on expiration or
termination of the Term, except that Sublandlord can elect, by delivery of
written notice, to require Subtenant to remove any Alterations that Subtenant
has made to the Demised Premises. If Sublandlord so elects, Subtenant at its
cost shall remove such Alterations and restore the Demised Premises to the
condition existing prior to such Alteration (but in all events a good condition)
before the last day of the Term. If Subtenant makes any Alterations to the
Demised Premises as provided in this paragraph, the Alterations shall not be
commenced until ten (10) business days after Sublandlord has received written
notice from Subtenant stating the date the installation of the Alterations is to
commence so that Sublandlord and Prime Landlord can post and record an
appropriate notice of nonresponsibility

10.3 Mechanic's Liens. Subtenant shall pay all costs for construction
done by it or caused to be done by it on the Demised Premises as permitted by
this Sublease. Subtenant shall keep the Demised Premises, the Building and the
Shopping Center free and clear of all mechanics' liens or other liens resulting
from construction done by or for Subtenant. Subtenant shall have the right to
contest the correctness or the validity of any such lien if, immediately on
demand of Sublandlord, Subtenant procures and records a hen release bond issued
by a corporation authorized to issue surety bonds in the State of Washington in
an amount equal to one and one-half times the amount of the claim of lien. The
bond shall meet the requirements of any applicable Law and shall provide for the
payment of any sum that the claimant may recover on the claim (together with
costs of suit, if it recovers in the action).

11. INSURANCE, WAIVERS, MDEMNIFICATION.

11.1 Liability Insurance. Subtenant, at its cost, shall maintain
commercial general liability insurance and products liability insurance in the
minimum amount(s) specified in the Fundamental Lease Provisions, insuring
against all liability of Subtenant and its Authorized Representatives arising
out of and in connection with Subtenants use or occupancy of the Demised
Premises or the Shopping Center and the business conducted by Subtenant or any
other persons within the Demised Premises. Such insurance shall include a Broad
Form Contractual liability insurance coverage insuring performance by Subtenant
of the indemnity

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provisions of Paragraph 11.7. All such policies shall be written to apply to all
bodily injury, property damage, personal injury and other covered loss, however
occasioned, occurring during the policy term. Such coverage shall also contain
endorsements: (i) deleting any employee exclusion on personal injury coverage;
(ii) including employees as additional insureds; (iii) deleting any liquor
liability exclusions; and (iv) providing for coverage of employer's automobile
non-ownership liability. All such insurance shall afford coverage for all claims
based on acts, omissions, injury and damage, which claims occurred or arose (or
the onset of which occurred or arose) in whole or in part during the policy
period. Subtenant shall also maintain Workers' Compensation and any other
insurance which may be required in accordance with applicable Law.

11.2 Subtenant's Personal Property, Fire, and Plate Glass Insurance. At
all times during the Term, Subtenant, at its cost, shall maintain on all
Subtenant's Personal Property, Subtenant's Work and Alterations, in, on, or
about the Demised Premises, a policy of standard fire and extended coverage
insurance, with vandalism and malicious mischief endorsements, to the extent of
at least one hundred percent (100%) of their replacement value. The proceeds
from any such policy shall be used by Subtenant for the replacement of
Subtenant's Personal Property or the restoration of Subtenant's Work or
Alterations. Subtenant shall also, at its cost, maintain full coverage plate
glass insurance on the Demised Premises. Sublandlord, Prime Landlord and their
respective Mortgagees (as defined in Paragraph 14.5) shall be named as insureds
on all such policies.

11.3 Fire Insurance - Demised Premises. Subtenant hereby acknowledges
and agrees that Prime Landlord has no, duties and obligations regarding fire
insurance for the Demised Premises, and that any and all duties and obligations
of Sublandlord to so insure the Demised Premises shall be undertaken by
Subtenant. Paragraph 5 of the Fifth Article of the Prime Lease is incorporated
herein and made a part of this Sublease. If at any time Prime Landlord provides
such insurance on the Demised Premises, then Subtenant shall be relieved of its
obligation to obtain such insurance, and in lieu thereof Subtenant shall pay to
Sublandlord all premiums and other costs or expenses required to be paid by
Sublandlord to Prime Landlord as the Prime Tenant under the Prime Lease, as and
when such amounts are required to be paid by Sublandlord under the Prime Lease.
If at any time Sublandlord elects to provide such insurance on the Demised
Premises, Subtenant shall pay to Sublandlord all premiums and costs in
connection with such insurance within fifteen (15) days after Sublandlord
delivers to Subtenant an invoice therefor.

11.4 Other Insurance Matters. All insurance required to be maintained by
Subtenant under this Sublease shall: (a) be issued by insurance companies

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authorized to do business in the State of Washington, with a financial rating of
at least A XII as rated in the most recent edition of Best's Insurance Reports;
(b) be issued as a primary policy, and any insurance held by Sublandlord or
Prime Landlord shall be excess insurance; (c) contain an endorsement requiring
thirty (30) days' prior written notice from the insurance company to both
parties, Prime Landlord and the Mortgagee of Sublandlord and the Prime Landlord,
if any, before cancellation or change in the coverage, scope, or amount of any
policy; (d) require Subtenant to deposit with Sublandlord prior to the
commencement of the Term, a certificate of all insurance policies required under
this Sublease (which certificate shall state that Sublandlord may rely thereon)
and Subtenant shall also deliver certificates of renewal not less than thirty
(30) days before expiration of the term of each of the policies; (e) name
Sublandlord and Prime Landlord and Sublandlord's and Prime Landlord's respective
Mortgagee as additional 'insureds; (f) provide for severability of interests and
that an act or omission of one of the parties insured under the policy shall not
reduce or avoid coverage to the other parties insured under the policy; and (g)
be subject to reasonable increase, not more frequently than every two (2) years,
if in the opinion of the insurance broker retained by Sublandlord, the amount of
insurance coverage maintained by Subtenant at that time is not adequate. In such
case, Subtenant shall increase the insurance coverage as reasonably required by
Sublandlord's insurance broker.

11.5 Waiver of Subrogation. The parties release and waive any Claims
against each other, and their respective officers, directors, partners,
employees, agents, licensees and invitees for right to recovery for damage or
injury to such waiving party or the property of such waiving party or the
property of others under the waiving party's control to the extent such injury
or damage is covered by insurance which is required to be, or which actually is,
carried by the other party. The release and waiver by Subtenant shall expressly
extend to Prime Landlord and Prime Landlord's Authorized Representatives. Each
party shall cause each insurance policy obtained by such party as required under
this Lease to provide that the insurance company waives all right of recovery by
way of subrogation as specified above in connection with any damage or injury
covered by such policy. The parties shall use reasonable efforts to obtain
insurance policies which do not charge an additional premium for such waivers of
subrogation. If, after exercise of such reasonable efforts, an insurer requires
the payment of an additional premium for such waiver of subrogation, the party
undertaking to obtain the insurance shall notify the other party of the amount
of such additional premium. The other party shall have a period of ten (10) days
after receiving the notice to deliver payment of such additional premium to the
other party. If such party refuses to pay the additional premium charged, the
other party is relieved of the obligation to obtain a waiver of subrogation
rights with respect

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to the particular insurance involved, provided, however, the foregoing waiver
and release with respect to injury or damage covered by such policy shall still
apply.

11.6 Exculpation of Sublandlord. Except to the extent of Sublandlord's
negligence or intentional acts, neither Sublandlord nor Sublandlord's Authorized
Representatives shall be liable to Subtenant for any damage from any cause to
Subtenant or Subtenant's property, including, but not limited to, lost profits
and consequential damages. Subtenant waives and releases all claims against
Sublandlord for damage to person or property, including, but not limited to,
lost profits and consequential damages, arising for any reason, except that
Sublandlord shall be liable to Subtenant for damage to Subtenant resulting from
the negligent acts or omissions of Sublandlord or its Authorized Representatives
acting within the scope of their authority.

11.7 Indemnification. Subtenant shall indemnify, protect, defend and
hold Sublandlord and Prime Landlord and the Authorized Representatives of
Sublandlord and Prime Landlord harmless from all Claims arising out of the use
of the Demised Premises by, or resulting from the acts or omissions of,
Subtenant or Subtenants Authorized Representatives occurring in, on or about the
Demised Premises and the Shopping Center and from a breach of any duties or
obligations of Subtenant hereunder. Sublandlord shall indemnify, protect, defend
and hold harmless Subtenant and Subtenant! s Authorized Representatives from all
Claims arising out of or resulting from the acts or omissions of Sublandlord or
Sublandlord's Authorized Representatives occurring in, on or about the Demised
Premises and the Shopping Center and from a breach of any duties or obligations
of Sublandlord hereunder.

12. DAMAGE AND DESTRUCTION, CONDEMNATION

12.1 Damage and Destruction. If, during the Term, the Demised Premises
are totally or partially damaged or destroyed, Sublandlord shall use reasonable
efforts to cause the Prime Landlord to repair, restore and rebuild the same in
the manner provided under the Prime Lease with all reasonable dispatch and
diligence. Such damage or destruction shall not terminate this Sublease unless
the Prime Landlord has the right to terminate the Prime Lease under the terms of
the Prime Lease. Notwithstanding the foregoing, if the existing Laws do not
permit the restoration, either party can terminate this Sublease immediately by
delivering notice to the other party within sixty (60) days after such damage or
destruction. If the Prime Landlord restores the Demised Premises, Subtenant
shall be required to immediately commence and diligently pursue the restoration
of Subtenant's Work, Subtenant's Trade Fixtures and Subtenant's Personal
Property. Such items shall be the sole responsibility of Subtenant to restore
and Sublandlord shall have no responsibility for

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such restoration. Notwithstanding anything to the contrary herein, Subtenant
shall have the right to terminate this Sublease if the Demised Premises cannot
be restored or are not actually restored within three hundred (300) days after
the damage or destruction, to substantially the same condition which existed
prior to any damage or destruction, as determined in the sole, but reasonable,
discretion of Sublandlord's architect or contractor. If Subtenant desires to so
terminate this Sublease, Subtenant must notify Sublandlord in writing of
Subtenant's election within fifteen (15) days after receipt of Sublandlord's
architect or contractor's estimate of the restoration time period or, if the
restoration period exceeds the three hundred (300) day period, within fifteen
(15) days after the expiration of the three hundred (300) day period, as the
case may be. If Subtenant so notifies Sublandlord, this Sublease shall be deemed
terminated as of the date of such damage or destruction. Notwithstanding any
contrary provision of this Sublease, if damage or destruction to the Demised
Premises occurs during the last eighteen (18) months of the Term and the extent
of the damage is such that Sublandlord as the Prime Tenant under the Prime Lease
has the right to terminate the Prime Lease, either Sublandlord or Subtenant can
terminate this Sublease by delivering notice to the other party not more than
fifteen (15) days after the event causing such damage or destruction, unless
Subtenant exercises any unexercised Options hereunder within ten (10) days after
receipt of Sublandlord's notice terminating this Sublease, in which case this
Sublease shall continue in full force and effect. Unless the damage or
destruction is caused by Subtenant's willful misconduct, Minimum Monthly Rent
shall abate to the extent that, and for so long as, minimum rental is abated
under the Prime Lease. In the event this Sublease is terminated pursuant to this
Section 12, Minimum Monthly Rent, additional rent and all other charges payable
by Subtenant hereunder shall be abated as of the date of the casualty. In the
event of damage or destruction to the Demised Premises which results in the
termination of the Prime Lease (including by exercise of those rights to
terminate the Prime Lease, as more specifically set forth therein), this
Sublease shall similarly terminate without any further liability. The provisions
of this Sublease are intended to exclusively govern the parties' obligations
concerning continuation of the tenancy following damage or destruction to the
Demised Premises. Accordingly, Sublandlord and Subtenant waive the provisions of
any Laws with respect to any damage or destruction of the Demised Premises or
any rights of the parties hereto to terminate this Sublease in the event of such
damage or destruction.

12.2 Condemnation. In the event any part of the Demised Premises or
Common Area is taken or condemned by any competent authority or is conveyed by
deed in lieu of condemnation (a "Taking") and Sublandlord as the Prime Tenant
has the right to terminate the Prime Lease, Subtenant shall have the right to
terminate this Sublease within forty-five (45) days after the earlier of the
date of title transfer or the date of taking of possession by the condemning
authority. If there is a Taking of a

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<PAGE> 29
portion of the Demised Premises, and this Sublease is not terminated, all of the
terms of this Sublease shall continue in effect, except that Minimum Monthly
Rent shall be reduced to the same extent, and for so long as, minimum rental is
reduced under the Prime Lease. If Subtenant does not elect to terminate this
Sublease as set forth herein and if the Prime Lease is not terminated as
permitted under the terms of the Prime Lease, then Sublandlord shall use
reasonable efforts to cause the Prime Landlord to make all necessary repairs or
alterations to the Demised Premises or the Common Area as required under the
Prime Lease. Subtenant shall not have any right to any portion of the proceeds
of any award for a Taking of the Demised Premises; provided, however, Subtenant
may make separate claim for the Taking of its fixtures, leasehold improvements,
and expenses for moving Subtenant's fixtures, stock in trade and inventory. In
the event of a Taking which results in the termination of the Prime Lease
(including by exercise of those rights to terminate the Prime Lease, as more
specifically set forth therein), this Sublease shall similarly terminate without
any further liability. Sublandlord and Subtenant hereby waive the provisions of
any applicable Law allowing either party to petition the court with jurisdiction
thereof to terminate this Sublease in the event of a Taking of the Demised
Premises or the Common Area.

13. ASSIGNMENT AND SUBLEASE.

13.1 Sublandlord's Consent. Subtenant shall not assign this Lease nor
sublet the Demised Premises without the consent of Sublandlord, which consent
shall not be unreasonably withheld; and in the case of any such assignment or
subletting, Subtenant shall nevertheless remain primarily liable to Sublandlord
for all of Subtenant's obligation under this Sublease. Notwithstanding the
foregoing, if Sublandlord consents to an assignment or sublease, Subtenant
acknowledges that Prime Landlords consent is still required under the Prime
Lease and Sublandlord agrees to use reasonable efforts and diligence to obtain
such consent.

13.2 Right of Recapture. If Subtenant desires to assign its interest in
the Sublease, or sublet any or all of the Demised Premises, to any person or
business organization, then Subtenant shall request Sublandlord's consent to the
intended assignment or subletting and give Sublandlord notice of the intended
assignment or subletting and the intended date thereof and the name of the
business organization involved and the effective date of the intended assignment
or subletting and the amount of the unamortized cost hereinafter referred to.
If, within fifteen (15) days after the giving of such notice by Subtenant to
Sublandlord of such intended assignment or subletting, Sublandlord gives notice
to Subtenant that Sublandlord elects to terminate this Sublease as of said
intended date of said assignment or subletting and Subtenant does not within
five (5) days withdraw its request to assign

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or sublet, then this Sublease shall terminate on said intended date as if said
intended date were the date originally fixed herein for the termination hereof.

13.3 No Release of Subtenant. No transfer or subletting by Subtenant
shall relieve Subtenant of the obligations to be performed by Subtenant under
this Sublease, whether occurring before or after such consent, transfer or
subletting. The acceptance by Sublandlord of payment from any other person shall
not be deemed to be a waiver by Sublandlord of any provision of this Sublease or
to be a consent to any transfer or sublease, or to be a release of Subtenant
from any obligation under this Sublease. If this Sublease is assigned or
transferred, or if the Demised Premises or any part thereof are sublet or
occupied by any person other than Subtenant, Sublandlord may, after default by
Subtenant; collect the rent from any such transferee, subtenant or occupant and
apply the net amount collected to the rent reserved herein, and no such action
by Sublandlord shall be deemed a consent to such transfer, sublease or
occupancy.

13.4 Assumption of Obligations. Each transferee of Subtenant shall
assume all obligations of Subtenant under this Sublease and shall be and remain
liable jointly and severally with Subtenant for the payment of the rent and the
performance of all the terms, covenants, conditions and agreements herein
contained on Subtenants part to be performed for the Term. No transfer shall be
binding on Sublandlord unless the transferee or Subtenant delivers to
Sublandlord a counterpart of the instrument of transfer in recordable form which
contains a covenant of assumption by the transferee satisfactory in substance
and form to Sublandlord, consistent with the requirements of this section. The
failure or refusal of the transferee to execute such instrument of assumption
shall not release or discharge the transferee from its liability to Sublandlord
hereunder. Sublandlord shall have no obligation whatsoever to perform any duty
to or respond to any request from any Subtenant; it being the obligation of
Subtenant to administer the terms of its subleases.

13.5 Involuntary Assignment. No interest of Subtenant in this Sublease
shall be assignable by operation of law, including, without limitation, the
transfer of this Sublease by testacy or intestacy. Each of the following acts
shall be considered an involuntary assignment: (a) if subtenant is or becomes
bankrupt or insolvent makes an assignment for the benefit of creditors, or if a
proceeding under the Bankruptcy Act is instituted in which Subtenant is the
"debtor"; (b) if a writ of attachment or execution is levied on this Sublease;
and (c) if, in any proceeding or action to which Subtenant is a party, a
receiver is appointed with authority to take possession of the Demised Premises.
An involuntary assignment shall constitute an incurable default by Subtenant and
Sublandlord shall have the right to elect to

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terminate this Sublease, in which case this Sublease shall not be treated as an
asset of Subtenant.

13.6 Deemed Transfers. If Subtenant is a corporation, company or other
legal entity or is an unincorporated association or partnership, the transfer,
assignment or hypothecation of any stock or interest in such corporation,
association or partnership in the aggregate from the date of execution of this
Sublease in excess of fifty percent (50%) shall be deemed an assignment or
transfer within the meaning and provisions of this section.

13.7 Assignment of Sublease Rents. Subtenant immediately and irrevocably
assigns to Sublandlord all rent from any subletting of all or any part of the
Demised Premises, and Sublandlord, as assignee and as attorney-in-fact for
Subtenant for purposes hereof, or a receiver for Subtenant appointed on
Sublandlord's application, may collect such rents and apply same toward
Subtenant! s obligations under this Sublease; provided, however, that until the
occurrence of an event of default by Subtenant, Subtenant shall have the right
and license to collect such rents.

13.8 Subletting. Any percentage or similar additional rent payable by
any subtenant, assignee, concessionaire or other licensee of Subtenant or any
party deriving its interest by or through any such party ("Licensee") based on
such Licensee's operations on, from or in connection with the Demised Premises
shall be based solely on such Licensee's gross sales (as defined in the Prime
Lease) rather than such Licensee's income or profit, subject, however, to
deductions and exclusions consistent with the definition of percentage rent or
gross sales in the Prime Lease.

14. DEFAULT.

14.1 Subtenant's Default.

(a) Definition of Default. The occurrence of any of the following
shall constitute a default by Subtenant:

(1) Failure to pay Rent when due where such failure shall
continue for five (5) business days after notice has been delivered to Subtenant
(which notice shall be in lieu of, and not in addition to, any notice required
under Law to terminate this Sublease or to declare a forfeiture thereof).

(2) Failure to perform any other provision of this Sublease if
the failure to perform is not cured within thirty (30) days after notice has
been delivered to Subtenant (which notice shall be in lieu of, and not in
addition to, any notice required under Law to terminate this Sublease or to
declare a forfeiture

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thereof). If the failure to perform cannot reasonably be cured within thirty
(30) days, Subtenant shall not be in default of this Sublease if Subtenant
commences to cure the failure to perform within five (5) days after
Sublandlord's notice and diligently and in good faith continues to pursue the
cure to completion.

(3) (i) The making by Subtenant of any general assignment for the
benefit of creditors, (ii) the filing by or against Subtenant of a petition to
have Subtenant adjudged a bankrupt or a petition for reorganization or
arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Subtenant, the same is dismissed within sixty (60) days),
(iii) the appointment of a trustee or receiver to take possession of
substantially all of Subtenant's assets located at the Demised Premises or of
Subtenant's interest in this Sublease, where possession is not restored to
Subtenant within sixty (60) days, or (iv) the attachment, execution or other
judicial seizure of substantially all of Subtenant's assets located at the
Demised Premises or of Subtenant's interest in this Sublease, where such seizure
is not discharged within sixty (60) days.

14.2 Sublandlord's Remedies for Subtenant's Default. Sublandlord shall
have the following remedies if Subtenant commits a default. These remedies are
not exclusive and are cumulative and in addition to any remedies now or later
allowed by Law.

(a) Sublandlord can continue this Sublease in full force and
effect, and the Sublease will continue in effect as long as Sublandlord does not
terminate Subtenant's right to possession, and Sublandlord shall have the right
to collect rent when due, all in accordance with Washington Law. During the
period Subtenant is in default, Sublandlord can enter the Demised Premises and
re-let them, or any part of them, to third parties for Subtenant's account.
Subtenant shall be liable immediately to Sublandlord for all costs Sublandlord
incurs in re-letting the Demised Premises. Re-letting can be for a period
shorter or longer than the remaining term of this Sublease. Subtenant shall pay
to Sublandlord the rent due under this Sublease on the dates the rent is due,
less the rent Sublandlord receives from any re-letting. No act by Sublandlord
allowed by this paragraph shall terminate this Sublease unless Sublandlord
notifies Subtenant in writing that Sublandlord elects to terminate this
Sublease. Sublandlord, as attorney-in-fact for Subtenant, may from time to time
sublet the Demised Premises or any part thereof for such term or terms (which
may extend beyond the Term of this Sublease) and at such rent and such other
terms as Sublandlord in its sole discretion may deem advisable, with the right
to make alterations and repairs to the Demised Premises. Sublandlord shall be
required to use reasonable efforts to re-let the Demised Premises. Sublandlord's
rejection of a prospective replacement tenant based on an offer of rentals below
the rates provided

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in this Sublease, or containing terms less favorable than those contained
herein, shall not give rise to a claim by Subtenant that Sublandlord failed to
make reasonable efforts to re-let the Demised Premises. Upon each subletting,
Subtenant shall be immediately liable to pay to Sublandlord, in addition to
indebtedness other than rent due hereunder, the cost of such subletting and such
alterations and repairs performed by Sublandlord in connection with such
subletting to return the Demised Premises to a good condition. At the option of
Sublandlord, rents received from such subletting shall be applied first, to
payment of any indebtedness other than rent due hereunder, from Subtenant to
Sublandlord; second to the payment of any costs of such subletting and of such
alterations and repairs; third, to payment of rent due and unpaid hereunder; and
the residue, if any, shall be held by Sublandlord and applied in payment of
future rent as the same becomes due hereunder. If the amounts received from such
subletting during that month, as applied by Sublandlord as specified above, are
less than the amounts required to be paid during that month by Subtenant
hereunder, Subtenant shall pay any such deficiency to Sublandlord. Such
deficiency shall be calculated and paid monthly. For all purposes set forth in
this subparagraph, Sublandlord is hereby irrevocably appointed attorney-in-fact
for Subtenant, with power of substitution. Taking possession of the Demised
Premises by Sublandlord, as attorney-in-fact for Subtenant, shall not be
construed as an election on Sublandlord's part to terminate this Sublease unless
a written notice of such intention is given to Subtenant.

(b) Sublandlord can terminate Subtenant's right to possession of
the Demised Premises at any time. No act by Sublandlord other than giving
written notice to Subtenant shall terminate this Sublease. Acts of maintenance,
efforts to re-let the Demised Premises, or the appointment of a receiver on
Sublandlord's initiative to protect Sublandlord's interest under this Sublease
shall not constitute a termination of Subtenant's right to possession. On
termination, Sublandlord has the right to recover from Subtenant all amounts
permitted by law, including without limitation:

(1) The worth, at the time of the award, of the unpaid
rent that had been earned at the time of termination of this Sublease.

(2) The worth, at the time of the award, of the amount by
which the unpaid rent that would have been earned after the date of termination
of this Sublease until the time of award exceeds the amount of the loss of rent
that Subtenant proves could have been reasonably avoided;

(3) The worth, at the time of the award, of the amount by
which the unpaid rent for the balance of the Term after the time of award
exceeds the

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amount of the loss of rent that Subtenant proves could have been reasonably
avoided, and

(4) Any other amount, including legal fees and court
costs, necessary to compensate Sublandlord for all detriment proximately caused
by Subtenant's default.

"The worth, at the time of the award," as referred to in
subparagraph (3) of this subparagraph, is to be computed by discounting the
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of the award, plus one percent (1%).

(c) If Subtenant is in default under this Sublease, Sublandlord
shall have the right to have a receiver appointed to collect rent. Neither
filing of a petition for the appointment of a receiver nor the appointment
itself shall constitute an election by Sublandlord to terminate this Sublease.

(d) Sublandlord, at any time after Subtenant commits a default,
can cure the default at Subtenant's cost. If Sublandlord at any time, by reason
of Subtenants default, pays a sum or does any act that requires the payment of
any sum, the sum paid by Sublandlord shall be due immediately from Subtenant to
Sublandlord at the time the sum is paid, and if paid at a later date shall bear
interest at the Overdue Rate from the date the sum is paid by Sublandlord until
Sublandlord is reimbursed by Subtenant. The sum, together with interest on it,
shall be additional rent.

(e) All costs and expenses (including attorneys' fees) incurred
by Sub landlord in collecting rent or enforcing Subtenant's obligations under
the Sublease shall be paid by Subtenant to Sublandlord upon demand.

14.3 Interest on Unpaid Rent. Rent not paid when due shall bear simple
interest Overdue Rate from the date due until paid.

14.4 Late Charges. Subtenant acknowledges that late payment by Subtenant
to Sublandlord of any amount due under this Sublease or the delivery of a check
by Subtenant which is dishonored or returned by the bank upon which said check
is drawn will cause Sublandlord to incur costs not contemplated by this
Sublease, the exact amount of such costs being extremely difficult and
impracticable to fix. Such costs include, without limitation, processing and
accounting charges, and late charges that may be imposed on Sublandlord by the
terms of any encumbrance and note secured by any encumbrance covering the
Demised Premises. Therefore, if (a) any amount payable by Subtenant is not
received by Sublandlord within five (5) days after the due date thereof, or (b)
Subtenant delivers a check to Sublandlord which

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is dishonored or returned by the bank upon which said check is drawn (with each
event set forth in clauses (a) and (b) being referred to herein as a "late
payment"), Subtenant shall pay to Sublandlord an additional sum of three percent
(3%) of the overdue amount or the amount of such dishonored or returned check,
as the case may be (the "late charge"). The parties agree that this charge
represents a fair and reasonable estimate of the costs that Sublandlord will
incur by reason of such late payment or delivery of such check by Subtenant.
Acceptance of any such charge shall not constitute a waiver of Subtenant's
default with respect to the overdue or unpaid amount, or prevent Sublandlord
from exercising any of the other rights and remedies available to Sublandlord.
If Sublandlord prepares and serves any notice on Subtenant to terminate this
Sublease or to declare a forfeiture thereof, Subtenant also shall pay to
Sublandlord the reasonable cost of preparing and serving such notice.

14.5 Sublandlord's or Prime Landlord's Default. In the case of a
monetary default by Sublandlord, Sublandlord shall have a period of ten (10)
days after receipt of written notice thereof from Subtenant to cure such
monetary default. In the case of a non-monetary default, Sublandlord shall
commence promptly to cure such default after receipt of written notice from
Subtenant specifying the nature of such default and shall complete such cure
within thirty (30) days provided that if the nature of the non-monetary default
is such that it cannot be cured within the thirty (30) day period, Sublandlord
shall have such additional time as may be reasonably necessary to complete its
performance so long as Sublandlord has proceeded with diligence following
receipt of Subtenant's notice and is then proceeding with diligence to cure such
default. Whenever Subtenant is required to deliver notice to Sublandlord of
Sublandlord's default or contends that Prime Landlord is in default under the
Prime Lease, written notice shall also be delivered at the same time to Prime
Landlord or the holder of any Encumbrance, provided that Sublandlord has
delivered prior notice of the identity and address of such holder or lessor to
Subtenant ("Mortgagee"). The Mortgagee shall have the same time periods within
which to cure such defaults as Sublandlord or Prime Landlord (as the case may
be) has to cure such defaults; provided, however, such periods for the Mortgagee
shall commence to run ten (10) days after the commencement of the periods within
which such default must be cured. In this connection, any representative of the
Mortgagee shall have the right to enter upon the Demised Premises for the
purpose of curing any such default.

15. LIMITATION OF LIABILITY.

Notwithstanding anything to the contrary in this Sublease, any judgment
obtained by Subtenant against Sublandlord shall be satisfied only out of
Sublandlord's interest in the Demised Premises, the Prime Lease, any sublease of
the Prime Lease and the rents receivable by Sublandlord therefrom. Neither
Sublandlord nor any of its

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general or limited partners, officers, directors, shareholders, members,
interest holders or beneficiaries shall have any personal liability for any
matter in connection with this Sublease or its obligations as Sublandlord of the
Demised Premises. Subtenant shall not institute, seek or enforce any personal or
deficiency judgment against Sublandlord or any of its general or limited
partners, officers, directors, shareholders, members, interest holders or
beneficiaries and none of their property, except the Sublandlord's right, title
and interest in the Prime Lease and any subleases of the Prime Lease and the
rents receivable by Sublandlord, shall be available to satisfy any judgment
hereunder.

16. SUBLANDLORD'S ENTRY ON PREMISES.

16.1 Right of Entry. Upon reasonable advance notice, Prime Landlord,
Sublandlord and Authorized Representatives of Prime Landlord or Sublandlord
shall have the right to enter the Demised Premises at all reasonable times
during Subtenant's normal business hours for any of the following purposes:

(a) To determine whether the Demised Premises are in good
condition and whether Subtenant is complying with its obligations under this
Sublease;

(b) To do any necessary maintenance and to make any restoration
to the Demised Premises that Sublandlord has the right or obligation to perform;

(d) To post "for sale" signs at any time during the Term, to post
"for rent" or "for lease" signs during the last six (6) months of the Term,
provided such signs are placed on the Demised Premises in an area approved by
Subtenant, which approval shall not be unreasonably withheld, conditioned or
delayed;

(e) At any time that Subtenant has elected not to continuously
use or operate the Demised Premises, to show the Demised Premises to prospective
brokers, agents, buyers, tenants, or persons interested in an exchange, at any
time during the Term; and

(f) To shore the foundations, footings, and walls of the Demised
Premises or the Shopping Center and to erect scaffolding and protective
barricades around and about the Demised Premises, but not so as to prevent entry
to the Demised Premises, and to do any other act or thing necessary for the
safety or preservation of the Demised Premises or the building and other
improvements in which the Demised

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Premises are located if any excavation or other construction is undertaken or is
about to be undertaken elsewhere in the Shopping Center or on any adjacent
property or nearby street. Sublandlord's right under this provision extends to
the owner of the adjacent property on which excavation or construction is to
take place and the adjacent property owner's Authorized Representatives.

16.2 Limited Liability for Entry. Sublandlord shall not be liable in any
manner for an inconvenience, disturbance, loss of business, nuisance, or other
damage arising out of Sublandlord's entry on the Demised Premises as provided in
this paragraph, except damage resulting from a breach of Sublandlord's Entry
Duties (as defined below in this paragraph), the negligence of Sublandlord or
its Authorized Representatives acting within the scope of their authority.
Subtenant shall not be entitled to an abatement or reduction of rent if
Sublandlord exercises any rights reserved in this paragraph, except that if
pursuant to this Section 16.2 Sublandlord denies reasonable access to the
Demised Premises for a reason other than a violation of a provision of this
Sublease by Subtenant, and on account thereof Subtenant cannot reasonably
operate for business at the Demised Premises, and does not operate for business
at the Demised Premises, in excess of two (2) consecutive full business days
after notice to Sublandlord, Minimum Monthly Rent shall abate from the end of
said period until the earlier of the date Subtenant reopens at the Premises or
such time as reasonable access is restored such that Subtenant can again
reasonably operate at the Demised Premises, except the aforesaid abatement shall
not apply to the extent Subtenant carries, or is required to carry, rent (or
business interruption) insurance. Sublandlord shall reasonably conduct its
activities in and about the Demised Premises as allowed in this paragraph in a
manner that will reasonably minimize the inconvenience, annoyance, or
disturbance to Subtenant("Sublandlord's Entry Duties").

17. SUBORDINATION.

This Sublease is and shall be subordinate to any ground lease or
Encumbrance recorded after the date of this Sublease affecting the Demised
Premises, provided that the ground lessor, mortgagee or beneficiary execute and
deliver to Subtenant an agreement in a form reasonably acceptable to Subtenant
where such party agrees not to disturb Subtenant's possession of the Demised
Premises so long as Subtenant is not in default under this Sublease after notice
and beyond any applicable cure period. Subtenant shall from time to time, on
request from Sublandlord, execute and deliver any documents or instruments that
may be required by a lender to effectuate any subordination. If Subtenant fails
to execute and deliver any such documents or instruments, Subtenant irrevocably
constitutes and appoints Sublandlord as Subtenant! s special attorney-in-fact to
execute and deliver any such documents or

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instruments. Nothing herein shall be construed to waive any breach resulting
from Subtenant's failure to execute documents to effectuate or confirm such
subordination.

18. WAIVER.

18.1 No Impairment of Rights. No delay, waiver or omission in the
exercise of any right or remedy of a party hereto on any default by the other
party hereto shall impair such a right or remedy or be construed as a waiver.

18.2 Acceptance of Rent. The receipt and acceptance by Sublandlord of
delinquent rent shall not constitute a waiver of any other default.

18.3 No Surrender. No act or conduct of Sublandlord, including, without
limitation, the acceptance of the keys to the Demised Premises, shall constitute
an acceptance of the surrender of the Demised Premises by Subtenant before the
expiration of the Term. Only a written notice from Sublandlord to Subtenant
shall constitute acceptance of the surrender of the Demised Premises and
accomplish a termination of this Sublease.

18.4 No Waiver of Consent. A party's consent to or approval of any act
by the other party requiring the first party's consent or approval shall not be
deemed to waive or render unnecessary such consent to or approval of any
subsequent act by the other party.

18.5 Written Waiver. Any waiver by a party hereto of any default by the
other party hereto must be in writing and shall not be a waiver of any other
default concerning the same or any other provision of this Sublease.

19. SALE OR TRANSFER OF PREMISES.

If Sublandlord sells or transfers any of Sublandlord's right, title or
interest in or to the Demised Premises or the Prime Lease, on consummation of
the sale or transfer, Sublandlord shall be released from any liability
thereafter accruing under this Sublease if Sublandlord's successor has assumed
in writing, for the benefit of Subtenant, Sublandlord's obligations under this
Sublease, Subtenant is so notified of such sale or transfer and Sublandlord
delivers to Sublandlord's successor any funds in which Subtenant has an
interest.

20. SURRENDER OF PREMISES.

20.1 Condition. On expiration of the Term, Subtenant shall surrender to
Sublandlord the Demised Premises and all Subtenants Work and Alterations in good
condition and repair (except for ordinary wear and tear and damage and

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destruction to the Demised Premises covered by Section 12) except for
Alterations that Subtenant is obligated to remove under the provisions of
Paragraph 10.2. Subtenant shall remove all of Subtenant' s Personal Property
within the above stated time. Subtenant shall perform all restoration made
necessary by the removal of any Alterations or Subtenant's Personal Property
before the expiration or earlier termination of the Term.

20.2 Removal of Subtenant's Property. If Subtenant fails to remove all
Alterations that Subtenant is obligated to remove and all Subtenant's Personal
Property and Subtenants Trade Fixtures from the Demised Premises, Sublandlord
can elect, without waiving any rights or remedies Sublandlord has against
Subtenant for such default, to retain or dispose of in any manner such
Alterations, Subtenant's Personal Property or Subtenant's Trade Fixtures.
Subtenant waives all claims against Sublandlord for any damage to Subtenant
resulting from Sublandlord's retention or disposition of any such Alterations or
Subtenant's Personal Property or Subtenant's Trade Fixtures. Subtenant shall be
liable to Sublandlord for Sublandlord's costs for storing, removing, and
disposing of any such Alterations or Subtenants Personal Property or Subtenant's
Trade Fixtures.

20.3 Damages in Case of Delay. If Subtenant fails to surrender the
Demised Premises to Sublandlord on expiration or earlier termination of the Term
as required by this paragraph, in addition to the provisions of Section 21,
Subtenant shall indemnify, protect, defend and hold Sublandlord harmless from
all claims, demands, damages, losses, liabilities, costs, fees and expenses
including reasonable attorneys' fees resulting from Subtenant's failure to
surrender the Demised Premises, including, without limitation, claims made by a
succeeding tenant from Subtenant's failure to timely surrender the Demised
Premises.

21. HOLDING OVER.

The Twelfth Article of the Prime Lease is incorporated herein and made a
part of this Sublease.

22. ESTOPPEL CERTIFICATES; FINANCIALS.

22.1 Delivery by Subtenant. Subtenant shall at any time and from time to
time upon not less than seven (7) days' prior written notice from Sublandlord
execute, acknowledge and deliver to Sublandlord a statement in writing (referred
to herein as an "Estoppel Certificate") (i) certifying that this Sublease is
unmodified and in full force and effect (or, if modified, stating the nature of
such modification and certifying that this Sublease, as so modified, is in full
force and effect) and the dates to which the Minimum Monthly Rent and other
charges are paid in advance, if any, (ii)

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acknowledging that there are not, to Subtenant's knowledge, any uncured defaults
on the part of Sublandlord hereunder, or specifying such defaults if any are
claimed, and (iii) covering such other matters as may be reasonably requested by
Sublandlord or by any present or prospective Sublandlord's Mortgagee. Any such
statement may be relied upon by any prospective purchaser, ground lessor or
encumbrance of the Demised Premises or of all or any portion of the real
property of which the Demised Premises are a part.

22.2 Failure to Deliver. Subtenants failure to deliver such statement
within such time, and within five (5) days after a second written notice, shall
constitute a material breach of this Sublease and shall be conclusive upon
Subtenant (i) that this Sublease is in full force and effect, without
modification except as may be represented by Sublandlord, (ii) that there are no
uncured defaults in Sublandlord's performance, (iii) that not more than one
month's Minimum Monthly Rent has been paid in advance, and (iv) as to such other
matters as may be specified in the requested statement.

22.3 Subtenant's Financial Data. Within fifteen (15) days after
Sublandlord's written request, but not more than once in any calendar year,
Subtenant shall furnish Sublandlord and Prime Landlord with financial statements
including, but not limited to, balance sheets, profit and loss statements,
income statements and changes to financial condition, which reflect Subtenant's
current financial condition. Any information obtained from Subtenant's financial
statements shall be confidential and shall not be disclosed to any third party,
other than to carry out the purposes of this Sublease; provided, however,
Sublandlord shall incur no liability for the inadvertent disclosure of any such
information, and Sublandlord may divulge the contents of any financial
statements of Subtenant in connection with any financing arrangement or
assignment of Sublandlord's interest in the Demised Premises or in connection
with any administrative or judicial proceedings or otherwise required by Law.

23. DEFINITIONS.

The definitions contained in this Sublease shall be used to interpret
this Sublease. As used herein, the following words and phrases shall have the
following meanings:

23.1 Alteration. The term "Alteration" shall mean any addition or change
to, or modification of, the Demised Premises made by Subtenant, including,
without limitation, fixtures (but excluding Subtenant's Trade Fixtures) and
Subtenant's Work as such terms are defined herein.

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23.2 Authorized Representative. The term "Authorized Representative"
shall mean any director, officer, agent, partner, employee, or independent
contractor of the specified party or the Prime Landlord or its successors or
assigns authorized to act for or on behalf of the specified party or the Prime
Landlord.

23.3 Building. The term "Building" shall mean the building on and part
of the Master Premises as defined or referenced under the Prime Lease.

23.4 Claims. The term "Claims" shall mean all liabilities, obligations,
claims, damages, losses, penalties, causes of action, judgments, costs and
expenses (including without limitation, reasonable attorneys' fees and
expenses).

23.5 Encumbrance. The term "Encumbrance" shall mean any deed of trust,
mortgage, or other written security device or agreement affecting the Shopping
Center, the Demised Premises, the Prime Lease or this Sublease, and the note or
other obligation secured by it, that constitutes security for the payment of a
debt or performance of an obligation. "Sublandlord's Mortgagee" shall mean the
holder of any such security interest that encumbers the interest of Sublandlord
under the Prime Lease and/or this Sublease.

23.6 Environmental Site Assessment. The term "Environmental Site
Assessment" shall mean that Environmental Site Assessment dated January 27,
1997, by Engeo, Incorporated, receipt of which is hereby acknowledged.

23.7 Lease Year. The term "Lease Year" have the same definition as
"lease year" under the Prime Lease, except that if the Rent Commencement Date
occurs on a date other than the first day of such Lease Year, the first Lease
Year shall be a partial lease year running from the Rent Commencement Date to
the end of the Lease Year in which the Rent Commencement Date occurs.

23.8 Floor Area. The term "Floor Area" shall mean all areas designated
by Sublandlord for the exclusive use of a Subtenant (other than the Common
Areas) measured from the exterior surface of exterior walls (and extensions, in
the case of openings) and to the center of demising walls, and shall include all
restrooms, warehouse or storage areas, clerical or office areas, employee areas
and similar areas.

23.9 Force Majeure. The term "Force Majeure" shall mean any prevention,
delay or stoppage due to strikes, lockouts, labor disputes, acts of God,
inability to obtain labor or materials or reasonable substitutes therefor,
governmental restrictions, governmental regulations, governmental controls,
judicial orders, enemy

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or hostile governmental action, civil commotion, fire or other casualty, and
other causes (financial inability or operating performance excluded) beyond the
reasonable control of the party obligated to perform.

23.10 Hazardous Substance. The term "Hazardous Substance" shall mean any
product, substance, chemical, material or waste whose presence, nature, quantity
and/or intensity of existence,

24. MISCELLANEOUS.

24.1 Time of Essence. Except as to performance of Sublandlord's work and
delivery to subtenant of possession of the Demised Premises, time is of the
essence of each provision of this Sublease in which time is an element.

24.2 Consent. Unless otherwise specified in this Sublease, whenever
consent or approval of either party is required, that party shall not
unreasonably withhold such consent or approval.

24.3 Corporate Authority. Subtenant shall deliver to Sublandlord on
execution of this Sublease a certified copy of a resolution of Subtenants board
of directors authorizing the execution of this Sublease and naming the officers
that are authorized to execute this Sublease on behalf of Subtenant.

24.4 Successors. Subject to Section 13, this Sublease shall be binding
on and inure to the benefit of the parties and their successors and assigns.

24.5 Payments. Rent and all other sums payable under this Sublease must
be paid in lawful money of the United States of America. All sums payable to
Sublandlord under this Sublease other than Minimum. Monthly Rent and Percentage
Rent shall be deemed to be additional rent, and Sublandlord shall have the same
remedies against Subtenant for the failure to pay such sums when and as due, as
Sublandlord has for Subtenant's failure to pay Minimum Monthly Rent or
Percentage Rent.

24.6 Incorporation by Reference. All exhibits referred to are attached
to this Sublease and incorporated by reference.

24.7 No Merger. No merger shall occur as a result of one entity holding
or acquiring the right, title and interest of the Prime Landlord under the Prime
Lease and the right, title and interest of the Sublandlord hereunder and/or the
Prime Tenant under the Prime Lease unless such party consents to a merger in
writing.

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24.8 Governing Law. This Sublease shall be construed and interpreted in
accordance with the laws of the State of Washington.

24.9 Severability. The unenforceability, invalidity or illegality of any
provision of this Sublease shall not render the other provisions unenforceable,
invalid, or illegal.

24.10 Modification Only by Writing. This Sublease contains the entire
agreement of the parties with respect to the subject matter contained herein and
cannot be amended or modified except by a written agreement.

24.11 Attorneys' Fees. The Twenty-First Article of the Prime Lease is
incorporated herein and made a part of this Sublease except the interest rate
charged thereon shall be at the Overdue Rate rather than the interest rate set
forth therein.

24.12 Notices. Any notice, demand, request, consent, approval, or
communication that either party desires or is required to give to the other
party or any other person shall be in writing and either served personally or
sent by prepaid, certified or registered mail or by a reputable national
overnight courier service such as Federal Express. Any notice, demand, request,
consent, approval or communication that either party desires or is required to
give to the other party shall be addressed to the other, party at the address
set forth in the Fundamental Lease Provisions. Either party may change its
address by notifying the other party of the change of address in writing. Notice
shall be deemed communicated within forty-eight (48) hours from the time of
mailing if mailed as provided in this paragraph.

24.13 Brokers. Sublandlord and Subtenant represent and wan-ant to the
other that neither party has had any dealings with any real estate broker or
agent in connection with the negotiation of this Sublease, except that
Sublandlord's listing agent is First American Properties, Inc. and Subtenant is
represented by Grubb & Ellis. Sublandlord has agreed to pay brokerage
commissions to both listing agents in accordance with the terms of a separate
agreement.

24.14 Recording. Subtenant and Sublandlord agree to execute and
acknowledge the Memorandum of Sublease attached as Exhibit I. The party electing
to record same shall pay all costs of recording.

24.15 Survival of Subtenant's Obligations. All of Subtenants
indemnities, waivers, assumptions of liability, duties and obligations hereunder
shall survive the expiration or other termination of this Sublease, whether by
expiration of time, operation of law or otherwise, to the extent required for
the full observances and performance thereof.

PAGE 40

<PAGE> 44
[SIGNATURE PAGE FOLLOWS]

PAGE 41

<PAGE> 45
IN WITNESS WHEREOF, the parties hereto have executed this Sublease the
day and year first above written.

Sublandlord: Subtenant:
FADCO, LLC, G.I. JOE'S, INC.
a Delaware limited liability company an Oregon corporation

By: Alamo Group, III, LLC, By:
a California limited liability Name:
company, Its Member Title:

By: By:
------------------------------- ---------------------------
Donald F. Gaube, Name:
President Title:

PAGE 42

<PAGE> 46
ACKNOWLEDGMENT

STATE OF ________________ )
) SS
COUNTY OF ______________ )

I do hereby certify that on this 17th day of July, 19__, before me,
_________, a notary public in and for the County and State aforesaid, and duly
commissioned, personally appeared ____________________ known to me to be the
President of G.I. Joe's Inc. who, being by me duly sworn, did depose and say
that he resides in Oregon; that he is the President of G.I. Joe's Inc., the
corporation described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
the corporate seal of said corporation; that, on behalf of said corporation and
by authority of its bylaws, he signed, sealed and delivered said instrument for
the uses and purposes therein set forth, as its and his free and voluntary act;
and that he signed his name thereto by like order. In Witness Whereof, I have
hereunto set my hand and affixed my official seal the day and year in this
certificate first above written.

-------------------------------
Notary Public
Name:
--------------------------

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

Residing at:

My Commission expires:

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

PAGE 43

<PAGE> 47
ACKNOWLEDGMENT

STATE OF ________________ )
) SS
COUNTY OF ______________ )

On July 22, 1998, before me, _________, personally appeared
____________________, personally known to me OR proved to me on the basis of
satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the
within instrument and acknowledged to me that he/she/they executed the same in
his/her/their authorized capacity(ies), and that by his/her/their signature(s)
on the instrument the person(s) or the entity upon behalf of which the person(s)
acted, executed the instrument.

WITNESS my hand and official seal.

Signature (Seal)
-------------------------------

PAGE 44

<PAGE> 48
EXHIBITS

<TABLE>
<CAPTION>
Exhibit Description Paragraph Page
------- ----------- --------- ----
<S> <C> <C> <C>
A Prime Lease A. 1
B Site Plan C. 1
C Permitted Exceptions 2.3(e) 7
D Nondisturbance Agreement, Estoppel and 3.3(a)(ii) 9
Attornment Agreement
E Court Order 3.3(b)(1) 9
F Subtenant's Work 5.2 10
G Subtenant's Prototypical Signage 6.5 15
H Construction Provisions 5.2 10
I Memorandum of Sublease 24.14 33
</TABLE>

PAGE 45

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> OCT-31-1998
<CASH> (1,330)
<SECURITIES> 0
<RECEIVABLES> 362
<ALLOWANCES> 0
<INVENTORY> 44,778
<CURRENT-ASSETS> 47,566
<PP&E> 31,256
<DEPRECIATION> 1,291
<TOTAL-ASSETS> 83,439
<CURRENT-LIABILITIES> 27,073
<BONDS> 40,211
7,887
0
<COMMON> 2,888
<OTHER-SE> 1,690
<TOTAL-LIABILITY-AND-EQUITY> 83,439
<SALES> 75,201
<TOTAL-REVENUES> 75,201
<CGS> 49,612
<TOTAL-COSTS> 49,612
<OTHER-EXPENSES> 23,086
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,885
<INCOME-PRETAX> 627
<INCOME-TAX> 251
<INCOME-CONTINUING> 376
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 376
<EPS-PRIMARY> (0.00)
<EPS-DILUTED> (0.00)

</TABLE>