Agreement and Plan Of Merger - Onsale Inc. and Egghead.com Inc.


                         Agreement and Plan Of Merger

                                     among

                                 Onsale, Inc.

                                EO Corporation

                                      and

                               Egghead.com, Inc.



                                                                   JULY 13, 1999

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                               TABLE OF CONTENTS

                                                                   Page
                                                                   ----

ARTICLE I THE MERGER...............................................   2 
                                                                       
    1.1  The Merger................................................   2 
    1.2  Timing of the Merger......................................   2 
    1.3  Effect of the Merger......................................   2 
    1.4  Effect on Capital Stock...................................   3  
    1.10 Restricted Stock..........................................   4 
    1.5  Surrender of Certificates.................................   5 
    1.7  Tax and Accounting Consequences...........................   9 
    1.8  Taking of Necessary Action; Further Act...................   9  
                                                                      
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY...............  10
                                                                      
    2.1  Organization and Good Standing............................  10
    2.2  Subsidiaries and Other Interests..........................  10
    2.3  Certificate of Incorporation and Bylaws...................  10
    2.4  Authority.................................................  10
    2.5  Company Capital Structure.................................  12
    2.6  Obligations With Respect to Capital Stock.................  13
    2.7  SEC Filings; Company Financial Statements.................  14
    2.8  Absence of Certain Changes or Events......................  15
    2.9  Taxes.....................................................  16
    2.10 Title to Properties; Absence of Liens and Encumbrances....  18
    2.11 Intellectual Property.....................................  18
    2.12 Compliance with Laws; Permits; Restrictions...............  22
    2.13 Litigation................................................  22
    2.14 Employee Benefit Plans....................................  23
    2.15 Environmental Matters.....................................  27
    2.16 Agreements, Contracts and Commitments.....................  28
    2.17 Change of Control Payments................................  29
    2.18 Insurance.................................................  29
    2.19 Customers and Suppliers...................................  29
    2.20 Disclosure................................................  30
    2.21 Board Approval............................................  30
    2.22 Fairness Opinion..........................................  31
    2.23 Brokers' and Finders' Fees................................  31
    2.25 Affiliates................................................  31
    2.26 Pooling of Interests......................................  31
    2.27 No Existing Discussions...................................  31

                                      
                                      

 
                               TABLE OF CONTENTS

                                                                              Page
                                                                              ----            
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND 
MERGER SUB..................................................................    32   
                                                                                  
    3.1  Organization and Good Standing.....................................    32
    3.2  Subsidiaries and Other Interests...................................    32
    3.3  Certificate of Incorporation and Bylaws............................    32
    3.4  Authority..........................................................    32
    3.5  Parent and Merger Sub Capital Structure............................    34
    3.6  Obligations With Respect to Capital Stock..........................    35
    3.7  SEC Filings; Parent Financial Statements...........................    36
    3.8  Absence of Certain Changes or Events...............................    37
    3.9  Taxes..............................................................    38
    3.10 Title to Properties; Absence of Liens and Encumbrances.............    39
    3.11 Intellectual Property..............................................    40
    3.12 Compliance with Laws; Permits; Restrictions........................    43
    3.13 Litigation.........................................................    43
    3.14 Employee Benefit Plans.............................................    43
    3.15 Environmental Matters..............................................    47
    3.16 Agreements, Contracts and Commitments..............................    48
    3.17 Change of Control Payments.........................................    49
    3.18 Insurance..........................................................    50
    3.19 Customers and Suppliers............................................    50
    3.20 Disclosure.........................................................    50
    3.21 Board Approval.....................................................    51
    3.22 Fairness Opinion...................................................    51
    3.23 Brokers' and Finders' Fees.........................................    51
    3.24 DGCL Section 203 Not Applicable....................................    51
    3.25 Affiliates.........................................................    51
    3.26 Pooling of Interests...............................................    51
    3.27 No Existing Discussions............................................    51
                                                                                  
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME..............................    52
                                                                                  
    4.1  Conduct of Business................................................    52
    4.2  Cooperation........................................................    56
                                                                                  
ARTICLE V ADDITIONAL AGREEMENTS.............................................    57
                                                                                  
    5.1  Proxy Statement/Prospectus; Registration Statement; Antitrust and        
         Other Filings......................................................    57
    5.2  Meeting of Company Shareholders....................................    58
    5.3  Meeting of Parent Stockholders.....................................    60
    5.4  Confidentiality; Access to Information.............................    63 
 
                                     -ii-

 
                               TABLE OF CONTENTS
                                  (CONTINUED)
 
 
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    5.5  No Solicitation........................................   63 
    5.6  Public Disclosure......................................   67
    5.7  Reasonable Efforts; Notification.......................   67
    5.8  Third Party Consents...................................   68
    5.9  Stock Options, Warrants, ESPP and Employee Benefits....   68
    5.10 Form S-8...............................................   69
    5.11 Nasdaq Quotation.......................................   69
    5.12 Indemnification........................................   70
    5.13 Affiliate Agreements...................................   70
    5.14 Letter of Company's Accountants........................   70
    5.15 Letter of Parent's Accountants.........................   71
    5.16 Takeover Statutes......................................   71
    5.17 Certain Employee Benefits..............................   71
    5.18 Stockholder Litigation.................................   71
    5.19 Pooling Accounting.....................................   72
                                                                   
ARTICLE VI CONDITIONS TO THE MERGER.............................   73
                                                                   
    6.1  Conditions to Obligations of Each Party to Effect         
         the Merger.............................................   73 
    6.2  Additional Conditions to Obligations of Company........   74
    6.3  Additional Conditions to the Obligations of Parent        
         and Merger Sub.........................................   75  
                                                                   
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER...................   78
                                                                   
    7.1  Termination............................................   78
    7.2  Notice of Termination Effect of Termination............   80
    7.3  Fees and Expenses......................................   81
    7.4  Amendment..............................................   84
    7.5  Extension; Waiver......................................   84
                                                                   
ARTICLE VIII GENERAL PROVISIONS.................................   85
                                                                   
    8.1  Non-Survival of Representations and Warranties.........   85
    8.2  Notices................................................   85
    8.3  Interpretation; Certain Defined Terms..................   85
    8.4  Counterparts...........................................   87
    8.5  Entire Agreement; Third Party Beneficiaries............   87
    8.6  Severability...........................................   87
    8.7  Other Remedies; Specific Performance...................   87
    8.8  Governing Law..........................................   88
    8.9  Rules of Construction..................................   88
    8.10 Assignment.............................................   88
    8.11 Disclosure Letter......................................   88
    8.12 WAIVER OF JURY TRIAL...................................   89

                           
                           -iii-                    

 
                               Index of Exhibits
                               -----------------


Exhibit A      Form of Company Option Agreement 
                                                
Exhibit B      Form of Parent Option Agreement  
                                                
Exhibit C      Form of Company Voting Agreement 
                                                
Exhibit D      Form of Parent Voting Agreement  
                                                
Exhibit E      Parent Officers                  
                                                
Exhibit F      Form of Company Affiliate Agreement
                                                
Exhibit G      Form of Parent Affiliate Agreement
                                                
Exhibit H      Form of Unsecured Promissory Note 

 
                         AGREEMENT AND PLAN OF MERGER

     This Agreement and Plan of Merger (this "Agreement") is made and entered
into as of July 13, 1999, among Onsale, a Delaware corporation ("Parent"), EO
Corporation, a Washington corporation and a wholly-owned subsidiary of Parent
("Merger Sub"), and Egghead.com, Inc., a Washington corporation ("Company").

                                   RECITALS

     A.   Upon the terms and subject to the conditions of this Agreement and in
accordance with the Washington Law, Parent and Company intend to enter into a
business combination transaction.

     B.   The Merger (as defined in Section 1.1) is intended to be treated as a
tax-free reorganization pursuant to the provisions of Section 368(a)(1)(A) of
the Code by way of Section 368(a)(2)(E).  The Merger is intended to be treated
as a "pooling of interests" for accounting and financial reporting purposes.

     C.   The Board of Directors of Company: (i) has determined that the Merger
(as defined in Section 1.1) is advisable and fair to, and in the best interests
of, Company and its shareholders, (ii) has approved this Agreement, the Merger
and the other transactions contemplated by this Agreement and (iii) has
determined to recommend that the shareholders of Company adopt and approve this
Agreement and approve the Merger.

     D.   Concurrently with the execution of this Agreement, and as a
condition and inducement to Parent's willingness to enter into this Agreement,
Company shall execute and deliver a Company Option Agreement in favor of Parent
in substantially the form attached hereto as Exhibit A (the "Company Option
                                             ---------  
Agreement"). The Board of Directors of Company has approved the Company Option
Agreement.

     E.   Concurrently with the execution of this Agreement, and as a condition
and inducement to Company's willingness to enter into this Agreement, Parent
shall execute and deliver a Parent Option Agreement in favor of Company in
substantially the form attached hereto as Exhibit B (the "Parent Option
                                          ---------
Agreement"). The Board of Directors of Parent has approved the Parent Option
Agreement.

     F.   The Board of Directors of Parent: (i) has determined that the Merger
(as defined in Section 1.1) is advisable and fair to, and in the best interests
of, Parent and its stockholders, (ii) has approved this Agreement, the Merger
and the other transactions contemplated by this Agreement and has approved an
amendment to Parent's Certificate of Incorporation to change the name of Parent
to "Egghead.com, Inc.," effective at the Effective Time, and to increase the
authorized number of shares of Parent Common Stock so as to permit the
transactions contemplated by this Agreement, subject to and upon consummation of
the Merger, and (iii) has determined to recommend that the stockholders of
Parent approve the issuance of the shares of Parent Common Stock pursuant to the
Merger and approve an amendment to

 
Parent's Certificate of Incorporation to change the name of Parent to
"Egghead.com, Inc.," effective at the Effective Time, and to increase the
authorized number of shares of Parent Common Stock so as to permit the
transactions contemplated by this Agreement, subject to and upon consummation of
the Merger,

     G.   Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's willingness to enter into this Agreement, the
executive officers and directors of Company are entering into voting agreements
in substantially the form attached hereto as Exhibit C (the "Company Voting
                                             ---------                     
Agreements").

     H.   Concurrently with the execution of this Agreement, and as a condition
and inducement to Company's willingness to enter into this Agreement, the
directors, certain executive officers, and certain stockholders of Parent are
entering into voting agreements in substantially the form attached hereto as
Exhibit D (the "Parent Voting Agreements").
----------                                 

     In consideration of the foregoing and the representations, warranties,
covenants and agreements set forth in this Agreement, the parties agree as
follows:

                                   ARTICLE I
                                  THE MERGER

     1.1  The Merger.  At the Effective Time and subject to and upon the terms
          ----------                                                          
and conditions of this Agreement and the applicable provisions of Washington
Law, Merger Sub shall be merged with and into Company (the "Merger"), the
separate corporate existence of Merger Sub shall cease and Company shall
continue as the surviving corporation.  Company as the surviving corporation
after the Merger is hereinafter sometimes referred to as the "Surviving
Corporation."

     1.2  Timing of the Merger.
          -------------------- 

          (a) Effective Time.  Subject to the provisions of this Agreement, the
              --------------                                                   
  parties hereto shall cause the Merger to be consummated by filing articles of
  merger, in such form as is required by the relevant provisions of Washington
  Law, with the Secretary of State of the State of Washington in accordance with
  the relevant provisions of Washington Law (the "Articles of Merger") (the time
  of such filing (or such later time as may be agreed in writing by Company and
  Parent and specified in the Articles of Merger) being the "Effective Time") as
  soon as practicable on or after the Closing (as herein defined).

          (b) Closing.  The closing of the Merger (the "Closing") shall take
              -------                                                       
  place at the offices of Fenwick & West LLP, Two Palo Alto Square, Palo Alto,
  California, as soon as practicable (but not more than two business days) after
  the satisfaction or waiver of each of the conditions set forth in Article VI,
  or at such other time, date and location as the parties hereto agree in
  writing (the "Closing Date").

     1.3  Effect of the Merger.  At the Effective Time, the effect of the Merger
          --------------------                                                  
shall be as provided in this Agreement and the applicable provisions of
Washington Law.  Without limiting the generality of the foregoing, at the
Effective Time all title to real estate and other property 

                                      -2-

 
owned by Company and Merger Sub shall vest in the Surviving Corporation, and all
liabilities of Company and Merger Sub shall become the liabilities of the
Surviving Corporation.

          (a) Articles of Incorporation.  At the Effective Time, the Articles of
              -------------------------                                         
  Incorporation of the Company, as in effect immediately prior to the Effective
  Time, shall be the Articles of Incorporation of the Surviving Corporation.

          (b) Bylaws.  At the Effective Time, the Bylaws of the Company, as in
              ------                                                          
  effect immediately prior to the Effective Time, shall be the Bylaws of the
  Surviving Corporation until thereafter amended.

          (c) Directors and Officers of Surviving Corporation.  The initial
              -----------------------------------------------              
  directors of the Surviving Corporation shall be the directors of Merger Sub
  immediately prior to the Effective Time, until their respective successors are
  duly elected or appointed and qualified.  The initial officers of the
  Surviving Corporation shall be the officers of Merger Sub immediately prior to
  the Effective Time, until their respective successors are duly appointed.

     1.4  Effect on Capital Stock.  Subject to the terms and conditions of this
          -----------------------                                              
Agreement, at the Effective Time, by virtue of the Merger and without any action
on the part of Parent, Merger Sub, Company or the holders of any of the
following securities:

          (a) Conversion of Company Common Stock.  Each share of common stock,
              ----------------------------------                              
  par value $.01 per share, of Company ("Company Common Stock") issued and
  outstanding immediately prior to the Effective Time, other than any shares of
  Company Common Stock to be canceled pursuant to Section 1.4(d), will be
  automatically converted (subject to Sections 1.4(c) and 1.4(f)) into the right
  to receive .565 (the "Exchange Ratio") of a share of common stock, par value
  $.001 per share, of Parent ("Parent Common Stock") upon surrender of the
  certificate representing such share of Company Common Stock in the manner
  provided in Section 1.5 (and in the case of a lost, stolen or destroyed
  certificate, upon delivery of an affidavit (and bond, if required), in the
  manner provided in Section 1.5(f)).

          (b) Stock Options; Employee Stock Purchase Plans.  At the Effective
              --------------------------------------------                   
  Time, all options to purchase Company Common Stock then outstanding under
  Company's 1997 Nonofficer Employee Stock Option Plan, Company's Amended and
  Restated 1993 Stock Incentive Compensation Plan, the Company's 1986 Combined
  Incentive and Non-Qualified Stock Option Plan the Surplus Software, Inc., 1996
  Stock Option Plan and the Company's Restated Nonemployee Director Stock Option
  Plan (collectively, the "Company Stock Option Plans") shall be assumed by
  Parent in accordance with Section 5.9 of this Agreement.  Rights outstanding
  under Company's 1989 Employee Stock Purchase Plan (the "ESPP") shall be
  treated as set forth in Section 5.9 of this Agreement.

          (c) Fractional Shares.  No fraction of a share of Parent Common Stock
              -----------------                                                
  will be issued by virtue of the Merger, but in lieu thereof each holder of
  shares of Company Common Stock who would otherwise be entitled to a fraction
  of a share of Parent Common Stock (after aggregating all fractional shares of
  Parent Common Stock that otherwise would be received by such holder) shall
  receive, upon surrender of such holder's Certificate(s)(as defined in Section
  1.5(c)) from Parent an amount of cash (rounded to the nearest whole cent)
  equal to the product of (i) such fraction, multiplied by (ii) the average
  closing sale price of

                                      -3-

 
  one share of Parent Common Stock for the ten most recent days that Parent
  Common Stock has traded ending with and including the trading day immediately
  prior to the Effective Time, as reported on the Nasdaq Stock Market.

          (d) Cancellation of Company-Owned and Parent-Owned Stock and Preferred
              ------------------------------------------------------------------
  Stock.  Each share of Company Common Stock held by Company or owned by Merger
  -----                                                                        
  Sub, Parent or any direct or indirect wholly-owned subsidiary of Company or of
  Parent immediately prior to the Effective Time shall be canceled and
  extinguished without any conversion thereof.  Any shares of Preferred Stock of
  Company outstanding at the Effective Time shall be canceled and extinguished
  without any conversion thereof.

          (e) Capital Stock of Merger Sub.  Each share of Common Stock, par
              ---------------------------                                  
  value $0.01 per share, of Merger Sub issued and outstanding immediately prior
  to the Effective Time shall be converted into one validly issued, fully paid
  and nonassessable share of Common Stock, $0.01 par value per share, of the
  Surviving Corporation.  Each certificate evidencing ownership of shares of the
  Common Stock of Merger Sub shall evidence ownership of such shares of capital
  stock of the Surviving Corporation.

          (f) Adjustments to Exchange Ratio.  The Exchange Ratio shall be
              -----------------------------                              
  adjusted to reflect appropriately the effect of any stock split, reverse stock
  split, stock dividend (including any dividend or distribution of securities
  convertible into Parent Common Stock or Company Common Stock), reorganization,
  recapitalization, reclassification or other like change with respect to Parent
  Common Stock or Company Common Stock occurring on or after the date hereof and
  prior to the Effective Time.

          (g) Restricted Stock.  If any shares of the Company Common Stock that
              ----------------                                                 
  are outstanding immediately prior to the Effective Time are unvested or are
  subject to a repurchase option, risk of forfeiture or other condition
  providing that such shares ("Company Restricted Stock") may be forfeited or
  repurchased by Company upon any termination of the shareholders' employment,
  directorship, consulting or other relationship with Company (and/or any
  affiliate of Company) under the terms of any restricted stock purchase
  agreement or other agreement with Company that does not by its terms provide
  that such repurchase option, risk of forfeiture or other condition lapses upon
  consummation of the Merger, then the shares of Parent Common Stock issued upon
  the conversion of such shares of Company Common Stock in the Merger will
  continue to be unvested and subject to the same repurchase options, risks of
  forfeiture or other conditions following the Effective Time, and the
  certificates representing such shares of Parent Stock may accordingly be
  marked with appropriate legends noting such repurchase options, risks of
  forfeiture or other conditions.  Company shall take all actions that may be
  necessary to ensure that, from and after the Effective Time, Parent is
  entitled to exercise any such repurchase option or other right set forth in
  any such restricted stock purchase agreement or other agreement.  A listing of
  the holders of Company Restricted Stock, together with the number of shares of
  Company Restricted Stock held by each, is set forth on Part 1.4(g) of the
  Company Disclosure Letter.

                                      -4-

 
          (h) Dissenters' Rights of Company Shareholders.
              ------------------------------------------ 

              (i)  Any shares of Company Common Stock held by a holder who
     dissents from the Merger in the manner provided under Washington Law and
     becomes entitled to obtain payment for the fair value of such shares of
     Common Stock pursuant to the applicable provisions of the Washington Law,
     shall herein be called "Dissenting Shares".  Any Dissenting Shares shall
     not, after the Effective Time, be entitled to vote for any purpose or
     receive any dividends or other distributions and shall not be converted
     into the Parent Common Stock pursuant to Section 1.4(a); provided, however,
                                                              --------  ------- 
     that Section 1.4(a) shall apply to shares of Company Common Stock held by a
     dissenting shareholder who subsequently withdraws his or her demand for
     payment in the manner provided under Washington Law, fails to comply fully
     with the requirements of applicable provisions of the Washington Law, or
     otherwise fails to establish the right of such shareholder to be paid the
     fair value of such shareholder's shares under Washington Law, in which
     event such shares shall be deemed to be converted into Parent Common Stock
     under Section 1.4(a).  Shares of Company Common Stock acquired by the
     Surviving Corporation pursuant to such provisions of the Washington Law
     shall be canceled.

              (ii) Company shall give Merger Sub prompt notice upon receipt of
     any written objection to the Merger and demand for payment of the fair
     value of shares.  Company agrees that prior to the Effective Time it will
     not, except with the prior written consent of Merger Sub, voluntarily make
     any payment with respect to, or settle or offer to settle, any such demand
     for payment of the fair value of shares, and then, only to the extent so
     agreed to by Merger Sub in such writing.

     1.5  Surrender of Certificates.
          ------------------------- 

          (a) Exchange Agent.  Parent shall select a bank or trust company
              --------------                                              
  reasonably acceptable to Company to act as the exchange agent (the "Exchange
  Agent") in the Merger.

          (b) Provision of Common Stock.  Promptly after the Effective Time,
              -------------------------                                     
  Parent shall make available to the Exchange Agent for exchange in accordance
  with this Article I, the shares of Parent Common Stock issuable pursuant to
  Section 1.4 in exchange for outstanding shares of Company Common Stock, and
  cash in an amount sufficient for payment in lieu of fractional shares pursuant
  to Section 1.4(c) and any dividends or distributions to which holders of
  shares of Company Common Stock may be entitled pursuant to Section 1.5(d)
  (such shares of Parent Common Stock and cash being referred to herein as the
  "Exchange Fund").

          (c) Exchange Procedures.  Promptly after the Effective Time, Parent
              -------------------                                            
  shall cause the Exchange Agent to mail to each holder of record (as of the
  Effective Time) of a certificate or certificates ("Certificates"), which
  immediately prior to the Effective Time represented outstanding shares of
  Company Common Stock whose shares were converted into the right to receive
  shares of Parent Common Stock pursuant to Section 1.4, (i) a letter of
  transmittal in customary form (which shall specify that delivery shall be
  effected, and risk of loss and title to the Certificates shall pass, only upon
  delivery of the Certificates to the 

                                      -5-

 
  Exchange Agent and shall contain such other provisions as Parent may
  reasonably specify) and (ii) instructions for use in effecting the surrender
  of the Certificates in exchange for certificates representing shares of Parent
  Common Stock, cash in lieu of any fractional shares pursuant to Section 1.4(c)
  and any dividends or other distributions pursuant to Section 1.5(d). Upon
  surrender of Certificates for cancellation to the Exchange Agent or to such
  other agent or agents as may be appointed by Parent, together with such letter
  of transmittal, duly completed and validly executed in accordance with the
  instructions thereto, the holders of such Certificates shall be entitled to
  receive in exchange therefor, and the Exchange Agent shall deliver to the
  holders, certificates representing the number of whole shares of Parent Common
  Stock into which their shares of Company Common Stock were converted at the
  Effective Time, payment in lieu of fractional shares which such holders have
  the right to receive pursuant to Section 1.4(c) and any dividends or
  distributions payable pursuant to Section 1.5(d), and the Certificates so
  surrendered shall forthwith be canceled. Until so surrendered, outstanding
  Certificates will be deemed from and after the Effective Time, for all
  corporate purposes, to evidence only the ownership of the number of full
  shares of Parent Common Stock into which such shares of Company Common Stock
  shall have been so converted and the right to receive an amount in cash in
  lieu of the issuance of any fractional shares in accordance with Section
  1.4(c) and any dividends or distributions payable pursuant to Section 1.5(d).
  No interest shall be paid or will accrue on any cash payable to holders of
  Certificates pursuant to the provisions of this Article I.
       

          (d) Distributions With Respect to Unexchanged Shares. No dividends or
              ------------------------------------------------
  other distributions declared or made after the date of this Agreement with
  respect to Parent Common Stock with a record date after the Effective Time
  will be paid to the holders of any unsurrendered Certificates with respect to
  the shares of Parent Common Stock represented thereby until the holders of
  record of such Certificates shall surrender such Certificates. Subject to
  applicable law, following surrender of any such Certificates, the Exchange
  Agent shall deliver to the record holders thereof, without interest,
  certificates representing whole shares of Parent Common Stock issued in
  exchange therefor along with payment in lieu of fractional shares pursuant to
  Section 1.4(c) hereof and the amount of any such dividends or other
  distributions with a record date after the Effective Time payable with respect
  to such whole shares of Parent Common Stock.

          (e) Transfers of Ownership.  If certificates representing shares of
              ----------------------                                         
  Parent Common Stock are to be issued in a name other than that in which the
  Certificates surrendered in exchange therefor are registered, it will be a
  condition of the issuance thereof that the Certificates so surrendered will be
  properly endorsed and otherwise in proper form for transfer and that the
  persons requesting such exchange will have paid to Parent or any agent
  designated by it any transfer or other taxes required by reason of the
  issuance of certificates representing shares of Parent Common Stock in any
  name other than that of the registered holder of the Certificates surrendered,
  or established to the satisfaction of Parent or any agent designated by it
  that such tax has been paid or is not payable.

          (f) Lost, Stolen or Destroyed Certificates.  In the event that any
              --------------------------------------                        
  Certificates shall have been lost, stolen or destroyed, the Exchange Agent
  shall issue in exchange for such 

                                      -6-

 
  lost, stolen or destroyed Certificates, upon the making of an affidavit of
  that fact by the holder thereof, certificates representing the shares of
  Parent Common Stock into which the shares of Company Common Stock represented
  by such Certificates were converted pursuant to Section 1.4, cash for
  fractional shares, if any, as may be required pursuant to Section 1.4(c) and
  any dividends or distributions payable pursuant to Section 1.5(d); provided,
  however, that Parent may, in its discretion and as a condition precedent to
  the issuance of such certificates representing shares of Parent Common Stock,
  cash and other distributions, require the owner of such lost, stolen or
  destroyed Certificates to deliver a bond in such sum as it may reasonably
  direct as indemnity against any claim that may be made against Parent, the
  Surviving Corporation or the Exchange Agent with respect to the Certificates
  alleged to have been lost, stolen or destroyed.

          (g) No Further Ownership Rights in Company Common Stock. All shares of
              --------------------------------------------------- 
  Parent Common Stock issued in accordance with the terms hereof (including any
  cash paid in respect thereof pursuant to Sections 1.4(c) and 1.5(d)) shall be
  deemed to have been issued in full satisfaction of all rights pertaining to
  such shares of Company Common Stock, and there shall be no further
  registration of transfers on the records of the Surviving Corporation of
  shares of Company Common Stock which were outstanding immediately prior to the
  Effective Time. If after the Effective Time Certificates are presented to the
  Surviving Corporation for any reason, except as otherwise provided by law,
  they shall be canceled and exchanged as provided in this Article I, subject to
  Section 1.5(h).

          (h) Termination of Exchange Fund.  Any portion of the Exchange Fund
              ----------------------------                                   
  which remains undistributed to the stockholders of Company for 180 days after
  the Effective Time shall be delivered to Parent, upon demand, and any
  shareholders of Company who have not previously complied with Section 1.4(c)
  shall thereafter look only to Parent for payment of their claim for Parent
  Common Stock, any cash in lieu of fractional shares of Parent Common Stock and
  any dividends or distributions with respect to Parent Common Stock.
  Notwithstanding anything herein to the contrary, except to the extent waived
  by Parent, any Certificate that is not properly submitted to the Exchange
  Agent (or Parent as provided in the preceding sequence) for exchange and
  cancellation within four years after the Effective Time (or immediately prior
  to such earlier date on which any shares of Parent Common Stock that was to be
  delivered to the holder of such Certificate, any dividends or distributions
  payable to the holder of such Certificate or any cash payable to the holder of
  such Certificate pursuant to this Article I, would otherwise escheat to or
  become the property of any Governmental Entity), shall no longer evidence
  ownership of or any right to receive shares of Parent Common Stock, all rights
  of the holder of such Certificate, with respect to the shares previously
  evidenced by such Certificate, shall cease.

          (i) No Liability.  Notwithstanding anything to the contrary in this
              ------------                                                   
  Section 1.5, neither the Exchange Agent, Parent, the Surviving Corporation nor
  any party hereto shall be liable to a holder of shares of Parent Common Stock
  or Company Common Stock for any amount properly paid to a public official
  pursuant to any applicable abandoned property, escheat or similar law.

                                      -7-

 
     1.6  Directors of Parent.
          ------------------- 

          (a) Parent shall take all actions necessary to cause the directors
  comprising the full Board of Directors of Parent at (or immediately after) the
  Effective Time (the "Parent Board") to be comprised of nine directors.
  Initially, four (4) of such directors shall be designated by Parent (the
  "Parent Designees"), four (4) of such directors shall be designated by Company
  (the "Company Designees") and one (1) of such directors shall be designated
  jointly by Parent and Company ("Joint Designee").  One of the Company
  Designees shall be George Orban, who shall be Chairman of the Board of
  Directors immediately after the Effective Time, unless he shall decline or be
  unable to so serve.  Parent and Company hereby agree that they shall use all
  commercially reasonable efforts, and proceed in good faith, to agree on the
  identity of the Joint Designee.  If, prior to the Effective Time, any of the
  Parent Designees or Company Designees or the Joint Designee shall decline or
  be unable to serve as a Parent Designee or an Company Designee or the Joint
  Designee, as the case may be, Parent (in the case of a Parent Designee) or
  Company (in the case of a Company Designee) or Parent and Company (in the case
  of the Joint Designee) shall designate another person to serve in such
  person's stead as Parent Designee, Company Designee or Joint Designee, as the
  case may be, which person shall be reasonably acceptable to the other party.
  If, prior to the Effective Time, Parent and Company are not able to agree on
  the identity of the Joint Designee, then such position shall be vacant at the
  Effective Time and shall be filled thereafter in accordance with Parent's
  Bylaws and Certificate of Incorporation.  If so agreed by Parent Company, the
  Parent Board may be classified, if in which case, the Board members of each
  class will be mutually agreed by Parent and Company.  In the absence of any
  such agreement, the Parent Board shall not be classified.

          (b) The foregoing directors of Parent shall hold their positions until
  their resignation or removal or the election or appointment of their
  successors in the manner provided by Parent's charter documents and applicable
  law.

          (c) Parent shall use all commercially reasonable efforts to cause each
  Parent Designee, Company Designee and the Joint  Designee to be included in
  the slate of nominees recommended by Parent's Board of Directors to the
  stockholders of Parent at the next annual meeting of Parent's stockholders,
  subject to the right of each member of Parent's Board of Directors to act in
  such manner as he or she in good faith deems consistent with his or her
  fiduciary duties and subject to the right of each Parent Designee, each
  Company Designee and the Joint  Designee to decline such nomination.

     1.7  Corporate Name of Parent.  Parent shall take all actions necessary to
          ------------------------                                             
change its corporate name to Egghead.com, Inc., effective at the Effective Time.

                                      -8-

 
     1.8  Tax and Accounting Consequences.
          ------------------------------- 

          (a) It is intended by the parties hereto that the Merger shall
  constitute a reorganization within the meaning of Section 368 of the Code.
  The parties hereto adopt this Agreement as a "plan of reorganization" within
  the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Income
  Tax Regulations.

          (b) Neither Parent nor Merger Sub nor the Surviving Corporation will
  report the Merger or take any other action for tax purposes inconsistent with
  treatment of the Merger as a reorganization within the meaning of Section 368
  of the Code, to the full extent permitted by the Code.

          (c) It is intended by the parties hereto that the Merger shall qualify
  for accounting treatment as a pooling of interests.

     1.9  Taking of Necessary Action; Further Action.  If, at any time after the
          ------------------------------------------                            
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Company and Merger Sub, the officers and directors of Parent,
Company and Merger Sub will take all such lawful and necessary or desirable
action.  Parent shall cause Merger Sub to perform all of its obligations
relating to this Agreement and the transactions contemplated hereby.

                                      -9-

 
                                  ARTICLE II
                   REPRESENTATIONS AND WARRANTIES OF COMPANY

     As of the date of this Agreement and as of the Closing Date, Company
represents and warrants to Parent and Merger Sub, subject to the exceptions
specifically disclosed in writing in the disclosure letter and referencing a
specific representation delivered by Company to Parent dated as of the date
hereof and certified by a duly authorized officer of Company (the "Company
Disclosure Letter"), as follows:

     2.1  Organization and Good Standing.  Company and each of its subsidiaries
          ------------------------------                                       
(a) is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is organized; (b) has the corporate or
other power and authority to own, lease and operate its assets and property and
to carry on its business as now being conducted; and (c) except as would not be
material to Company, is duly qualified or licensed to do business in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its activities makes such qualification or licensing
necessary.

     2.2  Subsidiaries and Other Interests.  Other than the corporations
          --------------------------------                              
identified in Part 2.2 of the Company Disclosure Letter, neither Company nor any
of the other corporations identified in Part 2.2 of the Company Disclosure
Letter owns any capital stock of, or any equity interest of any nature in, any
corporation, partnership, joint venture arrangement or other business entity,
except for passive investments in equity interests of public companies as part
of the cash management program of Company.  Neither Company nor any of its
subsidiaries has agreed or is obligated to make, or is bound by any written,
oral or other agreement, contract, subcontract, lease, binding understanding,
instrument, note, option, warranty, purchase order, license, sublicense,
insurance policy, benefit plan or legally binding commitment or undertaking of
any nature, as in effect as of the date hereof or as may hereinafter be in
effect under which it may become obligated to make any future investment in or
capital contribution to any other entity.  Neither Company, nor any of its
subsidiaries, has, at any time, been a general partner of any general
partnership, limited partnership or other entity.  Part 2.2 of the Company
Disclosure Letter indicates the jurisdiction of organization of each entity
listed therein and Company's direct or indirect equity interest therein.

     2.3  Articles of Incorporation and Bylaws.  Company has delivered or made
          ------------------------------------                                
available to Parent a true and correct copy of: (a) the Articles of
Incorporation and Bylaws of Company and similar governing instruments of each of
its subsidiaries, each as amended to date and as in full force in effect; and
(b) Company's minute book containing all records of all proceedings, consents,
actions and meetings during the past three years of the Company shareholders,
Board of Directors and any committees of the Board of Directors.  Neither
Company nor any of its subsidiaries is in violation of any of the provisions of
its Articles of Incorporation or Bylaws or equivalent governing instruments.

     2.4  Authority.
          --------- 

          (a) Company has all requisite corporate power and authority to enter
  into this Agreement and the Company Option Agreement and to consummate the
  transactions 

                                      -10-

 
  contemplated hereby and thereby, subject to approval by the shareholders of
  the Company. The execution and delivery of this Agreement and the consummation
  of the transactions contemplated hereby and thereby have been duly authorized
  by all necessary corporate action on the part of Company, subject only to the
  approval and adoption of this Agreement and the approval of the Merger by
  Company's shareholders and the filing of the Articles of Merger pursuant to
  Washington Law. A vote of the holders of outstanding shares of the Company
  Common Stock representing two-thirds of all votes entitled to be cast on the
  matter, is sufficient for Company's shareholders to approve and adopt this
  Agreement and approve the Merger. This Agreement and the Company Option
  Agreement have each been duly executed and delivered by Company and, assuming
  the due execution and delivery by Parent and Merger Sub, each constitutes the
  valid and binding obligation of Company, enforceable against Company in
  accordance with its terms, except as enforceability may be limited by
  bankruptcy and other similar laws affecting the rights of creditors generally
  and general principles of equity. The execution and delivery of this Agreement
  and the Company Option Agreement by Company does not, and the performance of
  this Agreement and the Company Option Agreement by Company will not, (i)
  conflict with or violate the Articles of Incorporation or Bylaws of Company or
  the equivalent organizational documents of any of its subsidiaries, (ii)
  subject to obtaining the approval and adoption of this Agreement and the
  approval of the Merger by Company's shareholders as contemplated in Section
  5.2 and compliance with the requirements set forth in Section 2.4(b) below,
  conflict with or violate any law, rule, regulation, order, judgment or decree
  applicable to Company or any of its subsidiaries or by which Company or any of
  its subsidiaries or any of their respective properties is bound or affected,
  or (iii) result in any material breach of or constitute a material default (or
  an event that with notice or lapse of time or both would become a material
  default) under, or impair Company's rights or alter the rights or obligations
  of any third party under, or give to others any rights of termination,
  amendment, acceleration or cancellation of, or result in the creation of a
  material lien or Encumbrance on any of the material properties or assets of
  Company or any of its subsidiaries pursuant to, any note, bond, mortgage,
  indenture, contract, agreement, lease, license, permit, franchise, concession,
  or other instrument or obligation, in each case that is material to Company,
  to which Company or any of its subsidiaries is a party or by which Company or
  any of its subsidiaries or its or any of their respective assets are bound or
  affected. Part 2.4 of the Company Disclosure Letter list all consents, waivers
  and approvals under any of Company's or any of its subsidiaries' agreements,
  contracts, licenses or leases required to be obtained in connection with the
  consummation of the transactions contemplated hereby, which, if individually
  or in the aggregate not obtained, would result in a material loss of benefits
  to Company, Parent or the Surviving Corporation as a result of the Merger.

          (b) No consent, approval, order or authorization of, or registration,
  declaration or filing with any Governmental Entity is required to be obtained
  or made by Company in connection with the execution and delivery of this
  Agreement or the consummation of the Merger, except for (i) the filing of the
  Articles of Merger with the Secretary of State of the State of Washington and
  appropriate documents with the relevant authorities of other states in which
  Company is qualified to do business, (ii) the filing of the Proxy
  Statement/Prospectus (as defined in Section 2.19) with the SEC in accordance
  with the 

                                      -11-

 
  Exchange Act and the effectiveness of the Registration Statement (as defined
  in Section 2.20), (iii) such consents, approvals, orders, authorizations,
  registrations, declarations and filings as may be required under applicable
  federal, foreign and state securities (or related) laws and the HSR Act, and
  the securities or antitrust laws of any foreign country, and (iv) such other
  consents, authorizations, filings, approvals and registrations which if not
  obtained or made would not be material to Company or Parent or have a material
  adverse effect on the ability of the parties hereto to consummate the Merger.

     2.5  Company Capital Structure.
          ------------------------- 

          (a) Stock.  The authorized capital stock of Company consists of (i)
              -----                                                          
  50,000,000 shares of Company Common Stock, par value $.01 per share, of which
  there were 30,772,457 shares issued and outstanding as of July 13, 1999, and
  (ii) 16,569,848 shares of Preferred Stock, par value $.01 per share, of which
  no shares are issued or outstanding.  All outstanding shares of Company Common
  Stock are duly authorized, validly issued, fully paid and nonassessable and
  are not subject to preemptive rights created by statute, the Articles of
  Incorporation or Bylaws of Company or any agreement or document to which
  Company is a party or by which it is bound.  As of the date of this Agreement,
  there are no shares of Company Common Stock held in treasury by Company.  From
  and after the Effective Time, the shares of Parent Common Stock issued in
  exchange for any shares of Company Restricted Stock will, without any further
  act of Parent, Company or any other person, become subject to the
  restrictions, conditions and other provisions of such Company Restricted
  Stock, and Parent will automatically succeed to and become entitled to
  exercise Company's rights and remedies under such Company Restricted Stock.

          (b) Options and Warrants.  As of July 13, 1999, Company had reserved
              --------------------                                            
  an aggregate of 4,341,358 shares of Company Common Stock for issuance pursuant
  to the Company Stock Option Plans (including shares subject to outstanding
  options).  Stock options granted under the Company Stock Option Plans are
  collectively referred to in this Agreement as "Company Options."  As of July
  13, 1999, there were Company Options outstanding to purchase an aggregate of
  3,440,237 shares of Company Common Stock pursuant to the Company Stock Option
  Plans.  As of July 13, 1999, there were no warrants outstanding to purchase
  any shares of Company Common Stock.  As of July 13, 1999, there were available
  an aggregate of 270,692 shares of Company Common Stock for issuance pursuant
  to Company's ESPP.  All shares of Company Common Stock subject to issuance as
  aforesaid, upon issuance on the terms and conditions specified in the
  instruments pursuant to which they are issuable, will be duly authorized,
  validly issued, fully paid and nonassessable.  Part 2.5 of the Company
  Disclosure Letter lists for each person who held Company Options as of July
  13, 1999: (i) the name of the holder of such option; (ii) the exercise price
  of such option; (iii) the number of shares as to which such option had vested
  at such date; (iv) the vesting schedule for such option; and (v) whether the
  exercisability of such option will be accelerated in any way by the
  transactions contemplated by this Agreement and the extent of acceleration, if
  any.

          (c) Compliance with Legal Requirements.  All outstanding shares of
              ----------------------------------                            
  Company Common Stock, all outstanding Company Options, and all outstanding
  shares of 

                                      -12-

 
  capital stock of each subsidiary of Company have been issued and granted in
  compliance with (i) all applicable securities laws and, to the knowledge of
  Company, all other applicable Legal Requirements and (ii) all material
  requirements set forth in applicable agreements or instruments.

          (d) Vesting Acceleration.  Except as set forth in Part 2.5(d) of the
              --------------------                                            
  Company Disclosure Letter, there are no commitments or agreements of any
  character to which Company is bound obligating Company to accelerate the
  vesting of any Company Options as a result of the Merger.

          (e) Option Records.  Company has made available to Parent accurate,
              --------------                                                 
  current and complete copies of the Company Option Plans and any other stock
  option plans pursuant to which Company has granted stock options that are
  currently outstanding, the form of all stock option agreements evidencing such
  options and the applicable vesting schedule for each such option.

     2.6  Obligations With Respect to Capital Stock.
          ----------------------------------------- 

          (a) Except as set forth in Part 2.6 of the Company Disclosure Letter,
  there are no equity securities, partnership interests or similar ownership
  interests of any class of Company equity security, or any securities
  exchangeable or convertible into or exercisable for such equity securities,
  partnership interests or similar ownership interests, issued, reserved for
  issuance or outstanding.

          (b) Except for securities Company owns free and clear of all claims
  and Encumbrances, directly or indirectly through one or more subsidiaries, and
  except for shares of capital stock or other similar ownership interests of
  certain subsidiaries of Company that are owned by certain nominee equity
  holders as required by the applicable law of the jurisdiction of organization
  of such subsidiaries, as of the date of this Agreement, there are no equity
  securities, partnership interests or similar ownership interests of any class
  of equity security of any subsidiary of Company, or any security exchangeable
  or convertible into or exercisable for such equity securities, partnership
  interests or similar ownership interests, issued, reserved for issuance or
  outstanding.

          (c) Except as set forth in Part 2.5 or Part 2.6 of the Company
  Disclosure Letter, there are no subscriptions, options, warrants, equity
  securities, partnership interests or similar ownership interests, calls,
  rights (including preemptive rights), commitments or agreements of any
  character to which Company or any of its subsidiaries is a party or by which
  it is bound obligating Company or any of its subsidiaries to issue, deliver or
  sell, or cause to be issued, delivered or sold, or repurchase, redeem or
  otherwise acquire, or cause the repurchase, redemption or acquisition of, any
  shares of capital stock, partnership interests or similar ownership interests
  of Company or any of its subsidiaries or obligating Company or any of its
  subsidiaries to grant, extend, accelerate the vesting of or enter into any
  such subscription, option, warrant, equity security, call, right, commitment
  or agreement.

                                      -13-

 
          (d) Except as contemplated by this Agreement, there are no
  registration rights and there is no voting trust, proxy, rights plan,
  antitakeover plan or other agreement or understanding to which Company is a
  party or by which it is bound with respect to any equity security of any class
  of Company or with respect to any equity security, partnership interest or
  similar ownership interest of any class of any of its subsidiaries.

     2.7  SEC Filings; Company Financial Statements.
          ----------------------------------------- 

          (a) SEC Filings Generally.  Company has filed all forms, reports and
              ---------------------                                           
  documents required to be filed by Company with the SEC since January 1, 1997
  and has made available to Parent such forms, reports and documents in the form
  filed with the SEC.  All such required forms, reports and documents (including
  those that Company may file subsequent to the date hereof) are referred to
  herein as the "Company SEC Reports." As of their respective dates, the Company
  SEC Reports (i) were prepared in accordance with the requirements of the
  Securities Act or the Exchange Act, as the case may be, and the rules and
  regulations of the SEC thereunder applicable to such Company SEC Reports and
  (ii) did not at the time they were filed contain any untrue statement of a
  material fact or omit to state a material fact required to be stated therein
  or necessary in order to make the statements therein, in the light of the
  circumstances under which they were made, not misleading.  Taken as a whole,
  the Company SEC Reports do not contain any untrue statement of a material fact
  or omit to state a material fact required to be stated therein or necessary in
  order to make the statements therein, in the light of the circumstances under
  which they were made, not misleading, except to the extent corrected prior to
  the date of this Agreement by a subsequently filed Company SEC Report.  None
  of Company's subsidiaries is required to file any forms, reports or other
  documents with the SEC.  All material agreements filed by Company as exhibits
  to Company SEC Reports were executed by all parties thereto and such
  agreements as displayed on the World Wide Web via the EDGAR Service conform to
  the agreements as so executed.

          (b) Publicly Reported Financial Statements.  Each of the consolidated
              --------------------------------------                           
  financial statements (including, in each case, any related notes thereto)
  contained in the Company SEC Reports (the "Company Financials"), including
  each Company SEC Reports filed after the date hereof until the Closing, (i)
  complied as to form in all material respects with the published rules and
  regulations of the SEC with respect thereto, (ii) was prepared in accordance
  with GAAP applied on a consistent basis throughout the periods involved
  (except as may be indicated in the notes thereto or, in the case of unaudited
  interim financial statements, as may be permitted by the SEC on Form 10-Q, 8-K
  or any successor form under the Exchange Act) and (iii) fairly presented the
  consolidated financial position of Company and its subsidiaries as at the
  respective dates thereof and the consolidated results of Company's operations
  and cash flows for the periods indicated, except that the unaudited interim
  financial statements may not contain footnotes and were or are subject to
  normal and recurring year-end adjustments.  The balance sheet of Company
  contained in Company SEC Reports as of April 3, 1999 is hereinafter referred
  to as the "Company Balance Sheet."  Since the date of the Company Balance
  Sheet neither Company nor any of its subsidiaries has any liabilities required
  under GAAP to be set forth on a balance sheet (absolute, accrued, 

                                      -14-

 
  contingent or otherwise) which are, individually or in the aggregate, material
  to the business, results of operations or financial condition of Company and
  its subsidiaries taken as a whole, except for liabilities incurred since the
  date of the Company Balance Sheet in the ordinary course of business
  consistent with past practices and liabilities incurred in connection with
  this Agreement. Without limiting the foregoing, Company's revenue recognition
  practices are in full conformance with all requirements of GAAP and all
  promulgations with respect to revenue recognition (including applicable
  documentation requirements) and there exists no fact (such as any side letters
  or oral understandings with customers regarding product return rights) that
  has not been disclosed to Company's auditors, which, if so disclosed, would
  cause such auditors to recommend or require that Company restate its financial
  statements to so conform. The reserves on the Company's financial statements
  for obsolete inventory and warranty returns conform to GAAP and, in the
  judgment of Company management, are adequate.

          (c) Interim Financial Statements.  Company has delivered to Parent
              ----------------------------                                  
  copies of Company's unaudited consolidated balance sheet as of May 29, 1999
  and income statement and statement of cash flows for the two months ended May
  29, 1999.  Such financial statements: (i) are in accordance with the books and
  records of Company; (ii) fairly present in all material respects Company's
  financial condition at the date therein indicated and the results of
  operations for the period therein indicated and the results of operations for
  the period therein specified; and (iii) have been prepared in accordance with
  GAAP applied on a consistent basis (except for the absence of any footnotes
  required by GAAP).

          (d) Amendments.  Company has heretofore furnished to Parent a complete
              ----------                                                        
  and correct copy of any amendments or modifications, which have not yet been
  filed with the SEC but which are required to be filed, to agreements,
  documents or other instruments which previously had been filed by Company with
  the SEC pursuant to the Securities Act or the Exchange Act.

     2.8  Absence of Certain Changes or Events.  Since the date of the Company
          ------------------------------------                                
  Balance Sheet there has not been:

          (a)  any Material Adverse Effect with respect to Company;

          (b)  any declaration, setting aside or payment of any dividend on, or
  other distribution (whether in cash, stock or property) in respect of, any of
  Company's or any of its subsidiaries' capital stock, or any purchase,
  redemption or other acquisition by Company of any of Company's capital stock
  or any other securities of Company or its subsidiaries or any options,
  warrants, calls or rights to acquire any such shares or other securities
  except for repurchases from employees following their termination pursuant to
  the terms of their pre-existing stock option or purchase agreements;

          (c)  any split, combination or reclassification of any of Company's or
  any of its subsidiaries' capital stock;

                                      -15-

 
          (d)  any granting by Company or any of its subsidiaries of any
  increase in compensation or fringe benefits to any of their officers or
  employees (except for increases in compensation to employees that are not
  officers or directors, in the ordinary course of business consistent with
  prior practice), or any payment by Company or any of its subsidiaries of any
  bonus to any of their officers or employees (except for payments made to non-
  officer employees in the ordinary course of business consistent with past
  practices), or any granting by Company or any of its subsidiaries of any
  increase in severance or termination pay or any entry by Company or any of its
  subsidiaries into, or material modification or amendment of, any currently
  effective employment, severance, termination or indemnification agreement or
  any agreement the benefits of which are contingent or the terms of which are
  materially altered upon the occurrence of a transaction involving Company of
  the nature contemplated hereby;

          (e)  any material change or alteration in the policy of Company
  relating to the granting of stock options to its employees and consultants;

          (f)  any material change by Company in its accounting methods,
  principles or practices, except as required by concurrent changes in GAAP; or

          (g)  any revaluation by Company of any of its assets, including,
  without limitation, writing off notes or accounts receivable other than in the
  ordinary course of business.

     2.9  Taxes.
          ----- 

          (a)  Definition of Taxes.  For the purposes of this Agreement, "Tax" 
               -------------------    
  or "Taxes" refers to (i) any and all federal, state, local and foreign taxes,
  assessments and other governmental charges, duties, impositions and
  liabilities relating to taxes, including taxes based upon or measured by gross
  receipts, income, profits, sales, use and occupation, and value added, ad
  valorem, transfer, franchise, withholding, payroll, recapture, employment,
  excise and property taxes, together with all interest, penalties and additions
  imposed with respect to such amounts and (ii) any liability for payment of any
  amounts of the type described in clause (i) as a result of being a member of
  an affiliated consolidated, combined or unitary group.

          (b)  Tax Returns and Audits.  In each case except as set forth in Part
               ----------------------                                           
  2.9 of the Company Disclosure Letter:

               (i)   Company and each of its subsidiaries have timely filed all
     federal, state, local and foreign returns, estimates, information
     statements and reports ("Returns") relating to Taxes required to be filed
     by or on behalf of Company and each of its subsidiaries with any Tax
     authority, such Returns are true, correct and complete in all material
     respects, and Company and each of its subsidiaries have paid all Taxes
     shown to be due on such Returns;

               (ii)  Company and each of its subsidiaries have withheld with
     respect to its employees all federal and state income taxes, Taxes pursuant
     to the Federal Insurance 

                                      -16-

 
     Contribution Act ("FICA"), Taxes pursuant to the Federal Unemployment Tax
     Act ("FUTA") and other Taxes required to be withheld;

               (iii)  Neither Company nor any of its subsidiaries has been
     delinquent in the payment of any Tax nor is there any Tax deficiency
     outstanding, proposed or assessed against Company or any of its
     subsidiaries, nor has Company or any of its subsidiaries executed any
     unexpired waiver of any statute of limitations on or extending the period
     for the assessment or collection of any Tax;

               (iv)   No audit or other examination of any Return of Company or
     any of its subsidiaries by any Tax authority is presently in progress, nor
     has Company or any of its subsidiaries been notified of any request for
     such an audit or other examination;

               (v)    No adjustment relating to any Returns filed by Company or
     any of its subsidiaries has been proposed in writing formally or informally
     by any Tax authority to Company or any of its subsidiaries or any
     representative thereof;

               (vi)   Neither Company nor any of its subsidiaries has any
     liability for unpaid Taxes which has not been accrued for or reserved on
     the Company Balance Sheet, whether asserted or unasserted, contingent or
     otherwise, which is material to Company, other than any liability for
     unpaid Taxes that may have accrued since the date of the Company Balance
     Sheet in connection with the operation of the business of Company and its
     subsidiaries in the ordinary course;

               (vii)  There is no contract, agreement, plan or arrangement to
     which Company is a party, including but not limited to the provisions of
     this Agreement and the agreements entered into in connection with this
     Agreement, covering any employee or former employee of Company or any of
     its subsidiaries that, individually or collectively, would give rise to the
     payment of any amount that would not be deductible pursuant to Sections
     280G, 404 or 162(m) of the Code; there is no contract, agreement, plan or
     arrangement to which Company is a party or by which it is bound to
     compensate any individual for excise taxes paid pursuant to Section 4999 of
     the Code;

               (viii) Neither Company nor any of its subsidiaries has filed any
     consent agreement under Section 341(f) of the Code or agreed to have
     Section 341(f)(2) of the Code apply to any disposition of a subsection (f)
     asset (as defined in Section 341(f)(4) of the Code) owned by Company;

               (ix)   Neither Company nor any of its subsidiaries is party to or
     has any obligation under any tax-sharing, tax indemnity or tax allocation
     agreement or arrangement among members of an affiliated group other than
     the affiliated group that includes the Company on the date immediately
     preceding the Closing Date;

               (x)    Except as may be required as a result of the Merger,
     Company and its subsidiaries have not been and will not be required to
     include any adjustment in Taxable income for any Tax period (or portion
     thereof) pursuant to Section 481 or 

                                      -17-

 
     Section 263A of the Code or any comparable provision under state or foreign
     Tax laws as a result of transactions, events or accounting methods employed
     prior to the Closing;

               (xi)   Company has made available to Parent or its legal or
     accounting representatives copies of all foreign, federal and state income
     tax and all state sales and use tax Returns for Company and each of its
     subsidiaries filed for all open periods; and

               (xii)  There are no liens, pledges, charges, claims, restrictions
     on transfer, mortgages, security interests or other Encumbrances of any
     sort (collectively, "Liens") on the assets of Company or any subsidiary
     relating to or attributable to Taxes, other than Liens for Taxes not yet
     due and payable.

     2.10 Title to Properties; Absence of Liens and Encumbrances.
          ------------------------------------------------------ 

          (a) Company owns no real property interests except as set forth in
  Part 2.10 of the Company Disclosure Letter.  Part 2.10 of the Company
  Disclosure Letter list all real property leases to which Company is a party
  and each amendment thereto that is in effect as of the date of this Agreement.
  All such current leases are in full force and effect, are valid and effective
  in accordance with their respective terms, and there is not, under any of such
  leases, any existing default or event of default (or event which with notice
  or lapse of time, or both, would constitute a default) that would give rise to
  a claim against Company in an amount greater than $50,000.  Other than the
  leaseholds created under the real property leases identified in Part 2.10 of
  the Company Disclosure Letter, Company and its subsidiaries own no interest in
  real property.

          (b) Company has good and valid title to, or, in the case of leased
  properties and assets, valid leasehold interests in, all of its tangible
  properties and assets, real, personal and mixed, used or held for use in its
  business, free and clear of any Liens, except as reflected in the Company
  Financials and except for liens for taxes not yet due and payable and such
  Liens or other imperfections of title and Encumbrances, if any, which are not
  material in character, amount or extent, and which do not materially detract
  from the value, or materially interfere with the present use, of the property
  subject thereto or affected thereby.

     2.11 Intellectual Property.  For the purposes of this Agreement, the
          ---------------------                                          
following terms have the following definitions:

          "Intellectual Property" shall mean any or all of the following and all
           ---------------------                                                
     rights in, arising out of; or associated therewith: (i) all United States,
     international and foreign patents and applications therefor and all
     reissues, divisions, renewals, extensions, provisionals, continuations and
     continuations-in-part thereof; (ii) all inventions (whether patentable or
     not), invention disclosures, improvements, trade secrets, proprietary
     information, know how, technology, technical data and customer lists, and
     all documentation relating to any of the foregoing; (iii) all copyrights,
     copyrights registrations and applications therefor, and all other rights
     corresponding thereto throughout the world; (iv) all industrial designs and
     any registrations and applications therefor throughout the world; (v) all
     trade names, Internet or World Wide Web URLs, 

                                      -18-

 
     Internet domain names, logos, common law trademarks and service marks,
     trademark and service mark registrations and applications therefor
     throughout the world; (vi) all databases and data collections and all
     rights therein throughout the world; (vii) all moral and economic rights of
     authors and inventors, however denominated, throughout the world, and
     (viii) any similar or equivalent rights to any of the foregoing anywhere in
     the world.

          "Company Intellectual Property" shall mean any Intellectual Property
           -----------------------------                                      
     that is owned by, or exclusively licensed to, Company or one of its
     subsidiaries.

          "Registered Intellectual Property" means all United States,
           --------------------------------                          
     international and foreign:  (i) patents and patent applications (including
     provisional applications); (ii) registered trademarks, applications to
     register trademarks, intent-to-use applications, or other registrations or
     applications related to trademarks; (iii) registered copyrights and
     applications for copyright registration; and (iv) any other Intellectual
     Property that is the subject of an application, certificate, filing,
     registration or other document issued, filed with, or recorded by any
     state, government or other public legal authority.

          "Company Registered Intellectual Property" means all of the Registered
           ----------------------------------------                             
     Intellectual Property owned by, or filed in the name of, Company or one of
     its subsidiaries.

          (a) Good Title Generally.  Company or one of its subsidiaries owns and
              --------------------                                              
  has good and exclusive title to, or has license (sufficient for the conduct of
  its business as currently conducted and as proposed to be conducted) to, each
  material item of Company Intellectual Property free and clear of any lien or
  Encumbrance (excluding licenses and related restrictions and restrictions
  imposed by law); and Company or one of its subsidiaries is the exclusive owner
  of all trademarks and trade names used in connection with the operation or
  conduct of the business of Company and its subsidiaries, including the sale of
  any Company-owned products or the provision of any services by Company and its
  subsidiaries. Company or one of its subsidiaries owns exclusively, and has
  good title to, all copyrighted works that are Company-owned products
  (excluding services provided), or which Company otherwise expressly purports
  to own.  There are no royalties, honoraria, fees or other payments payable by
  Company to any person or entity by reason of the ownership, use, license, sale
  or disposition of the Company Intellectual Property.

          (b) Patent, Copyright, Trademark.  Part 2.11(b) of the Company
              ----------------------------                              
  Disclosure Letter sets forth all patents, patent applications, copyright
  registrations, copyright applications, trademark registrations and trademark
  applications pertaining to the Company Intellectual Property.  Each material
  item of Company Registered Intellectual Property is valid and subsisting, all
  necessary registration, maintenance and renewal fees currently due in
  connection with such Company Registered Intellectual Property have been made
  and all necessary documents, recordations and certificates in connection with
  such Registered Intellectual Property have been filed with the relevant
  patent, copyright, trademark or other authorities in the United States or
  foreign jurisdictions, as the case may be, for the purposes of maintaining
  such Registered Intellectual Property.

                                      -19-

 
          (c) Trade Secrets.  Company and its subsidiaries have taken reasonable
              -------------                                                     
  steps to protect Company's and its subsidiaries' rights in Company's and such
  subsidiaries' confidential information and trade secrets that they wish to
  protect or any trade secrets or confidential information of third parties
  provided to Company or such subsidiaries, and, without limiting the foregoing,
  Company and its subsidiaries have and enforce a policy requiring each employee
  and contractor to execute a proprietary information/confidentiality agreement
  substantially in the form provided to Parent and, to the knowledge of Company,
  all current and former employees and contractors of Company and its
  subsidiaries have executed such an agreement.

          (d) Domain Names and URLs.  Part 2.11(d) of the Company Disclosure
              ---------------------                                         
  Letter sets forth a list of all Internet domain names and all Internet and
  World Wide Web URLs owned and used by Company in its business.  Company and
  its subsidiaries have, and after the Effective Time the Surviving Corporation
  will have, a valid registration and all material rights (free of any material
  restriction) in and to all domain names and URLs used by them in their
  respective businesses including, without limitation, all rights necessary to
  continue to conduct Company's business as it is currently conducted under such
  names.

          (e) Third Party IP.  To the extent that any work, material or
              --------------                                           
  invention has been developed or created by a third party for Company or any of
  its subsidiaries, Company or its subsidiaries, as the case may be, has a
  written agreement with such third party under all of its Intellectual Property
  with respect thereto and Company or its subsidiary thereby either (i) has
  obtained ownership of and is the exclusive owner of such work, material, or
  invention, or (ii) has obtained a license (sufficient for the conduct of its
  business as currently conducted and as proposed to be conducted) under all
  such third party's Intellectual Property in such work, material or invention
  by operation of law or by valid assignment, to the fullest extent it is
  legally possible to do so.

          (f) Transfers of IP.  Part 2.11(f) of the Company Disclosure Letter
              ---------------                                                
  lists all material contracts, licenses and agreements to which Company is a
  party (i) with respect to Company Intellectual Property licensed or
  transferred to any third party (other than end-user licenses in the ordinary
  course); or (ii) pursuant to which a third party has licensed or transferred
  any material Intellectual Property to Company. Neither Company nor any of its
  subsidiaries has transferred ownership of, or granted any exclusive license
  with respect to, any Intellectual Property that is or was material Company
  Intellectual Property, to any third party.

          (g) No Infringement of Company IP.  To the knowledge of Company, no
              -----------------------------                                  
  Company Intellectual Property or product or service of Company is subject to
  any proceeding or outstanding decree, order, judgment, agreement, or
  stipulation restricting in any manner the use, transfer, or licensing thereof
  by Company, or which may affect the validity, use or enforceability of such
  Company Intellectual Property. To the knowledge of Company, no person has or
  is infringing or misappropriating any Company Intellectual Property.

          (h) Company Infringement of Third Party IP.  To the knowledge of
              --------------------------------------                      
  Company, the operation of the business of Company as such business currently
  is conducted, including 

                                      -20-

 
  Company's design, development, marketing and sale of the products or services
  of Company (including with respect to products currently under development)
  has not, does not and will not infringe or misappropriate the Intellectual
  Property of any third party or, to its knowledge, constitute unfair
  competition or trade practices under the laws of any jurisdiction. Company has
  not received notice from any third party that the operation of the business of
  Company or any act, product or service of Company, infringes or
  misappropriates the Intellectual Property of any third party or constitutes
  unfair competition or trade practices under the laws of any jurisdiction.

          (i) Effect of Merger.  Company has entered into or acquired all
              ----------------                                           
  contracts, licenses, and agreements reasonably required to conduct Company's
  business as it is conducted as of the Closing Date.  All material contracts,
  licenses and agreements relating to the Company Intellectual Property to which
  Company or any subsidiary is party or by which Company or any subsidiary is
  bound are in full force and effect.  The consummation of the transactions
  contemplated by this Agreement will neither violate nor result in the breach,
  modification, cancellation, termination, or suspension of such contracts,
  licenses and agreements.  Company and each of its subsidiaries are in material
  compliance with, and have not materially breached any term of any of such
  contracts, licenses and agreements and, to the knowledge of Company and its
  subsidiaries, all other parties to such contracts, licenses and agreements are
  in compliance in all material respects with, and have not materially breached
  any term of, such contracts, licenses and agreements.  Following the Closing
  Date, the Surviving Corporation will be permitted to exercise all of Company's
  rights under such contracts, licenses and agreements to the same extent
  Company would have been able to had the transactions contemplated by this
  Agreement not occurred and without the payment of any additional amounts or
  consideration other than ongoing fees, royalties or payments which Company
  would otherwise be required to pay.

          (j) Year 2000.  Company has taken reasonable steps to ensure that its
              ---------                                                        
  systems and technology will record, store, process, calculate and present
  calendar dates falling on and after (and if applicable, spans of time
  including) January 1, 2000, and will calculate any information dependent on or
  relating to such dates in the same manner, and with the same functionality,
  data integrity and performance, as the systems and technology record, store,
  process, calculate and present calendar dates on or before December 31, 1999,
  or calculate any information dependent on or relating to such dates
  (collectively, "Year 2000 Compliant").  Company has taken reasonable steps to
  ensure that its systems, services and technology will lose no functionality
  with respect to the introduction of records containing dates falling on or
  after January 1, 2000.  Except as set forth on Part 2.11(j) of the Company
  Disclosure Letter, all of Company's and its subsidiaries' internal computer
  and technology systems and services which are critical to the operation of its
  business are Year 2000 Compliant.  Except as set forth on Part 2.11(j) of the
  Company Disclosure Letter, the Company Intellectual Property owned by the
  Company or any subsidiary is Year 2000 Compliant.  Company has no knowledge
  that any Company Intellectual Property licensed by Company or any subsidiary
  is not Year 2000 Compliant.  Neither the Company Intellectual Property owned
  by the Company or any subsidiary nor any service of Company or any 

                                      -21-

 
  subsidiary contains any significant defect in connection with processing data
  containing dates in leap years or in the year 2000 or any preceding or
  following years.

     2.12 Compliance with Laws; Permits; Restrictions.
          ------------------------------------------- 

          (a) Neither Company nor any of its subsidiaries is, in any material
  respect, in conflict with, or in default or in violation of (i) any law, rule,
  regulation, order, judgment or decree applicable to Company or any of its
  subsidiaries or by which Company or any of its subsidiaries or any of their
  respective properties is bound or affected, or (ii) any material note, bond,
  mortgage, indenture, contract, agreement, lease, license, permit, franchise or
  other instrument or obligation to which Company or any of its subsidiaries is
  a party or by which Company or any of its subsidiaries or its or any of their
  respective properties is bound or affected, except for conflicts, violations
  and defaults that (individually or in the aggregate) would not cause Company
  to lose any material benefit or incur any material liability.  No
  investigation or review by any Governmental Entity is pending or, to Company's
  knowledge, has been threatened in a writing delivered to Company against
  Company or any of its subsidiaries, nor, to Company's knowledge, has any
  Governmental Entity indicated an intention to conduct an investigation of
  Company or any of its subsidiaries.  There is no material agreement, judgment,
  injunction, order or decree binding upon Company or any of its subsidiaries
  which has or could reasonably be expected to have the effect of prohibiting or
  materially impairing any business practice of Company or any of its
  subsidiaries, any acquisition of material property by Company or any of its
  subsidiaries or the conduct of business by Company as currently conducted.

          (b) Company and its subsidiaries hold, to the extent legally required,
  all permits, licenses, variances, exemptions, orders and approvals from
  governmental authorities that are material to and required for the operation
  of the business of Company as currently conducted (collectively, the "Company
  Permits").  Company and its subsidiaries are in compliance in all material
  respects with the terms of the Company Permits.

     2.13 Litigation.  There are no claims, suits, actions or proceedings
          ----------                                                     
pending or, to the knowledge of Company, threatened against, relating to or
affecting Company or any of its subsidiaries, before any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator
that seeks to restrain or enjoin the consummation of the transactions
contemplated by this Agreement or which could reasonably be expected, either
singularly or in the aggregate with all such claims, actions or proceedings, to
be material to Company or to the Surviving Corporation following the Merger or
have a material adverse effect on the ability of the parties hereto to
consummate the Merger.  No Governmental Entity has at any time challenged or
questioned in a writing delivered to Company the legal right of Company to
design, offer or sell any of its products or services in the present manner or
style thereof.  As of the date hereof, to the knowledge of Company, no event has
occurred, and no claim, dispute or other condition or circumstance exists, that
will, or that would reasonably be expected to, cause or provide a bona fide
basis for a director or executive officer of Company to seek indemnification
from Company.

                                      -22-

 
     2.14 Employee Benefit Plans.
          ---------------------- 

          (a)  Definitions.  With the exception of the definitions of
               -----------                                           
  "Affiliate," "Employee" and "Employee Agreement" set forth in Section
  2.14(a)(i), (v) and (vi) below (which definition shall apply only to this
  Section 2.14), for purposes of this Agreement, the following terms shall have
  the meanings set forth below:

               (i)    "Affiliate" shall mean any other person or entity under
     common control with Company within the meaning of Section 414(b), (c), (m)
     or (o) of the Code and the regulations issued thereunder;

               (ii)   "Company Employee Plan" shall mean any plan, program,
     policy, practice, contract, agreement or other arrangement providing for
     compensation, severance, termination pay, performance awards, stock or
     stock-related awards, fringe benefits or other employee benefits or
     remuneration of any kind, whether written or unwritten, funded or unfunded,
     including without limitation, each "employee benefit plan," within the
     meaning of Section 3(3) of ERISA which is or has been maintained,
     contributed to, or required to be contributed to, by Company or any
     Affiliate for the benefit of any Employee;

               (iii)  "COBRA" shall mean the Consolidated Omnibus Budget
     Reconciliation Act of 1985, as amended;

               (iv)   "DOL" shall mean the Department of Labor;

               (v)    "Employee" shall mean any current, former, or retired
     employee, officer, or director of Company or any Affiliate;

               (vi)   "Employee Agreement" shall mean each management,
     employment, severance, consulting, relocation, repatriation, expatriation,
     visas, work permit or similar agreement or contract between Company or any
     Affiliate and any Employee or consultant;

               (vii)  "ERISA" shall mean the Employee Retirement Income Security
     Act of 1974, as amended;

               (viii) "FMLA" shall mean the Family Medical Leave Act of 1993, as
     amended;

               (ix)   "International Employee Plan" shall mean each Company
     Employee Plan that has been adopted or maintained by Company, whether
     informally or formally, for the benefit of Employees outside the United
     States;

               (x)    "IRS" shall mean the Internal Revenue Service;

               (xi)   "Multiemployer Plan" shall mean any "Pension Plan" (as
     defined below) which is a "multiemployer plan," as defined in Section 3(37)
     of ERISA;

                                      -23-

 
               (xii)   "PBGC" shall mean the Pension Benefit Guaranty
     Corporation; and

               (xiii)  "Pension Plan" shall mean each Company Employee Plan
     which is an "employee pension benefit plan," within the meaning of Section
     3(2) of ERISA.

          (b)  List of Plans and Agreements. Part 2.14 of the Company Disclosure
               ----------------------------
  Letter contains an accurate and complete list of each Company Employee Plan
  and each Employee Agreement. Company does not have any plan or commitment to
  establish any new Company Employee Plan, to modify any Company Employee Plan
  or Employee Agreement (except to the extent required by law or to conform any
  such Company Employee Plan or Employee Agreement to the requirements of any
  applicable law, in each case as previously disclosed to Parent in writing, or
  as required by this Agreement), or to enter into any Company Employee Plan or
  Employee Agreement, nor does it have any intention or commitment to do any of
  the foregoing.

          (c)  Documents.  Except as set forth in Part 2.14 of the Company
               ---------                                                  
  Disclosure Letter, Company has provided to Parent:  (i) correct and complete
  copies of each Company Employee Plan and each Employee Agreement including all
  amendments thereto and written interpretations thereof; (ii) the most recent
  annual actuarial valuations, if any, prepared for each Company Employee Plan;
  (iii) the three (3) most recent annual reports (Form Series 5500 and all
  schedules and financial statements attached thereto), if any, required under
  ERISA or the Code in connection with each Company Employee Plan or related
  trust; (iv) if the Company Employee Plan is funded, the most recent annual and
  periodic accounting of Company Employee Plan assets; (v) the most recent
  summary plan description together with the summary of material modifications
  thereto, if any, required under ERISA with respect to each Company Employee
  Plan; (vi) all IRS determination, opinion, notification and advisory letters,
  and rulings relating to Company Employee Plans; (vii) all material written
  agreements and contracts relating to each Company Employee Plan, including,
  but not limited to, administrative service agreements, group annuity contracts
  and group insurance contracts; (viii) all written communications material to
  any Employee or Employees relating to any Company Employee Plan and any
  proposed Company Employee Plans, in each case, relating to any amendments,
  terminations, establishments, increases or decreases in benefits, acceleration
  of payments or vesting schedules or other events which would result in any
  material liability to Company; (ix) all COBRA forms and related notices
  currently in use; and (x) all registration statements and prospectuses
  prepared in connection with each Company Employee Plan.

          (d)  Employee Plan Compliance. Except as set forth in Part 2.14 of the
               ------------------------                                         
  Company Disclosure Letter, (i) Company has performed in all material respects
  all obligations required to be performed by it under, is not in default or
  violation of; and has no knowledge of any default or violation by any other
  party to each Company Employee Plan, and each Company Employee Plan has been
  established and maintained in all material respects in accordance with its
  terms and in compliance with all applicable laws, statutes, orders, rules and
  regulations, including but not limited to ERISA or the Code; (ii) each Company
  Employee Plan intended to qualify under Section 401(a) of the Code and each
  trust 

                                      -24-

 
  intended to qualify under Section 501(a) of the Code has either received a
  favorable determination letter from the IRS with respect to each such Plan as
  to its qualified status under the Code or has remaining a period of time under
  applicable Treasury regulations or IRS pronouncements in which to apply for
  such a determination letter and make any amendments necessary to obtain a
  favorable determination and no event has occurred which would adversely affect
  the status of such determination letter or the qualified status of such Plan;
  (iii) no "prohibited transaction," within the meaning of Section 4975 of the
  Code or Sections 406 and 407 of ERISA, and not otherwise exempt under Section
  408 of ERISA, has occurred with respect to any Company Employee Plan; (iv)
  there are no actions, suits or claims pending, or, to the knowledge of
  Company, threatened or reasonably anticipated (other than routine claims for
  benefits) against any Company Employee Plan or against the assets of any
  Company Employee Plan; (v) each Company Employee Plan can be amended,
  terminated or otherwise discontinued after the Effective Time in accordance
  with its terms, without liability to Parent, Company or any of its Affiliates
  (other than ordinary administration expenses typically incurred in a
  termination event); (vi) there are no audits, inquiries or proceedings pending
  or, to the knowledge of Company, threatened by the IRS or DOL with respect to
  any Company Employee Plan; and (vii) neither Company nor any Affiliate is
  subject to any penalty or tax with respect to any Company Employee Plan under
  Section 402(i) of ERISA or Sections 4975 through 4980 of the Code.

          (e) Pension Plans.  Company does not now, nor has it ever, maintained,
              -------------                                                     
  established, sponsored, participated in, or contributed to, any Pension Plan
  which is subject to Title IV of ERISA or Section 412 of the Code.

          (f) Multiemployer Plans.  At no time has Company contributed to or
              -------------------                                           
  been requested to contribute to any Multiemployer Plan.

          (g) No Post-Employment Obligations.  No Company Employee Plan
              ------------------------------                           
  provides, or has any liability to provide, retiree life insurance, retiree
  health or other retiree employee welfare benefits to any person for any
  reason, except as may be required by COBRA or other applicable statute, and
  Company has never represented, promised or contracted (whether in oral or
  written form) to any Employee (either individually or to Employees as a group)
  or any other person that such Employee(s) or other person would be provided
  with retiree life insurance, retiree health or other retiree employee welfare
  benefit, except to the extent required by statute.

          (h) COBRA; FMLA.  Neither Company nor, to Company's knowledge, any
              -----------                                                   
  Affiliate has, prior to the Effective Time, and in any material respect,
  violated any of the health care continuation requirements of COBRA, any
  material requirements of FMLA or any material provisions of any similar
  provisions of state law applicable to its Employees.

                                      -25-

 
          (i)  All contributions due from the Company and any Affiliate with
  respect to any of the Company Employee Plans have been made or accrued on the
  Company Balance Sheet or arose after the date of the Company Balance Sheet in
  the ordinary course of business consistent with past practices.

          (j)  Effect of Transaction.
               --------------------- 

               (i) The execution of this Agreement and the consummation of the
     transactions contemplated hereby will not (either alone or upon the
     occurrence of any additional or subsequent events) constitute an event
     under any Company Employee Plan or Employee Agreement, or a related trust
     or loan, that will or may result in any payment (whether of severance pay
     or otherwise), acceleration, forgiveness of indebtedness, vesting,
     distribution, increase in benefits or obligation to fund benefits with
     respect to any Employee.

               (ii) No payment or benefit which will or may be made by Company
     or its Affiliates with respect to any Employee as a result of the
     transactions contemplated by this Agreement will be characterized as an
     "excess parachute payment," within the meaning of Section 280G(b)(1) of the
     Code.

          (k)  Employment Matters. Company and each of its subsidiaries: (i) is
               ------------------  
  in compliance in all material respects with all applicable foreign, federal,
  state and local laws, rules and regulations respecting employment, employment
  practices, terms and conditions of employment and wages and hours, in each
  case, with respect to Employees; (ii) has withheld all amounts required by law
  or by agreement to be withheld from the wages, salaries and other payments to
  Employees; (iii) has properly classified independent contractors for purposes
  of federal and applicable state tax laws, laws applicable to employee benefits
  and other applicable laws; (iv) is not liable for any arrears of wages or any
  taxes or any penalty for failure to comply with any of the foregoing; and (v)
  is not liable for any material payment to any trust or other fund or to any
  governmental or administrative authority, with respect to unemployment
  compensation benefits, social security or other benefits or obligations for
  Employees (other than routine payments to be made in the normal course of
  business and consistent with past practice). There are no pending, or, to
  Company's knowledge, threatened or reasonably anticipated claims or actions
  against Company under any worker's compensation policy or long-term disability
  policy. To Company's knowledge, no Employee of Company has violated any
  employment contract, nondisclosure agreement or noncompetition agreement by
  which such Employee is bound due to such Employee being employed by Company or
  disclosing to Company or using trade secrets or proprietary information of any
  other person or entity.

          (l)  Labor.  No work stoppage or labor strike against Company is
               -----                                                      
  pending, threatened or reasonably anticipated.  Company does not know of any
  activities or proceedings of any labor union to organize any Employees.  There
  are no actions, suits, claims, labor disputes or grievances pending, or, to
  the knowledge of Company, threatened or reasonably anticipated relating to any
  labor, safety or discrimination matters involving any Employee, including,
  without limitation, charges of unfair labor practices or discrimination

                                     -26-

 
  complaints, which, if adversely determined, would, individually or in the
  aggregate, result in any material liability to Company. Neither Company nor
  any of its subsidiaries has engaged in any unfair labor practices within the
  meaning of the National Labor Relations Act. Company is not presently, nor has
  it been in the past, a party to, or bound by, any collective bargaining
  agreement or union contract with respect to Employees and no collective
  bargaining agreement is being negotiated by Company. All Company employees are
  legally permitted to be employed by Company in the United States of America.

     2.15 Environmental Matters.
          --------------------- 

          (a) Hazardous Material.  Except as would not result in material
              ------------------                                         
  liability to Company, no underground storage tanks and no amount of any
  substance that has been designated by any Governmental Entity or by applicable
  federal, state or local law to be radioactive, toxic, hazardous or otherwise a
  danger to health or the environment, including, without limitation, PCBs,
  asbestos, petroleum, urea-formaldehyde and all substances listed as hazardous
  substances pursuant to the Comprehensive Environmental Response, Compensation,
  and Liability Act of 1980, as amended, or defined as a hazardous waste
  pursuant to the United States Resource Conservation and Recovery Act of 1976,
  as amended, and the regulations promulgated pursuant to said laws, but
  excluding office and janitorial supplies, (a "Hazardous Material") are
  present, as a result of the actions of Company or any of its subsidiaries or
  any affiliate of Company, or, to Company's knowledge, as a result of any
  actions of any third party or otherwise, in, on or under any property,
  including the land and the improvements, ground water and surface water
  thereof that Company or any of its subsidiaries has at any time owned,
  operated, occupied or leased.

          (b) Hazardous Materials Activities.  Except as would not result in a
              ------------------------------                                  
  material liability to Company (in any individual case or in the aggregate) (i)
  neither Company nor any of its subsidiaries has transported, stored, used,
  manufactured, disposed of released or exposed its employees or others to
  Hazardous Materials in violation of any law in effect on or before the Closing
  Date, and (ii) neither Company nor any of its subsidiaries has disposed of;
  transported, sold, used, released, exposed its employees or others to or
  manufactured any product containing a Hazardous Material (collectively
  "Hazardous Materials Activities") in violation of any rule, regulation, treaty
  or statute promulgated by any Governmental Entity in effect prior to or as of
  the date hereof to prohibit, regulate or control Hazardous Materials or any
  Hazardous Material Activity.

          (c) Permits.  Company and its subsidiaries currently hold all
              -------                                                  
  environmental approvals, permits, licenses, clearances and consents (the
  "Company Environmental Permits") material to and necessary for the conduct of
  Company's and its subsidiaries' Hazardous Material Activities and other
  businesses of Company and its subsidiaries as such activities and businesses
  are currently being conducted.

          (d) Environmental Liabilities.  No action, proceeding, revocation
              -------------------------                                    
  proceeding, amendment procedure, writ or injunction is pending, and to
  Company's knowledge, no action, proceeding, revocation proceeding, amendment
  procedure, writ or injunction has been threatened by any Governmental Entity
  against Company or any of its subsidiaries in a 

                                      -27-

 
  writing delivered to Company concerning any Company Environmental Permit,
  Hazardous Material or any Hazardous Materials Activity of Company or any of
  its subsidiaries. Company is not aware of any fact or circumstance which could
  involve Company or any of its subsidiaries in any environmental litigation or
  impose upon Company any material environmental liability.

     2.16 Agreements, Contracts and Commitments.  Except as otherwise set forth
          -------------------------------------                                
in Part 2.16 of the Company Disclosure Letter, neither Company nor any of its
subsidiaries is a party to or is bound by:

          (a) any employment agreement, contract or commitment with any employee
  or member of Company's Board of Directors, other than those that are
  terminable by Company or any of its subsidiaries on no more than thirty days
  notice without liability or financial obligation, except to the extent general
  principles of wrongful termination law may limit Company's or any of its
  subsidiaries' ability to terminate employees at will, or any consulting
  agreement;

          (b) any agreement or plan, including, without limitation, any stock
  option plan, stock appreciation right plan or stock purchase plan, any of the
  benefits of which will be increased, or the vesting of benefits of which will
  be accelerated, by the occurrence of any of the transactions contemplated by
  this Agreement or the value of any of the benefits of which will be calculated
  on the basis of any of the transactions contemplated by this Agreement;

          (c) any agreement of indemnification, any guaranty or any instrument
  evidencing indebtedness for borrowed money by way of direct loan, sale of debt
  securities, purchase money obligation, conditional sale, or otherwise;

          (d) any agreement, obligation or commitment containing covenants
  purporting to limit or which effectively limit Company's or any of its
  subsidiaries' freedom to compete in any line of business or in any geographic
  area or which would so limit Company or Surviving Corporation or any of its
  subsidiaries or any employees of any thereof after the Effective Time or
  granting any exclusive distribution or other exclusive rights;

          (e) any agreement, contract or commitment currently in force relating
  to the disposition or acquisition by Company or any of its subsidiaries after
  the date of this Agreement of a material amount of assets not in the ordinary
  course of business or pursuant to which Company has any material ownership
  interest in any corporation, partnership, joint venture or other business
  enterprise other than Company's subsidiaries;

          (f) any licensing, distribution, sponsorship, advertising, merchant
  program or other similar agreement to which Company or one of its subsidiaries
  is a party which (i) may not be canceled by Company or its subsidiaries, as
  the case may be, without penalty upon notice of 30 days or less, and (ii)
  which provides for payments by or to Company or its subsidiaries in an amount
  in excess of $100,000 over the term of the agreement or which is (or could
  reasonably be expected to become) material to Company;

                                      -28-

 
          (g) any agreement, contract or commitment currently in force to
  provide source code to any third party for any product or technology; or

          (h) any other agreement, contract or commitment currently in effect
  that is material to Company's business as presently conducted and proposed to
  be conducted.

     Neither Company nor any of its subsidiaries, nor to Company's knowledge any
other party to a Company Contract (as defined below), is in breach, violation or
default under, and neither Company nor any of its subsidiaries has received
written notice that it has breached, violated or defaulted under, any of the
material terms or conditions of any of the agreements, contracts or commitments
to which Company or any of its subsidiaries is a party or by which it is bound
that are required to be disclosed in the Company Disclosure Letter pursuant to
clauses (a) through (h) above or pursuant to Section 2.11 hereof or are required
to be filed with any Company SEC Report (any such agreement, contract or
commitment, a "Company Contract") in such a manner as would permit any other
party to cancel or terminate any such Company Contract, or would permit any
other party to seek material damages or other remedies (for any or all of such
breaches, violations or defaults, in the aggregate).

     The agreements set forth in Part 2.16(i) of the Company Disclosure Letter
have, to Company's knowledge, been executed by each party thereto in the form
provided to Parent.

     2.17 Change of Control Payments.  Part 2.17 of the Company Disclosure
          --------------------------                                      
Letter set forth each plan or agreement pursuant to which any amounts may become
payable (whether currently or in the future) to current or former officers and
directors of Company as a result of or in connection with the Merger.

     2.18 Insurance.  Company and each of its subsidiaries have policies of
          ---------                                                        
insurance and bonds of the type and in amounts customarily carried by persons
conducting business or owing assets similar to those of Company and its
subsidiaries.  There is no material claim pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds.  All premiums due and payable under all
such policies have been paid and Company and its subsidiaries are otherwise in
compliance in all material respects with the terms of such policies and bonds.
To the knowledge of Company, there has been no threatened termination of, or
material premium increase with respect to, any of such policies.

     2.19 Customers and Suppliers.
          ----------------------- 

          (a) Customers.  Neither Company nor any of its subsidiaries has
              ---------                                                  
  received any notice or other communication (in writing or otherwise), or
  received any other information, indicating that customers representing a
  material portion of Company's and its subsidiaries' revenues may cease dealing
  with Company or its subsidiaries or may otherwise reduce the volume of
  business transacted by such person or entity with Company and its subsidiaries
  below historical levels.

                                      -29-

 
          (b) Accounts Receivable.  Part 2.19 of the Company Disclosure Letter
              -------------------                                             
  provides an accurate and complete breakdown and aging of the accounts
  receivable and notes receivable of each customer of Company and its
  subsidiaries and a list of all other receivables of Company and its
  subsidiaries as of July 3, 1999, categorized by period of aging (30, 60, 90 or
  120 more days).

          (c) Suppliers. As of the date of this Agreement, no material supplier
              ---------                                                        
  of Company has indicated that it will stop or materially decrease the rate of
  supplying materials, products or services to Company.

     2.20 Disclosure.  The information supplied by Company for inclusion in the
          ----------                                                           
Form S-4 (or any similar successor form thereto) Registration Statement to be
filed by Parent with the SEC in connection with the issuance of Parent Common
Stock in the Merger (the "Registration Statement") shall not at the time the
Registration Statement is filed with the SEC and at the time it becomes
effective under the Securities Act contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading.  The information supplied by Company
for inclusion in the proxy statement/prospectus to be sent to the shareholders
of Company in connection with the meeting of Company's shareholders to consider
the approval and adoption of this Agreement and the approval of the Merger (the
"Company Shareholders' Meeting") and the meeting of Parent's stockholders to
consider the approval of the issuance of the shares of Parent Common Stock
pursuant to the Merger and an amendment to Parent's Certificate of Incorporation
to change the name of Parent to "Egghead.com, Inc.," effective at the Effective
Time, and to increase the authorized number of shares of Parent Common Stock so
as to permit the transactions contemplated hereby, subject to and upon
consummation of the Merger (such proxy statement/prospectus as amended or
supplemented is referred to herein as the "Proxy Statement/Prospectus") shall
not, on the date the Proxy Statement/Prospectus is mailed to Company's
shareholders, at the time of the Company Shareholders' Meeting or as of the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not false or misleading; or omit to state any material fact necessary to correct
any statement in any earlier communication with respect to the solicitation of
proxies for the Company Shareholders' Meeting which has become false or
misleading.  The Proxy Statement/Prospectus will comply as to form in all
material respects with the provisions of the Securities Act, the Exchange Act
and the rules and regulations thereunder.  If at any time prior to the Effective
Time any event relating to Company or any of its affiliates, officers or
directors should be discovered by Company which is required to be set forth in
an amendment to the Registration Statement or a supplement to the Proxy
Statement/Prospectus, Company shall promptly inform Parent.  Notwithstanding the
foregoing, Company makes no representation or warranty with respect to any
information supplied by Parent or Merger Sub which is contained in any of the
foregoing documents.

     2.21 Board Approval.  The Board of Directors of Company has, as of the date
          --------------                                                        
of this Agreement, determined (i) that the Merger is advisable and fair to, and
in the best interests of 

                                      -30-

 
Company and its shareholders, and (ii) to recommend that the shareholders of
Company approve and adopt this Agreement and approve the Merger.

     2.22 Fairness Opinion. Company's Board of Directors has received a written
          ----------------                                                     
opinion from its financial advisor, Hambrecht & Quist LLC, dated as of the date
hereof, to the effect that the consideration to be received by Company's
shareholders in connection with the Merger is fair to Company's shareholders
from a financial point of view, and has delivered to Parent a copy of such
opinion.

     2.23 Brokers' and Finders' Fees.  Except for fees payable to Hambrecht & --------------------------                                         
Quist LLC, pursuant to an engagement letter dated June 30, 1999, a copy of which
has been provided to Parent, Company has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.

     2.24 Merger Statutes.  Except for Chapter 23B.11 of the Washington Business
          ---------------                                                       
Corporation Act, no Washington statute or regulation restricting or governing
mergers or business combinations applies to the Merger, this Agreement, or any
of the transactions contemplated by this Agreement.

     2.25 Affiliates.  Part 2.25 of the Company Disclosure Letter is a complete
          ----------                                                           
list of those persons who may be deemed to be, in Company's reasonable judgment,
affiliates of Company within the meaning of Rule 145 promulgated under the
Securities Act (each, a "Company Affiliate").  Except as set forth in the
Company SEC Reports, since the date of Company's last proxy statement filed with
the SEC, no event has occurred as of the date of this Agreement that would be
required to be reported by Company pursuant to Item 404 of Regulation S-K
promulgated by the SEC.

     2.26 Pooling of Interests.  To the knowledge of Company, based on
          --------------------                                        
consultation with its independent accountants, neither Company nor any of its
directors, officers, affiliates or shareholders has taken or agreed to take any
action which would preclude Parent's ability to account for the Merger as a
pooling of interests.

     2.27 No Existing Discussions.  As of the date hereof, Company is not
          -----------------------                                        
engaged, directly or indirectly, in any discussion or negotiations with any
other party with respect to any Company Acquisition Proposal (as defined in
Section 5.5(a)).

                                      -31-

 
                                  ARTICLE III
            REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

     As of the date of this Agreement and as of the Closing Date, Parent and
Merger Sub represent and warrant to Company, subject to the exceptions
specifically disclosed in writing in the disclosure letter and referencing a
specific representation delivered by Parent to Company dated as of the date
hereof and certified by a duly authorized officer of Parent (the "Parent
Disclosure Letter"), as follows:

     3.1  Organization and Good Standing.  Parent and each of its subsidiaries
          ------------------------------                                      
(including Merger Sub) (i) is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction in which it is organized;
(ii) has the corporate or other power and authority to own, lease and operate
its assets and property and to carry on its business as now being conducted; and
(iii) except as would not be material to Parent, is duly qualified or licensed
to do business in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary.

     3.2  Subsidiaries and Other Interests.  Other than the corporations
          --------------------------------                              
identified in Part 3.2 of the Parent Disclosure Letter, neither Parent nor any
of the other corporations identified in Part 3.2 of the Parent Disclosure Letter
owns any capital stock of, or any equity interest of any nature in, any
corporation, partnership, joint venture arrangement or other business entity,
except for passive investments in equity interests of public companies as part
of the cash management program of Parent.  Neither Parent nor any of its
subsidiaries has agreed or is obligated to make, or is bound by any written,
oral or other agreement, contract, subcontract, lease, binding understanding,
instrument, note, option, warranty, purchase order, license, sublicense,
insurance policy, benefit plan or legally binding commitment or undertaking of
any nature, as in effect as of the date hereof or as may hereinafter be in
effect under which it may become obligated to make any future investment in or
capital contribution to any other entity.  Neither Parent, nor any of its
subsidiaries, has, at any time, been a general partner of any general
partnership, limited partnership or other entity.  Part 3.2 of the Parent
Disclosure Letter indicates the jurisdiction of organization of each entity
listed therein and Parent's direct or indirect equity interest therein.

     3.3  Certificate of Incorporation and Bylaws.  Parent has delivered or made
          ---------------------------------------                               
available to Company a true and correct copy of: (a) the Certificate of
Incorporation and Bylaws of Parent and similar governing instruments of each of
its subsidiaries, each as amended to date and as in full force in effect; and
(b) Parent's minute book containing all records of all proceedings, consents,
actions and meetings during the past three years of the Parent stockholders,
Board of Directors and any committees of the Board of Directors. Parent's
Certificate of Incorporation and Bylaws delivered  and each such instrument is
in full force and effect.  Neither Parent nor any of its subsidiaries is in
violation of any of the provisions of its Certificate of Incorporation or Bylaws
or equivalent governing instruments.

     3.4  Authority.
          --------- 

          (a) Parent has all requisite corporate power and authority to enter
  into this Agreement and the Parent Option Agreement and to consummate the
  transactions 

                                      -32-

 
  contemplated hereby and thereby, subject to the approval by the stockholders
  of Parent of the issuance of the shares of Parent Common Stock pursuant to the
  Merger and an amendment to Parent's Certificate of Incorporation to change the
  name of Parent to "Egghead.com, Inc.," effective immediately following the
  Effective Time, and to increase the authorized number of shares of Parent
  Common Stock so as to permit the transactions contemplated hereby. Merger Sub
  has all requisite corporate power and authority to enter into this Agreement
  and to consummate the transactions contemplated hereby. The execution and
  delivery of this Agreement and the consummation of the transactions
  contemplated hereby and thereby have been duly authorized by all necessary
  corporate action on the part of Parent and Merger Sub, subject only to the
  filing of the Articles of Merger pursuant to Washington Law. A vote of holders
  of a majority of the outstanding shares of the Parent Common Stock is
  sufficient for Parent's stockholders to approve an amendment to Parent's
  Certificate of Incorporation to change the name of Parent to "Egghead.com,
  Inc.," effective at the Effective Time and to increase the authorized number
  of shares of Parent Common Stock so as to permit the transactions contemplated
  by this Agreement, and to approve the issuance of the shares of Parent Common
  Stock pursuant to the Merger. Parent, as the sole stockholder of Merger Sub,
  has acted by written consent to approve the Merger and the adoption of this
  Agreement by Merger Sub, which consent Parent and Merger Sub represent and
  warrant constitutes the requisite approval of the Merger and this Agreement by
  Merger Sub. This Agreement and the Parent Option Agreement have each been duly
  executed and delivered by Parent and this Agreement has been duly executed and
  delivered by Merger Sub and, assuming the due authorization, execution and
  delivery by Company, each constitutes the valid and binding obligations of
  Parent and, in the case of this Agreement, Merger Sub, respectively,
  enforceable against Parent and Merger Sub in accordance with their terms,
  except as enforceability may be limited by bankruptcy and other similar laws
  affecting the rights of creditors generally and general principles of equity.
  The execution and delivery of this Agreement and the Parent Option Agreement
  by Parent and the execution and delivery of this Agreement by Merger Sub do
  not, and the performance of this Agreement and the Parent Option Agreement by
  Parent and the performance of this Agreement by Merger Sub will not, (i)
  conflict with or violate the Certificate of Incorporation or Bylaws of Parent
  or Merger Sub, (ii) subject to compliance with the requirements set forth in
  Section 3.4(b) below, conflict with or violate any law, rule, regulation,
  order, judgment or decree applicable to Parent or Merger Sub or by which any
  of their respective properties is bound or affected, or (iii) result in any
  material breach of or constitute a material default (or an event that with
  notice or lapse of time or both would become a material default) under, or
  impair Parent's rights or alter the rights or obligations of any third party
  under, or give to others any rights of termination, amendment, acceleration or
  cancellation of; or result in the creation of a material lien or Encumbrance
  on any of the material properties or assets of Parent or Merger Sub pursuant
  to, any note, bond, mortgage, indenture, contract, agreement, lease, license,
  permit, franchise or other instrument or obligation, in each case that is
  material to Parent, to which Parent or Merger Sub is a party or by which
  Parent or Merger Sub or any of their respective properties are bound or
  affected. Part 3.4 of the Parent Disclosure Letter list all consents, waivers
  and approvals under any of Parent's or any of its subsidiaries' agreements,
  contracts, licenses or leases required to be obtained in connection with the
  consummation of the transactions contemplated hereby, which, if individually
  or in the aggregate not obtained, 

                                      -33-

 
  would result in a material loss of benefits to Parent or the Surviving
  Corporation as a result of the Merger.

          (b)  No consent, approval, order or authorization of, or registration,
  declaration or filing with any Governmental Entity is required to be obtained
  or made by Parent or Merger Sub in connection with the execution and delivery
  of this Agreement or the consummation of the Merger, except for (i) the filing
  of the Articles of Merger with the Secretary of State of the State of
  Washington, (ii) the filing of the Registration Statement and the Proxy
  Statement/Prospectus with the SEC in accordance with the Securities Act and
  the Exchange Act, and the effectiveness of the Registration Statement, (iii)
  such consents, approvals, orders, authorizations, registrations, declarations
  and filings as may be required under applicable federal, foreign and state
  securities (or related) laws and the HSR Act and the securities or antitrust
  laws of any foreign country, and (iv) such other consents, authorizations,
  filings, approvals and registrations which if not obtained or made would not
  be material to Parent or Company or have a material adverse effect on the
  ability of the parties hereto to consummate the Merger.

     3.5  Parent and Merger Sub Capital Structure.
          --------------------------------------- 

          (a)  Stock.  The authorized capital stock of Parent consists of (i)
               -----                                                         
  thirty million (30,000,000) shares of Parent Common Stock, par value $.001 per
  share, of which there were 19,603,467 shares issued and outstanding as of July
  13, 1999, and (ii) two million (2,000,000) shares of Preferred Stock, par
  value $.001 per share, of which no shares are issued or outstanding.  All
  outstanding shares of Parent Common Stock are duly authorized, validly issued,
  fully paid and nonassessable and are not subject to preemptive rights created
  by statute, the Certificate of Incorporation or Bylaws of Parent or any
  agreement or document to which Parent is a party or by which it is bound.  As
  of the date of this Agreement, there are no shares of Parent Common Stock held
  in treasury by Parent.

          (b)  Options and Warrants. As of July 13, 1999, Parent had reserved an
               --------------------   
  aggregate of 5,691,610 shares of Parent Common Stock for issuance pursuant to
  Parent's 1995 Equity Incentive Plan (including shares subject to outstanding
  options) and 589,723 shares of Parent Common Stock for issuance pursuant to
  Parent's 1996 Employee Stock Purchase Plan. As of July 13, 1999, there were
  options outstanding to purchase an aggregate of 2,959,388 shares of Parent
  Common Stock pursuant to Parent's 1995 Equity Incentive Plan ("Parent
  Options") and purchase rights outstanding to purchase no more than an
  aggregate of 144,696 shares of Parent Common Stock pursuant to Parent's 1996
  Employee Stock Purchase Plan. As of July 13, 1999, there were no warrants
  outstanding to purchase shares of Parent Common Stock. All shares of Parent
  Common Stock subject to issuance as aforesaid, upon issuance on the terms and
  conditions specified in the instruments pursuant to which they are issuable,
  would be duly authorized, validly issued, fully paid and nonassessable. Part
  3.5 of the Parent Disclosure Letter list for each person who held Parent
  Options as of July 13, 1999: (i) the name of the holder of such option; (ii)
  the exercise price of such option; (iii) the number of shares as to which such
  option had vested at such date; (iv) the vesting schedule for such option; and
  (v) whether the exercisability of such option will be accelerated in any way
  by the transactions contemplated by this Agreement and the extent of
  acceleration, if any.

                                      -34-

 
          (c) Merger Sub.  The authorized capital stock of Merger Sub consists
              ----------                                                      
  of 1,000 shares of common stock, $0.01 par value, all of which, as of the date
  hereof, are issued and outstanding and are held by Parent.  All of the
  outstanding shares of Merger Sub's common stock have been duly authorized and
  validly issued, and are fully paid and nonassessable.  Merger Sub was formed
  for the purpose of consummating the Merger and has no material assets or
  liabilities except as necessary for such purpose.

          (d) Due Issuance.  The Parent Common Stock to be issued in the Merger,
              ------------                                                     
  when issued in accordance with the provisions of this Agreement, will be
  validly issued, fully paid and nonassessable.

          (e) Legal Compliance.  All outstanding shares of Parent Common Stock,
              ----------------                                                 
  all outstanding Parent Options, and all outstanding shares of capital stock of
  each subsidiary of Parent have been issued and granted in compliance with (i)
  all applicable securities laws and, to the knowledge of Parent, all other
  applicable Legal Requirements and (ii) all material requirements set forth in
  applicable agreements or instruments.

          (f) Vesting Acceleration.  There are no commitments or agreements of
              --------------------                                           
  any character to which Parent is bound obligating Parent to accelerate the
  vesting of any Parent Options as a result of the Merger.

          (g) Option Records.  Parent has made available to Company accurate,
              --------------                                                 
  current and complete copies of the Parent Option Plans and any other stock
  option plans pursuant to which Parent has granted stock options that are
  currently outstanding, the form of all stock option agreements evidencing such
  options and the applicable vesting schedule for each such option.

     3.6  Obligations With Respect to Capital Stock.
          ----------------------------------------- 

          (a) Except as set forth in Part 3.6 of the Parent Disclosure Letter,
  there are no equity securities, partnership interests or similar ownership
  interests of any class of Parent equity security, or any securities
  exchangeable or convertible into or exercisable for such equity securities,
  partnership interests or similar ownership interests, issued, reserved for
  issuance or outstanding.

          (b) Except for securities Parent owns free and clear of all claims and
  Encumbrances, directly or indirectly through one or more subsidiaries, and
  except for shares of capital stock or other similar ownership interests of
  certain subsidiaries of Parent that are owned by certain nominee equity
  holders as required by the applicable law of the jurisdiction of organization
  of such subsidiaries, as of the date of this Agreement, there are no equity
  securities, partnership interests or similar ownership interests of any class
  of equity security of any subsidiary of Parent, or any security exchangeable
  or convertible into or exercisable for such equity securities, partnership
  interests or similar ownership interests, issued, reserved for issuance or
  outstanding.

                                      -35-

 
          (c) Except as set forth in Part 3.5 or Part 3.6 of the Parent
  Disclosure Letter, there are no subscriptions, options, warrants, equity
  securities, partnership interests or similar ownership interests, calls,
  rights (including preemptive rights), commitments or agreements of any
  character to which Parent or any of its subsidiaries is a party or by which it
  is bound obligating Parent or any of its subsidiaries to issue, deliver or
  sell, or cause to be issued, delivered or sold, or repurchase, redeem or
  otherwise acquire, or cause the repurchase, redemption or acquisition of, any
  shares of capital stock, partnership interests or similar ownership interests
  of Parent or any of its subsidiaries or obligating Parent or any of its
  subsidiaries to grant, extend, accelerate the vesting of or enter into any
  such subscription, option, warrant, equity security, call, right, commitment
  or agreement.

          (d) Except as contemplated by this Agreement, there are no
  registration rights and there is no voting trust, proxy, rights plan,
  antitakeover plan or other agreement or understanding to which Parent is a
  party or by which it is bound with respect to any equity security of any class
  of Parent or with respect to any equity security, partnership interest or
  similar ownership interest of any class of any of its subsidiaries.
  Stockholders of Parent will not be entitled to dissenters' or appraisal rights
  under applicable state law in connection with the Merger.

     3.7  SEC Filings; Parent Financial Statements.
          ---------------------------------------- 

          (a) SEC Filings Generally.  Parent has filed all forms, reports and
              ---------------------                                          
  documents required to be filed by Parent with the SEC since January 1, 1997,
  and has made available to Company such forms, reports and documents in the
  form filed with the SEC. All such required forms, reports and documents
  (including those that Parent may file subsequent to the date hereof) are
  referred to herein as the "Parent SEC Reports."  As of their respective dates,
  the Parent SEC Reports (i) were prepared in accordance with the requirements
  of the Securities Act or the Exchange Act, as the case may be, and the rules
  and regulations of the SEC thereunder applicable to such Parent SEC Reports,
  and (ii) did not at the time they were filed (or if amended or superseded by a
  filing prior to the date of this Agreement, then on the date of such filing)
  contain any untrue statement of a material fact or omit to state a material
  fact required to be stated therein or necessary in order to make the
  statements therein, in the light of the circumstances under which they were
  made, not misleading, except to the extent corrected prior to the date of this
  Agreement by a subsequently filed Parent SEC Report. Taken as a whole, the
  Parent SEC Reports do not contain any untrue statement of a material fact or
  omit to state a material fact required to be stated therein or necessary in
  order to make the statements therein, in the light of the circumstances under
  which they were made, not misleading, except to the extent corrected prior to
  the date of this Agreement by a subsequently filed Parent SEC Report.  None of
  Parent's subsidiaries is required to file any forms, reports or other
  documents with the SEC.  All material agreements filed by Parent as exhibits
  to the Parent SEC Reports were executed by all parties thereto and such
  agreements as displayed on the World Wide Web via the EDGAR Service conform to
  the agreements as so executed.

          (b) Publicly Reported Financial Statements. Each of the consolidated
              --------------------------------------                          
  financial statements (including, in each case, any related notes thereto)
  contained in the Parent SEC 

                                      -36-

 
  Reports (the "Parent Financials"), including any Parent SEC Reports filed
  after the date hereof until the Closing, (i) complied as to form in all
  material respects with the published rules and regulations of the SEC with
  respect thereto, (ii) was prepared in accordance with GAAP applied on a
  consistent basis throughout the periods involved (except as may be indicated
  in the notes thereto or, in the case of unaudited interim financial
  statements, as may be permitted by the SEC on Form 10-Q, 8-K or any successor
  form under the Exchange Act) and (iii) fairly presented the consolidated
  financial position of Parent and its subsidiaries as at the respective dates
  thereof and the consolidated results of Parent's operations and cash flows for
  the periods indicated, except that the unaudited interim financial statements
  may not contain footnotes and were or are subject to normal and recurring 
  year-end adjustments. The balance sheet of Parent contained in Parent SEC
  Reports as of March 31, 1999 is hereinafter referred to as the "Parent Balance
  Sheet." Except as disclosed in the Parent Financials, since the date of the
  Parent Balance Sheet neither Parent nor any of its subsidiaries has any
  liabilities required under GAAP to be set forth on a balance sheet (absolute,
  accrued, contingent or otherwise) which are, individually or in the aggregate,
  material to the business, results of operations or financial condition of
  Parent and its subsidiaries taken as a whole, except for liabilities incurred
  since the date of the Parent Balance Sheet in the ordinary course of business
  consistent with past practices and liabilities incurred in connection with
  this Agreement. Without limiting the foregoing, the Parent's revenue
  recognition practices are in full conformance with all requirements of GAAP
  and all promulgations with respect to revenue recognition (including
  applicable documentation requirements) and there exists no fact (such as any
  side letters or oral understandings with customers regarding product return
  rights) that has not been disclosed to Parent's auditors, which if so
  disclosed, would cause such auditors to recommend or require that the Parent
  restate its financial statements to so conform. The reserves on the Parent's
  financial statements for obsolete inventory and warranty returns conform to
  GAAP and, in the judgment of Company management, are adequate.

          (c) Interim Financial Statements.  Parent has delivered to Company
              ----------------------------                                  
  copies of Parent's unaudited consolidated balance sheet as of May 31, 1999 and
  income statement and statement of cash flows for the five months ended May 31,
  1999.  Such financial statements: (i) are in accordance with the books and
  records of Parent; (ii) fairly present in all material respects Parent's
  financial condition at the date therein indicated and the results of
  operations for the period therein indicated and the results of operations for
  the period therein specified; and (iii) have been prepared in accordance with
  GAAP applied on a consistent basis (except for the absence of any footnotes
  required by GAAP).

          (d) Amendments.  Parent has heretofore furnished to Company a complete
              ----------                                                        
  and correct copy of any amendments or modifications, which have not yet been
  filed with the SEC but which are required to be filed, to agreements,
  documents or other instruments which previously had been filed by Parent with
  the SEC pursuant to the Securities Act or the Exchange Act.

          3.8 Absence of Certain Changes or Events.  Since the date of the
              ------------------------------------                        
Parent Balance Sheet there has not been: (a) any Material Adverse Effect with
respect to Parent, (b) any 

                                      -37-

 
declaration, setting aside or payment of any dividend on, or other distribution
(whether in cash, stock or property) in respect of, any of Parent's or any of
its subsidiaries' capital stock, or any purchase, redemption or other
acquisition by Parent of any of Parent's capital stock or any other securities
of Parent or its subsidiaries or any options, warrants, calls or rights to
acquire any such shares or other securities except for repurchases from
employees following their termination pursuant to the terms of their pre-
existing stock option or purchase agreements, (c) any granting by Parent or any
of its subsidiaries of any increase in compensation or fringe benefits to any of
their officers or employees (except for increases in compensation to employees
(such increases not to exceed 15% in the case of officers) in the ordinary
course of business consistent with prior practice), or any payment by Parent or
any of its subsidiaries of any bonus to any of their officers or employees
(other than in the ordinary course of business consistent with past practices),
or any granting by Parent or any of its subsidiaries of any increase in
severance or termination pay or any entry by Parent or any of its subsidiaries
into, or material modification or amendment of, any currently effective
employment, severance, termination or indemnification agreement or any agreement
the benefits of which are contingent or the terms of which are materially
altered upon the occurrence of a transaction involving Parent of the nature
contemplated hereby; (d) any material change or alteration in the policy of
Parent relating to the granting of stock options to its employees and
consultants; (e) any split, combination or reclassification of any of Parent's
or any of its subsidiaries' capital stock, (f) any material change by Parent in
its accounting methods, principles or practices, except as required by
concurrent changes in GAAP, or (g) any revaluation by Parent of any of its
assets, including, without limitation, writing off notes or accounts receivable
other than in the ordinary course of business.

     3.9  Taxes.  In each case except as set forth in Part 3.9 of the Parent
          -----                                                             
Disclosure Letter:

          (a) Parent and each of its subsidiaries have timely filed all federal,
  state, local and foreign Returns relating to Taxes required to be filed by or
  on behalf of Parent and each of its subsidiaries with any Tax authority, such
  Returns are true, correct and complete in all material respects, and Parent
  and each of its subsidiaries have paid all Taxes shown to be due on such
  Returns;

          (b) Parent and each of its subsidiaries have withheld with respect to
  its employees all federal and state income taxes, Taxes pursuant to FICA,
  Taxes pursuant to FUTA and other Taxes required to be withheld;

          (c) Neither Parent nor any of its subsidiaries has been delinquent in
  the payment of any Tax nor is there any Tax deficiency outstanding, proposed
  or assessed against Parent or any of its subsidiaries, nor has Parent or any
  of its subsidiaries executed any unexpired waiver of any statute of
  limitations on or extending the period for the assessment or collection of any
  Tax;

          (d) No audit or other examination of any Return of Parent or any of
  its subsidiaries by any Tax authority is presently in progress, nor has Parent
  or any of its subsidiaries been notified of any request for such an audit or
  other examination;

                                      -38-

 
          (e) No adjustment relating to any Returns filed by Parent or any of
  its subsidiaries has been proposed in writing formally or informally by any
  Tax authority to Parent or any of its subsidiaries or any representative
  thereof;

          (f) Neither Parent nor any of its subsidiaries has any liability for
  unpaid Taxes which has not been accrued for or reserved on the Parent Balance
  Sheet, whether asserted or unasserted, contingent or otherwise, which is
  material to Parent, other than any liability for unpaid Taxes that may have
  accrued since the date of the Parent Balance Sheet in connection with the
  operation of the business of Parent and its subsidiaries in the ordinary
  course;

          (g) There is no contract, agreement, plan or arrangement to which
  Parent is a party, including but not limited to the provisions of this
  Agreement and the agreements entered into in connection with this Agreement,
  covering any employee or former employee of Parent or any of its subsidiaries
  that, individually or collectively, would give rise to the payment of any
  amount that would not be deductible pursuant to Sections 280G, 404 or 162(m)
  of the Code; there is no contract, agreement, plan or arrangement to which
  Parent is a party or by which it is bound to compensate any individual for
  excise taxes paid pursuant to Section 4999 of the Code;

          (h) Neither Parent nor any of its subsidiaries has filed any consent
  agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2)
  of the Code apply to any disposition of a subsection (f) asset (as defined in
  Section 341(f)(4) of the Code) owned by Parent;

          (i) Neither Parent nor any of its subsidiaries is party to or has any
  obligation under any tax-sharing, tax indemnity or tax allocation agreement or
  arrangement among members of an affiliated group other than the affiliated
  group that includes Parent on the date immediately preceding the Closing Date;

          (j) Except as may be required as a result of the Merger, Parent and
  its subsidiaries have not been and will not be required to include any
  adjustment in Taxable income for any Tax period (or portion thereof) pursuant
  to Section 481 or Section 263A of the Code or any comparable provision under
  state or foreign Tax laws as a result of transactions, events or accounting
  methods employed prior to the Closing;

          (k) Parent has made available to Company or its legal or accounting
  representatives copies of all foreign, federal and state income tax and all
  state sales and use tax Returns for Parent and each of its subsidiaries filed
  for all open periods; and

          (l) There are no Liens on the assets of Parent or any subsidiary
  relating to or attributable to Taxes, other than Liens for Taxes not yet due
  and payable.

     3.10 Title to Properties; Absence of Liens and Encumbrances.
          ------------------------------------------------------ 

          (a) All real property leases to which Parent is a party and each
  amendment thereto that is in effect as of the date of this Agreement are in
  full force and effect, are valid 

                                      -39-

 
  and effective in accordance with their respective terms, and there is not,
  under any of such leases, any existing default or event of default (or event
  which with notice or lapse of time, or both, would constitute a default) that
  would give rise to a claim against Parent in an amount greater than $50,000.

          (b) Parent has good and valid title to, or, in the case of leased
  properties and assets, valid leasehold interests in, all of its tangible
  properties and assets, real, personal and mixed, used or held for use in its
  business, free and clear of any Liens, except as reflected in the Parent
  Financials and except for liens for taxes not yet due and payable and such
  Liens or other imperfections of title and Encumbrances, if any, which are not
  material in character, amount or extent, and which do not materially detract
  from the value, or materially interfere with the present use, of the property
  subject thereto or affected thereby.

     3.11 Intellectual Property.  For the purposes of this Agreement, the
          ---------------------                                          
following terms have the following definitions:

          "Parent Intellectual Property" shall mean any Intellectual Property
           ----------------------------                                      
     that is owned by, or exclusively licensed to, Parent or one of its
     subsidiaries.

          "Parent Registered Intellectual Property" means all of the Registered
           ---------------------------------------                             
     Intellectual Property owned by, or filed in the name of, Parent or one of
     its subsidiaries.

          (a) Good Title Generally.  Parent or one of its subsidiaries owns and
              --------------------                                             
  has good and exclusive title to, or has license (sufficient for the conduct of
  its business as currently conducted and as proposed to be conducted) to, each
  material item of Parent Intellectual Property free and clear of any lien or
  Encumbrance (excluding licenses and related restrictions and restrictions
  imposed by law); and Parent or one of its subsidiaries is the exclusive owner
  of all trademarks and trade names used in connection with the operation or
  conduct of the business of Parent and its subsidiaries, including the sale of
  any Parent-owned products or the provision of any services by Parent and its
  subsidiaries. Parent or one of its subsidiaries owns exclusively, and has good
  title to, all copyrighted works that are Parent-owned products (excluding
  services provided), or which Parent otherwise expressly purports to own.
  There are no royalties, honoraria, fees or other payments payable by Parent to
  any person or entity by reason of the ownership, use, license, sale or
  disposition of the Parent Intellectual Property.

          (b) Patent, Copyright, Trademark.  Each material item of Parent
              ----------------------------                               
  Registered Intellectual Property is valid and subsisting, all necessary
  registration, maintenance and renewal fees currently due in connection with
  such Parent Registered Intellectual Property have been made and all necessary
  documents, recordations and certificates in connection with such Registered
  Intellectual Property have been filed with the relevant patent, copyright,
  trademark or other authorities in the United States or foreign jurisdictions,
  as the case may be, for the purposes of maintaining such Registered
  Intellectual Property.

          (c) Trade Secrets.  Parent and its subsidiaries have taken reasonable
              -------------                                                    
  steps to protect Parent's and its subsidiaries' rights in Parent's and such
  subsidiaries' confidential 

                                      -40-

 
  information and trade secrets that they wish to protect or any trade secrets
  or confidential information of third parties provided to Parent or such
  subsidiaries, and, without limiting the foregoing, Parent and its subsidiaries
  have and enforce a policy requiring each employee and contractor to execute a
  proprietary information/confidentiality agreement substantially in the form
  provided to Parent, to the knowledge of Parent, and except as disclosed in
  Part 3.8(c) of the Parent Disclosure Letter, all current and former employees
  and contractors of Parent and its subsidiaries have executed such an
  agreement.

          (d) Domain Names and URLs.  Part 3.11(d) of the Parent Disclosure
              ---------------------                                        
  Letter sets forth a list of all Internet domain names and all Internet and
  World Wide Web URLs owned and used by Parent in its business.  Parent and its
  subsidiaries have, and after the Effective Time will have, a valid
  registration and all material rights (free of any material restriction) in and
  to all domain names and URLs used by them in their respective businesses
  including, without limitation, all rights necessary to continue to conduct
  Parent's business as it is currently conducted under such names.

          (e) Third Party IP.  To the extent that any work, material or
              --------------                                           
  invention has been developed or created by a third party for Parent or any of
  its subsidiaries, Parent or its subsidiaries, as the case may be, has a
  written agreement with such third party under all of its Intellectual Property
  with respect thereto and Parent or its subsidiary thereby either (i) has
  obtained ownership of and is the exclusive owner of such work, material, or
  invention, or (ii) has obtained a license (sufficient for the conduct of its
  business as currently conducted and as proposed to be conducted) under all
  such third party's Intellectual Property in such work, material or invention
  by operation of law or by valid assignment, to the fullest extent it is
  legally possible to do so.

          (f) Transfers of IP.  Part 3.11(f) of the Parent Disclosure Letter
              ---------------                                               
  lists all material contracts, licenses and agreements to which Parent is a
  party (i) with respect to Parent Intellectual Property licensed or transferred
  to any third party (other than end-user licenses in the ordinary course); or
  (ii) pursuant to which a third party has licensed or transferred any material
  Intellectual Property to Parent. Neither Parent nor any of its subsidiaries
  has transferred ownership of, or granted any exclusive license with respect
  to, any Intellectual Property that is or was material Parent Intellectual
  Property, to any third party.

          (g) No Infringement of Parent IP.  To the knowledge of Parent, no
              ----------------------------                                 
  Parent Intellectual Property or product or service of Parent is subject to any
  proceeding or outstanding decree, order, judgment, agreement, or stipulation
  restricting in any manner the use, transfer, or licensing thereof by Parent,
  or which may affect the validity, use or enforceability of such Parent
  Intellectual Property. To the knowledge of Parent, no person has infringed or
  misappropriated or is infringing or misappropriating any Parent Intellectual
  Property.

          (h) Parent Infringement of Third Party IP.  To the knowledge of
              -------------------------------------                      
  Parent, the operation of the business of Parent as such business currently is
  conducted, including Parent's design, development, marketing and sale of the
  products or services of Parent 

                                      -41-

 
  (including with respect to products currently under development) has not, does
  not and will not infringe or misappropriate the Intellectual Property of any
  third party or, to its knowledge, constitute unfair competition or trade
  practices under the laws of any jurisdiction. Parent has not received notice
  from any third party that the operation of the business of Parent or any act,
  product or service of Parent, infringes or misappropriates the Intellectual
  Property of any third party or constitutes unfair competition or trade
  practices under the laws of any jurisdiction.

          (i) Effect of Merger.  Parent has entered into or acquired all
              ----------------                                          
  contracts, licenses, and agreements reasonably required to conduct Parent's
  business as it is conducted as of the Closing Date.  All material contracts,
  licenses and agreements relating to the Parent Intellectual Property to which
  Parent or any subsidiary is party or by which Parent or any subsidiary is
  bound are in full force and effect.  The consummation of the transactions
  contemplated by this Agreement will neither violate nor result in the breach,
  modification, cancellation, termination, or suspension of such contracts,
  licenses and agreements.  Parent and each of its subsidiaries are in material
  compliance with, and have not materially breached any term of any of such
  contracts, licenses and agreements and, to the knowledge of Parent and its
  subsidiaries, all other parties to such contracts, licenses and agreements are
  in compliance in all material respects with, and have not materially breached
  any term of, such contracts, licenses and agreements. Following the Closing
  Date, Parent will be permitted to exercise all of Parent's rights under such
  contracts, licenses and agreements to the same extent Parent would have been
  able to had the transactions contemplated by this Agreement not occurred and
  without the payment of any additional amounts or consideration other than
  ongoing fees, royalties or payments which Parent would otherwise be required
  to pay.

          (j) Year 2000.  Parent has taken reasonable steps to ensure that its
              ---------                                                       
  systems and technology will record, store, process, calculate and present
  calendar dates falling on and after (and if applicable, spans of time
  including) January 1, 2000, and will calculate any information dependent on or
  relating to such dates in the same manner, and with the same functionality,
  data integrity and performance, as the systems and technology record, store,
  process, calculate and present calendar dates on or before December 31, 1999,
  or calculate any information dependent on or relating to such dates
  (collectively, "Year 2000 Compliant").  Parent has taken reasonable steps to
  ensure that its systems, services and technology will lose no functionality
  with respect to the introduction of records containing dates falling on or
  after January 1, 2000.  Except as set forth on Part 3.11(j) of the Parent
  Disclosure Letter, all of Parent's and its subsidiaries' internal computer and
  technology, systems and services which are critical to the operation of its
  business are Year 2000 Compliant.  Parent has no knowledge that any Parent
  Intellectual Property licensed by Parent or any subsidiary is not Year 2000
  Compliant.  Except as set forth on Part 3.11(j) of the Parent Disclosure
  Letter, all of the Parent Intellectual Property owned by Parent or any
  subsidiary is Year 2000 Compliant.  Neither the Parent Intellectual Property
  owned by Parent, nor to Parent's knowledge the Parent Intellectual Property
  licensed by Parent or any subsidiary, nor any service of Parent or any
  subsidiary contains any significant defect in connection with processing data
  containing dates in leap years or in the year 2000 or any preceding or
  following years.

                                      -42-

 
     3.12 Compliance with Laws; Permits; Restrictions.
          ------------------------------------------- 

          (a) Neither Parent nor any of its subsidiaries is, in any material
  respect, in conflict with, or in default or in violation of (i) any law, rule,
  regulation, order, judgment or decree applicable to Parent or any of its
  subsidiaries or by which Parent or any of its subsidiaries or any of their
  respective properties is bound or affected, or (ii) any material note, bond,
  mortgage, indenture, contract, agreement, lease, license, permit, franchise or
  other instrument or obligation to which Parent or any of its subsidiaries is a
  party or by which Parent or any of its subsidiaries or its or any of their
  respective properties is bound or affected, except for conflicts, violations
  and defaults that (individually or in the aggregate) would not cause Parent to
  lose any material benefit or incur any material liability.  No investigation
  or review by any Governmental Entity is pending or, to Parent's knowledge, has
  been threatened in a writing delivered to Parent against Parent or any of its
  subsidiaries, nor, to Parent's knowledge, has any Governmental Entity
  indicated an intention to conduct an investigation of Parent or any of its
  subsidiaries.  There is no material agreement, judgment, injunction, order or
  decree binding upon Parent or any of its subsidiaries which has or could
  reasonably be expected to have the effect of prohibiting or materially
  impairing any business practice of Parent or any of its subsidiaries, any
  acquisition of material property by Parent or any of its subsidiaries or the
  conduct of business by Parent as currently conducted.

          (b) Parent and its subsidiaries hold, to the extent legally required,
  all permits, licenses, variances, exemptions, orders and approvals from
  governmental authorities that are material to and required for the operation
  of the business of Parent as currently conducted (collectively, the "Parent
  Permits").  Parent and its subsidiaries are in compliance in all material
  respects with the terms of the Parent Permits.

     3.13 Litigation.  There are no claims, suits, actions or proceedings
          ----------                                                     
pending or, to the knowledge of Parent, threatened against, relating to or
affecting Parent or any of its subsidiaries, before any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator
that seeks to restrain or enjoin the consummation of the transactions
contemplated by this Agreement or which could reasonably be expected, either
singularly or in the aggregate with all such claims, actions or proceedings, to
be material to Parent or have a material adverse effect on the ability of the
parties hereto to consummate the Merger.  No Governmental Entity has at any time
challenged or questioned in a writing delivered to Parent the legal right of
Parent to design, offer or sell any of its products or services in the present
manner or style thereof.  As of the date hereof, to the knowledge of Parent, no
event has occurred, and no claim, dispute or other condition or circumstance
exists, that will, or that would reasonably be expected to, cause or provide a
bona fide basis for a director or executive officer of Parent to seek
indemnification from Parent.

     3.14 Employee Benefit Plans.
          ---------------------- 

          (a) Definitions.  With the exception of the definition of "Parent
              -----------                                                  
  Affiliate" set forth in Section 3.14(a)(i) below (which definition shall apply
  only to this Section 3.14), for purposes of this Agreement, the following
  terms shall have the meanings set forth below:

                                      -43-

 
               (i)   "Parent Affiliate" shall mean any other person or entity
     under common control with Parent within the meaning of Section 414(b), (c),
     (m) or (o) of the Code and the regulations issued thereunder;

               (ii)  "Parent Employee Plan" shall mean any plan, program,
     policy, practice, contract, agreement or other arrangement providing for
     compensation, severance, termination pay, performance awards, stock or
     stock-related awards, fringe benefits or other employee benefits or
     remuneration of any kind, whether written or unwritten, funded or unfunded,
     including without limitation, each "employee benefit plan," within the
     meaning of Section 3(3) of ERISA which is or has been maintained,
     contributed to, or required to be contributed to, by Parent or any Parent
     Affiliate for the benefit of any Employee;

               (iii) "Employee" for purposes of this Section 3.14 only shall
     mean any current, former, or retired employee, officer, or director of
     Parent or any Parent Affiliate;

               (iv)  "Parent Employee Agreement" shall mean each management,
     employment, severance, consulting, relocation, repatriation, expatriation,
     visas, work permit or similar agreement or contract between Parent or any
     Affiliate and any Employee or consultant;

               (v)   "International Parent Employee Plan" shall mean each Parent
     Employee Plan that has been adopted or maintained by Parent, whether
     informally or formally, for the benefit of Employees outside the United
     States;

               (vi)  "Parent Multiemployer Plan" shall mean any "Parent Pension
     Plan" (as defined below) which is a "multiemployer plan," as defined in
     Section 3(37) of ERISA;

               (vii) "Parent Pension Plan" shall mean each Parent Employee Plan
     which is an "employee pension benefit plan," within the meaning of Section
     3(2) of ERISA.

          (b)  List of Plans and Agreements.  Part 3.14 of the Parent Disclosure
               ----------------------------                                     
  Letter contains an accurate and complete list of each Parent Employee Plan and
  each Parent Employee Agreement.  Parent does not have any plan or commitment
  to establish any new Parent Employee Plan, to modify any Parent Employee Plan
  or Parent Employee Agreement (except to the extent required by law or to
  conform any such Parent Employee Plan or Parent Employee Agreement to the
  requirements of any applicable law, in each case as previously disclosed to
  Parent in writing, or as required by this Agreement), or to enter into any
  Parent Employee Plan or Parent Employee Agreement, nor does it have any
  intention or commitment to do any of the foregoing.

          (c)  Documents.  Parent has provided to Company:  (i) correct and
               ---------                                                   
  complete copies of each Parent Employee Plan and each Parent Employee
  Agreement including all amendments thereto and written interpretations
  thereof; (ii) the most recent annual actuarial 

                                      -44-

 
  valuations, if any, prepared for each Parent Employee Plan; (iii) the three
  (3) most recent annual reports (Form Series 5500 and all schedules and
  financial statements attached thereto), if any, required under ERISA or the
  Code in connection with each Parent Employee Plan or related trust; (iv) if
  the Parent Employee Plan is funded, the most recent annual and periodic
  accounting of Parent Employee Plan assets; (v) the most recent summary plan
  description together with the summary of material modifications thereto, if
  any, required under ERISA with respect to each Parent Employee Plan; (vi) all
  IRS determination, opinion, notification and advisory letters, and rulings
  relating to Parent Employee Plans; (vii) all material written agreements and
  contracts relating to each Parent Employee Plan, including, but not limited
  to, administrative service agreements, group annuity contracts and group
  insurance contracts; (viii) all communications material to any Employee or
  Employees relating to any Parent Employee Plan and any proposed Parent
  Employee Plans, in each case, relating to any amendments, terminations,
  establishments, increases or decreases in benefits, acceleration of payments
  or vesting schedules or other events which would result in any material
  liability to Parent; (ix) all COBRA forms and related notices currently in
  use; and (x) all registration statements and prospectuses prepared in
  connection with each Parent Employee Plan.

          (d) Employee Plan Compliance.  (i) Parent has performed in all
              ------------------------                                  
  material respects all obligations required to be performed by it under, is not
  in default or violation of, and has no knowledge of any default or violation
  by any other party to, each Parent Employee Plan, and each Parent Employee
  Plan has been established and maintained in all material respects in
  accordance with its terms and in compliance with all applicable laws,
  statutes, orders, rules and regulations, including but not limited to ERISA or
  the Code; (ii) each Parent Employee Plan intended to qualify under Section
  401(a) of the Code and each trust intended to qualify under Section 501(a) of
  the Code has either received a favorable determination letter from the IRS
  with respect to each such plan as to its qualified status under the Code or
  has remaining a period of time under applicable Treasury regulations or IRS
  pronouncements in which to apply for such a determination letter and make any
  amendments necessary to obtain a favorable determination and no event has
  occurred which would adversely affect the status of such determination letter
  or the qualified status of such plan; (iii) no "prohibited transaction,"
  within the meaning of Section 4975 of the Code or Sections 406 and 407 of
  ERISA, and not otherwise exempt under Section 408 of ERISA, has occurred with
  respect to any Parent Employee Plan; (iv) there are no actions, suits or
  claims pending, or, to the knowledge of Parent, threatened or reasonably
  anticipated (other than routine claims for benefits) against any Parent
  Employee Plan or against the assets of any Parent Employee Plan; (v) each
  Parent Employee Plan can be amended, terminated or otherwise discontinued
  after the Effective Time in accordance with its terms, without liability to
  Parent, Parent or any of its Parent Affiliates (other than ordinary
  administration expenses typically incurred in a termination event); (vi) there
  are no audits, inquiries or proceedings pending or, to the knowledge of
  Parent, threatened by the IRS or DOL with respect to any Parent Employee Plan;
  and (vii) neither Parent nor any Parent Affiliate is subject to any penalty or
  tax with respect to any Parent Employee Plan under Section 402(i) of ERISA or
  Sections 4975 through 4980 of the Code.

                                      -45-

 
          (e)  Pension Plans.  Parent does not now, nor has it ever, maintained,
               -------------                                                    
  established, sponsored, participated in, or contributed to, any Parent Pension
  Plan which is subject to Title IV of ERISA or Section 412 of the Code.

          (f)  Multiemployer Plans.  At no time has Parent contributed to or 
               -------------------   
  been requested to contribute to any Parent Multiemployer Plan.

          (g)  No Post-Employment Obligations.  No Parent Employee Plan 
               ------------------------------     
  provides, or has any liability to provide, retiree life insurance, retiree
  health or other retiree employee welfare benefits to any person for any
  reason, except as may be required by COBRA or other applicable statute, and
  Parent has never represented, promised or contracted (whether in oral or
  written form) to any Employee (either individually or to Employees as a group)
  or any other person that such Employee(s) or other person would be provided
  with retiree life insurance, retiree health or other retiree employee welfare
  benefit, except to the extent required by statute.

          (h)  COBRA; FMLA.  Neither Parent nor, to Parent's knowledge, any
               -----------                                                 
  Parent Affiliate has, prior to the Effective Time, and in any material
  respect, violated any of the health care continuation requirements of COBRA,
  any material requirements of FMLA or any similar material provisions of state
  law applicable to its Employees.

          (i)  All contributions due from the Parent and any Affiliate with
  respect to any of the Parent Employee Plans have been made or accrued on the
  Parent Balance Sheet or arose after the date of the Parent Balance Sheet in
  the ordinary course of business consistent with past practices.

          (j)  Effect of Transaction.
               --------------------- 

               (i)   The execution of this Agreement and the consummation of the
     transactions contemplated hereby will not (either alone or upon the
     occurrence of any additional or subsequent events) constitute an event
     under any Parent Employee Plan, Parent Employee Agreement, or related trust
     or loan, that will or may result in any payment (whether of severance pay
     or otherwise), acceleration, forgiveness of indebtedness, vesting,
     distribution, increase in benefits or obligation to fund benefits with
     respect to any Employee.

               (ii)  No payment or benefit which will or may be made by Parent
     or its Affiliates with respect to any Employee as a result of the
     transactions contemplated by this Agreement will be characterized as an
     "excess parachute payment," within the meaning of Section 280G(b)(1) of the
     Code.

          (k)  Employment Matters.  Parent and each of its subsidiaries:  (i) is
               ------------------                                               
  in compliance in all material respects with all applicable foreign, federal,
  state and local laws, rules and regulations respecting employment, employment
  practices, terms and conditions of employment and wages and hours, in each
  case, with respect to Employees; (ii) has withheld all amounts required by law
  or by agreement to be withheld from the wages, salaries and 

                                      -46-

 
  other payments to Employees; (iii) has properly classified independent
  contractors for purposes of federal and applicable state tax laws, laws
  applicable to employee benefits and other applicable laws; (iv) is not liable
  for any arrears of wages or any taxes or any penalty for failure to comply
  with any of the foregoing; and (v) is not liable for any material payment to
  any trust or other fund or to any governmental or administrative authority,
  with respect to unemployment compensation benefits, social security or other
  benefits or obligations for Employees (other than routine payments to be made
  in the normal course of business and consistent with past practice). There are
  no pending, or, to Parent's knowledge, threatened or reasonably anticipated
  claims or actions against Parent under any worker's compensation policy or
  long-term disability policy. To Parent's knowledge, no Employee of Parent has
  violated any employment contract, nondisclosure agreement or noncompetition
  agreement by which such Employee is bound due to such Employee being employed
  by Parent or disclosing to Parent or using trade secrets or proprietary
  information of any other person or entity.

          (l) Labor.  No work stoppage or labor strike against Parent is
              -----                                                     
  pending, threatened or reasonably anticipated.  Parent does not know of any
  activities or proceedings of any labor union to organize any Employees.  There
  are no actions, suits, claims, labor disputes or grievances pending, or, to
  the knowledge of Parent, threatened or reasonably anticipated relating to any
  labor, safety or discrimination matters involving any Employee, including,
  without limitation, charges of unfair labor practices or discrimination
  complaints, which, if adversely determined, would, individually or in the
  aggregate, result in any material liability to Parent.  Neither Parent nor any
  of its subsidiaries has engaged in any unfair labor practices within the
  meaning of the National Labor Relations Act.  Parent is not presently, nor has
  it been in the past, a party to, or bound by, any collective bargaining
  agreement or union contract with respect to Employees and no collective
  bargaining agreement is being negotiated by Parent.  All Parent employees are
  legally permitted to be employed by Parent in the United States of America.

     3.15 Environmental Matters.
          --------------------- 

          (a) Hazardous Material.  Except as would not result in material
              ------------------                                         
  liability to Parent, no underground storage tanks and no amount of any
  substance that has been designated by any Governmental Entity or by applicable
  federal, state or local law to be radioactive, toxic, hazardous or otherwise a
  danger to health or the environment, including, without limitation, PCBs,
  asbestos, petroleum, urea-formaldehyde and all substances listed as hazardous
  substances pursuant to the Comprehensive Environmental Response, Compensation,
  and Liability Act of 1980, as amended, or defined as a hazardous waste
  pursuant to the United States Resource Conservation and Recovery Act of 1976,
  as amended, and the regulations promulgated pursuant to said laws, but
  excluding office and janitorial supplies, (a "Hazardous Material") are
  present, as a result of the actions of Parent or any of its subsidiaries or
  any affiliate of Parent, or, to Parent's knowledge, as a result of any actions
  of any third party or otherwise, in, on or under any property, including the
  land and the improvements, ground water and surface water thereof that Parent
  or any of its subsidiaries has at any time owned, operated, occupied or
  leased.

                                      -47-

 
          (b) Hazardous Materials Activities.  Except as would not result in a
              ------------------------------                                  
  material liability to Parent (in any individual case or in the aggregate) (i)
  neither Parent nor any of its subsidiaries has transported, stored, used,
  manufactured, disposed of released or exposed its employees or others to
  Hazardous Materials in violation of any law in effect on or before the Closing
  Date, and (ii) neither Parent nor any of its subsidiaries has disposed of;
  transported, sold, used, released, exposed its employees or others to or
  manufactured any product containing a Hazardous Material (collectively
  "Hazardous Materials Activities") in violation of any rule, regulation, treaty
  or statute promulgated by any Governmental Entity in effect prior to or as of
  the date hereof to prohibit, regulate or control Hazardous Materials or any
  Hazardous Material Activity.

          (c) Permits.  Parent and its subsidiaries currently hold all
              -------                                                 
  environmental approvals, permits, licenses, clearances and consents (the
  "Parent Environmental Permits") material to and necessary for the conduct of
  Parent's and its subsidiaries' Hazardous Material Activities and other
  businesses of Parent and its subsidiaries as such activities and businesses
  are currently being conducted.

          (d) Environmental Liabilities.  No action, proceeding, revocation
              -------------------------                                    
  proceeding, amendment procedure, writ or injunction is pending, and to
  Parent's knowledge, no action, proceeding, revocation proceeding, amendment
  procedure, writ or injunction has been threatened by any Governmental Entity
  against Parent or any of its subsidiaries in a writing delivered to Parent
  concerning any Parent Environmental Permit, Hazardous Material or any
  Hazardous Materials Activity of Parent or any of its subsidiaries.  Parent is
  not aware of any fact or circumstance which could involve Parent or any of its
  subsidiaries in any environmental litigation or impose upon Parent any
  material environmental liability.

     3.16 Agreements, Contracts and Commitments.  Except as otherwise set forth
          -------------------------------------                                
in Part 3.16 of the Parent Disclosure Letter, neither Parent nor any of its
subsidiaries is a party to or is bound by:

          (a) any employment agreement, contract or commitment with any employee
  or member of Parent's Board of Directors, other than those that are terminable
  by Parent or any of its subsidiaries on no more than thirty days notice
  without liability or financial obligation, except to the extent general
  principles of wrongful termination law may limit Parent's or any of its
  subsidiaries' ability to terminate employees at will, or any consulting
  agreement;

          (b) any agreement or plan, including, without limitation, any stock
  option plan, stock appreciation right plan or stock purchase plan, any of the
  benefits of which will be increased, or the vesting of benefits of which will
  be accelerated, by the occurrence of any of the transactions contemplated by
  this Agreement or the value of any of the benefits of which will be calculated
  on the basis of any of the transactions contemplated by this Agreement;

          (c) any agreement of indemnification, any guaranty or any instrument
  evidencing indebtedness for borrowed money by way of direct loan, sale of debt
  securities, purchase money obligation, conditional sale, or otherwise;

                                      -48-

 
          (d)  any agreement, obligation or commitment containing covenants
  purporting to limit or which effectively limit Parent's or any of its
  subsidiaries' freedom to compete in any line of business or in any geographic
  area or which would so limit Parent or Surviving Corporation or any of its
  subsidiaries or any of their respective employees after the Effective Time or
  granting any exclusive distribution or other exclusive rights;

          (e)  any agreement, contract or commitment currently in force relating
  to the disposition or acquisition by Parent or any of its subsidiaries after
  the date of this Agreement of a material amount of assets not in the ordinary
  course of business or pursuant to which Parent has any material ownership
  interest in any corporation, partnership, joint venture or other business
  enterprise other than Parent's subsidiaries;

          (f)  any licensing, distribution, sponsorship, advertising, merchant
  program or other similar agreement to which Parent or one of its subsidiaries
  is a party which (i) may not be canceled by Parent or its subsidiaries, as the
  case may be, without penalty upon notice of 30 days or less, and (ii) which
  provides for payments by or to Parent or its subsidiaries in an amount in
  excess of $100,000 over the term of the agreement or which is (or could
  reasonably be expected to become) material to Parent;

          (g)  any agreement, contract or commitment currently in force to
  provide source code to any third party for any product or technology; or

          (h)  any other agreement, contract or commitment currently in effect
  that is material to Parent's business as presently conducted and proposed to
  be conducted.

     Neither Parent nor any of its subsidiaries, nor to Parent's knowledge any
other party to a Parent Contract (as defined below), is in breach, violation or
default under, and neither Parent nor any of its subsidiaries has received
written notice that it has breached, violated or defaulted under, any of the
material terms or conditions of any of the agreements, contracts or commitments
to which Parent or any of its subsidiaries is a party or by which it is bound
that are required to be disclosed in the Parent Disclosure Letter pursuant to
clauses (a) through (h) above or pursuant to Section 3.11 hereof or are required
to be filed with any Parent SEC Report (any such agreement, contract or
commitment, a "Parent Contract") in such a manner as would permit any other
party to cancel or terminate any such Parent Contract, or would permit any other
party to seek material damages or other remedies (for any or all of such
breaches, violations or defaults, in the aggregate).

     The agreements listed on Part 3.16(i) of the Parent Disclosure Letter have,
to Parent's knowledge, been executed by each party thereto in the form provided
to Company.

     3.17 Change of Control Payments.  Part 3.17 of the Parent Disclosure Letter
          --------------------------                                            
set forth each plan or agreement pursuant to which any amounts may become
payable (whether currently or in the future) to current or former officers and
directors of Parent as a result of or in connection with the Merger.

                                      -49-

 
     3.18 Insurance.  Parent and each of its subsidiaries have policies of
          ---------                                                       
insurance and bonds of the type and in amounts customarily carried by persons
conducting business or owning assets similar to those of Parent and its
subsidiaries.  There is no material claim pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds.  All premiums due and payable under all
such policies have been paid and Parent and its subsidiaries are otherwise in
compliance in all material respects with the terms of such policies and bonds.
To the knowledge of Parent, there has been no threatened termination of, or
material premium increase with respect to, any of such policies.

     3.19 Customers and Suppliers.
          ----------------------- 

          (a) Customers.  Neither Parent nor any of its subsidiaries has
              ---------                                                 
  received any notice or other communication (in writing or otherwise), or
  received any other information, indicating that customers representing a
  material portion of Parent's and its subsidiaries' revenues may cease dealing
  with Parent or its subsidiaries or may otherwise reduce the volume of business
  transacted by such person or entity with Parent and its subsidiaries below
  historical levels.

          (b) Accounts Receivable.  Part 3.19 of the Parent Disclosure Letter
              -------------------                                            
  provides an accurate and complete breakdown and aging of the accounts
  receivable and notes receivable of each customer of Parent and its
  subsidiaries and a list of all other receivables of Parent and its
  subsidiaries as of May 31, 1999, categorized by period of aging (30, 60, 90 or
  120 more days).

          (c) Suppliers. As of the date of this Agreement, no material supplier
              ---------                                                        
  of Parent has indicated that it will stop or materially decrease the rate of
  supplying materials, products or services to Parent.

     3.20 Disclosure.  The information supplied by Parent for inclusion in the
          ----------                                                          
Registration Statement shall not at the time the Registration Statement is filed
with the SEC and at the time it becomes effective under the Securities Act
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.  The information supplied by Parent for inclusion in the Proxy
Statement/Prospectus shall not, on the date the Proxy Statement/Prospectus is
mailed to Company's shareholders or Parent's stockholders, at the time of the
Company Shareholders' Meeting or the Parent Stockholders' Meeting or as of the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not false or misleading, or omit to state any material fact necessary to correct
any statement in any earlier communication with respect to the solicitation of
proxies for the Company Shareholders' Meeting or the Parent Stockholders'
Meeting which has become false or misleading.  The Registration Statement will
comply as to form in all material respects with the provisions of the Securities
Act and the rules and regulations thereunder.  If at any time prior to the
Effective Time, any event relating to Parent or any of its affiliates, officers
or directors should be discovered by Parent which is required to be set forth in
an amendment to the Registration Statement or a supplement to the

                                      -50-

 
Proxy Statement/Prospectus, Parent shall promptly inform Company.
Notwithstanding the foregoing, Parent makes no representation or warranty with
respect to any information supplied by Company which is contained in any of the
foregoing documents.

     3.21 Board Approval.  The Board of Directors of Parent has, as of the date
          --------------                                                       
of this Agreement, determined (i) that the Merger is advisable and fair to, and
in the best interests of Parent, its stockholders and Merger Sub, and (ii) to
recommend that the stockholders of Parent approve the issuance of the shares of
Parent Common Stock pursuant to the Merger and an amendment to Parent's
Certificate of Incorporation to change the name of Parent to "Egghead.com,
Inc.," effective immediately following the Effective Time, and to increase the
authorized number of shares of Parent Common Stock so as to permit the
transactions contemplated hereby and adopt this Agreement.

     3.22 Fairness Opinion.  Parent's Board of Directors has received a written
          ----------------                                                     
opinion from its financial advisor, Morgan Stanley & Co., Incorporated, in form
and substance reasonably satisfactory to Company and dated as of the date
hereof, to the effect that the consideration to be paid by Parent in connection
with the Merger is fair to Parent from a financial point of view, and has
delivered to Company a copy of such opinion.

     3.23 Brokers' and Finders' Fees.  Except for fees payable to Morgan Stanley
          --------------------------                                            
& Co. Incorporated pursuant to that letter dated July 13, 1999, a copy of which
has been delivered to Company, Parent has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.

     3.24 DGCL Section 203 Not Applicable.  The Board of Directors of Parent
          -------------------------------
has taken all actions on its part required so that (a) the restrictions
contained in Section 203 of the Delaware General Corporation Law applicable to a
"business combination" (as defined in such Section 203) will not apply to the
Parent's execution, delivery or performance of this Agreement or to the
consummation of the Merger or the other transactions contemplated by this
Agreement.

     3.25 Affiliates.  Part 3.25 of the Parent Disclosure Letter is a complete
          ----------                                                          
list of those persons who may be deemed to be, in Parent's reasonable judgment,
affiliates of Parent within the meaning of Rule 145 promulgated under the
Securities Act (each a "Parent Affiliate").  Except as set forth in the Parent
SEC Reports, since the date of Parent's last proxy statement filed with the SEC,
no event has occurred as of the date of this Agreement that would be required to
be reported by Parent pursuant to Item 404 of Regulation S-K promulgated by the
SEC.

     3.26 Pooling of Interests.  To the knowledge of Parent, based on
          --------------------                                       
consultation with its independent accountants, neither Parent nor any of its
directors, officers, affiliates or stockholders has taken or agreed to take any
action which would preclude Parent's ability to account for the Merger as a
pooling of interests.

     3.27 No Existing Discussions.  As of the date hereof, Parent is not
          -----------------------                                       
engaged, directly or indirectly, in any discussion or negotiations with any
other party with respect to any Parent Acquisition Proposal (as defined in
Section 5.5(b)).

                                      -51-

 
                                  ARTICLE IV
                      CONDUCT PRIOR TO THE EFFECTIVE TIME

     4.1  Conduct of Business.  During the period from the date of this
          -------------------                                          
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, Parent and Company each agrees as
to itself and its respective subsidiaries, to carry on its (and its
subsidiaries') business in the usual, regular and ordinary course, in
substantially the same manner as heretofore conducted and in compliance in all
material respects with all applicable laws and regulations, pay its debts and
taxes when due subject to good faith disputes over such debts or taxes, pay or
perform its and its subsidiaries' other obligations when due, and use all
commercially reasonable efforts (and in any event no less than would be
consistent with its past practices), to (i) preserve intact its (and its
subsidiaries') present business organization, (ii) keep available the services
of its present officers and employees and (iii) preserve its relationships with
customers, suppliers, licensors, licensees, and others with which it has
business dealings.  In addition, Company will promptly notify Parent, and Parent
will promptly notify Company, of any material event involving its respective
business or operations.

     In addition, except as permitted by the terms of this Agreement, and except
as provided in Part 4.1 of the Company Disclosure Letter, without the prior
written consent of Parent (which shall not be unreasonably delayed or withheld),
during the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement pursuant to its terms or the
Effective Time, Company shall not do any of the following and shall not permit
its subsidiaries to do any of the following:

          (a) Waive any stock repurchase rights, accelerate or reprice options
  granted under any employee, consultant, director or other stock plans or
  authorize cash payments in exchange for any options granted under any of such
  plans except as required by the terms of such plans or any related agreements
  or employment agreements in effect as of the date of this Agreement if such
  terms are disclosed in the Company Disclosure Letter;

          (b) Transfer or license to any person or entity or otherwise extend,
  amend or modify in any material respect any rights to the Company Intellectual
  Property, other than non-exclusive licenses in the ordinary course of business
  consistent with past practice;

          (c) Declare, set aside or pay any dividends on or make any other
  distributions (whether in cash, stock, equity securities or property) in
  respect of any capital stock or split, combine or reclassify any capital stock
  or issue or authorize the issuance of any other securities in respect of, in
  lieu of or in substitution for, any capital stock;

          (d) Purchase, redeem or otherwise acquire, directly or indirectly, any
  shares of its capital stock, except repurchases of unvested shares at cost in
  connection with the termination of the employment relationship with any
  employee pursuant to stock option or purchase agreements in effect on the date
  hereof;

          (e) Issue, deliver, sell, authorize, pledge or otherwise encumber any
  shares of capital stock or any securities convertible into shares of capital
  stock, or subscriptions, rights, warrants or options to acquire any shares of
  capital stock or any securities convertible into shares of capital stock, or
  enter into other agreements or commitments of any character 

                                      -52-

 
  obligating it to issue any such shares or convertible securities, other than
  (i) the issuance, delivery and/or sale of shares of Company Common Stock or
  Parent Common Stock pursuant to the exercise of stock options therefor
  outstanding on the date of this Agreement, (ii) the issuance, delivery and/or
  sale of shares of Company Common Stock issuable to participants in the ESPP
  consistent with the terms thereof or (iii) the grant of stock options to
  employees, officers or directors pursuant to the Company Stock Option Plans,
  having an exercise price equal to (or greater than) the fair market value of
  Company's Common Stock on the date of grant.

      (f) Cause, permit or propose any amendments to its Articles of
  Incorporation, Bylaws or other charter documents (or similar governing
  instruments of any of its subsidiaries);

      (g)  Acquire or agree to acquire by merging or consolidating with, or
  by purchasing any equity interest in or a substantial portion of the assets
  of, or by any other manner, any business or any corporation, partnership,
  association or other business organization or division thereof; or otherwise
  acquire or agree to acquire any assets (other than inventory and other items
  in the ordinary course of business), except for any such acquisitions
  involving aggregate consideration (including assumed indebtedness) of not more
  than $250,000, or enter into any material joint ventures, strategic
  partnerships or alliances;

      (h)  Sell, lease, license, encumber or otherwise dispose of any material
  properties or assets, except real property and buildings owned by Company that
  are located in Kalispell, Montana;

      (i)  Incur any indebtedness for borrowed money or guarantee any such
  indebtedness of another person, issue or sell any debt securities or options,
  warrants, calls or other rights to acquire any debt securities of Company,
  enter into any "keep well" or other agreement to maintain any financial
  statement condition or enter into any arrangement having the economic effect
  of any of the foregoing other than (i) in connection with the financing of
  ordinary course trade payables consistent with past practice or (ii) pursuant
  to existing credit facilities in the ordinary course of business;

      (j)  enter into any collective bargaining agreement;

      (k)  Make any payments outside of the ordinary course of business in
  excess of $250,000 in the aggregate, other than pursuant to that certain
  letter agreement dated June 30, 1999 between Parent and Hambrecht & Quist LLC.

      (l)  Enter into, amend, modify or (in the case of clauses (i) and (ii))
  terminate any licensing, distribution, sponsorship, advertising, merchant
  program, lease or other contracts, agreements or obligations (other than
  employment agreements with Company's executive officers), in each case which
  (i) does not terminate by its terms within 180 days or less, and may not be
  canceled without penalty by Company upon notice of 180 days or less, (ii)
  provides for payments by or to Company or its subsidiaries in an amount in
  excess of $250,000 over the shorter of (a) the term of the agreement or (b)
  the period of time ending on the earliest date on which the agreement may be
  terminated by Company without penalty or (iii) is (or could reasonably be
  expected to become) materially burdensome to Company or which impose material
  restrictions on its ability to conduct its business;

                                      -53-

 
          (m)  Materially revalue any of its assets or, except as required by
  GAAP, make any change in accounting methods, principles or practices;

          (n)  Take any action that prevent Parent from being able to account
  for the Merger as a pooling of interests whether or not otherwise permitted by
  the provisions of this Article IV (provided that if, prior to the taking of
  such actions, representatives of the independent auditors of both Parent and
  Company have stated that a proposed action would not prevent Parent from being
  able to account for the Merger as a pooling of interests, such action shall
  not be deemed to breach this clause (n),

          (o)  Initiate, compromise or settle any material litigation or
  arbitration proceeding (other than as a result of a breach of this Agreement
  by Parent), except that Company may compromise or settle litigation or
  arbitration if the terms of such settlement do not require payment by Company
  and its subsidiaries of in excess of $2.0 million and do not impose any other
  material obligations on Company and its subsidiaries;

          (p)  Engage in any action with the intent to directly or indirectly
  adversely impact any of the transactions contemplated by this Agreement; or

          Agree in writing or otherwise to take any of the actions described in
Section 4.1 (a) through (p) above.

     In addition, except as permitted by the terms of this Agreement, and except
as provided in Part 4.1 of the Parent Disclosure Letter, without the prior
written consent of Company (which shall not be unreasonably delayed or
withheld), during the period from the date of this Agreement and continuing
until the earlier of the termination of this Agreement pursuant to its terms or
the Effective Time, Parent shall not do any of the following and shall not
permit its subsidiaries to do any of the following:

          (a)  Waive any stock repurchase rights, accelerate or reprice options
  granted under any employee, consultant, director or other stock plans or
  authorize cash payments in exchange for any options granted under any of such
  plans except as required by the terms of such plans or any related agreements
  or employment agreements in effect as of the date of this Agreement if such
  terms are disclosed in the Parent Disclosure Letter;

          (b)  Transfer or license to any person or entity or otherwise extend,
  amend or modify in any material respect any rights to the Parent Intellectual
  Property, other than non-exclusive licenses in the ordinary course of business
  consistent with past practice;

          (c)  Declare, set aside or pay any dividends on or make any other
  distributions (whether in cash, stock, equity securities or property) in
  respect of any capital stock or split, combine or reclassify any capital stock
  or issue or authorize the issuance of any other securities in respect of, in
  lieu of or in substitution for, any capital stock;

          (d)  Purchase, redeem or otherwise acquire, directly or indirectly,
  any shares of its capital stock, except repurchases of unvested shares at cost
  in connection with the termination of the employment relationship with any
  employee pursuant to stock option or purchase agreements in effect on the date
  hereof;

                                      -54-

 
          (e)  Issue, deliver, sell, authorize, pledge or otherwise encumber any
  shares of capital stock or any securities convertible into shares of capital
  stock, or subscriptions, rights, warrants or options to acquire any shares of
  capital stock or any securities convertible into shares of capital stock, or
  enter into other agreements or commitments of any character obligating it to
  issue any such shares or convertible securities, other than (i) the issuance,
  delivery and/or sale of (i) shares of Parent Common Stock pursuant to the
  exercise of stock options therefor outstanding on the date of this Agreement,
  (ii) the issuance, delivery and/or sale of shares of Parent Common Stock
  issuable to participants in the Parent's employee stock purchase plan
  consistent with the terms thereof, or (iii) the grant of stock options to
  employees or directors pursuant to the Parent Stock Option Plans, having an
  exercise price equal to (or greater than) the fair market value of Parent
  Common Stock on the date of grant.

          (f)  Cause, permit or propose any amendments to its Certificate of
  Incorporation, Bylaws or other charter documents (or similar governing
  instruments of any of its subsidiaries) except as contemplated by this
  Agreement;

          (g)  Acquire or agree to acquire by merging or consolidating with, or
  by purchasing any equity interest in or a substantial portion of the assets
  of, or by any other manner, any business or any corporation, partnership,
  association or other business organization or division thereof; or otherwise
  acquire or agree to acquire any assets (other than inventory and other items
  in the ordinary course of business), except for any such acquisitions
  involving aggregate consideration (including assumed indebtedness) of not more
  than $250,000, or enter into any material joint ventures, strategic
  partnerships or alliances;

          (h)  Sell, lease, license, encumber or otherwise dispose of any
  material properties or assets;

          (i)  Incur any indebtedness for borrowed money or guarantee any such
  indebtedness of another person, issue or sell any debt securities or options,
  warrants, calls or other rights to acquire any debt securities of Parent,
  enter into any "keep well" or other agreement to maintain any financial
  statement condition or enter into any arrangement having the economic effect
  of any of the foregoing other than (i) in connection with the financing of
  ordinary course trade payables consistent with past practice or (ii) pursuant
  to existing credit facilities in the ordinary course of business;

          (j)  enter into any collective bargaining agreement;

          (k)  Make any payments outside of the ordinary course of business in
  excess of $250,000 in the aggregate other than pursuant to that certain letter
  agreement dated July 13, 1999 between Parent and Morgan Stanley & Co.
  Incorporated.

          (l)  Enter into, amend, modify or, in the case of clauses (i) and
  (ii), terminate any licensing, distribution, sponsorship, advertising,
  merchant program, lease or other contracts, agreements, or obligations (other
  than employment agreements with Company's executive officers), in each case
  which (i) does not terminate by its terms within 180 days or less, and may not
  be canceled without penalty by Parent upon notice of 180 days or less, (ii)
  provides for payments by or to Parent or its subsidiaries in an amount in
  excess of $250,000 over the shorter of (a) the term of the agreement, the
  period of time ending on the earliest date on which the agreement may be
  terminated by Parent without penalty or (iii) is (or could 

                                      -55-

 
  reasonably be expected to become) materially burdensome to Parent or which
  imposes material restrictions on its ability to conduct its business;

          (m)  Materially revalue any of its assets or, except as required by
  GAAP, make any change in accounting methods, principles or practices;

          (n)  Take any action that prevent Parent from being able to account
  for the Merger as a pooling of interests whether or not otherwise permitted by
  the provisions of this Article IV (provided that if, prior to the taking of
  such actions, representatives of the independent auditors of both Parent and
  Company have stated that a proposed action would not prevent Parent from being
  able to account for the Merger as a pooling of interests, such action shall
  not be deemed to breach this clause (n),

          (o)  Initiate, compromise or settle any material litigation or
  arbitration proceeding (other than as a result of a breach of this Agreement
  by Company), and except that Parent may compromise or settle litigation or
  arbitration if the terms of such settlement do not require payment by Parent
  and its subsidiaries of in excess of $2.0 million and do not impose any other
  material obligations on Parent and its subsidiaries;

          (p)  Engage in any action with the intent to directly or indirectly
  adversely impact any of the transactions contemplated by this Agreement; or

          (q)  Agree in writing or otherwise to take any of the actions
  described in Section 4.1 (a) through (p) immediately above.

     4.2  Cooperation.  Subject to compliance with applicable law, from the date
          -----------                                                           
hereof until the Effective Time, each of Parent and Company shall confer on a
regular and frequent basis with one or more representatives of the other party
to report on the general status of ongoing operations and shall promptly provide
the other party or its counsel with copies of all filings made by such party
with any Governmental Entity in connection with this Agreement, the Merger and
the transactions contemplated hereby and thereby.

                                      -56-

 
                                   ARTICLE V

                             ADDITIONAL AGREEMENTS

     5.1  Proxy Statement/Prospectus; Registration Statement; Antitrust and
          -----------------------------------------------------------------
Other Filings.
------------- 

          (a)  As promptly as practicable after the execution of this Agreement,
  Company and Parent will prepare and file with the SEC the Proxy
  Statement/Prospectus, and Parent will prepare and file with the SEC the
  Registration Statement in which the Proxy Statement/Prospectus will be
  included as a prospectus.  Each of Company and Parent will respond to any
  comments of the SEC, will use all commercially reasonable efforts to have the
  Registration Statement declared effective under the Securities Act as promptly
  as practicable after such filing provided, however, that Parent shall have no
  obligation to agree to account for the Merger as a "purchase" in order to
  cause the Registration Statement to become effective.  Each of Company and
  Parent will cause the Proxy Statement/Prospectus to be mailed to its
  respective shareholders and stockholders at the earliest practicable time
  after the Registration Statement is declared effective by the SEC.

          (b)  As promptly as practicable after the date of this Agreement, each
  of Company and Parent will prepare and file (i) with the United States Federal
  Trade Commission and the Antitrust Division of the United States Department of
  Justice Notification and Report Forms relating to the transactions
  contemplated herein as required by the HSR Act, as well as comparable pre-
  merger notification forms required by the merger notification or control laws
  and regulations of any applicable jurisdiction, as agreed to by the parties
  (the "Antitrust Filings") and (ii) any other filings required to be filed by
  it under the Exchange Act, the Securities Act or any other Federal, state or
  foreign laws relating to the Merger and the transactions contemplated by this
  Agreement (the "Other Filings").

          (c)  Company and Parent each shall promptly supply the other with any
  information which may be required in order to effectuate any filings pursuant
  to this Section 5.1.  Each of Company and Parent will notify the other
  promptly upon the receipt of any comments from the SEC or its staff or any
  other government officials in connection with any filing made pursuant hereto
  and of any request by the SEC or its staff or any other government officials
  for amendments or supplements to the Registration Statement, the Proxy
  Statement/Prospectus or any Antitrust Filings or Other Filings or for
  additional information and will supply the other with copies of all
  correspondence between such party or any of its representatives, on the one
  hand, and the SEC, or its staff or any other government officials, on the
  other hand, with respect to the Registration Statement, the Proxy
  Statement/Prospectus, the Merger or any Antitrust Filing or Other Filing.
  Each of Company and Parent will cause all documents that it is responsible for
  filing with the SEC or other regulatory authorities under this Section 5.1 to
  comply in all material respects with all applicable requirements of law and
  the rules and regulations promulgated thereunder.

          (d)  Whenever any event occurs which is required to be set forth in an
  amendment or supplement to the Proxy Statement/Prospectus, the Registration
  Statement or any Antitrust Filing or Other Filing, Company or Parent, as the
  case may be, will promptly inform the other of such occurrence and cooperate
  in filing with the SEC or its staff or any 

                                      -57-

 
  other government officials, and/or mailing to shareholders of Company and/or
  stockholders of Parent, such amendment or supplement.

     5.2  Meeting of Company Shareholders.
          ------------------------------- 

          (a)  Promptly after the date hereof, Company will take all action
  necessary in accordance with the Washington Law and its Articles of
  Incorporation and Bylaws to convene the Company Shareholders' Meeting to be
  held as promptly as practicable, and in any event (to the extent permissible
  under applicable law) within 45 days after the declaration of effectiveness of
  the Registration Statement, for the purpose of voting upon approval and
  adoption of this Agreement and approval of the Merger.  Subject to Section
  5.2(c) hereof, Company will use all reasonable efforts to solicit from its
  shareholders proxies in favor of the adoption and approval of this Agreement
  and the approval of the Merger and will take all other action necessary or
  advisable to secure the vote or consent of its shareholders required by the
  rules of Nasdaq or Washington Law to obtain such approvals.  Notwithstanding
  anything to the contrary contained in this Agreement, Company may adjourn or
  postpone the Company Shareholders' Meeting to the extent necessary to ensure
  that any necessary supplement or amendment to the Proxy Statement/Prospectus
  is provided to Company's shareholders in advance of a vote on the Merger and
  this Agreement or, if as of the time for which Company Shareholders' Meeting
  is originally scheduled (as set forth in the Proxy Statement/Prospectus) there
  are insufficient shares of Company Common Stock represented (either in person
  or by proxy) to constitute a quorum necessary to conduct the business of the
  Company Shareholders' Meeting.  Company shall ensure that the Company
  Shareholders' Meeting is called, noticed, convened, held and conducted, and
  subject to Section 5.2(c) that all proxies solicited by Company in connection
  with the Company Shareholders' Meeting are solicited, in compliance with the
  Washington Law, its Articles of Incorporation and Bylaws, the rules of Nasdaq
  and all other applicable legal requirements.  Company's obligation to call,
  give notice of, convene and hold the Company Shareholders' Meeting in
  accordance with this Section 5.2(a) shall not be limited to or otherwise
  affected by the commencement, disclosure, announcement or submission to
  Company of any Company Acquisition Proposal (as defined in Section 5.5), or by
  any withdrawal, amendment or modification of the recommendation of the Board
  of Directors of Company with respect to this Agreement or the Merger.

          (b)  Subject to Section 5.2(c):  (i) the Board of Directors of Company
  shall unanimously recommend that Company's shareholders vote in favor of and
  adopt and approve this Agreement and approve the Merger at the Company
  Shareholders' Meeting; (ii) the Proxy Statement/Prospectus shall include a
  statement to the effect that the Board of Directors of Company has unanimously
  recommended that Company's shareholders vote in favor of and adopt and approve
  this Agreement and the Merger at the Company Shareholders' Meeting; and (iii)
  neither the Board of Directors of Company nor any committee thereof shall
  withdraw, amend or modify, or propose or resolve to withdraw, amend or modify
  in a manner adverse to Parent, the unanimous recommendation of the Board of
  Directors of Company that Company's shareholders vote in favor of and adopt
  and approve this Agreement and the Merger. For purposes of this Agreement,
  said recommendation of the Board of Directors shall be deemed to have been
  modified in a 

                                      -58-

 
  manner adverse to Parent if said recommendation shall no longer be unanimous,
  provided that, for all purposes of this Agreement, an action by any Board of
  Directors or committee thereof shall be unanimous if each member of such Board
  of Directors or committee has approved such action other than (i) any such
  member who has appropriately abstained from voting on such matter because of
  an actual or potential conflict of interest and (ii) any such member who is
  unable to vote in connection with such action as a result of death or
  disability.

          (c)  Nothing in this Agreement shall prevent the Board of Directors of
  Company from withholding, withdrawing, amending or modifying its unanimous
  recommendation in favor of the Merger or this Agreement, or both, if (i) a
  Company Superior Offer (as defined below) is made to Company and is not
  withdrawn, (ii) Company shall have provided written notice to Parent (a
  "Notice of Company Superior Offer") advising Parent that Company has received
  a Company Superior Offer, specifying all of the material terms and conditions
  of such Company Superior Offer and identifying the person or entity making
  such Company Superior Offer, (iii) Parent shall not have, within five business
  days of Parent's receipt of the Notice of Company Superior Offer, made an
  offer (a) that the Company Board by a majority vote determines in its good
  faith judgment (based on the written advice of its financial adviser) to be at
  least as favorable to Company's shareholders as such Company Superior Offer
  (it being agreed that the Board of Directors of Company shall convene a
  meeting to consider any such offer by Parent promptly following the receipt
  thereof), or (b) that, in the case of a Superior Proposal that involves the
  payment of cash for all of the outstanding Company Common Stock, represents an
  equal or greater per share price, (iv) the Board of Directors of Company
  concludes in good faith, after consultation with its outside counsel, that, in
  light of such Company Superior Offer, the withholding, withdrawal, amendment
  or modification of such recommendation is required in order for the Board of
  Directors of Company to comply with its fiduciary obligations to Company's
  shareholders under applicable law, and (v) Company shall not have violated any
  of the restrictions set forth in Section 5.5 or this Section 5.2.  Company
  shall provide Parent with at least three business days prior notice (or such
  lesser prior notice as provided to the members of Company's Board of Directors
  but in no event less than twenty-four hours) of any meeting of Company's Board
  of Directors at which Company's Board of Directors is reasonably expected to
  consider any Company Acquisition Proposal to determine whether such Company
  Acquisition Proposal is a Company Superior Offer.  Subject to applicable laws,
  nothing contained in this Section 5.2 shall limit Company's obligation to hold
  and convene the Company Shareholders' Meeting (regardless of whether the
  unanimous recommendation of the Board of Directors of Company shall have been
  withdrawn, amended or modified).

          For purposes of this Agreement "Company Superior Offer" shall mean an
  unsolicited, bona fide written offer made by a third party to consummate any
  of the following transactions: (i) a merger or consolidation involving Company
  pursuant to which the shareholders of Company immediately preceding such
  transaction will hold less than 40% of the equity interest in the surviving or
  resulting entity of such transaction or (ii) the acquisition by any person or
  group (including by way of a tender offer or an exchange offer or a two step
  transaction involving a tender offer followed with reasonable promptness by a
  cash-out 

                                      -59-

 
  merger involving Company), directly or indirectly, of ownership of 100% of the
  then outstanding shares of capital stock of Company, on terms that the Board
  of Directors of Company determines, in its reasonable good faith judgment
  (based on the written advice of its financial adviser) to be more favorable to
  the Company shareholders than the terms of the Merger; provided, however, that
  any such offer shall not be deemed to be a "Company Superior Offer" if any
  financing required to consummate the transaction contemplated by such offer is
  not committed and is not likely in the reasonable judgment of Company's Board
  of Directors (based on the advice of its financial adviser) to be obtained by
  such third party on a timely basis.

          (d) Nothing contained in this Agreement shall prohibit Company or its
  Board of Directors from taking and disclosing to its shareholders a position
  contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act
  if, in the good faith judgment of the Board of Directors of Company, after
  consultation with outside counsel, failure so to disclose would be
  inconsistent with its obligations under applicable law.

     5.3  Meeting of Parent Stockholders.
          ------------------------------ 

          (a) Promptly after the date hereof, Parent will take all action
  necessary in accordance with the Delaware Law and its Certificate of
  Incorporation and Bylaws to convene a meeting of Parent's stockholders to
  consider the issuance of the shares of Parent Common Stock pursuant to the
  Merger and an amendment to Parent's Certificate of Incorporation to change the
  name of Parent to "Egghead.com, Inc.," effective at the Effective Time, and to
  increase the authorized number of shares of Parent Common Stock so as to
  permit the transactions contemplated hereby, subject to and upon consummation
  of the Merger (the "Parent Stockholders Meeting") to be held as promptly as
  practicable, and in any event (to the extent permissible under applicable law)
  within 45 days after the declaration of effectiveness of the Registration
  Statement.  Parent will use all commercially reasonable efforts to solicit
  from its stockholders proxies in favor of the issuance of the shares of Parent
  Common Stock pursuant to the Merger and an amendment to Parent's Certificate
  of Incorporation to change the name of Parent to "Egghead.com, Inc.,"
  effective at the Effective Time, and to increase the authorized number of
  shares of Parent Common Stock so as to permit the transactions contemplated
  hereby, subject to and upon consummation of the Merger, and will take all
  other action necessary or advisable to secure the vote or consent of its
  stockholders required by the rules of Nasdaq or Delaware Law to obtain such
  approvals.  Notwithstanding anything to the contrary contained in this
  Agreement, Parent may adjourn to postpone the Parent Stockholders Meeting to
  the extent necessary to ensure that any necessary supplement or amendment to
  the Proxy Statement/Prospectus is provided to Parent's stockholders in advance
  of a vote on the issuance of the shares of Parent Common Stock pursuant to the
  Merger or a vote on the approval of an amendment to Parent's Certificate of
  Incorporation to change the name of Parent to "Egghead.com, Inc.," effective
  at the Effective Time, and to increase the authorized number of shares of
  Parent Common Stock so as to permit the transactions contemplated hereby,
  subject to and upon consummation of the Merger, or, if as of the time for
  which the Parent Stockholders Meeting is originally scheduled (as set forth in
  the Proxy Statement/Prospectus) there are insufficient shares of Parent Common
  Stock represented (either in person or by proxy) to constitute a quorum

                                     -60-

 
  necessary to conduct the business of the Parent Stockholders Meeting.  Parent
  shall ensure that the Parent Stockholders Meeting is called, noticed,
  convened, held and conducted, that all proxies solicited by Parent in
  connection with the Parent Stockholders Meeting are solicited in compliance
  with the Delaware Law, its Certificate of Incorporation and Bylaws, the rules
  of Nasdaq and all other applicable legal requirements. Parent's obligation to
  call, give notice of, convene and hold the Parent Stockholders' Meeting in
  accordance with this Section 5.3(a) shall not be limited to or otherwise
  affected by the commencement, disclosure, announcement or submission to Parent
  of any Parent Acquisition Proposal (as defined in Section 5.5), or by any
  withdrawal, amendment or modification of the recommendation of the Board of
  Directors of Parent with respect to this Agreement or the Merger.

          (b) Subject to Section 5.3(c): (i) the Board of Directors of Parent
  shall unanimously recommend that Parent's stockholders vote in favor of the
  issuance of the shares of Parent Common Stock pursuant to the Merger and an
  amendment to Parent's Certificate of Incorporation to change the name of
  Parent to "Egghead.com, Inc.," effective immediately following the Effective
  Time, and to increase the authorized number of shares of Parent Common Stock
  so as to permit the transactions contemplated hereby, subject to and upon
  consummation of the Merger, (ii) the Proxy Statement/Prospectus shall include
  a statement to the effect that the Board of Directors of Parent has
  unanimously recommended that Parent's stockholders vote in favor of such
  matters at the Parent Stockholders' Meeting, and (iii) neither the Board of
  Directors of Parent nor any committee thereof shall withdraw, amend or modify,
  or propose to resolve to withdraw, amend or modify in a manner adverse to
  Company, the unanimous recommendation of the Board of Directors of Parent that
  Parent's stockholders vote in favor of such matters.  For purposes of this
  Agreement, said recommendation of the Board of Directors shall be deemed to
  have been modified in a manner adverse to Company if said recommendation shall
  no longer be unanimous, provided that, for all purposes of this Agreement, an
  action by any Board of Directors or committee thereof shall be unanimous if
  each member of such Board of Directors or committee has approved such action
  other than (i) any such member who has appropriately abstained from voting on
  such matter because of an actual or potential conflict of interest and (ii)
  any such member who is unable to vote in connection with such action as a
  result of death or disability.

          (c) Nothing in this Agreement shall prevent the Board of Directors of
  Parent from withholding, withdrawing, amending or modifying its unanimous
  recommendations in favor of the issuance of the shares of Parent Common Stock
  pursuant to the Merger or of an amendment to Parent's Certificate of
  Incorporation to change the name of Parent to "Egghead.com, Inc.," effective
  at the Effective Time, and to increase the authorized number of shares of
  Parent Common Stock so as to permit the transactions contemplated hereby, or
  both, subject to and upon consummation of the Merger, if (i) a Parent Superior
  Offer (as defined below) is made to Parent and is not withdrawn, (ii) Parent
  shall have provided written notice to Company (a "Notice of Parent Superior
  Offer") advising Company that Parent has received a Parent Superior Offer,
  specifying all of the material terms and conditions of such Parent Superior
  Offer and identifying the person or entity making such Parent Superior Offer,
  (iii) Company shall not have, within five business days of Company's receipt
  of the Notice of 

                                      -61-

 
  Parent Superior Offer, made an offer (a) that the Board of Directors of Parent
  by a majority vote determines in its good faith judgment (based on the written
  advice of its financial adviser) to be at least as favorable to Parent's
  stockholders as such a Company Superior Offer (it being agreed that the Board
  of Directors of Parent shall convene a meeting to consider any such offer by
  Company promptly following the receipt thereof) or (b) that in the case of
  Superior Proposal that involves the payment of cash for all of the outstanding
  Parent Common Stock, represents an equal or greater per share price, (iv) the
  Board of Directors of Parent concludes in good faith, after consultation with
  its outside counsel, that, in light of such Parent Superior Offer, the
  withholding, withdrawal, amendment or modification of such recommendation is
  required in order for the Board of Directors of Parent to comply with its
  fiduciary obligations to Parent's stockholders under applicable law, and (v)
  Parent shall not have violated any of the restrictions set forth in Section
  5.4, Section 5.5 or this Section 5.3. Parent shall provide Company with at
  least three business days prior notice (or such lesser prior notice as
  provided to the members of Parent's Board of Directors but in no event less
  than twenty-four hours) of any meeting of Parent's Board of Directors at which
  Parent's Board of Directors is reasonably expected to consider any Parent
  Acquisition Proposal (as defined in Section 5.5) to determine whether such
  Parent Acquisition Proposal is a Parent Superior Offer. Subject to applicable
  laws, nothing contained in this Section 5.3 shall limit Parent's obligation to
  hold and convene the Parent Stockholders' Meeting (regardless of whether the
  unanimous recommendation of the Board of Directors of Parent shall have been
  withdrawn, amended or modified).

          For purposes of this Agreement "Parent Superior Offer" shall mean an
  unsolicited, bona fide written offer made by a third party to consummate any
  of the following transactions: (i) a merger or consolidation involving Parent
  pursuant to which the stockholders of Parent immediately preceding such
  transaction will hold less than 40% of the equity interest in the surviving or
  resulting entity of such transaction or (ii) the acquisition by any person or
  group (including by way of a tender offer or an exchange offer or a two step
  transaction involving a tender offer followed with reasonable promptness by a
  cash-out merger involving Parent), directly or indirectly, of ownership of
  100% of the then outstanding shares of capital stock of Parent, on terms that
  the Board of Directors of Parent determines, in its reasonable good faith
  judgment (based on the written advice of its financial adviser) to be more
  favorable to the Parent stockholders than the Merger; provided, however, that
  any such offer shall not be deemed to be a "Parent Superior Offer" if any
  financing required to consummate the transaction contemplated by such offer is
  not committed and is not likely in the reasonable judgment of Parent's Board
  of Directors (based on the advice of its financial adviser) to be obtained by
  such third party on a timely basis;

          (d) Nothing contained in this Agreement shall prohibit Parent or its
  Board of Directors from taking and disclosing to its stockholders a position
  contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act
  if, in the good faith judgment of the Board of Directors of Company, after
  consultation with outside counsel, failure so to disclose would be
  inconsistent with its obligations under applicable law.

                                      -62-

 
     5.4  Confidentiality; Access to Information.
          -------------------------------------- 

          (a) Confidentiality Agreement.  The parties acknowledge that Company
              -------------------------                                       
  and Parent have previously executed a Mutual Confidentiality Agreement, dated
  as of April 2, 1999 (the "Confidentiality Agreement"), which Confidentiality
  Agreement will continue in full force and effect in accordance with its terms.

          (b) Access to Information.  Company and Parent will each afford to the
              ---------------------                                             
  other and its accountants, counsel and other representatives reasonable access
  during normal business hours to its properties, books, records and personnel
  during the period prior to the Effective Time to obtain all information
  concerning its business, including the status of its product development
  efforts, properties, results of operations and personnel, as such other party
  may reasonably request and, during such period, each of Parent and Company
  shall (and shall cause each of their respective subsidiaries to) furnish
  promptly to the other a copy of each report, schedule, registration statement
  and other document filed or received by it during such period pursuant to the
  requirements of federal securities laws. Unless otherwise required by law, the
  parties will hold any such information which is non-public in confidence in
  accordance with the Confidentiality Agreement.  No information or knowledge
  obtained in any investigation pursuant to this Section 5.4 will affect or be
  deemed to modify any representation or warranty contained herein or the
  conditions to the obligations of the parties to consummate the Merger.

     5.5  No Solicitation.
          --------------- 

          (a) No Solicitation by Company.  From and after the date of this
              --------------------------                                  
  Agreement until the Effective Time or termination of this Agreement pursuant
  to Article VII, Company and its subsidiaries will not, nor will they authorize
  or permit any of their respective officers, directors, affiliates or employees
  or any investment banker, attorney or other advisor or representative retained
  by any of them to, directly or indirectly, (i) solicit, initiate, encourage
  (including by way of furnishing information) or induce the making, submission
  or announcement of any Company Acquisition Proposal, (ii) participate in any
  discussions or negotiations regarding, or furnish to any person any non-public
  information with respect to, or take any other action to facilitate any
  inquiries or the making of any proposal that constitutes or may reasonably be
  expected to lead to, any Company Acquisition Proposal, (iii) engage in
  discussions with any person with respect to any Company Acquisition Proposal,
  except as to the existence of these provisions, (iv) approve, endorse or
  recommend any Company Acquisition Proposal or (v) enter into any letter of
  intent or similar document or any contract, agreement or commitment
  contemplating or otherwise relating to any Company Acquisition Transaction (as
  defined below); provided, however, that prior to the approval of this
  Agreement and the Merger at the Company Shareholders' Meeting, this Section
  5.5(a) shall not prohibit Company from furnishing nonpublic information
  regarding Company and its subsidiaries to, or entering into discussions with,
  any person or group who has submitted to Company prior to the date twenty
  business days before the publicly announced date of the Company Shareholders'
  Meeting (and not withdrawn) an unsolicited, written, bona fide Company
  Acquisition Proposal that the Board of Directors of Company 

                                      -63-

 
  reasonably concludes (based on the written advice of its financial adviser)
  may constitute a Company Superior Offer if (1) neither Company nor any
  representative of Company and its subsidiaries shall have violated any of the
  restrictions set forth in this Section 5.5(a), (2) prior to the date 20
  business days before the publicly announced date of the Company Shareholders'
  Meeting, the Board of Directors of Company concludes in good faith, after
  consultation with its outside legal counsel, that such action is required in
  order for the Board of Directors of Company to comply with its fiduciary
  obligations to Company's shareholders under applicable law, (3) prior to
  furnishing any such nonpublic information to, or entering into any such
  discussions with, such person or group, Company gives Parent written notice of
  the identity of such person or group and all of the material terms and
  conditions of such Company Acquisition Proposal and of Company's intention to
  furnish nonpublic information to, or enter into discussions with, such person
  or group, and Company receives from such person or group an executed
  confidentiality agreement containing terms at least as restrictive with regard
  to Company's confidential information as the Confidentiality Agreement, (4)
  Company gives Parent at least three business days advance notice of its intent
  to furnish such nonpublic information or enter into such discussions, and (5)
  contemporaneously with furnishing any such nonpublic information to such
  person or group, Company furnishes such nonpublic information to Parent (to
  the extent such nonpublic information has not been previously furnished by
  Company to Parent). Company and its subsidiaries will immediately cease any
  and all existing activities, discussions or negotiations with any parties
  conducted heretofore with respect to any Company Acquisition Proposal. Without
  limiting the foregoing, it is understood that any violation of the
  restrictions set forth in the preceding two sentences by any officer, director
  or employee of Company or any of its subsidiaries or any investment banker,
  attorney or other advisor or representative of Company or any of its
  subsidiaries shall be deemed to be a breach of this Section 5.5(a) by Company.

          For purposes of this Agreement, "Company Acquisition Proposal" shall
  mean any offer or proposal (other than an offer or proposal by Parent)
  relating to any Company Acquisition Transaction.  For the purposes of this
  Agreement, "Company Acquisition Transaction" shall mean any transaction or
  series of related transactions other than the transactions contemplated by
  this Agreement involving:  (A) any acquisition or purchase from Company by any
  person or "group" (as defined under Section 13(d) of the Exchange Act and the
  rules and regulations thereunder) of more than a 15% interest in the total
  outstanding voting securities of Company or any of its subsidiaries or any
  tender offer or exchange offer that if consummated would result in any person
  or "group" (as defined under Section 13(d) of the Exchange Act and the rules
  and regulations thereunder) beneficially owning 15% or more of the total
  outstanding voting securities of Company or any of its subsidiaries or any
  merger, consolidation, business combination or similar transaction involving
  Company pursuant to which the stockholders of Company immediately preceding
  such transaction hold less than 85% of the equity interests in the surviving
  or resulting entity of such transaction; (B) any sale, lease (other than in
  the ordinary course of business), exchange, transfer, license (other than in
  the ordinary course of business), acquisition or disposition (other than of
  inventory in the ordinary course of business) of more than 50% of the assets
  of Company; or (C) any liquidation or dissolution of Company.

                                      -64-

 
          In addition to the obligations of Company set forth in the preceding
  paragraphs of this Section 5.4(a), Company as promptly as practicable shall
  advise Parent orally and in writing of any request for non-public information
  which Company reasonably believes would lead to a Company Acquisition Proposal
  or of any Company Acquisition Proposal, or any inquiry with respect to or
  which Company reasonably should believe would lead to any Company Acquisition
  Proposal, the material terms and conditions of such request, Company
  Acquisition Proposal or inquiry, and the identity of the person or group
  making any such request, Company Acquisition Proposal or inquiry.  Company
  will keep Parent informed as promptly as practicable in all material respects
  of the status and details (including material amendments or proposed
  amendments) of any such request, Company Acquisition Proposal or inquiry.

          (b) No Solicitation by Parent.  From and after the date of this
              -------------------------                                  
  Agreement until the Effective Time or termination of this Agreement pursuant
  to Article VII, Parent and its subsidiaries will not, nor will they authorize
  or permit any of their respective officers, directors, affiliates or employees
  or any investment banker, attorney or other advisor or representative retained
  by any of them to, directly or indirectly, (i) solicit, initiate, encourage
  (including by way of furnishing information) or induce the making, submission
  or announcement of any Parent Acquisition Proposal, (ii) participate in any
  discussions or negotiations regarding, or furnish to any person any non-public
  information with respect to, or take any other action to facilitate any
  inquiries or the making of any proposal that constitutes or may reasonably be
  expected to lead to, any Parent Acquisition Proposal, (iii) engage in
  discussions with any person with respect to any Parent Acquisition Proposal,
  except as to the existence of these provisions, (iv) approve, endorse or
  recommend any Parent Acquisition Proposal or (v) enter into any letter of
  intent or similar document or any contract, agreement or commitment
  contemplating or otherwise relating to any Parent Acquisition Transaction (as
  defined below); provided, however, that prior to the approval of this
  Agreement and the Merger at the Parent Stockholders' Meeting, this Section
  5.5(b) shall not prohibit Parent from furnishing nonpublic information
  regarding Parent and its subsidiaries to, or entering into discussions with,
  any person or group who has submitted to Parent prior to the date twenty
  business days before the publicly announced date of the Parent Stockholder
  Meeting (and not withdrawn) an unsolicited, written, bona fide Parent
  Acquisition Proposal that the Board of Directors of Parent reasonably
  concludes (based on the written advice of its financial adviser) may
  constitute a Parent Superior Offer if (1) neither Parent nor any
  representative of Parent and its subsidiaries shall have violated any of the
  restrictions set forth in this Section 5.5(b), (2) prior to the date 20
  business days before the publicly announced date of the Parent Stockholder
  Meeting, the Board of Directors of Parent concludes in good faith, after
  consultation with its outside legal counsel, that such action is required in
  order for the Board of Directors of Parent to comply with its fiduciary
  obligations to Parent's stockholders under applicable law, (3) prior to
  furnishing any such nonpublic information to, or entering into any such
  discussions with, such person or group, Parent gives Company written notice of
  the identity of such person or group and all of the material terms and
  conditions of such Parent Acquisition Proposal and of Parent's intention to
  furnish nonpublic information to, or enter into discussions with, such person
  or group, and Parent receives from such person or group an executed
  confidentiality agreement containing 

                                      -65-

 
  terms at least as restrictive with regard to Parent's confidential information
  as the Confidentiality Agreement, (4) Parent gives Company at least three
  business days advance notice of its intent to furnish such nonpublic
  information or enter into such discussions, and (5) contemporaneously with
  furnishing any such nonpublic information to such person or group, Parent
  furnishes such nonpublic information to Company (to the extent such nonpublic
  information has not been previously furnished by Parent to Company). Parent
  and its subsidiaries will immediately cease any and all existing activities,
  discussions or negotiations with any parties conducted heretofore with respect
  to any Parent Acquisition Proposal. Without limiting the foregoing, it is
  understood that any violation of the restrictions set forth in the preceding
  two sentences by any officer, director or employee of Parent or any of its
  subsidiaries or any investment banker, attorney or other advisor or
  representative of Parent or any of its subsidiaries shall be deemed to be a
  breach of this Section 5.5(b) by Parent.

          For purposes of this Agreement, "Parent Acquisition Proposal" shall
  mean any offer or proposal (other than an offer or proposal by Company)
  relating to any Parent Acquisition Transaction.  For the purposes of this
  Agreement, "Parent Acquisition Transaction" shall mean any transaction or
  series of related transactions other than the transactions contemplated by
  this Agreement involving:  (A) any acquisition or purchase from Parent by any
  person or "group" (as defined under Section 13(d) of the Exchange Act and the
  rules and regulations thereunder) of more than a 15% interest in the total
  outstanding voting securities of Parent or any of its subsidiaries or any
  tender offer or exchange offer that if consummated would result in any person
  or "group" (as defined under Section 13(d) of the Exchange Act and the rules
  and regulations thereunder) beneficially owning 15% or more of the total
  outstanding voting securities of Parent or any of its subsidiaries or any
  merger, consolidation, business combination or similar transaction involving
  Parent pursuant to which the stockholders of Parent immediately preceding such
  transaction hold less than 85% of the equity interests in the surviving or
  resulting entity of such transaction; (B) any sale, lease (other than in the
  ordinary course of business), exchange, transfer, license (other than in the
  ordinary course of business), acquisition or disposition (other than of
  inventory in the ordinary course of business) of more than 50% of the assets
  of Parent; or (C) any liquidation or dissolution of Parent.

          In addition to the obligations of Parent set forth in the preceding
  paragraphs of this Section 5.4(b), Parent as promptly as practicable shall
  advise Company orally and in writing of any request for non-public information
  which Parent reasonably believes would lead to a Parent Acquisition Proposal
  or of any Parent Acquisition Proposal, or any inquiry with respect to or which
  Parent reasonably should believe would lead to any Parent Acquisition
  Proposal, the material terms and conditions of such request, Parent
  Acquisition Proposal or inquiry, and the identity of the person or group
  making any such request, Parent Acquisition Proposal or inquiry.  Parent will
  keep Company informed as promptly as practicable in all material respects of
  the status and details (including material amendments or proposed amendments)
  of any such request, Parent Acquisition Proposal or inquiry.

                                      -66-

 
     5.6  Public Disclosure.  Parent and Company will consult with each other,
          -----------------                                                   
and to the extent practicable, agree, before issuing any press release or
otherwise making any public statement with respect to the Merger, this Agreement
or any Company Acquisition Proposal or Parent Acquisition Proposal and will not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by law where such consultation is not
reasonably possible before such public statement is required to be made.  The
parties have agreed to the text of the joint press release announcing the
signing of this Agreement.

     5.7  Reasonable Efforts; Notification.
          -------------------------------- 

          (a) Upon the terms and subject to the conditions set forth in this
  Agreement, each of the parties agrees to use all reasonable efforts to take,
  or cause to be taken, all actions, and to do, or cause to be done, and to
  assist and cooperate with the other parties in doing, all things necessary,
  proper or advisable to consummate and make effective, in the most expeditious
  manner practicable, the Merger and the other transactions contemplated by this
  Agreement, including using reasonable efforts to accomplish the following:

               (i)    the taking of all reasonable acts necessary to cause the
     conditions precedent set forth in Article VI to be satisfied,

               (ii)   the obtaining of all necessary actions or nonactions,
     waivers, consents, approvals, orders and authorizations from Governmental
     Entities and the making of all necessary registrations, declarations and
     filings (including registrations, declarations and filings with
     Governmental Entities, if any) and the taking of all reasonable steps as
     may be necessary to avoid any suit, claim, action, investigation or
     proceeding by any Governmental Entity,

               (iii)  the obtaining of all necessary consents, approvals or
     waivers from third parties,

               (iv)   the defending of any suits, claims, actions,
     investigations or proceedings, whether judicial or administrative,
     challenging this Agreement or the consummation of the transactions
     contemplated hereby, including seeking to have any stay or temporary
     restraining order entered by any court or other Governmental Entity vacated
     or reversed and

               (v)    the execution or delivery of any additional instruments
     necessary to consummate the transactions contemplated by, and to fully
     carry out the purposes of, this Agreement.

  Notwithstanding anything in this Agreement to the contrary, neither Parent nor
  any of its affiliates shall be under any obligation to make proposals, execute
  or carry out agreements or submit to orders providing for the sale or other
  disposition or holding separate (through the establishment of a trust or
  otherwise) of any material and significant assets or material and significant
  categories of assets of Parent, any of its affiliates or Company or the
  holding separate of the shares of Company Common Stock or imposing or seeking
  to impose any 

                                      -67-

 
  material limitation on the ability of Parent or any of its subsidiaries or
  affiliates to conduct their business or own such assets or to acquire, hold or
  exercise full rights of ownership of the shares of Company Common Stock.

          (b) Each of Company and Parent will give prompt notice to the other of
  (i) any notice or other communication from any person alleging that the
  consent of such person is or may be required in connection with the Merger,
  (ii) any notice or other communication from any Governmental Entity in
  connection with the Merger, or (iii) any litigation relating to, involving or
  otherwise affecting Company, Parent or their respective subsidiaries that
  relates to the consummation of the Merger.  Company shall give prompt notice
  to Parent of any representation or warranty made by it contained in this
  Agreement becoming untrue or inaccurate, or any failure of Company to comply
  with or satisfy in any material respect any covenant, condition or agreement
  to be complied with or satisfied by it under this Agreement, in each case,
  such that the conditions set forth in Section 6.3(a) or 6.3(b) would not be
  satisfied, provided, however, that no such notification shall affect the
  representations, warranties, covenants or agreements of the parties or the
  conditions to the obligations of the parties under this Agreement.  Parent
  shall give prompt notice to Company of any representation or warranty made by
  it or Merger Sub contained in this Agreement becoming untrue or inaccurate, or
  any failure of Parent or Merger Sub to comply with or satisfy in any material
  respect any covenant, condition or agreement to be complied with or satisfied
  by it under this Agreement, in each case, such that the conditions set forth
  in Section 6.2(a) or 6.2(b) would not be satisfied, provided, however, that no
  such notification shall affect the representations, warranties, covenants or
  agreements of the parties or the conditions to the obligations of the parties
  under this Agreement.

     5.8  Third Party Consents.  As soon as practicable following the date
          --------------------                                            
hereof, Parent and Company will each use all reasonable efforts to obtain any
consents, waivers and approvals under any of its or its subsidiaries' respective
agreements, contracts, licenses or leases required to be obtained in connection
with the consummation of the transactions contemplated hereby.

     5.9  Stock Options, Warrants, ESPP and Employee Benefits.
          --------------------------------------------------- 

          (a) At the Effective Time, each then outstanding Company Option
  whether or not exercisable at the Effective Time and regardless of the
  respective exercise prices thereof, will be assumed by Parent.  Each Company
  Option so assumed by Parent under this Agreement will continue to have, and be
  subject to, the same terms and conditions set forth in the applicable Company
  Stock Option Plan (and any applicable stock option agreement for such Company
  Option and any applicable agreement accelerating the vesting of such Company
  Option disclosed in the Company Disclosure Letter) immediately prior to the
  Effective Time (including, without limitation, any repurchase rights or
  vesting provisions), except that (i) each Company Option will be exercisable
  (or will become exercisable in accordance with its terms) for that number of
  whole shares of Parent Common Stock equal to the product of the number of
  shares of Company Common Stock that were issuable upon exercise of such
  Company Option immediately prior to the Effective Time multiplied by the
  Exchange Ratio, rounded down to the nearest whole number of shares of Parent
  Common

                                      -68-

 
  Stock and (ii) the per share exercise price for the shares of Parent
  Common Stock issuable upon exercise of such assumed Company Option will be
  equal to the quotient determined by dividing the exercise price per share of
  Company Common Stock at which such Company Option was exercisable immediately
  prior to the Effective Time by the Exchange Ratio, rounded up to the nearest
  whole cent.  Each assumed Company Option shall be vested immediately following
  the Effective Time as to the same percentage of the total number of shares
  subject thereto as it was vested as of immediately prior to the Effective
  Time.  As soon as reasonably practicable, but in no event more than 20 days
  after the Effective Time, Parent will issue to each person who holds an
  assumed Company Option a document evidencing the assumption of such Company
  Option by Parent.  Continuous employment with Company or its subsidiaries
  shall be credited to the optionee for purposes of determining the vesting of
  all Company Options after the Effective Time.

          (b) It is intended that Company Options assumed by Parent shall
  qualify following the Effective Time as incentive stock options as defined in
  Section 422 of the Code to the extent such Company Options qualified as
  incentive stock options immediately prior to the Effective Time and the
  provisions of this Section 5.9 shall be applied consistent with such intent.

          (c) At the Effective Time, each outstanding purchase right with
  respect to the then open offering under the Company's ESPP (each an "Assumed
  Purchase Right") shall be assumed by Parent.  Each Assumed Purchase Right
  shall continue to have, and be subject to, the terms and conditions set forth
  in the Company's ESPP and the documents governing the Assumed Purchase Right,
  except that the purchase price of the shares of Parent's Common Stock under
  the Assumed Purchase Right shall be the lesser of (i) the quotient determined
  by the dividing 85% of the fair market value of the Company's Common Stock on
  the Offering Date (as defined in the Company's ESPP) by the Exchange Ratio and
  (ii) 85% of the last sale price of the Parent's Common Stock on Nasdaq on the
  last day of the offering that was open at the Effective Time (with the number
  of shares rounded down to the nearest whole share and the Purchase Price
  rounded up to the nearest whole cent).  The Assumed Purchase Rights shall be
  exercisable only for Parent Common Stock.  The Company's ESPP shall terminate
  immediately following the purchase of shares under the Assumed Purchase
  Rights.

          (d) From and after the Effective Time, employees of the Company may
participate in Parent's Employee Stock Purchase Plan, subject to the terms and
conditions of such plan.

     5.10 Form S-8.   Parent agrees to file a registration statement on Form S-8
          --------                                                              
for the shares of Parent Common Stock issuable with respect to assumed Company
Options as soon as is reasonably practicable after the Effective Time and shall
maintain the effectiveness of such registration statement thereafter for so long
as any of such options or other rights remain outstanding.

     5.11 Nasdaq Quotation.  Parent agrees to authorize for quotation on the
          ----------------                                                  
Nasdaq Stock Market the shares of Parent Common Stock issuable, and those
required to be reserved for issuance, in connection with the Merger, upon
official notice of issuance.

                                      -69-

 
     5.12 Indemnification;  Insurance.
          --------------------------- 

          (a) Indemnification.  From and after the Effective Time, Parent will,
              ---------------                                                  
  and will cause the Surviving Corporation to, fulfill and honor in all respects
  the obligations of Company pursuant to any indemnification agreements between
  Company and its directors and officers as of the Effective Time (the
  "Indemnified Parties") and any indemnification provisions under Company's
  Articles of Incorporation or Bylaws as in effect on the date hereof.  The
  Articles of Incorporation and Bylaws of the Surviving Corporation will contain
  provisions with respect to exculpation and indemnification that are at least
  as favorable to the Indemnified Parties as those contained in the Articles of
  Incorporation and Bylaws of Company as in effect on the date hereof, which
  provisions will not be amended, repealed or otherwise modified for a period of
  six years from the Effective Time in any manner that would adversely affect
  the rights thereunder of individuals who, immediately prior to the Effective
  Time, were directors, officers, employees or agents of Company, unless such
  modification is required by law.

          (b) Insurance.  For a period of six years after the Effective Time,
              ---------                                                    
  Parent will cause the Surviving Corporation to use all reasonable efforts to
  maintain in effect, if available, directors' and officers' liability insurance
  covering those persons who are currently covered by Company's directors' and
  officers' liability insurance policy on terms comparable to those applicable
  to the current directors and officers of Company; provided, however, that in
  no event will Parent or the Surviving Corporation be required to expend in
  excess of 150% of the annual premium currently paid by Company for such
  coverage (or such coverage as is available for such 150% of such annual
  premium).

          (c) Survival and Beneficiaries.  This Section 5.12 shall survive the
              --------------------------                                      
  consummation of the Merger, is intended to benefit Company, the Surviving
  Corporation and each Indemnified Party, shall be binding on all successors and
  assigns of the Surviving Corporation and Parent, and shall be enforceable by
  the Indemnified Parties.

     5.13 Affiliate Agreements.  Company will use all commercially reasonable
          --------------------                                               
efforts to deliver or cause to be delivered to Parent, as promptly as
practicable on or following the date hereof, from each Company Affiliate an
executed affiliate agreement in substantially the form attached hereto as
Exhibit D (the "Company Affiliate Agreement"), each of which will be in full
---------                                                                   
force and effect as of the Effective Time.  Parent will use all commercially
reasonable efforts to deliver or cause to be delivered, as promptly as
practicable following the date hereof, from each Parent Affiliate an executed
affiliate agreement in substantially the form attached hereto as Exhibit E (the
                                                                 ---------     
"Parent Affiliate Agreement"), each of which will be in full force and effect as
of the Effective Time.  Parent will be entitled to place appropriate legends on
the certificates evidencing any Parent Common Stock to be received by a Company
Affiliate or Parent Affiliate pursuant to the terms of this Agreement, and to
issue appropriate stop transfer instructions to the transfer agent for the
Parent Common Stock, consistent with the terms of the Company Affiliate
Agreement or Parent Affiliate Agreement.

     5.14 Letter of Company's Accountants.  Company shall use all commercially
          -------------------------------                                     
reasonable efforts to cause to be delivered to Parent a letter of Arthur
Anderson LLP, dated no 

                                      -70-

 
more than two business days before the date on which the Registration Statement
becomes effective (and reasonably satisfactory in form and substance to Parent),
that is customary in scope and substance for letters delivered by independent
public accountants in connection with registration statements similar to the
Registration Statement.

     5.15 Letter of Parents' Accountants.  Parent shall use all commercially
          ------------------------------                                    
reasonable efforts to cause to be delivered to Company a letter of
PricewaterhouseCoopers LLP, dated no more than two business days before the date
on which the Registration Statement becomes effective (and reasonably
satisfactory in form and substance to Company), that is customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement.

     5.16 Takeover Statutes. If any takeover statute is or may become applicable
          -----------------                                                     
to the Merger or the other transactions contemplated by this Agreement, each of
Parent and Company and their respective Boards of Directors shall grant such
approvals and take such lawful actions as are necessary to ensure that such
transactions may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise act to eliminate or minimize the
effects of such statute and any regulations promulgated thereunder on such
transactions.

     5.17 Certain Employee Benefits.  As soon as practicable after the 
          -------------------------
execution of this Agreement, Company and Parent shall confer and work together
in good faith to agree upon mutually acceptable employee benefit and
compensation arrangements in accordance with this Section 5.17 (and terminate
certain Company Employee Plans as defined in Section 2.14(a)(ii) immediately
prior to the Effective Time if appropriate). For a period of at least one year
following the Effective Time, Parent shall provide (or cause to be provided)
benefits to any person who was employed by Company or its subsidiaries
immediately prior to the Effective Time and subsequently employed by Parent or
its subsidiaries ("Company Employees") that are either no less favorable in the
aggregate to the benefits provided to similarly-situated employees of Parent or
are generally equivalent to the benefits provided under the Company Employee
Plans in existence immediately prior to the Effective Time. After the Effective
Time, Parent shall grant (or cause to be granted) to each Company Employee
credit for all service with the Company prior to the Effective Time to the same
extent as if such service had been service with Parent for (i) all eligibility
and vesting purposes under all employee benefit plans, policies, programs and
arrangements of Parent and any of its subsidiaries that cover a Company
Employee, (ii) vacation accrual purposes after the Effective Time, and (iii)
purposes of satisfying any preexisting condition exclusion or actively-at-work
requirement that would otherwise apply to such Company Employee under any
medical, dental or other welfare benefit plans, policies, programs and
arrangements of Parent and any of its subsidiaries that employ a Company
Employee, to the extent that this clause (iii) does not violate the applicable
plan, policy, program or arrangement. In addition, Company agrees that it and
its subsidiaries shall terminate any and all group severance, separation,
retention and salary continuation plans, programs or arrangements (other than
contractual agreements disclosed on the Company Disclosure Letter) prior to the
Effective Time.

     5.18 Stockholder Litigation. Each of Company and Parent shall give the 
          ----------------------   
other the reasonable opportunity to participate in the defense of any
stockholder litigation against 

                                      -71-

 
Company or Parent, as applicable, and its directors relating to the transactions
contemplated by this Agreement and the Option Agreements.

     5.19 Pooling Accounting.  Each of Parent and Company shall use all
          ------------------                                           
reasonable efforts to cause the Merger to be accounted for as a pooling of
interests.  Parent will use its reasonable efforts to have each person who is a
Parent Affiliate not to take any action that would prevent Parent from
accounting for the Merger as a pooling of interests.  Company will use all
reasonable efforts to have each person who is a Company Affiliate not to take
any action that would prevent Parent from accounting for the Merger as a pooling
of interests.

                                      -72-

 
                                   ARTICLE VI

                            CONDITIONS TO THE MERGER

     6.1  Conditions to Obligations of Each Party to Effect the Merger.  The
          ------------------------------------------------------------      
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:

          (a)  Company Shareholder Approval.  This Agreement shall have been
               ----------------------------                                 
  approved and adopted, and the Merger shall have been approved by a vote of
  holders of outstanding shares of Common Stock of the Company representing two-
  thirds of all votes entitled to be cast on the matter.

          (b)  Parent Stockholder Approval.
               --------------------------- 

               (i)  The issuance of the shares of Parent Common Stock pursuant
     to the Merger shall have been duly approved by the requisite vote of the
     stockholders of Parent under applicable Nasdaq rules and Parent's Bylaws.

               (ii) An amendment to Parent's Certificate of Incorporation to
     change the name of Parent to "Egghead.com, Inc.," effective at the
     Effective Time, and increase the authorized number of shares of Parent
     Common Stock so as to permit the transactions permitted hereby, subject to
     and upon consummation of the Merger, shall have been duly approved by the
     affirmative vote of the holders of a majority of the outstanding shares of
     Parent Common Stock.

          (c)  Registration Statement Effective; Proxy Statement.  The SEC shall
               -------------------------------------------------                
  have declared the Registration Statement effective.  No stop order suspending
  the effectiveness of the Registration Statement or any part thereof shall have
  been issued and no proceeding for that purpose, and no similar proceeding in
  respect of the Proxy Statement/Prospectus, shall have been initiated or
  threatened in writing by the SEC.

          (d)  No Order; HSR Act.  No Governmental Entity shall have enacted,
               -----------------                                             
  issued, promulgated, enforced or entered any statute, rule, regulation,
  executive order, decree, injunction or other order (whether temporary,
  preliminary or permanent) which is in effect and which has the effect of
  making the Merger illegal or otherwise prohibiting consummation of the Merger
  or otherwise limiting or restricting Parent's conduct or operation of the
  business of Company and its subsidiaries following the Merger in a manner that
  could reasonably be expected to have a Material Adverse Effect on Parent
  combined with the Surviving Corporation after the Effective Time.  All waiting
  periods, if any, under the HSR Act relating to the transactions contemplated
  hereby will have expired or terminated early and all material foreign
  antitrust approvals required to be obtained prior to the Merger in connection
  with the transactions contemplated hereby shall have been obtained.

                                      -73-

 
          (e)  Approvals.  Other than the filing provided for by Section 1.2(a),
               ---------                                                        
  all authorizations, consents, orders or approvals of, or declarations or
  filings with, or expirations of waiting periods imposed by, any Governmental
  Entity the failure of which to file, obtain or occur is reasonably likely to
  have a Company Material Adverse Effect or Parent Material Adverse Effect shall
  have been filed, been obtained or occurred.

          (f)  Tax Opinions.  Parent and Company shall each have received 
               ------------ 
  written opinions from their respective tax counsel (Fenwick & West LLP and
  Perkins Coie LLP, respectively), in form and substance reasonably satisfactory
  to them, to the effect that the Merger will constitute a reorganization within
  the meaning of Section 368(a) of the Code and such opinions shall not have
  been withdrawn. The parties to this Agreement agree to make such reasonable
  representations as requested by such counsel for the purpose of rendering such
  opinions.

          (g)  Nasdaq Listing.  The shares of Parent Common Stock to be issued 
               --------------   
  in the Merger shall have been approved for quotation on the Nasdaq Stock
  Market subject to notice of issuance.

          (h)  Amendment of Parent's Certificate of Incorporation.  An amendment
               --------------------------------------------------               
  to Parent's Articles of Incorporation to change the name of Parent to
  "Egghead.com, Inc.," effective at the Effective Time, and to increase the
  authorized number of shares of Parent Common Stock so as to permit the
  transactions contemplated hereby, shall have been duly filed with the Delaware
  Secretary of State.

          (i)  Amendment of Parent's Bylaws; Parent Board of Directors.  
               ------------------------------------------------------- 
  Parent's bylaws shall have been duly amended to increase the size of Parent's
  Board of Directors from five (5) to nine (9) directors, and such action as may
  be required under Parent's Certificate of Incorporation and Bylaws, and
  Delaware Law, shall have been taken to cause Parent's Board of Directors to
  consist of the Parent Designees, the Company Designees and the Joint Designee
  (unless the Joint Designee shall not have been designated), immediately
  following the Effective Time.

     6.2  Additional Conditions to Obligations of Company.  The obligation of
          -----------------------------------------------                    
Company to consummate and effect the Merger shall be subject to the satisfaction
at or prior to the Closing Date of each of the following conditions, any of
which may be waived, in writing, exclusively by Company:

          (a)  Representations and Warranties.  Each representation and warranty
               ------------------------------                                   
  of Parent and Merger Sub contained in this Agreement (i) shall have been true
  and correct in all material respects as of the date of this Agreement and (ii)
  shall be true and correct in all material respects on and as of the Closing
  Date with the same force and effect as if made on the Closing Date, except (A)
  in each case, or in the aggregate, as does not constitute a Parent Material
  Adverse Effect at the Closing Date; provided, however, such Material Adverse
  Effect qualification shall be inapplicable with respect to the representations
  and warranties contained in Sections 3.5(a), (b) and (d), 3.6 (a), (b) and
  (c), 3.21 and 3.22 (which 

                                      -74-

 
  representations shall be true and correct at the applicable times in all
  material respects), and (B) for those representations and warranties which
  address matters only as of a particular date (which representations shall have
  been true and correct in all material respects as of such particular date) (it
  being understood that, for purposes of determining the accuracy of such
  representations and warranties, any update of or modification to the Parent
  Disclosure Letter made or purported to have been made after the execution of
  this Agreement shall be disregarded). Company shall have received a
  certificate with respect to the foregoing signed on behalf of Parent by an
  authorized officer of Parent.

          (b)  Agreements and Covenants.  Parent and Merger Sub shall have
               ------------------------                                   
  performed or complied in all material respects with all agreements and
  covenants required by this Agreement to be performed or complied with by them
  on or prior to the Closing Date, and Company shall have received a certificate
  to such effect signed on behalf of Parent by the Chief Executive Officer and
  Chief Financial Officer of Parent.

          (c)  Material Adverse Effect.  No Parent Material Adverse Effect shall
               -----------------------       
   have occurred since the date of this Agreement and be continuing.

          (d)  Consents.  Parent shall have obtained all consents, waivers and
               --------                                                       
  approvals required in connection with the consummation of the transactions
  contemplated hereby in connection with the agreements, contracts, licenses or
  leases set forth on Part 3.4 of the Parent Disclosure Letter except for any
  consent, waiver or approval which the failure to obtain would not reasonably
  be expected to result in a Parent Material Adverse Effect.

          (e)  Opinion of Accountants.
               ---------------------- 

               (i)  Parent shall have received from PricewaterhouseCoopers LLP,
     independent auditors for Parent, a letter dated the Closing Date (which may
     contain customary qualifications and assumptions), to the effect that
     PricewaterhouseCoopers LLP concurs with Parent's management conclusion that
     Parent may account for the Merger as a pooling of interests under
     Accounting Principles Board Opinion No. 16, and Company shall have received
     a copy of such letter.

               (ii) Company shall have received from Arthur Andersen LLP,
     independent public accountants for Company, a letter dated the Closing Date
     (which may contain customary qualifications and assumptions), to the effect
     that Arthur Andersen LLP concurs with Company's management conclusion that
     no conditions exist related to Company that would preclude Parent from
     accounting for the Merger as a pooling of interests under Accounting
     Principles Board Opinion No. 16.

     6.3  Additional Conditions to the Obligations of Parent and Merger Sub.
          -----------------------------------------------------------------  
The obligations of Parent and Merger Sub to consummate and effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of each of
the following conditions, any of which may be waived, in writing, exclusively by
Parent:

          (a) Representations and Warranties.  Each representation and warranty
              ------------------------------                                   
  of Company contained in this Agreement (i) shall have been true and correct in
  all material 

                                      -75-

 
  respects as of the date of this Agreement and (ii) shall be true and correct
  in all material respects on and as of the Closing Date with the same force and
  effect as if made on and as of the Closing Date; except (A) in each case, or
  in the aggregate, as does not constitute a Company Material Adverse Effect at
  the Closing Date; provided, however, such Material Adverse Effect
  qualification shall be inapplicable with respect to the representations and
  warranties contained in Sections 2.5(a) and (b), 2.6 (a), (b) and (c), 2.21
  and 2.22 (which representations shall be true and correct at the applicable
  times in all material respects), and (B) for those representations and
  warranties which address matters only as of a particular date(which
  representations shall have been true and correct in all material respects as
  of such particular date) (it being understood that, for purposes of
  determining the accuracy of such representations and warranties, any update of
  or modification to the Company Disclosure Letter made or purported to have
  been made after the execution of this Agreement shall be disregarded). Parent
  shall have received a certificate with respect to the foregoing signed on
  behalf of Company by an authorized officer of Company.

          (b) Agreements and Covenants.  Company shall have performed or
              ------------------------                                  
  complied in all material respects with all agreements and covenants required
  by this Agreement to be performed or complied with by it on or prior to the
  Closing Date, and Parent shall have received a certificate to such effect
  signed on behalf of Company by the Chief Executive Officer and the Chief
  Financial Officer of Company.

          (c) Material Adverse Effect.  No Company Material Adverse Effect shall
              -----------------------                                           
  have occurred since the date of this Agreement and be continuing.

          (d) Consents.  Company shall have obtained all consents, waivers and
              --------                                                        
  approvals required in connection with the consummation of the transactions
  contemplated hereby in connection with the agreements, contracts, licenses or
  leases set forth on Part 2.4 of the Company Disclosure Letter except for any
  consent, waiver or approval which the failure to obtain would not reasonably
  be expected to result in a Company Material Adverse Effect.

          (e) Opinion of Accountants.
              ---------------------- 

              (i)  Parent shall have received from PricewaterhouseCoopers LLP,
     independent auditors for Parent, a letter dated the Closing Date (which may
     contain customary qualifications and assumptions), to the effect that
     PricewaterhouseCoopers LLP concurs with Parent's management conclusion that
     Parent may account for the Merger as a pooling of interests under
     Accounting Principles Board Opinion No. 16.

              (ii) Company shall have received from Arthur Andersen LLP,
     independent public accountants for Company, a letter dated the Closing Date
     (which may contain customary qualifications and assumptions), to the effect
     that Arthur Andersen LLP concurs with Company's management conclusion that
     no conditions exist related to Company that would preclude Parent from
     accounting for the Merger as a pooling of interests under Accounting
     Principles Board Opinion No. 16, and Parent shall have received a copy of
     such letter.

                                     -76-

 
          (f) Dissenting Shares.  The aggregate number of Dissenting Shares
              -----------------                                            
  shall not exceed five percent (5%) of the aggregate number of shares of
  Company Common Stock outstanding immediately prior to Closing.

                                      -77-

 
                                  ARTICLE VII

                       TERMINATION, AMENDMENT AND WAIVER

     7.1  Termination.  This Agreement may be terminated at any time prior to
          -----------                                                        
the Effective Time, whether before or after the requisite approvals of the
shareholders of Company or stockholders of Parent:

          (a)  by mutual written consent duly authorized by the Boards of
  Directors of Parent and Company;

          (b)  by either Company or Parent if the Merger shall not have been
  consummated by the date that is nine (9) months after the date of this
  Agreement (the "Outside Date"), for any reason; provided, however, that the
  right to terminate this Agreement under this Section 7.1(b) shall not be
  available to any party whose action or failure to act has been a principal
  cause of or resulted in the failure of the Merger to occur on or before such
  date and such action or failure to act constitutes a breach of this Agreement;

          (c)  by either Company or Parent if a Governmental Entity shall have
  issued an order, decree or ruling or taken any other action, in any case
  having the effect of permanently restraining, enjoining or otherwise
  prohibiting the Merger, which order, decree, ruling or other action is final
  and nonappealable;

          (d)  by either Company or Parent  if the required approval of the
  Merger by the shareholders of Company contemplated by this Agreement shall not
  have been obtained by reason of the failure to obtain the required vote at a
  meeting of the Company shareholders duly convened therefore or at any
  adjournment thereof; provided, however, that the right to terminate this
  Agreement under this Section 7.1(d) shall not be available to the Company
  where the failure to obtain the Company shareholder approval shall have been
  caused by (i) the action or failure to act of the Company and such action or
  failure to act constitutes a material breach by the Company of this Agreement
  or (ii) a breach of any Company Voting Agreements by any party thereto other
  than Parent;

          (e)  by either Company or Parent if the required approval of the
  stockholders of Parent contemplated by this Agreement shall not have been
  obtained by reason of the failure to obtain the required vote at a meeting of
  the Parent stockholders duly convened therefore or at any adjournment thereof;
  provided, however, that the right to terminate this Agreement under this
  Section 7.1(e) shall not be available to Parent where the failure to obtain
  the Parent stockholder approval shall have been caused by (i) the action or
  failure  to act of the Parent and such action or failure to act constitutes a
  material breach by Parent of this Agreement or (ii) a breach of any Parent
  Voting Agreement by any party thereto other than Company;

          (f)  by Parent (at any time prior to the adoption and approval of this
  Agreement and the Merger by the required vote of the shareholders of Company)
  if a Company Triggering Event (as defined below) shall have occurred.

                                      -78-

 
          (g)  by Company (at any time prior to the required approval of the
   stockholders of Parent contemplated by this Agreement) if a Parent Triggering
   Event (as defined below) shall have occurred.

          (h)  by Company, upon a breach of any representation, warranty,
   covenant or agreement on the part of Parent or Merger Sub set forth in this
   Agreement, or if any representation or warranty of Parent or Merger Sub shall
   have become untrue, in either case such that the conditions set forth in
   Section 6.2(a) or Section 6.2(b) would not be satisfied as of the time of
   such breach or as of the time such representation or warranty shall have
   become untrue, provided that if such inaccuracy in Parent's or Merger Sub's
   representations and warranties or breach by Parent or Merger Sub is curable
   by Parent or Merger Sub through the exercise of its reasonable efforts, then
   Company may not terminate this Agreement under this Section 7.1(h) prior to
   the Outside Date, provided Parent or Merger Sub continues to exercise all
   reasonable efforts to cure its breach (it being understood that Company may
   not terminate this Agreement pursuant to this paragraph (h) if such breach by
   Parent or Merger Sub is cured prior to the Outside Date; or

          (i)  by Parent, upon a breach of any representation, warranty,
   covenant or agreement on the part of Company set forth in this Agreement, or
   if any representation or warranty of Company shall have become untrue, in
   either case such that the conditions set forth in Section 6.3(a) or Section
   6.3(b) would not be satisfied as of the time of such breach or as of the time
   such representation or warranty shall have become untrue, provided that if
   such inaccuracy in Company's representations and warranties or breach by
   Company is curable by Company through the exercise of its reasonable efforts,
   then Parent may not terminate this Agreement under this Section 7.1(i) prior
   to the Outside Date, provided Company continues to exercise all reasonable
   efforts to cure such breach (it being understood that Parent may not
   terminate this Agreement pursuant to this paragraph (i) if such breach by
   Company is cured prior to the Outside Date.

          For the purposes of this Agreement, a "Company Triggering Event" shall
be deemed to have occurred if:  (i) the Board of Directors of Company or any
committee thereof shall for any reason have withdrawn or shall have amended or
modified in a manner adverse to Parent its unanimous recommendation in favor of
the adoption and approval of the Agreement or the approval of the Merger; (ii)
Company shall have failed to include in the Proxy Statement/Prospectus the
unanimous recommendation of the Board of Directors of Company in favor of the
adoption and approval of the Agreement and the approval of the Merger; (iii)
Board of Directors of Company fails to reaffirm its unanimous recommendation in
favor of the adoption and approval of the Agreement and the approval of the
Merger within 10 business days after Parent requests in writing that such
recommendation be reaffirmed at any time following the public announcement of a
Company Acquisition Proposal; (iv) the Board of Directors of Company or any
committee thereof shall have approved or publicly recommended any Company
Acquisition Proposal; (v) Company shall have entered into any letter of intent
of similar document or any agreement, contract or commitment accepting any
Company Acquisition Proposal; or (vi) a tender or exchange offer relating to
securities of Company shall have been commenced by a person or entity
unaffiliated with Parent and Company shall not have sent to its 

                                      -79-

 
securityholders pursuant to Rule 14e-2 promulgated under the Securities Act,
within 10 business days after such tender or exchange offer is first published
sent or given, a statement disclosing that Company recommends rejection of such
tender or exchange offer; and a "Parent Triggering Event" shall be deemed to
have occurred if: (i) the Board of Directors of Parent or any committee thereof
shall for any reason have withdrawn or shall have amended or modified in a
manner adverse to Company its unanimous recommendation in favor of the issuance
of the shares of Parent Common Stock pursuant to the Merger and the amendment of
Parent's Certificate of Incorporation to change the name of Parent to
"Egghead.com, Inc.," effective at the Effective Time, and to increase the
authorized number of shares of Parent Common Stock so as to permit the
transactions contemplated by the Agreement, and (ii) Parent shall have failed to
include in the Proxy Statement/Prospectus the unanimous recommendation of the
Board of Directors of Parent in favor of the issuance of the shares of Parent
Common Stock pursuant to the Merger and the amendment of Parent's Certificate of
Incorporation to change the name of Parent to "Egghead.com, Inc.," effective at
the Effective Time, and to increase the authorized number of shares of Parent
Common Stock so as to permit the transactions contemplated by the Agreement, and
the adoption and approval of the Agreement and the approval of the Merger; (iii)
Board of Directors of Parent fails to reaffirm its unanimous recommendation in
favor of the issuance of the shares of Parent Common Stock pursuant to the
Merger and the amendment of Parent's Certificate of Incorporation to change the
name of Parent to "Egghead.com, Inc.," effective at the Effective Time, and to
increase the authorized number of shares of Parent Common Stock so as to permit
the transactions contemplated by the Agreement, and the adoption and approval of
the Agreement and the approval of the Merger, within 10 business days after
Company requests in writing that such recommendation be reaffirmed at any time
following the public announcement of a Parent Acquisition Proposal; (iv) the
Board of Directors of Parent or any committee thereof shall have approved or
publicly recommended any Parent Acquisition Proposal; (v) Parent shall have
entered into any letter of intent of similar document or any agreement, contract
or commitment accepting any Parent Acquisition Proposal; or (vi) a tender or
exchange offer relating to securities of Parent shall have been commenced by a
person or entity unaffiliated with Company and Parent shall not have sent to its
securityholders pursuant to Rule 14e-2 promulgated under the Securities Act,
within 10 business days after such tender or exchange offer is first published
sent or given, a statement disclosing that Parent recommends rejection of such
tender or exchange offer.

     7.2  Notice of Termination Effect of Termination.  Any termination of this
          -------------------------------------------                          
Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice of the terminating party to the other parties hereto.
In the event of the termination of this Agreement as provided in Section 7.1,
this Agreement shall be of no further force or effect, except (i) as set forth
in Section 5.4(a), this Section 7.2, Section 7.3 and Article 8, each of which
shall survive the termination of this Agreement, and (ii) that nothing herein
shall relieve any party from liability for any willful breach of this Agreement.
No termination of this Agreement shall affect the obligations of the parties
contained in the Confidentiality Agreement, all of which obligations shall
survive termination of this Agreement in accordance with their terms.

                                      -80-

 
     7.3  Fees and Expenses.
          ----------------- 

          (a) General.  Except as set forth in this Section 7.3, all fees and
              -------                                                        
  expenses incurred in connection with this Agreement and the transactions
  contemplated hereby shall be paid by the party incurring such expenses whether
  or not the Merger is consummated; provided, however, that Parent and Company
  shall share equally all fees and expenses, other than attorneys' and
  accountants fees and expenses, incurred in relation to the printing and filing
  (with the SEC) of the Proxy Statement/Prospectus (including any preliminary
  materials related thereto) and the Registration Statement (including financial
  statements and exhibits) and any amendments or supplements thereto.

          (b) Parent Termination Fees.  In the event that this Agreement is
              -----------------------                                      
  terminated by Company or Parent, as applicable, pursuant to Sections 7.1(b),
  (e) or (g), Parent shall promptly, but in no event later than two days after
  the date of such termination, pay Company a fee equal to four percent (4.0%)
  of the value of the Parent Equity Value, in immediately available funds (the
  "Parent Termination Fee"); provided, that in the case of termination under
  Section 7.1(b) or (e), (i) such payment shall be made only if (A) following
  the date hereof and prior to the termination of this Agreement, a third party
  has publicly announced a Parent Acquisition Proposal and within 12 months
  following the termination of this Agreement a Parent Acquisition (as defined
  below) is consummated or Parent enters into an agreement providing for a
  Parent Acquisition or (B) in the case of termination under Section 7.1(b)
  only, (1) the failure to consummate the Merger by the Outside Date is
  principally due to action or failure to act by Parent and such action or
  failure to act constitutes a breach of this Agreement, and (2) within 12
  months following the termination of this Agreement, a Parent Acquisition is
  consummated or Parent enters into an agreement providing for a Parent
  Acquisition, and (ii) such payment shall be made promptly, but in no event
  later than two days after the consummation of such Parent Acquisition or the
  entry by the Parent into such agreement. Parent acknowledges that the
  agreements contained in this Section 7.3(b) are an integral part of the
  transactions contemplated by this Agreement, and that, without these
  agreements, Company would not enter into this Agreement; accordingly, if
  Parent fails to pay in a timely manner the amounts due pursuant to this
  Section 7.3(b) , and, in order to obtain such payment, Company makes a claim
  that results in a judgment against Parent for the amounts set forth in this
  Section 7.3(b), Parent shall pay to Company its reasonable costs and expenses
  (including reasonable attorneys' fees and expenses) in connection with such
  suit, together with interest on the amounts set forth in this Section 7.3(b)
  at the prime rate of The Chase Manhattan Bank in effect on the date such
  payment was required to be made. Payment of the fees described in this Section
  7.3(b) shall not be in lieu of damages incurred in the event of breach of this
  Agreement. For the purposes of this Agreement "Parent Acquisition" shall mean
  any of the following transactions (other than the transactions contemplated by
  this Agreement); (i) a merger, consolidation, business combination,
  recapitalization, liquidation, dissolution or similar transaction involving
  Parent pursuant to which the stockholders of Parent immediately preceding such
  transaction hold less than 50% of the aggregate equity interests in the
  surviving or resulting entity of such transaction, (ii) a sale or other
  disposition by Parent of assets representing in excess of 50%

                                      -81-

 
    of the aggregate fair market value of Parent's business immediately prior to
    such sale or (iii) the acquisition by any person or group (including by way
    of a tender offer or an exchange offer or issuance by Parent), directly or
    indirectly, of beneficial ownership or a right to acquire beneficial
    ownership of shares representing in excess of 50% of the voting power of the
    then outstanding shares of capital stock of Parent.

          For the purposes of this Agreement, "Parent Equity Value" means the
   product of the average closing price of Parent Common Stock on the Nasdaq
   National Market over the five (5) trading days prior to the date of
   termination pursuant to Sections 7.1(b), (e) or (g), and the sum of: (A) all
   shares of Parent Common Stock that are outstanding as of the date of
   termination; (B) all shares of Parent Common Stock issuable upon conversion
   of all shares of capital stock that is convertible into shares of Parent
   Common Stock; and (C) all shares of Parent Common Stock issuable upon
   conversion of all options and warrants to acquire Parent Common Stock that
   are outstanding as of the date of termination.

     (c)  Company Termination Fee.  In the event that this Agreement is
          -----------------------                                      
terminated by Parent or Company, as applicable, pursuant to Sections 7.1(b), (d)
or (f), and subject to Section 7.4, Company shall promptly, but in no event
later than two days after the date of such termination, pay Parent a fee equal
to four percent (4.0%) of the value of the Company Equity Value, in immediately
available funds (the "Company Termination Fee"); provided, that in the case of
termination under Section 7.1(b) or 7.1(d), (i) such payment shall be made only
if (A) following the date hereof and prior to the termination of this Agreement,
a third party has publicly announced a Company Acquisition Proposal and within
12 months following the termination of this Agreement a Company Acquisition (as
defined below) is consummated or Company enters into an agreement providing for
a Company Acquisition or (B) in the case of termination under Section 7.1(b)
only, (1) the failure to consummate the Merger by the Outside Date is
principally due to action or failure to act by Company and such action or
failure to act constitutes a breach of this Agreement, and (2) within 12 months
following the termination of this Agreement, a Company Acquisition is
consummated or Company enters into an agreement providing for a Company
Acquisition, and (ii) such payment shall be made promptly, but in no event later
than two days after the consummation of such Company Acquisition or the entry by
the Company into such agreement. Company acknowledges that the agreements
contained in this Section 7.3(c) are an integral part of the transactions
contemplated by this Agreement, and that, without these agreements, Parent would
not enter into this Agreement; accordingly, if Company fails to pay in a timely
manner the amounts due pursuant to this Section 7.3(c) , and, in order to obtain
such payment, Parent makes a claim that results in a judgment against Company
for the amounts set forth in this Section 7.3(c), Company shall pay to Parent
its reasonable costs and expenses (including reasonable attorneys' fees and
expenses) in connection with such suit, together with interest on the amounts
set forth in this Section 7.3(c) at the prime rate of The Chase Manhattan Bank
in effect on the date such payment was required to be made. Payment of the fees
described in this Section 7.3(c) shall not be in lieu of damages incurred in the
event of breach of this Agreement. For the purposes of this Agreement "Company
Acquisition" shall mean any of the following transactions (other than the
transactions contemplated by this Agreement); (i) a merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving Company pursuant to which the shareholders of Company
immediately preceding such transaction hold less than 50% of the aggregate
equity

                                      -82-

 
interests in the surviving or resulting entity of such transaction, (ii) a sale
or other disposition by Company of assets representing in excess of 50% of the
aggregate fair market value of Company's business immediately prior to such sale
or (iii) the acquisition by any person or group (including by way of a tender
offer or an exchange offer or issuance by Company), directly or indirectly, of
beneficial ownership or a right to acquire beneficial ownership of shares
representing in excess of 50% of the voting power of the then outstanding shares
of capital stock of Company.

     For the purposes of this Agreement, "Company Equity Value" means the
product of the average closing price of Company Common Stock on the Nasdaq
National Market over the five (5) trading days prior to the date of termination
pursuant to Sections 7.1(b), (d), or (f), and the sum of: (A) all shares of
Company Common Stock that are outstanding as of the date of termination; (B) all
shares of Company Common Stock issuable upon conversion of all shares of capital
stock that is convertible into shares of Company Common Stock; and (C) all
shares of Company Common Stock issuable upon conversion of all options and
warrants to acquire Company Common Stock that are outstanding as of the date of
termination.

     7.4  Loan Upon Termination.  If (a) this Agreement shall have been
          ---------------------                                        
terminated by Company or Parent pursuant to Section 7.1(b) or (d) and, in the
case of termination pursuant to Section 7.1(b), Company shall have held the
Company Stockholders' Meeting and the required approval of the Merger by the
shareholders of Company contemplated by this Agreement shall not have been
obtained by reason of the failure to obtain the required vote, and (b) no
Company Termination Fee shall have been paid by Company pursuant to Section 7.3
within two days after such termination, then (x) Company shall promptly upon
demand reimburse Parent for all of its actual out-of-pocket expenses incurred in
connection with this Agreement and the transactions contemplated hereby,
including investment banking, legal and accounting fees and expenses, and (y)
Company shall make an unsecured loan to Parent in such amount, not to exceed
$16.0 million, as may be requested by Parent.  The amount of such loan shall be
advanced to Parent in a single installment in immediately available funds to
such account as may be designated by Parent not later than the date five days
after such termination.  Concurrently with the making of such loan, Parent shall
execute and deliver to Company an Unsecured Promissory Note in the form attached
hereto as Exhibit H (the "Note"), duly executed by Parent.  Such loan shall be
          ---------                                                           
subject to such terms and conditions as are set forth in the Note.  In the event
that after Company makes such a loan, a Company Termination Fee shall become
payable pursuant to Section 7.3, then Company may elect to reduce the amount of
principal and interest then outstanding under the Note by the amount of such
Company Termination Fee, in which case (1) such Company Termination Fee shall be
deemed to have been paid in cash by Company to Parent to the extent of such
reduction, (2) such Company Termination Fee shall only be payable by Company to
Parent in cash if and to the extent that the amount of such Company Termination
Fee exceeded the outstanding principal amount of, and accrued interest on, the
Note immediately prior to such election, and (3) the Note shall only be deemed
to remain outstanding if and to the extent that the outstanding principal amount
of, and accrued interest on, the Note immediately prior to such election
exceeded the amount of such Company Termination Fee.

                                      -83-

 
     7.5  Amendment.  Subject to applicable law, this Agreement may be amended
          ---------                                                           
by the parties hereto at any time by execution of an instrument in writing
signed on behalf of each of Parent and Company.

     7.6  Extension; Waiver.  At any time prior to the Effective Time any party
          -----------------                                                    
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein.  Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.  Delay in exercising any right under
this Agreement shall not constitute a waiver of such right.

                                      -84-

 
                                 ARTICLE VIII

                              GENERAL PROVISIONS



     8.1  Non-Survival of Representations and Warranties. The representations 
          -----------------------------------------------
and warranties of Company, Parent and Merger Sub contained in this Agreement
shall terminate at the Effective Time, and only the covenants that by their
terms survive the Effective Time shall survive the Effective Time. The
obligations of Parent and Company pursuant to Sections 5.4(a), 7.3 and 7.4, and
this Article VIII, shall survive the termination of this Agreement.

     8.2  Notices.  All notices and other communications hereunder shall be in
          -------
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):

If to Parent or Merger Sub, to:            If to Company, to:                 
                                                                              
Onsale, Inc.                               Egghead.com,Inc.                   
1350 Willow Road                           521 SE Chkalov Drive               
Menlo Park, CA, 94025                      Vancouver, WA, 98683               
Attention: Chief Executive Officer         Attention:  Chief Executive Officer
Telecopy No.: (650)473-6990                Telecopy No.: (360)816-7309        

with a copy to:                            with a copy to:                    
                                                                              
Fenwick & West LLP                         Perkins Coie LLP                   
Two Palo Alto Square                       1201 Third Avenue, 40th Floor    
Palo Alto, California 94306                Seattle, WA 91010-3099             
Attention: Gordon K. Davidson              Attention: David F. McShea     
           David K. Michaels                          Ed Belsheim
Facsimile Number: (650)494-1417            Facsimile Number: (206)583-8500    

     8.3  Interpretation; Certain Defined Terms.  When a reference is made in
          -------------------------------------                              
this Agreement to Exhibits, such reference shall be to an Exhibit to this
Agreement unless otherwise indicated.  When a reference is made in this
Agreement to Sections, such reference shall be to a Section of this Agreement
unless otherwise indicated.  The words "include," "includes" and "including"
when used herein shall be deemed in each case to be followed by the words
"without limitation."  The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.  When reference is made herein to
"the business of" an entity, such reference shall be deemed to include the
business of all direct and indirect subsidiaries of such entity.  Reference to
the subsidiaries of an entity shall be deemed to include all direct and indirect
subsidiaries of such entity.  For the purposes of this Agreement, the following
definitions apply:

          (a) "Code" means the Internal Revenue Code of 1986, as amended;

          (b) "Delaware Law" means the General Corporation Law of the State of
  Delaware;

                                      -85-

 
          (c) "Encumbrances" means any lien, pledge, hypothecation, charge,
  mortgage, security interest, encumbrance, claim, infringement, interference,
  option, right of first refusal, preemptive right, community property interest
  or restriction of any nature (including any restriction on the voting of any
  security, any restriction on the transfer of any security or other asset, any
  restriction on the receipt of any income derived from any asset, any
  restriction on the use of any asset and any restriction on the possession,
  exercise or transfer of any other attribute of ownership of any asset);

          (d) "Exchange Act" means the Securities Exchange Act of 1934, as
  amended;

          (e) "GAAP" means United States generally accepted accounting
  principles;

          (f) "Governmental Entity" means any court, administrative agency or
  commission or other governmental authority or instrumentality, foreign or
  domestic;

          (g) "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act
  of 1976, as amended;

          (h) "knowledge" means with respect to a party hereto, with respect to
  any matter in question, that any of the officers of such party has actual
  knowledge of such matter, after reasonable inquiry of such matter;

          (i) "Legal Requirements" means any federal, state, local, municipal,
  foreign or other law, statute, constitution, principle of common law,
  resolution, ordinance, code, edict, decree, rule, regulation, ruling or
  requirement issued, enacted, adopted, promulgated, implemented or otherwise
  put into effect by or under the authority of any Governmental Entity (as
  defined above);

          (j) "Material Adverse Effect" when used in connection with an entity
  means any change, event, violation, inaccuracy, circumstance or effect that is
  or is reasonably likely to be materially adverse to the business, assets
  (including intangible assets), capitalization, financial condition or results
  of operations of such entity taken as a whole with its subsidiaries, except to
  the extent that Company (in the case of a Company Material Adverse Effect) or
  Parent (in the case of a Parent Material Adverse Effect) shall establish, by
  clear and convincing evidence, that such change, event, violation, inaccuracy,
  circumstance or effect directly and primarily results from (i) the conditions
  or changes affecting the industry generally in which such entity operates
  (provided that such changes do not affect such entity in a disproportionate
  manner) or (ii) changes in trading prices for such entity's capital stock;
  "Company Material Adverse Effect" means a Material Adverse Effect with respect
  to Company and its subsidiaries, and "Parent Material Adverse Effect" means
  Material Adverse Effect with respect to Parent and its Subsidiaries.

          (k) "person" shall mean any individual, corporation (including any
  non-profit corporation), general partnership, limited partnership, limited
  liability partnership, joint venture, estate, trust, company (including any
  limited liability company or joint stock company), firm or other enterprise,
  association, organization, entity or Governmental Entity;

                                      -86-

 
          (l) "SEC" means the United States Securities and Exchange Commission;

          (m) "Securities Act" means the Securities Act of 1933, as amended;

          (n) "subsidiary" of a specified entity will be any corporation,
   partnership, limited liability company, joint venture or other legal entity
   of which the specified entity (either alone or through or together with any
   other subsidiary) owns, directly or indirectly, 50% or more of the stock or
   other equity or partnership interests the holders of which are generally
   entitled to vote for the election of the Board of Directors or other
   governing body of such corporation or other legal entity; and

          (o) "Washington Law" means the Washington Business Corporation Act.

     8.4  Counterparts.  This Agreement may be executed in one or more
          ------------                                                
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.

     8.5  Entire Agreement; Third Party Beneficiaries.  This Agreement and the
          -------------------------------------------                         
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Disclosure Letter
and the Parent Disclosure Letter (a) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, it being understood that the
Confidentiality Agreement shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement; and (b) are not
intended to confer upon any other person any rights or remedies hereunder,
except as specifically provided in Section 5.12.

     8.6  Severability.  In the event that any provision of this Agreement or
          ------------                                                       
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto.  The parties further agree to
replace such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.

     8.7  Other Remedies; Specific Performance.  Except as otherwise provided
          ------------------------------------                               
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy.  The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached.  It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and 

                                      -87-

 
provisions hereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.

     8.8  Governing Law.  This Agreement shall be governed by and construed in
          -------------                                                       
accordance with the laws of the State of Washington, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.

     8.9  Rules of Construction.  The parties hereto agree that they have been
          ---------------------                                               
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.

     8.10 Assignment.  No party may assign either this Agreement or any of its
          ----------                                                          
rights, interests, or obligations hereunder without the prior written approval
of the other parties.  Subject to the preceding sentence, this Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.  Any purported assignment in
violation of this Section shall be void.

     8.11 Disclosure Letter.  Notwithstanding anything in the Company Disclosure
          -----------------                                                     
Letter or the Parent Disclosure Letter to the contrary, nothing in the Company
Disclosure Letter or the Parent Disclosure Letter shall be deemed adequate to
disclose an exception to a representation or warranty made herein unless the
disclosure identifies the exception with particularity and describes the
relevant facts in reasonable detail; provided, that a particular matter need
only be disclosed once in such manner so long as it is cross-referenced wherever
else applicable in the Company Disclosure Letter or the Parent Disclosure
Letter, as the case may be, in a manner sufficiently clear to identify to which
representation or warranty an exception is being made or unless it is apparent
from the express disclosure made on the Company Disclosure Letter  or Parent
Disclosure Letter, as applicable, that an exception is being made to such
representation or warranty.

                                      -88-

 
     8.12 WAIVER OF JURY TRIAL.  EACH OF PARENT, COMPANY AND MERGER SUB HEREBY
          --------------------                                                
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, COMPANY OR MERGER SUB IN
THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.

     In Witness Whereof, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.

                                    Onsale, Inc.


                                    Signature: /s/ S. Jerrold Kaplan

                                    Printed Name: S. Jerrold Kaplan

                                    Title: Chief Executive Officer and President


                                    EO Corporation

                                    Signature: /s/ S. Jerrold Kaplan

                                    Printed Name: S. Jerrold Kaplan

                                    Title: Chief Executive Officer and President


                                    Egghead.com, Inc.

                                    Signature: /s/ George P. Orban

                                    Printed Name: George P. Orban

                                    Title: Chief Executive Officer

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